This Budget takes into consideration the aim of building a $5 trillion economy while incorporating learnings from the Economic Survey 2018-19, on infrastructure spending, affordable housing, credit growth and the MSME sector.
Neeru Ahuja and Rahul Vig
The maiden Budget of the re-elected government foresees the Indian economy reaching US$ 3 trillion by the end of the current year. While the first term of the government introduced three major regulatory changes - GST, IBC and RERA - the first Budget of the new term introduces necessary reforms to streamline the tax and regulatory framework to achieve the overall objective of a $5 trillion economy. The vision for the second term is driven by the expansion of physical and financial infrastructure, Digital India, Make in India, start-ups, giving clear signs that India has a clear plan to challenge the manufacturing strength of China.
In order to boost the economic growth in India, in line with the Make in India policy, and attract technology to the country, the government will launch a scheme to invite global companies through transparent bidding to set up mega manufacturing plants in sunrise and advanced technology areas such as semiconductor fabrication. The scheme will also include units in the fields of solar photovoltaic cells, lithium storage batteries, solar electric charging infrastructure, computers servers, laptops etc. In order to incentivise them, they are offered investment-linked income tax deduction and certain indirect tax benefits.
Start-ups have constantly been given a preferential treatment by the government, and this year’s Budget is no different. A television programme exclusively for start-ups is proposed, which will serve as a platform for matchmaking with venture capitalists, funding and tax planning.
An attempt has been made to resolve the ‘angel tax’ issue as investors who file requisite declarations will not be subjected to any kind of scrutiny in respect of valuations of share premium. This is also accompanied with an extension in the period of exemption of capital gains arising from the sale of a residential house for the investment in startups up to 31 March 2021.
Digital transactions have led to increased transparency and tax collections so far. In order to move further, a 2 percent TDS has been proposed on cash withdrawals exceeding Rs 1 crore in a financial year from a bank account. Business establishments with an annual turnover of more than Rs 50 crore would be required to offer low cost digital modes of payments to its customers.
The RBI and banks will absorb the cost of these transactions from the savings accruing on account of digitisation of the economy. The above measures would lead to a multi-fold increase in volume of digital transactions, and thus furthering the move towards a cashless economy.
The development of financial infrastructure has been at the forefront, in line with which a 100 percent profit-linked deduction has been proposed for the International Financial Services Centre (IFSC) under section 80-LA of Income Tax Act, 1961, for any ten-year block within a period of fifteen years.
Capital gains tax exemption is proposed to be extended to non-residents on the transfer of bonds, GDRs or RDBs of an Indian company through stock exchange or by a Category III Alternative Investment Fund (AIFs) with non-resident unitholders, located in an IFSC in case the consideration for such transaction is in foreign currency. This is a step taken to encourage offshore investments.
The Budget has also attempted to make India a global hub to manufacture electric vehicles, by reducing GST from 12 percent to 5 percent, and accompanied with an additional income tax deduction of Rs 1.5 lakh on the interest paid on loans to purchase electric vehicles.
The Budget encourages the adoption of electric vehicles by way of offering an upfront incentive on purchases, establishing the necessary charging infrastructure for electric vehicles and is in line with the FAME – II scheme.
Increasing minimum public shareholding threshold from 25 percent to 35 percent is a move to increase public participation and governance of listed companies. In the case of many mid-cap and small stocks, it was better to have more promoter involvement in the market, since India’s capital market is still in a developing phase. This might lead many MNCs listed on Indian exchanges to consider the option of delisting, if increased public shareholding is implemented. However, clarity would be required on timeline and mode of increase of shareholding, including on grandfathering provisions.
The Honorable FM, in order to boost FDI, allowed 100 percent FDI in insurance intermediaries and will additionally examine the opening up of FDI in aviation, the media sector and the animation, video, graphics and comics (AVGC) industry. This move would ease the process to find buyers for stressed aviation companies like Jet Airways, Air India etc. It has been proposed to implement the essential elements of the regulatory roadmap for making India a hub for aircraft financing and leasing activities from Indian shores and growth in India of Maintenance, Repair and Overhaul (MRO) industry. Local sourcing norms would be eased in Single Brand Retail sector, which would encourage foreign players to explore the Indian retail sector.
With a view to providing NRIs with seamless access to the Indian equity market, the Finance Minister has proposed to merge NRI and FPI (foreign portfolio investor) routes for investing in India. Further, with a view to widen the scope of investible stocks available to FPIs in the Indian market, it was also proposed to increase the statutory limit for FPI investment in a company from 24 percent to sectoral foreign investment limit, with the option given to concerned corporates to limit to a lower threshold. FPIs will be permitted to subscribe to listed debt securities issued by ReITs and InvITs. FPIs and FIIs would now also be able to invest in debt securities issued by NBFC.
On the corporate tax rates front, the subsidised rate of 25 percent has been extended to include companies with turnover up to Rs 400 crore for financial year 2017-18. While the surcharge component on the individual tax rates front has been amended to be 15 percent where income exceeds Rs 1 crore and up to Rs 2 crore, followed by 25 percent for income exceeding Rs 2 crore and up to Rs 5 crore and 37 percent where income exceeds Rs 5 crore. The expansion of base for corporate taxation is a welcome move, which now covers about 99.3 percent of the companies while the amendment in surcharge rates is a body blow to HNIs.
This Budget takes into consideration the aim of building a $5 trillion economy while incorporating learnings from the Economic Survey 2018-19, on infrastructure spending, affordable housing, credit growth and the MSME sector. It paves way for the re-elected government towards its objective of making India a favorable destination for foreign investors, focusing on financial infrastructure, start-ups and the Make in India incentive, while trying to meet the macro-economic parameters of growth, employment, credit availability and the taxation regime.
The focus on digital economy would help to catch tax evaders through increased transparency in money circulation. Budget 2019 moves to strengthen and further stabilise the Indian economy and hence stands good on industry expectations.
(The author are Partners with Deloitte India.)Disclaimer: The views and investment tips expressed by investment expert on moneycontrol.com are his own and not that of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.