Nasscom calls for lighter taxation environment to support tech industry

In the Interim Budget, Finance Minister Nirmala Sitharaman increased infrastructure capital expenditure by 11.1 percent. With a strong emphasis on developing highways, railways, and urban infrastructure, companies operating in these sectors are poised for substantial opportunities, according to Axis Securities.

Axis Securities has identified stocks such as KNR Constructions, PNC Infratech, RITES, KEC International, J Kumar Infraprojects, and Ahluwalia Contracts as potential focus areas due to the ongoing government support for infrastructure development.

The upcoming budget is expected to prioritise key infrastructure sectors such as roads, railways, airports, and urban development. Increased spending is anticipated for highways, roads, bridges, and urban infrastructure projects like Bharatmala and Sagarmala. The Ministry of Road Transport & Highways could see a 10-15 percent year-on-year rise in allocation, emphasising the expansion of the road network.

Additionally, dedicated funds are likely to be allocated for major initiatives such as the Jal Jeevan Mission, High-Speed Rail, Smart Cities, and Inland Waterways Development, aligning with the goals of the National Infrastructure Pipeline (NIP).

Construction and infrastructure-related stocks remain heavily traded as investors anticipate significant capex announcements in the upcoming Budget.

Experts expect the government to maintain its capex estimate of Rs 11.1 lakh crore as outlined in the Interim Budget. Axis Securities stated, "An unwavering focus on roads, power, urban development, and railways will create key long-term economic multipliers."

Finance Minister Nirmala Sitharaman's interim budget for 2024, presented in February, did not address international credit card transactions under the Tax Collected at Source (TCS) framework. However, the upcoming Union Budget is expected to include these transactions, aligning them with other payment methods under the LRS. Notably, education and health expenditures abroad will continue to receive favorable TCS treatment, taxed at a fixed rate of 5 percent for amounts exceeding Rs 7 lakh.

Data from the Reserve Bank of India (RBI) revealed that outward remittances under the Liberalised Remittance Scheme (LRS) reached $31.73 billion in 2023-24, a 16.91 percent increase from $27.14 billion the previous year.

To curb large foreign exchange outflows, the upcoming Union Budget may include overseas credit card spending exceeding Rs 7 lakh under the Liberalised Remittance Scheme (LRS). This move would subject such expenditures to a 20 percent tax collected at source (TCS), according to a senior government official.

Under the Reserve Bank of India’s (RBI) LRS scheme, an Indian resident can transfer up to USD 250,000 abroad in a financial year.

• Ahead of the Union budget, real estate developers and experts are pushing for significant reforms. They are advocating for the real estate sector to be granted industry status, alongside the implementation of a simplified single-window clearance system. Additionally, there's a call for revising the GST input tax credit rules.
• Developers are also urging an increase in tax rebate on housing loan interest to a minimum of Rs 5 lakh. Moreover, bodies like NAREDCO are emphasising the need to launch the SWAMIH fund's second tranche with a corpus of Rs 50,000 crore in the upcoming FY 2024-2025 budget.

The railway industry urges the central government to maintain capital expenditure in the upcoming Budget, focusing on creating energy, mineral, and cement corridors. Industry experts emphasize enhancing connectivity and driving economic growth through Indian Railways. Industry bodies like PHD Chamber of Commerce advocate for increased investment in technologies such as IoT, automation, blockchain, cloud computing, AI, and robotics to boost logistics development in India.

• Emoneeds emphasizes the need for comprehensive policies to address India's mental health crisis.
• They highlight that out of an estimated 150 million needing mental health services, only fewer than 30 million seek help.
• The interim budget lacked specific measures for mental health, and they are hopeful the upcoming full budget will prioritize this critical issue.
• There is an urgent need to strengthen India's mental health workforce, with just one psychiatrist per two lakh people.

"India's insurance sector has made remarkable strides, adapting to changing economic landscapes and evolving consumer needs. Embracing cutting-edge technologies like Artificial Intelligence (AI)/ Machine Learning (ML), the industry has redefined insurance; making it more accessible and tailored to diverse Indian requirements. However, in order to make “Insurance accessible for All by 2047”, the government and private players need to work in collaboration and make insurance available to every Indian citizen", said Balachander Sekhar, Co-founder of RenewBuy.

"Distribution in insurance is one of the key challenges in the country, and the new-age InsurTech companies have been increasingly contributing towards solving the distribution gaps. While most of these companies are taking insurance to the Tier 2,3 cities and beyond, by harnessing technology and eliminating branch reliance; substantial input costs are incurred in developing the tech-stack, improving cyber-security and upskilling insurance advisors and employees. To support these efforts, the government should consider tax rebates, and lowering GST rates for the InsurTech distributors," he added.

Nasscom, representing India’s $200 billion technology industry, advocates in the Union Budget for raising safe harbour eligibility thresholds in international transactions from the current Rs 200 crore to a minimum of Rs 2,000 crore.

“A company right now can only apply for a safe harbour margin if its international transactions are up to Rs 200 crore in a year, which means a lot of entities are left out. It is not just global capability centres (GCCs) but even in the usual IT/BPM space, companies with holdings in subsidiaries where transactions between the offshore centre, which could be a subsidiary abroad, can easily surpass the Rs 200 crore limit. This means hardly any of our industry gets to participate in the safe harbour,” said Ashish Agarwal, vice-president and head of public policy at Nasscom, referring to the information technology and business process management industry.

Anticipation is mounting as the Centre prepares to unveil the Union Budget on July 23.

A primary focus of the government in recent years has been to minimize tax disputes. Initiatives to achieve this goal include the introduction of the Vivad se Vishwas Scheme (VsV 1.0), amendments to tax laws to nullify retrospective amendments on indirect transfers, and issuing circulars to increase monetary thresholds for tax department appeals before various judicial bodies such as tribunals, High Courts, and the Supreme Court. Additionally, efforts have been made to waive small outstanding tax demands as part of this ongoing strategy. More here.

Here are the important pointers regarding the proposed amendments to the Insurance Act, 1938:

Objective: The amendments aim to achieve 'Insurance for All by 2047'.

Composite License: Life insurers may be allowed to underwrite health insurance or general insurance policies.

Differential Capital: Provisions for differentiated capital requirements to facilitate entry of specialized insurance companies.

Reduction in Solvency Norms: Easing of solvency norms to encourage more insurance companies, especially those focused on micro-insurance, agriculture insurance, or with a regional approach.

As the Centre prepares to unveil the Union Budget on July 23, a key focus remains on reducing tax litigation. Despite initiatives like the Vivad se Vishwas Scheme and amendments to tax laws, significant challenges persist. These include large sums tied up in disputes, a mounting backlog of cases, and limited success rates in resolving disputes, highlighting the pressing need for reforms in this area.

In an effort to curb significant foreign exchange outflows, the upcoming Union Budget for FY25 may include measures to bring overseas credit card spending above Rs 7 lakh under the Liberalised Remittance Scheme (LRS). A senior government official indicated that such expenditures are likely to be subjected to a 20 percent tax collected at source (TCS). The LRS scheme, governed by the Reserve Bank of India (RBI), currently allows Indian residents to transfer up to USD 250,000 per financial year outside India. Read more here.

• The upcoming Union budget is likely to keep the fertiliser subsidy at approximately Rs 1.64 lakh crore as estimated in the interim financial statement of the government, which is a significant reduction of over 13 percent from the previous year’s expenditure of Rs 1.89 lakh crore, a government official said.
• “The fertiliser subsidy allocation is likely to remain more or less the same in the Union budget as urea imports will be significantly lower this year with a boost in nano urea, and the global input prices are expected to be stable,” the official told Moneycontrol on condition of anonymity.

• SIAM urged the government to provide sops for promoting EVs and to introduce additional incentives for vehicle scrapping in the upcoming Budget.
• Vehicle Scrappage Incentives: Suggests additional incentives for scrapping old vehicles to enhance the impact of the existing scrappage policy.
• FAME 3 Policy: Expectations for a new FAME 3-like policy to support EV growth.
• PLI Scheme: Confidence in the continuation of good schemes like the Production Linked Incentive (PLI).

• Healthcare sector urges government to increase public health expenditure above 2.5% of GDP in Budget.
• Industry seeks investment for infrastructure enhancement and addressing supply-demand challenges.
• NATHEALTH emphasizes need for 2 billion sq ft of advanced healthcare facilities.
• Recommendations include boosting healthcare spending, expanding facilities in smaller cities, and advancing digital services.
• Calls for increased acceptance of PM-JAY and CGHS schemes among private healthcare providers.
• Proposal for a middle-class healthcare scheme and allocation of 2.5-3.5% of GDP to healthcare.

Industry body SME Chamber of India has urged Finance Minister Nirmala Sitharaman to continue the 45-day MSME payment rule for corporates and other buyers.

"We are pursuing not to change the 45-day MSME payment rules imposed by the Department under the pressure of corporates or multinational companies to save the life span of the MSME sector. Section 43B(h) of the Income Tax Act reinforces the importance of timely payments by mandating that companies settle payments to MSME vendors within 45 days to qualify for deductions," SME Chamber said in a statement addressed to Sitharaman.

• Private telecom operators, including Reliance Jio, Bharti Airtel, and Vodafone Idea, have submitted recommendations for Union Budget 2024-25 to improve the financial health of the sector.
• They advocate reducing customs duty on telecom equipment for 4G and 5G networks to zero to reduce deployment costs.
• Telcos propose abolishing regulatory levies like the Universal Service Obligation Fund (USOF) and Adjusted Gross Revenue (AGR) to ease financial burdens.
• They suggest reducing the License Fee from 3% to 1% to further alleviate financial pressures on telecom operators.
• Additionally, telcos recommend suspending the USO contribution of 5% of AGR until the existing USO corpus of Rs 80,000 crore is depleted.

• Railway industry urges the central government to continue capital expenditure in the upcoming Budget on July 23.
• Focus on prioritizing the creation of energy, mineral, and cement corridors.
• Former rail officials and industry experts emphasize the need for the government to shift focus to safety.
• Vivek Lohia, MD of Jupiter Wagons, highlights the importance of timely creation of economic corridors for enhanced connectivity and economic growth through Indian Railways.

• The US-India Strategic Partnership Forum has urged Union Finance Minister Nirmala Sitharaman to ensure a stable and predictable tax environment as she prepares for her annual budget later this month.
• The US-India Tax Forum, a dedicated Tax Policy Forum of the US-India Strategic Partnership Forum (USISPF), said this in a set of recommendations to Sitharaman.
• In a press release by USISPF, the tax forum said that a stable and predictable tax environment is imperative to boost investment sentiment across sectors.

The upcoming Union Budget 2024-25 is expected to prioritize rooftop solarisation and incentivize hybrid power projects. Key areas likely to receive attention include green hydrogen, Battery Energy Storage Systems (BESS), and initiatives to ensure stable and predictable solar and wind tariffs. The budget could simplify norms to encourage investments in renewable energy projects and expand the scope of both the Approved List of Models and Manufacturers (ALMM) and the Production Linked Incentive (PLI) scheme. Additionally, incentives for biofuel are anticipated to enhance energy security.

As the final Budget of 2024 approaches, the market is abuzz with expectations and concerns. While many brokerages predict a continuation of current policies with a focus on capital expenditure, there is growing apprehension among market participants regarding a potential hike in capital gains tax.

The prospect of changes in capital gains tax has sparked divided opinions among investors and analysts alike. This issue remains a focal point for many market veterans who are closely monitoring developments leading up to the Budget presentation on July 23.

• A direct tax practitioners' body on Sunday urged the government to reduce personal income tax burden on citizens in the upcoming Union budget later this month.
• All India Federation of Tax Practitioners (AIFTP) president Narayan Jain stated that the exemption limit should be increased to Rs 5 lakh.
• He emphasized the need for simplifying the tax structure to ease compliance.
• "Income between Rs 5 lakh to Rs 10 lakh be taxed at 10 per cent, between Rs 10 lakh to Rs 20 lakh at 20 per cent, and income above Rs 20 lakh at 25 per cent," Jain said in his memorandum to the Finance Minister.

"I believe the forthcoming budget holds immense potential to catalyze growth and innovation in India's FMCG sector," said Ravi Kabra, Co-Founder of Skippi. "Our industry faces several challenges that require thoughtful policy interventions to overcome." Kabra emphasizes the need for strategic measures to address industry hurdles, fostering an environment conducive to sustainable growth and innovation in the FMCG sector.

As India approaches 2040, the need for a robust national employment policy becomes increasingly urgent. With the demographic dividend set to decline, transitioning towards an ageing society underscores the necessity for creating sustainable and secure employment opportunities. A comprehensive policy is essential to foster productive jobs that ensure decent wages, thereby facilitating structural economic growth and advancing India towards upper middle or even upper-income status. Read more here.

• Following a recent meeting between Andhra Pradesh Chief Minister N Chandrababu Naidu and Prime Minister Narendra Modi, the central government has reportedly agreed to a significant demand for establishing an oil refinery and petrochemical hub in the state. The project, anticipated to attract investments totaling Rs 60,000 crore, has been a focal point of discussions aimed at bolstering economic development in Andhra Pradesh.
• According to a report by The Economic Times, discussions between Naidu and top officials from Bharat Petroleum Corporation Limited (BPCL) explored the feasibility of setting up the refinery at three potential locations: Srikakulam, Machilipatnam, and Ramayapatnam. Each site represents a distinct geographical segment of the state, adding political sensitivity to the decision-making process.

• Private telecom operators, including Reliance Jio, Bharti Airtel, and Vodafone Idea, have submitted their recommendations to the Ministry of Finance ahead of the Union Budget 2024-25. They are urging the government to implement tax reforms and reduce customs duty on telecom equipment for 4G and 5G networks to zero.
• Additionally, they advocate for abolishing regulatory levies such as the Universal Service Obligation Fund (USOF) and adjusting the Licence Fee from 3 percent to 1 percent to ease financial pressures on the sector.
• The telcos have proposed suspending the USO contribution of 5 percent of Adjusted Gross Revenue (AGR) until the current USO corpus, amounting to approximately Rs 80,000 crore, is fully utilized.

• The upcoming Union Budget 2024-25 is expected to prioritize rooftop solarisation and incentivize hybrid power projects. Key areas likely to receive attention include green hydrogen, Battery Energy Storage Systems (BESS), and initiatives to ensure stable and predictable solar and wind tariffs.
• The budget could simplify norms to encourage investments in renewable energy projects and expand the scope of both the Approved List of Models and Manufacturers (ALMM) and the Production Linked Incentive (PLI) scheme. Additionally, incentives for biofuel are anticipated to enhance energy security.

• Higher allocations are anticipated for the railway and power sectors, which could lead to increased order conversions.
• Order conversions slowed temporarily due to the Lok Sabha polls, but expectations are high for a rebound in the second quarter of the fiscal year.
• Significant opportunities are expected in infrastructure segments such as roads, railways, airports, seaports, waterways, and logistics.
• Companies like Larsen & Toubro (L&T), Bharat Heavy Electricals Limited, ABB India, and Siemens India are poised to benefit from these opportunities.

• Educationists are hopeful that the first Budget of Modi 3.0 will see a significant increase in the allocation for the education sector with an emphasis on research. They have called for greater investment in research to foster innovation and keep pace with global advancements, stating that strengthening these capabilities is crucial for India’s growth in science, technology, and other critical areas.
• Enhanced funding in research and development is seen as essential for building a robust educational foundation that can drive the country towards a knowledge-based economy.

• Since the new tax regime is now the default option, extending benefits to the old tax regime, where many employees still prefer to avail HRA exemptions and 80C deductions, would be a welcome move. An increase in the standard deduction from the current Rs 50,000 would offer further relief, Deloitte further noted.
• The rental market in major cities such as Bengaluru, Hyderabad, Pune, and Gurugram has seen a remarkable resurgence post-pandemic, with over 30 percent year-on-year growth in 2023. This surge, driven by the reopening of offices and the shift to hybrid work models, underscores the need to review HRA deductions.

• The salaried class will be closely monitoring the upcoming full budget for FY25 in hopes of securing tax breaks amid rising living costs.
• According to Deloitte, salaried individuals are looking for a revamp of tax slabs, adjustments to housing rent allowance (HRA) rates, incentives for electric vehicle (EV) sales, and a bigger push for affordable housing in the Budget 2024.