NEW DELHI: Finance minister Nirmala Sitharamana on Tuesday while presenting the Union Budget for 2024-25 proposed to reduce the corporate tax rate on foreign companies from 40% to 35% to attract foreign capital for India’s development needs.
In addition to this, she announced withdrawal of the 2% equalisation levy or digital tax. She said the proposal has been made in the Finance Bill and the levy shall no longer be applicable on or after August 1, 2024. In a bid to provide level playing field for local digital businesses, equalisation levy was introduced in 2016, to tax non-resident digital companies providing services to Indian firms.
“The proposed phasing out of the equalization levy is in line with the global practices pursuant to the pillar 1 solution developed at the OECD G20 inclusive framework. The foreign investors will cheer the reduction in corporate tax rate from 40% to 35%,” said Gokul Chaudhri, President – Tax, Deloitte South Asia.
Meanwhile, Gouri Puri, Partner, Shardul Amarchand Mangaldas & Co, said the foreign companies are currently taxed at 40% on ordinary income. The tax rate was disproportionately high in comparison to the taxation of Indian companies. Abhishek Rastogi, founder of Rastogi Chambers, said, “This would give additional competitive edge to India, apart from the human talent of the country.”
“This is a welcome move – it should level the playing field between a foreign companies looking to set up a branch office in India versus an Indian company to carry out Indian business operations,” Puri added.
Sitharaman in her budget speech proposed a simpler tax regime for foreign shipping companies operating domestic cruises, with an aim to boost cruise tourism. She stated that ownership, leasing and flagging reforms will be implemented to improve the share of the Indian shipping industry and create more employment. “…it is proposed
to insert a new Section 44BBC, which deems 20% of aggregate amount received/receivable by, or paid/payable to the non-resident cruise-ship operator on account of carriage of passengers, as profits and gains of such cruise-ship operator from this business.”