Tax Rates Relief for Non-Corporates
RATES FOR COMPANIES AND FIRMS
The Finance Bill, 2025 (Bill) has not proposed any change in the tax rates for companies and firms under the Income-tax Act, 1961 (IT Act). The base tax rates are listed below for ready reference:
- Domestic companies: 15% / 22% / 25% / 30%, depending on factors such as nature of business, commencement of operations, turnover thresholds, optional concessional tax regime, etc.
- Foreign companies: 35%
- Partnerships and LLPs: 30%
Applicable surcharge on base rates and 4% cess on the aggregate of tax and surcharge, too, remain unchanged for these entities.
RATES FOR INDIVIDUALS AND OTHER NON-CORPORATE ENTITIES
Currently, all non-corporate taxpayers (such as individuals and Hindu Undivided Families (HUFs)) are taxed as per the progressive slab rates ranging between 0% and 30% (except special rates for specified incomes such as dividend, interest, capital gains and fees for technical services). In addition (i) surcharge (in the range of 0% to 37%) applies on the base tax; and (ii) 4% cess applies on the aggregate of tax and surcharge.
Notably, there are two tax regimes, being 'old regime' and 'new regime', having a specific manner of computing income and tax thereon. The 'new regime' is the default regime unless the taxpayer opts to be covered by the 'old regime'.
There is no change in the tax rates for 'old regime'. However, the Bill has proposed the following change in the slab rates under the 'new regime':
This amendment is proposed to be effective for Financial Year (FY) 2025-26 and onwards.
International Tax | Unlocking Opportunities
SIMPLIFIED TAX FOR NON-RESIDENTS IN THE ELECTRONICS SECTOR
The Bill proposes the introduction of a presumptive tax framework for non-residents offering services or technology to Indian companies involved in the establishment or operation of electronics manufacturing facilities in India under a scheme notified by the Ministry of Electronics and Information Technology. Under this regime, 25% of the receipts of the non-resident for such services or technology will be deemed as business income. With foreign companies subject to a tax rate of 35% on their business income, this measure effectively reduces their tax burden to less than 10% of their gross receipts.
This amendment aims to support the development of semiconductors and display manufacturing ecosystem in India by providing a simpler tax regime for non-residents carrying on business in India.
This amendment is proposed to be effective for FY 2025-26 and onwards.
TAX EXEMPTION FOR SOVEREIGN WEALTH FUNDS, PENSION FUNDS AND OTHER SPECIFIED PERSONS
The IT Act provides tax exemption to Sovereign Wealth Funds, Pension Funds and other specified persons on certain income including dividend, interest and long-term capital gain from investment in infrastructure sector (as prescribed). As of date, the exemption is available if the investment is made between 1 April 2020 and 31 March 2025. To encourage investment in infrastructure sector, the Bill proposes to extend the sunset date to 31 March 2030.
The tax exemption is also proposed to be extended to the long-term capital gains arising from transfer or maturity or redemption of unlisted bonds or debentures (held for more than 24 months) which is otherwise deemed as short-term capital gain.
These amendments are proposed to be effective from 1 April 2025.
CLARIFICATION ON LONG TERM CAPITAL GAINS FOR FOREIGN INSTITUTIONAL INVESTORS
The Finance (No. 2) Act, 2024 had standardized the long-term capital gains tax rate at 12.5% for all taxpayers. However, foreign institutional investors (FII) and specified funds continued to be subject to a long-term capital gains tax rate at 10% on transfer of unlisted securities.
The Bill proposes to bring parity in the long-term capital gains tax rate for Fils and specified funds with that of other investors at 12.5%.
This amendment is proposed to be effective from 1 April 2025.
CLARITY FOR ONSHORE MANAGERS MANAGING OFFSHORE FUNDS
The IT Act provides that the management of an eligible investment fund (Offshore Fund) by an eligible fund manager in India, shall not constitute a taxable presence (business connection) for such Offshore Fund in India subject to satisfaction of prescribed conditions.
One such condition is to ensure that direct or indirect participation by Indian residents in the Offshore Fund does not exceed 5% of the corpus of such Offshore Fund. However, this provision does not prescribe a particular date as of which this condition needs to be satisfied, which creates an ambiguity. The Bill proposes that the 5% threshold should be satisfied as of 1 April and 1 October of the relevant FY. It also provides a grace period of 4 months to meet this test if the threshold is breached on the aforesaid dates. This amendment is proposed to be effective for FY 2025-26 and onwards.
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