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Finance Budget Proposes Tax on Non Compute Fee, Digital Tax on Foreign Internet Companies

Digital Tax

The Income Tax laws in India are very complex. In the last couple of years, passive incomes from freelancing jobs have gained momentum. Non-Compute Payments do not fall within the scope of ‘Pay’ and ‘Profit in return’. And the respected Finance Minister of India Mr Arun Jaitley has tried to address this in this year’s fiscal budget. Also, there are plans to levy the tax on foreign internet companies.

According to the proposal given in the budget, if an employee receives payment from someone else (third party) in lieu of his employer, he will also be brought under the purview of tax. In other words, a tax can be levied on the amount received irrespective of the fact that there is no mutual employer-employee agreement between the two parties. In other words, any form of freelancing passive income would attract appropriate taxation. Also, in case of termination of job in an Indian subsidiary of a foreign company, the amount of money received as a severance payment in return for service rendered is liable for taxation. In case of acquisition also, the income received from the acquiring company will be taxable.

Law and Proposed Changes

According to the Memorandum of the Finance Bill, “There was a loss of revenue due to non-payment of several payments.” The government has therefore made a proposal to amend Section 56 of the Income Tax Act. Compensation or any other payment will be considered ‘income from other sources’ on the termination of employment. Such income will be taxed according to the slab. As per the budget proposal, a maximum of 36 percent tax can be levied on the income of more than 10 million. However, the budget also bars the matters of getting a pink slip (employment removal) or VRS from taxation.

Read Also: Post GST Budget: Main Features of Union Budget 2018

Digital Tax on Foreign Companies

A proposal to bring foreign digital entities under tax was put by the Finance Minister in his budget 2018. For example, companies like Facebook, Google have millions of users in India, but these companies operate from overseas.

However, such companies have offices in India, but their operational infrastructure is not here. For the first time, the finance budget proposed an amendment to the Income Tax Act 9 and is stepping up to recover the tax from such foreign digital companies. The amendment would not differentiate between large companies like Google, Facebook and other small Internet-based small foreign companies doing business in India.

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