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Budget 2020: Fund boost for renewable energy sector, but some questions remain unanswered

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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Summary

The finance minister announced that the power and renewable sector would together be allocated Rs 22,000 crore, but it is not clear how and where this humongous budget will be utilised.

The Union Budget 2020 had something for almost everyone including the renewable industry. Tax reforms, budget allocations across categories and the promise of a simplified GST scheme made it appear holistic on the surface, but the budget proved to be a mixed bag without any radical solutions to the dwindling economy.

The expansion of ‘PM KUSUM Yojna’ would not only add to the solar power generation in the country but it would also aid the farmers in attaining a better livelihood. The grid-connected solar farms should help in reducing the dependency on thermal and other non-renewable sources of energy, and the installed capacity in solar should grow significantly with the installation of solar panels in the land adjacent to railway tracks as proposed. The lower tax rates to utilities and power producers will encourage inclination towards renewable energy.

Further, the finance minister announced that the power and renewable sector would together be allocated Rs 22,000 crore, but the question arises that how and where will this humongous budget be utilised. Furthermore, the Rs 4400 crore fund set aside for climate change management is in line with the government’s commitment to the Paris agreement. Air pollution and climate change have become a greater health concern in the past few years and this move by the government should help address these growing challenges in the future. A notable announcement in the direction was also shutting down old thermal power plants, which may add impetus to adding solar power, as a clean source of energy.

One key point the finance minister did address in her speech was the financial stress that discoms have been facing. The government made several favourable announcements such as the replacement of existing meters with smart meters in the next three years across the country. This should motivate discoms to provide better services at competitive prices and lead to the relaxation in the sudden changes to policies in key aspects like Net Metering.

The finance minister also tinkered with the customs duty tariff structure on solar cells and modules by increasing it to 20 percent. However, this may not impact the solar system costs immediately as the effective Custom Duty is still nil (0 percent) due to the prevailing exemption. If and when this existing exemption is completely removed, which is unlikely, then the effective rate on imports of solar cells and modules which is currently 20.75 percent (15 percent SGD + 5 percent IGST) will be revised to 26 percent (20 percent BCD + 5 percent IGST). This would lead to an increase of approximately 5 percent in solar system costs thereby increasing the solar tariffs. Also, there is ambiguity over the continuance of the existing 15 percent Safeguard Duty on solar panels till July 29, 2020. Post this date, the SGD notification anyways would lapse. It remains to be seen how the situation with customs duties turns out in the end, as more clarity and details emerge.

Focus on MSME sector

Moreover, the budget’s focus was the MSME sector. As per the announcement, a new logistics policy will be laid down soon in order to increase competitiveness among MSMEs. This scheme will play a crucial role in boosting the ease of doing business. The government has tried to lure new energy companies through corporate tax reduction, but it is unclear how this will benefit existing businesses.

Overall, the budget was a lukewarm affair that left more to be desired. The government allotted Rs 2,516 crore for the solar sector. The good news is that the solar sector again seems to be a focus area for the government but there was no policy announcement aimed at inducing investments in the sector. Moreover, there was nothing to make it easier for the end consumers like industries and commercial buildings to solarise thereby keeping this biggest solar deployment opportunity untapped. A lot more is left to be done if the government desires to reach the 100 GW target of solar power generation by 2022.

Gagan Vermani is the Founder and CEO of MYSUN.

Elon Musk forms several ‘X Holdings’ companies to fund potential Twitter buyout

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Thursday’s filing dispelled some doubts, though Musk still has work to do. He and his advisers will spend the coming days vetting potential investors for the equity portion of his offer, according to people familiar with the matter

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KV Prasad Journo follow politics, process in Parliament and US Congress. Former Congressional APSA-Fulbright Fellow

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index Price Change
nifty 50 ₹16,986.00 -72.15
sensex ₹1,882.60 +28.30
nifty IT ₹2,206.80 +30.85
nifty bank ₹1,318.95 -14.95
index Price Change
nifty 50 ₹16,986.00 -7.15
sensex ₹1,882.60 +8.30
nifty IT ₹2,206.80 +3.85
nifty bank ₹1,318.95 -1.95
index Price Change
nifty 50 ₹16,986.00 -72.15
sensex ₹1,882.60 +28.30
nifty IT ₹2,206.80 +30.85
nifty bank ₹1,318.95 -14.95
index Price Change
nifty 50 ₹16,986.00 -7.15
sensex ₹1,882.60 +8.30
nifty IT ₹2,206.80 +3.85
nifty bank ₹1,318.95 -1.95
index Price Change
nifty 50 ₹16,986.00 -7.15
sensex ₹1,882.60 +8.30
nifty IT ₹2,206.80 +3.85
nifty bank ₹1,318.95 -1.95

Currency

Company Price Chng %Chng
Dollar-Rupee 73.3500 0.0000 0.00
Euro-Rupee 89.0980 0.0100 0.01
Pound-Rupee 103.6360 -0.0750 -0.07
Rupee-100 Yen 0.6734 -0.0003 -0.05
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Budget 2020: Focus on public healthcare to spur pharma sector growth, says Troikaa CMD Ketan R Patel

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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Summary

The government’s focus on nutrition and health will provide an indirect boost for pharmaceutical companies. 

Marathon Union Budget 2020, tried to enshrine the vision of Prime Minister Narendra Modi to have a ‘Healthy India’ which is quite encouraging, but up to what extent the government will succeed remains to be seen.

A total of Rs 1,16,900 crore has been allocated to boost public healthcare, which includes the provision of Rs 69000 crore for expanding PM’s Jan Arogya Yojana (PMJAY), which is only a 10 percent increase compared to the last year’s healthcare budget of Rs 62,659.12 crore. Further allocation of Rs 12,300 crore for Swachh Bharat Mission to reduce open defecation free (ODF), which is also in a way healthcare spend.

While the budgetary allocation of Rs 35,600 crore for the nutrition-related programme – PM Poshan Abhiyan, seems to be one of the most ambitious healthcare programmes, as the government seems to have recognised the fact that the people are really facing healthcare challenges due to malnutrition.

In November 2019, the Government of India released a Comprehensive National Nutrition (CNN) survey, which was Asia’s biggest survey with a sample size of 1 lakh, where for the first time 0-19 year’s age group for the non-communicable disease are taken into consideration to check malnutrition. It was found that Indian children have a major deficiency of Vitamin D, Vitamin A and Vitamin B12, along with a few other micronutrients.

So to some extent, even the government’s focus on nutrition health, with such a huge spend allocated for nutrition health is commendable and obviously it will provide some kind of indirect positive boost for pharmaceuticals companies as well.

Formulation sector needs attention

However, it’s disappointing and heart-wrenching to see how the government missed out to take note of the importance of the pharmaceutical industry as a major stakeholder to push for ‘healthy India’.

This budget has focused more on providing the impetus for medical device manufacturers, as the country imports almost 70-75 percent of its medical devices. This is a good move by the government, which will further boost localisation medical device manufacturing, which will not only bring down the device prices but it will also save foreign exchanges for the national exchequer.

It would have been a great move if the government could have also focused on supporting the Indian pharmaceutical formulation sector, which is already a major foreign exchange earner for the country.

However, everything is not lost, the pharma sector did get a small consolation gift as the budget provided Rs 1,000 crore scheme to be anchored by EXIM Bank along with SIDBI for mid-size companies to boost technology up-gradation, R&D, business strategy and other export supports.

Interestingly, the support is not kept exclusive for pharmaceuticals, as others like auto component makers and other selected sectors can also avail the scheme.

Even though in a way, we can say that debt funding for exports in sectors like pharma, auto etc. is a move in the right direction, but the amount of Rs 900 crore allocated between all Industries is grossly inadequate.

In view of the tight cash flows, it would have been rather much better if the government could have pushed for low-interest funding for the exporters, which in turn could have enhanced competitiveness and give a fillip to exports.

Pharma industry is passing through a major tectonic shift, wherein in future, most of the pharmaceutical players have to focus on R&D and launch commercially viable patented drugs in the market to survive and grow globally.

Not only in terms of new drugs but also in terms of buying technologically advanced equipment and machinery, the industry needs fund and it would have much better if the fund allocation has been larger and exclusive for the pharma sector.

Start-up culture

The government has also missed out to encourage start-up culture in the pharmaceutical sector, where young brains could have brought in more innovation. In highly developed countries, including in developing economies like China, start-ups in the pharmaceutical sector is highly encouraged as the risk-taking ability is key to new innovation and drug discovery.

Even though this budget tried its level best by focusing on health and medical services including medication and expanding the hospital network to uplift the public healthcare, it may bring some businesses for the pharma sector, especially from demand coming from tier-II and tier-III districts as this government plan to add more than 20,000 empanelled hospital under PMJAY for the poor. But again, a direct boost for the industry is missing in this Union Budget.

From the corporate tax perspective for the pharma sector, the tax rates for all companies were already reduced in September 2019 therefore, there was no further room for any more tax sops, except concessional tax rate of 15 percent which was extended to new power generation companies.

Exemption from tax audit having turnover up to Rs 5 crore in case of a business which carries out less than 5 percent of their business in cash is an encouraging move, as the pharma sector has many MSME players.

I believe that this will give a much-required impetus to the small pharma companies who are in the initial stage of their growth and thus they can focus more on their businesses, rather than worrying about complying tax audit.

Last but not least, the traversing journey from routine quality to zero-defect quality as proposed in the Union Budget, may impact the cost of production significantly for the industry. In the pharma sector, the rigid drug price control will come in the way of achieving this goal.

Ketan R Patel is the CMD of Troikaa Pharmaceuticals Ltd.

Elon Musk forms several ‘X Holdings’ companies to fund potential Twitter buyout

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Thursday’s filing dispelled some doubts, though Musk still has work to do. He and his advisers will spend the coming days vetting potential investors for the equity portion of his offer, according to people familiar with the matter

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KV Prasad Journo follow politics, process in Parliament and US Congress. Former Congressional APSA-Fulbright Fellow

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index Price Change
nifty 50 ₹16,986.00 -72.15
sensex ₹1,882.60 +28.30
nifty IT ₹2,206.80 +30.85
nifty bank ₹1,318.95 -14.95
index Price Change
nifty 50 ₹16,986.00 -7.15
sensex ₹1,882.60 +8.30
nifty IT ₹2,206.80 +3.85
nifty bank ₹1,318.95 -1.95
index Price Change
nifty 50 ₹16,986.00 -72.15
sensex ₹1,882.60 +28.30
nifty IT ₹2,206.80 +30.85
nifty bank ₹1,318.95 -14.95
index Price Change
nifty 50 ₹16,986.00 -7.15
sensex ₹1,882.60 +8.30
nifty IT ₹2,206.80 +3.85
nifty bank ₹1,318.95 -1.95
index Price Change
nifty 50 ₹16,986.00 -7.15
sensex ₹1,882.60 +8.30
nifty IT ₹2,206.80 +3.85
nifty bank ₹1,318.95 -1.95

Currency

Company Price Chng %Chng
Dollar-Rupee 73.3500 0.0000 0.00
Euro-Rupee 89.0980 0.0100 0.01
Pound-Rupee 103.6360 -0.0750 -0.07
Rupee-100 Yen 0.6734 -0.0003 -0.05
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Budget 2020: Health insurance is a necessity; don’t see it as a tax-saving instrument

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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Summary

The aspiring Indian should keep in mind that money not spent on some very important financial elements like insurance just in the urge of saving more tax could become a regret at some point in the future.

Finance Minister Nirmala Sitharaman on February 1, 2020, presented the annual budget for the fiscal year 2020-21, which begins from April. The NDA-led government unveiled its second annual budget after winning the Lok Sabha elections for the second consecutive term. The finance minister in her budget speech made some major announcements which were directed towards the taxpayers of the country. With budget 2020, the government has tried to put more money in the hands of taxpayers by curtailing the incentives to save.

This year, the finance minister has provided taxpayers with two options – the old regime and the new regime. Under the old or existing income tax regime, the taxpayers are allowed to avail existing income tax exemptions and deductions while the new tax regime comes with slashed income tax rates and seven new income tax slabs but without any tax exemptions and deductions. Now which tax regime – the old or new – is beneficial for whom is very subjective to a taxpayer’s income composition and investments made, though it is quite clear that the new tax scheme will significantly benefit taxpayers falling in certain brackets if not all.

Talking about the impact of budget 2020 on the Indian health insurance industry, it is true that tax exemptions are an important incentive for the purchase of health insurance. As per the Finance Act (India), premiums paid towards medical insurance offers tax benefits under Section 80D of the Income Tax Act. With the new income tax regime in place, people may not be motivated to buy health insurance as strongly they are today. What people need to understand is that health insurance apart from saving you from the massive cost of medical expenses in case of adversity, helps you to enjoy tax rebate at the same time.

Focus on healthcare

Even the finance minister while presenting the financial budget this year emphasised on improving healthcare needs of the masses. In total, Rs 69,000 crore has been allocated towards the healthcare sector with an aim to increase access to quality healthcare services particularly in Tier II and III Indian cities. With investment in healthcare going up, the clear focus of the budget seems to focus on making healthcare more accessible with increased infrastructure. It is also believed that the measures proposed in the budget will support to regulate the gap and play an important role in making healthcare a priority for one and all and create further awareness around health insurance. An adequate health insurance policy not only protects you from any financial loss due to an unexpected medical emergency but even gives you access to quality healthcare services.

India also has recorded the highest out-of-pocket expenditure on healthcare, as compared to other developing nations and most of the measures proposed in this year’s budget will support to regulate this wide gap with the help of health insurance. Fortunately, various health insurers have already developed insurance products that cover out-of-pocket expenses like OPD and day-care procedures. This will provide a significant boost to the health insurance penetration rate in India.

The core objective of insurance is protection, and that is what must be the focus area, i.e. term life, health, and disability products. The insights show that consumers must not buy these products for tax benefit alone. This budget will validate these insights, as it is believed that it’s time the middle class buys insurance for its real benefit, which is protection.

With so many changes being made, it will be interesting to see at what does the aspirational Indian now looks at. Anyone going for the new tax structure will surely end up spending more on not so important products rather than spending on discretionary items. While making a choice, the aspiring Indian will need to keep in mind that money not spent on some very important financial elements like insurance just in the urge of saving more tax could become a regret at some point in the future as situations like death, disease and disability can hit anyone, anytime and it is always better to stay prepared.

Amit Chhabra is Head- Health Insurance at Policybazaar.com.

Elon Musk forms several ‘X Holdings’ companies to fund potential Twitter buyout

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Thursday’s filing dispelled some doubts, though Musk still has work to do. He and his advisers will spend the coming days vetting potential investors for the equity portion of his offer, according to people familiar with the matter

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index Price Change
nifty 50 ₹16,986.00 -72.15
sensex ₹1,882.60 +28.30
nifty IT ₹2,206.80 +30.85
nifty bank ₹1,318.95 -14.95
index Price Change
nifty 50 ₹16,986.00 -7.15
sensex ₹1,882.60 +8.30
nifty IT ₹2,206.80 +3.85
nifty bank ₹1,318.95 -1.95
index Price Change
nifty 50 ₹16,986.00 -72.15
sensex ₹1,882.60 +28.30
nifty IT ₹2,206.80 +30.85
nifty bank ₹1,318.95 -14.95
index Price Change
nifty 50 ₹16,986.00 -7.15
sensex ₹1,882.60 +8.30
nifty IT ₹2,206.80 +3.85
nifty bank ₹1,318.95 -1.95
index Price Change
nifty 50 ₹16,986.00 -7.15
sensex ₹1,882.60 +8.30
nifty IT ₹2,206.80 +3.85
nifty bank ₹1,318.95 -1.95

Currency

Company Price Chng %Chng
Dollar-Rupee 73.3500 0.0000 0.00
Euro-Rupee 89.0980 0.0100 0.01
Pound-Rupee 103.6360 -0.0750 -0.07
Rupee-100 Yen 0.6734 -0.0003 -0.05
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Budget 2020: Steps to check unfair competition from imported goods to strengthen Make in India drive

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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Summary

A key measure in the finance bill relates to strengthening the legal authority of customs officials in questioning the origin of the goods imported under an FTA. 

With economic growth “buffeted by the winds of trade wars, protectionism and volatility in crude prices,” in the words of the finance minister, it was anticipated that the government, through budget 2020, would act on trade. And act it did. In addition to the ebb and flow of trade conflicts, India, in the current year, has also had to deal with the fallout of WTO decisions, slowing economic growth and the challenge of creating jobs. This is where Make in India, a cherished goal of the government, became a dominant theme in customs and trade-related proposals in the budget. The mechanism by which the budget seeks to achieve the goal comprises tightening the administration of free-trade agreements (FTAs), strengthening the safeguard mechanism and providing tariff protection.

 Administration of Free Trade Agreements

A key measure in the finance bill relates to strengthening the legal authority of customs officials in questioning the origin of the goods imported under an FTA. An FTA grants the benefit of concessional duty if the origin of the goods traded across borders lies in the party countries to an FTA. A certificate of origin once issued by an authorised agency in the exporting country has legal sanctity. The customs officials in the importing country have limited authority on this count. The Customs Act, 1962, does not contain any specific text on the origin of goods and the relevant rules do not explicitly make the importer responsible for a correct declaration of origin once a certificate is provided by an exporter. The proposed amendments to the customs act seek to correct this imbalance and grant more powers to customs officials to verify origin, suspend or deny preferential treatment to goods for an incorrect declaration of origin. The responsibility of the importer for the truthfulness of the origin declaration has also been enhanced. The intent behind these provisions is to curtail unfair competition against products made in India from imported goods availing of the undeserved benefit of FTAs.

Strengthening the safeguard mechanism 

Safeguards are a WTO-provided mechanism for containing a surge in imports if the same causes or threatens serious injury to the domestic industry. The Indian customs regime provides for safeguard action by way of imposition of a safeguard duty through Section 8B of the Customs Tariff Act, 1975. Safeguard action can be taken only after an investigation and a quasi-judicial process is completed on the subject. Hitherto, the only safeguard instrument under Indian law was a safeguard duty. Now, the government intends to expand its armoury by providing for tariff rate quotas and other measures. Tariff rate quotas are specified quantities for imports above which a higher rate of duty is charged on imported goods. The attention given to this aspect of the law indicates that the government is likely to take more safeguard action on imports in the event of an increase in imports threatening to cause injury to domestic manufacturing. This, in effect, could provide a shield and a protected market for certain sectors undertaking Make-in-India initiatives.

 Increase in customs duties

Changes in the proposed duty rates, too, have the stamp of Make in India. Effective duties have been increased on certain consumer durables, furniture, medical devices and electronic goods. In some cases, duties on parts used for manufacture have been increased with the intent of promoting in-depth manufacturing rather than assembly. This is evident in the duty rate increases on printed circuit board assembly (PCBA) for mobile phones, finger-print scanners and the like. A similar trend can be seen in the duty rates on electric vehicles, wherein duty on completely built units (CBUs) of commercial electric vehicles has gone up from 25 per cent to 40 per cent and there are increases in duty on SKD and CKD forms of electric vehicles. The message is very clear that while the government is onboard with the idea of e-mobility, it favours riding on e-vehicles made in India.

With the overall fillip provided to domestic manufacturing, the coming year will reveal the effectiveness of the budget in India’s march towards becoming a $5 trillion economy.

Manasvi Srivastava is Partner – Indirect Tax at KPMG in India.

Elon Musk forms several ‘X Holdings’ companies to fund potential Twitter buyout

3 Mins Read

Thursday’s filing dispelled some doubts, though Musk still has work to do. He and his advisers will spend the coming days vetting potential investors for the equity portion of his offer, according to people familiar with the matter

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KV Prasad Journo follow politics, process in Parliament and US Congress. Former Congressional APSA-Fulbright Fellow

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index Price Change
nifty 50 ₹16,986.00 -72.15
sensex ₹1,882.60 +28.30
nifty IT ₹2,206.80 +30.85
nifty bank ₹1,318.95 -14.95
index Price Change
nifty 50 ₹16,986.00 -7.15
sensex ₹1,882.60 +8.30
nifty IT ₹2,206.80 +3.85
nifty bank ₹1,318.95 -1.95
index Price Change
nifty 50 ₹16,986.00 -72.15
sensex ₹1,882.60 +28.30
nifty IT ₹2,206.80 +30.85
nifty bank ₹1,318.95 -14.95
index Price Change
nifty 50 ₹16,986.00 -7.15
sensex ₹1,882.60 +8.30
nifty IT ₹2,206.80 +3.85
nifty bank ₹1,318.95 -1.95
index Price Change
nifty 50 ₹16,986.00 -7.15
sensex ₹1,882.60 +8.30
nifty IT ₹2,206.80 +3.85
nifty bank ₹1,318.95 -1.95

Currency

Company Price Chng %Chng
Dollar-Rupee 73.3500 0.0000 0.00
Euro-Rupee 89.0980 0.0100 0.01
Pound-Rupee 103.6360 -0.0750 -0.07
Rupee-100 Yen 0.6734 -0.0003 -0.05
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How to make the budget speech shorter and more impactful

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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Summary

The introduction of many important legislations of wider national importance like J&K Reorganisation Bill, Constitutional Amendment Bill to abrogate Article 370, and Citizenship Amendment Act, etc. did not take more than 10 minutes.

The longest-ever Budget speech made by the finance minister last Saturday has inspired many jokes and memes. The images of her colleagues struggling to stay awake and concentrate have been widely circulated on social media.

Since the budget presentation sets the pace for the economic activities that would be undertaken in the relevant fiscal year, it is critical that this communication is made impactful. The budget speech must inspire confidence in the policy direction and relevance and fiscal robustness. The speech made by the finance minister instead has created doubts about the policy direction and relevance. It has also exposed multiple fiscal crevices in the fiscal conditions. The mismatch between the commitment and resource allocation makes the budget speech misleading to a large extent.

The speech violated the three primary principles of communication – brevity, precision, and relevance.

Even after making a marathon presentation the entire battery of finance ministry officials and the finance minister herself have been busy explaining and clarifying the provisions of the budget. On some important issues, like omission of dividend distribution tax, taxability of NRIs, detailed clarifications were required to be issued.

No one is discussing, debating or even bothering about the key policy points emphasised through the budget speech. Most of the discussions are around 3-4 tax related matters that constituted less than 10 percent of the budget presentation made by the finance minister. It is therefore absolutely clear that the Budget speech mostly ignored the basic principles of communication and was not impactful at all.

The objective of budget presentation

The Union Budget in India usually has five objectives:

(i)    Presenting the annual accounts of the Union Government for consideration and approval of the Parliament.

(ii)   Presenting the budget of the Union government for the following year. This includes the budget for various revenue and capital expenditure of the union government, allocation of resources to states and union territories, and sources of revenue to meet the budgeted expenditure and allocations.

The key monitorable in this exercise usually is the difference between revenue and expenditure. The excess of budgeted expenditure over budgeted revenue is termed as fiscal deficit.

This deficit is met by the Union government through borrowings from various sources. Changes in provisions of various tax laws are also monitored closely as it impacts the tax liability and compliance requirement for the taxpayers.

(iii)  Presenting the policy roadmap for the future. This usually is a political statement.

(iv)  Presenting an action taken report for the previous budget proposals.

(v)   Presenting a medium-term fiscal road map in terms of the Fiscal Responsibility and Budget Management Act 2003 (FRBM Act).

The audience

Various stakeholders in the economy look forward to the budget with a great sense of anticipation. However, their interest is usually limited to the second objective listed above. In that sense, the scope and relevance of the Budget presentation have diminished materially over the past two decades, primarily because:

  • Initially, the changes in tax rates were made only through the Finance Bill which is part of the budget exercise. However, many springs ago the government assumed the power to change the rates of excise, etc. through notification outside the budget. Subsequently, the GST subsumed most of the indirect taxes and the power to alter GST rates has been exclusively vested in the GST Council. The Union Budget has no role to play in GST rates now.
  • The boundaries for rates of customs duty are now mostly set in accordance with the WTO agreements. The Union government can change these rates to safeguard the domestic industry from unfair pricing by overseas suppliers or to stabilise the domestic prices in times of abnormal supply shocks. These changes could be done whenever a need arises. The union budget has little role to play in this.
  • Post implementation of the 14th Finance Commission recommendations, the onus to implement a large number of central welfare schemes has been transferred to the respective state government.
  • The petroleum products’ pricing has been mostly deregulated and the budget provides no subsidies for the transportation fuel now.
  • Most of the public sector enterprises, like NHAI, Railway subsidiaries, oil and marketing companies now raise resources directly rather than through the budgetary support.

This year particularly, the importance of budget was even lesser, because:

  • The corporate tax rates were restructured materially in August 2019 and therefore no further change in corporate tax was required or anticipated.
  • The government had already announced a National Infrastructure Pipeline (NIP) of Rs 1.02 trillion in December 2019. This obviously took almost all major projects related to various ministries out of the Union budget.

Since the indirect tax component, which used to come into effect immediately post budget presentation, is insignificant in the budget, there is no need to maintain secrecy. It would, in fact, be better to make it a practice to present the budget on first Saturday of February and keep the market closed on that day. This will allow full two days to the market participants to digest the provisions of the finance bill and other policy statements and make informed decisions rather than making knee-jerk reaction alongside the budget presentation.

The Finance Bill in 10-15 bullets points

The best course for the finance minister would be to present the focus theme and important provisions of the Finance Bill in 10-15 bullets points and emphasise briefly but forcefully on the commitment of the government towards economic growth that is sustainable and inclusive. A detailed presentation could be provided to the media and through websites to all the stakeholders for further discussion and elaboration. These presentations could also be digitally mailed to all the taxpayers and other people who register with the ministry for receiving it directly.

To give context to these suggestions, I may highlight that the introduction of many important legislations of wider national importance like J&K Reorganisation Bill, Constitutional Amendment Bill to abrogate Article 370, and Citizenship Amendment Act, etc. did not take more than 10 minutes.

Vijay Kumar Gaba explores the treasure you know as India, and shares his experiences and observations about social, economic and cultural events and conditions. He contributes his pennies to the society as Director, Equal India Foundation. The views are personal. 

 Read his columns here.

Elon Musk forms several ‘X Holdings’ companies to fund potential Twitter buyout

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Thursday’s filing dispelled some doubts, though Musk still has work to do. He and his advisers will spend the coming days vetting potential investors for the equity portion of his offer, according to people familiar with the matter

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KV Prasad Journo follow politics, process in Parliament and US Congress. Former Congressional APSA-Fulbright Fellow

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today's market

index Price Change
nifty 50 ₹16,986.00 -72.15
sensex ₹1,882.60 +28.30
nifty IT ₹2,206.80 +30.85
nifty bank ₹1,318.95 -14.95
index Price Change
nifty 50 ₹16,986.00 -7.15
sensex ₹1,882.60 +8.30
nifty IT ₹2,206.80 +3.85
nifty bank ₹1,318.95 -1.95
index Price Change
nifty 50 ₹16,986.00 -72.15
sensex ₹1,882.60 +28.30
nifty IT ₹2,206.80 +30.85
nifty bank ₹1,318.95 -14.95
index Price Change
nifty 50 ₹16,986.00 -7.15
sensex ₹1,882.60 +8.30
nifty IT ₹2,206.80 +3.85
nifty bank ₹1,318.95 -1.95
index Price Change
nifty 50 ₹16,986.00 -7.15
sensex ₹1,882.60 +8.30
nifty IT ₹2,206.80 +3.85
nifty bank ₹1,318.95 -1.95

Currency

Company Price Chng %Chng
Dollar-Rupee 73.3500 0.0000 0.00
Euro-Rupee 89.0980 0.0100 0.01
Pound-Rupee 103.6360 -0.0750 -0.07
Rupee-100 Yen 0.6734 -0.0003 -0.05
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Budget 2020 initiatives decoded: A mixed bag of hits and misses

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

 Listen to the Article (6 Minutes)

Summary

Budget 2020 was primarily aimed at providing relief to the middle class and MSMEs. From the proposal of the new personal tax regime to the continuation of LTCG tax on equities and equity mutual funds, this year’s Budget had its fair share of both hits and misses.

Budget 2020 was primarily aimed at providing relief to the middle class and MSMEs. From the proposal of the new personal tax regime to the continuation of LTCG tax on equities and equity mutual funds, this year’s Budget had its fair share of both hits and misses. Let’s look at some of the major hits and misses for this year’s Budget.

 Hits

 Section 80EEA benefits extended to financial year 2020-21

As expected, Budget 2020 provided the much-needed boost to the housing sector by extending the benefit of additional deduction under section 80EEA to FY21. The extension will help in achieving the government’s aim of ‘Housing for All by 2022’.

Under section 80EEA, first-time homebuyers purchasing housing property with a stamp duty value of up to Rs 45 lakh through home loan would be eligible to claim this additional deduction of Rs 1.5 lakh for home loan interest repayment. This deduction is over and above the Rs 2 lakh deduction available under Section 24b.

Deposit insurance coverage increased from Rs 1 lakh to Rs 5 lakh

Another major proposal in Budget 2020 was the decision to hike deposit insurance from Rs 1 lakh to Rs 5 lakh per depositor. This decision will help in restoring consumer confidence in the banking sector, especially in the light of recent events in some co-operative banks. Under the Deposit Insurance and Credit Guarantee Corporation (DICGC), deposits in scheduled banks including fixed deposit, recurring deposit, savings account and current account would be insured up to Rs 5 lakh.

 Improved ease of doing business for MSMEs

Budget 2020 announced several initiatives to incentivise MSMEs, with the decision to allow NBFCs to offer invoice financing to MSMEs being the crucial one. This decision will enhance the credit supply to MSMEs. Another decision aimed at improving cash flow management of the MSMEs has been the app-based invoice financing loan products. The Budget also announced an increase in the turnover threshold for audit, from the existing Rs 1 crore to Rs 5 crore. This announcement is expected to improve the ease of doing business for the MSMEs. Additionally, the decision to restrict the increased limit to businesses carrying out less than 5% of their transactions in cash will incentivise MSMEs to adopt digital payments.

Misses

 Continuation of LTCG tax on equities and equity mutual funds

A major disappointment in Budget 2020 was a continuation of LTCG tax on equities and equity mutual funds. Scrapping this tax would have improved the overall market sentiment while bringing tax parity between equity mutual funds and ULIPs.

Given that the equity market plays a vital role in capital formation as well as the overall development of the economy, the removal of LTCG tax would have increased retail investor participation in equity markets and also encourage them towards long-term investment in equity-oriented mutual funds.

Strong disincentive for long-term savings

The government proposed a new personal tax regime in Budget 2020, which may negatively impact the long-term financial health of individuals. This requires taxpayers to forgo various deductions and exemptions available on tax-saving mutual funds, ULIPs, life insurance, medical insurance and retirement solutions. These deductions and exemptions act as a strong incentive for taxpayers, especially those lacking financial discipline, to buy financial products crucial for their long-term financial security. With the option of availing lower tax rates in exchange for forgoing these tax exemptions and deductions, taxpayers lacking financial discipline will have no reason for buying these financial products. This will negatively impact the demand for life insurance, tax-saving mutual funds, medical insurance and retirement products.

No incentive towards increasing insurance penetration

The primary objective of buying a life insurance policy should always be to provide replacement income to the dependents in case of the untimely demise of the insured. Since most people confuse insurance with investment and end up buying life policies that provide inadequate life cover, the introduction of a separate section for term insurance outside Section 80C would have incentivised people to buy a term policy and thereby, get themselves adequate life cover.

Naveen Kukreja is CEO and Co-founder of Paisabazaar.com.

Elon Musk forms several ‘X Holdings’ companies to fund potential Twitter buyout

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Thursday’s filing dispelled some doubts, though Musk still has work to do. He and his advisers will spend the coming days vetting potential investors for the equity portion of his offer, according to people familiar with the matter

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KV Prasad Journo follow politics, process in Parliament and US Congress. Former Congressional APSA-Fulbright Fellow

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today's market

index Price Change
nifty 50 ₹16,986.00 -72.15
sensex ₹1,882.60 +28.30
nifty IT ₹2,206.80 +30.85
nifty bank ₹1,318.95 -14.95
index Price Change
nifty 50 ₹16,986.00 -7.15
sensex ₹1,882.60 +8.30
nifty IT ₹2,206.80 +3.85
nifty bank ₹1,318.95 -1.95
index Price Change
nifty 50 ₹16,986.00 -72.15
sensex ₹1,882.60 +28.30
nifty IT ₹2,206.80 +30.85
nifty bank ₹1,318.95 -14.95
index Price Change
nifty 50 ₹16,986.00 -7.15
sensex ₹1,882.60 +8.30
nifty IT ₹2,206.80 +3.85
nifty bank ₹1,318.95 -1.95
index Price Change
nifty 50 ₹16,986.00 -7.15
sensex ₹1,882.60 +8.30
nifty IT ₹2,206.80 +3.85
nifty bank ₹1,318.95 -1.95

Currency

Company Price Chng %Chng
Dollar-Rupee 73.3500 0.0000 0.00
Euro-Rupee 89.0980 0.0100 0.01
Pound-Rupee 103.6360 -0.0750 -0.07
Rupee-100 Yen 0.6734 -0.0003 -0.05
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Budget 2020: No big-ticket push to help FS sector overcome headwinds

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

 Listen to the Article (6 Minutes)

Summary

Budget 2020 seems to have opted to be cautious and play a more defensive game for the FS sector, rather than have given bigger ticket push to deal with the issues to have the sector better deal with the strong headwinds.

A lot of expectations had been cast on the FM’s second budget on the basis of the bold moves taken mid-year to boost an economy in the midst of a credit crisis, creeping unemployment rates and lowering consumption. In dealing with this, one would have been happy to accept short-term fiscal slippages in the wake of reforms necessary to the economy back on track towards the $5 trillion target. However, after a marathon budget speech and several half measures for the financial services sector, one is hopeful that the unfinished agenda will be dealt with soon.

On the policy front, the three themes of ‘Aspirational India’, ‘Economic Development’ and ‘Caring Society’ were largely directed towards expected sectors of agriculture, rural development and welfare schemes; for financial services, the increased deposit insurance cover at Rs 5 lakh is a big confidence-building measure even though it means banks will have to dole out higher insurance premiums.

Coming to the tax proposals, while Budget 2020 provides relief to branches of foreign banks from falling within the scope of the interest capping provisions introduced a couple of years ago, it has failed to address the plight of other financial players like NBFCs that have been riddled with similar issues and would be restricted from accessing cheaper foreign capital to expand their business objectives.

In the insurance sector, which is taxed under special regime, the long-standing ask from general insurance companies to be allowed a deduction of certain expenses (like bonus) on a payment basis (akin to other businesses) was finally addressed. However, similar other issues that could have been dealt with under the same breath such as allowance of expenses pursuant to the delayed deposit of TDS, etc. still remain a concern. While the jury is still out on whether the reduced slab rates introduced for individual taxpayers not claiming any deduction would be adopted at large, given that this seems to be the stated intent of the FM going forward, the attractiveness of life insurance products falling within the ambit of section 80C of the Act would appear to loose somewhat of its sheen – a far cry from the industry demand for a separate limit for such products.

Many big misses 

The capital markets didn’t see their demand for the rollback of the long-term capital gains tax met but small investors and foreign investors would welcome the move to abolish the Dividend Distribution Tax and restoration of the classical system of taxing dividend in the hands of the investor at their applicable rates. Small investors would benefit from being taxed at their respective slab rates while eligible foreign investors could claim lower rates under the respective tax treaties as well as foreign tax credits on taxes withheld in India. The Budget proposal to extend the exemption from indirect transfer tax provisions only to Category I FPIs under the SEBI (FPI) 2019 Regulations would be a cause of concern for several FPIs who do not qualify/have not yet exercised their option to register as such.

In what appeared to be a real chance to free the onshore management scheme of its shackles, Budget 2020 seems to be satisfied with only selective tinkering of the provisions under section 9A; for instance, by making a good move to allow domestic fund managers to seed initial funding of an offshore fund but missing out on more significant relaxations to the conditions prescribed for resident Indian participation, etc.

Although the Budget has proposed other amendments on expected lines such as the extension of lower tax on interest to foreign portfolio investors from June 1, 2020, an additional 3 years as well as on monies borrowed from outside India, a very welcome move is the granting of a special exemption on all income earned by sovereign funds investing in specified infrastructure facilities before March 31, 2024 and held for 3 years.

However, a clear miss this time was the failure to address the issue of taxation of Category III AIFs who will now have to deal with another year of ambiguity on the tax regime applicable to them in the hope that the next Budget would address their concerns.

On an overall basis, Budget 2020 seems to have opted to be cautious and play a more defensive game for the FS sector, rather than have given bigger ticket push to deal with the issues to have the sector better deal with the strong headwinds.

Sameer Gupta and Brenden Saldanha are Tax Partners at EY India.

Elon Musk forms several ‘X Holdings’ companies to fund potential Twitter buyout

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Thursday’s filing dispelled some doubts, though Musk still has work to do. He and his advisers will spend the coming days vetting potential investors for the equity portion of his offer, according to people familiar with the matter

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KV Prasad Journo follow politics, process in Parliament and US Congress. Former Congressional APSA-Fulbright Fellow

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today's market

index Price Change
nifty 50 ₹16,986.00 -72.15
sensex ₹1,882.60 +28.30
nifty IT ₹2,206.80 +30.85
nifty bank ₹1,318.95 -14.95
index Price Change
nifty 50 ₹16,986.00 -7.15
sensex ₹1,882.60 +8.30
nifty IT ₹2,206.80 +3.85
nifty bank ₹1,318.95 -1.95
index Price Change
nifty 50 ₹16,986.00 -72.15
sensex ₹1,882.60 +28.30
nifty IT ₹2,206.80 +30.85
nifty bank ₹1,318.95 -14.95
index Price Change
nifty 50 ₹16,986.00 -7.15
sensex ₹1,882.60 +8.30
nifty IT ₹2,206.80 +3.85
nifty bank ₹1,318.95 -1.95
index Price Change
nifty 50 ₹16,986.00 -7.15
sensex ₹1,882.60 +8.30
nifty IT ₹2,206.80 +3.85
nifty bank ₹1,318.95 -1.95

Currency

Company Price Chng %Chng
Dollar-Rupee 73.3500 0.0000 0.00
Euro-Rupee 89.0980 0.0100 0.01
Pound-Rupee 103.6360 -0.0750 -0.07
Rupee-100 Yen 0.6734 -0.0003 -0.05
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Budget 2020: Long-term vision for automobile industry growth without temporary sops

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

 Listen to the Article (6 Minutes)

Summary

The focus on infrastructure and structural changes should benefit the auto industry from a long term perspective.

Grappling with dipping sales in the automobile industry, the auto sector was waiting with bated breath for some respite from the finance minister. The automotive sector has been the backbone of the Indian economy, and today, it is facing the biggest slowdown experienced in the past two decades. Due to lack of credit and sharp increase in costs due to the impending transition to BS VI, the demand for automobiles is at an all-time low.

One of the key expectations from the budget was to provide an indication on GST rate reduction and reduction of customs duty on certain parts for the electric vehicle (EV) industry. This would have helped reduce the cost of vehicles and thereby boost the demand to propel economic growth. However, the economic survey mentions that any such reduction would have significant impact on the overall tax collections. It also says that the GST Council has not recommended any change and the view was that the current slowdown is a temporary one attributable to reasons like lack of credit, base effect and structural impact of adoption of newer fuel standards. Against this background, the FM seems to have refrained from providing any direct sops for the automotive industry as a temporary stimulus.

The income-tax exemption provided for income of specified sovereign wealth funds for their investment in infrastructure and the removal of DDT are likely to spur investments in infrastructural projects and thereby eventually benefit automotive sector. Scheme to boost mobile, electronic manufacturing and semi-conductor packaging will help EV manufacturing and encourage newer technologies for connected cars. National Infrastructure Pipeline launched a few months ago likely to benefit commercial vehicle and construction equipment makers. It would also be interesting to study the proposed National Logistics Policy and its positive impact on the auto sector.

The government is committed to double farmers’ income by 2022 and has accordingly launched 16 schemes of varying nature for the development of the rural economy. Investment in infrastructural projects helps in job creation. Thus, as an outcome of these structural changes coupled with an optional cut in the personal tax rates, the government is expecting increased disposable income in the hands of individuals (given the revenue loss of Rs 40,000 crore mentioned by the FM due to the tax rate change). Auto sector would hope that this ultimately translates into increased demand for the industry. The impact of these policies needs to be seen in the near future.

No announcement on Scrappage Policy 

While on one hand, the government has stayed away from any direct sops due to limited fiscal room, on the other hand, to align with ‘Make in India’ policy of the government, overall customs duty on imported vehicles and auto parts has been increased. This would raise the price of vehicles which anyways is expected to significantly rise on implementation of BS VI technology. While this move intends to incentivise the domestic players in the sector, it is doubtful that a mere increase in customs duty would boost the domestic EV industry which currently lacks basic infrastructure. The government’s commitment to faster reaction with anti-dumping and safeguard measures if a surge in specific import categories is seen along with stricter provisions for availing FTA benefits should benefit the auto component sector including tyre makers.

A newly introduced provision requiring the sellers receiving consideration for the sale of goods of more than Rs 50 lakh in a year to a buyer to collect 0.1 percent TCS, is intended to widen the tax base. However, since the motor vehicles were already governed by a separate provision for TCS, it leads to interpretational issues regarding applicability to B2B transactions including export transactions.

Amongst the misses in the Budget, a formal incentive-based ‘Scrappage Policy’ is one key item. The industry was highly anticipating rollout plan for the Scrappage Policy to encourage the purchase of new vehicles by replacing old ones which are a major source of pollution. Further, the anticipated tax benefits for development of EV infrastructure such as for battery manufacturers, charging stations and in-house R&D also remain unattended.

Overall, the focus on infrastructure and structural changes should benefit the auto industry from a long term perspective. It is hoped that the immediate traction required for the sector is provided by increased demand from the end customers with higher disposable income and by increased investment in the domestic EV industry.

Pramod Achuthan is Tax Leader – Automotive practice at EY India. Swati Agarwal and Prasad Kulkarni, Senior Tax Professionals with EY, have also contributed to the article. The views expressed are personal.

Elon Musk forms several ‘X Holdings’ companies to fund potential Twitter buyout

3 Mins Read

Thursday’s filing dispelled some doubts, though Musk still has work to do. He and his advisers will spend the coming days vetting potential investors for the equity portion of his offer, according to people familiar with the matter

 Daily Newsletter

KV Prasad Journo follow politics, process in Parliament and US Congress. Former Congressional APSA-Fulbright Fellow

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Oil Fluctuates as Traders Assess China’s Vow, Unrest in Libya

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today's market

index Price Change
nifty 50 ₹16,986.00 -72.15
sensex ₹1,882.60 +28.30
nifty IT ₹2,206.80 +30.85
nifty bank ₹1,318.95 -14.95
index Price Change
nifty 50 ₹16,986.00 -7.15
sensex ₹1,882.60 +8.30
nifty IT ₹2,206.80 +3.85
nifty bank ₹1,318.95 -1.95
index Price Change
nifty 50 ₹16,986.00 -72.15
sensex ₹1,882.60 +28.30
nifty IT ₹2,206.80 +30.85
nifty bank ₹1,318.95 -14.95
index Price Change
nifty 50 ₹16,986.00 -7.15
sensex ₹1,882.60 +8.30
nifty IT ₹2,206.80 +3.85
nifty bank ₹1,318.95 -1.95
index Price Change
nifty 50 ₹16,986.00 -7.15
sensex ₹1,882.60 +8.30
nifty IT ₹2,206.80 +3.85
nifty bank ₹1,318.95 -1.95

Currency

Company Price Chng %Chng
Dollar-Rupee 73.3500 0.0000 0.00
Euro-Rupee 89.0980 0.0100 0.01
Pound-Rupee 103.6360 -0.0750 -0.07
Rupee-100 Yen 0.6734 -0.0003 -0.05
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Budget 2020: The unintended fallout of dividend tax abolition

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

 Listen to the Article (6 Minutes)

Summary

Private sector companies where a promoter group is holding shares in individual names may be tempted to reduce dividend payouts or go the buyback route.

Before a budget presentation and after a budget presentation there is a lot of print, online and television media space which is consumed by economic analysis, tax interpretation and advice and stock and industry recommendations. We are currently in the midst of such a season and I do not have much to say other than what is already out there.

A single point that I would like to delve upon is that of the taxation of dividends. The taxation of dividends as it stands today is at multiple levels. A company pays tax on its profits (corporate income tax), the company again pays a dividend distribution tax and finally the recipient of the dividend pays tax again if the aggregate amount of dividend in a financial year is in excess of Rs 10 lakh. This has been called a triple tax and there was a lot of angst against it.

As per the proposed provisions, dividend distribution tax has been abolished. The dividend henceforth will be taxed in the hands of the person receiving the dividend as per the normal tax rates. Hence, in a way we have moved from three layers of taxation to two layers of taxation. As per the budget speech of the finance minister, the loss on account this change will be to the tune of Rs 25,000 crore to the exchequer. So far so good.

However, the reaction of vocal voices in the market was perplexing on this front. As they say, the devil is in the detail. Overall I think that there is no doubt that the government will give up some revenue on account of this measure. Small investors getting not so high amounts of dividends will be better off and foreign investors and MNCs will benefit in a big way. But there is a set of people who will be worse off. Since dividend income will be taxed at the usual tax rates, promoters of companies holding shares in individual names and HNIs will end up paying tax at around 42.7 percent of the dividend amount which is higher than what was being paid before.

Two tax regimes

This may end up having certain unintended consequences going forward. While PSUs and MNCs will continue to pay dividends as before, certain private sector companies where a promoter group is holding shares in individual names may be tempted to reduce dividend payouts or go the buyback route. This may end up with minority shareholders having to live with bad capital allocation so that the promoter group is able to save on taxes.

With the tax cuts on corporates announced in September 2019, India is among countries with attractive corporate tax rates. However, coporates now have two tax regimes to choose from. The distortions due to tax on dividends take away some of the attraction of the low corporate tax rates. Individuals also will now have two tax regimes to choose from. This has added some complexity to the system which has not been taken too well by the market participants.

It may be a while before participants get used to the new tax environment and things return to business as usual. Going into the budget, market participants had all sorts of expectations from the finance minister. From removal of tax on long term capital gains to abolishing tax on dividends, scrapping policy on old vehicles, reduction of personal income tax, huge infrastructure spend and so on, the finance minister was expected to wave a magic wand to make our problems disappear. The disappointment in the stock markets on February 1 has to be seen in that context.

As Charlie Munger repeatedly says, the secret to happiness in life is to have low expectations. Market participants would do well to keep that in mind for future budgets.

Rajeev Thakkar is Chief Investment Officer and Director at PPFAS Mutual Fund.

Elon Musk forms several ‘X Holdings’ companies to fund potential Twitter buyout

3 Mins Read

Thursday’s filing dispelled some doubts, though Musk still has work to do. He and his advisers will spend the coming days vetting potential investors for the equity portion of his offer, according to people familiar with the matter

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KV Prasad Journo follow politics, process in Parliament and US Congress. Former Congressional APSA-Fulbright Fellow

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today's market

index Price Change
nifty 50 ₹16,986.00 -72.15
sensex ₹1,882.60 +28.30
nifty IT ₹2,206.80 +30.85
nifty bank ₹1,318.95 -14.95
index Price Change
nifty 50 ₹16,986.00 -7.15
sensex ₹1,882.60 +8.30
nifty IT ₹2,206.80 +3.85
nifty bank ₹1,318.95 -1.95
index Price Change
nifty 50 ₹16,986.00 -72.15
sensex ₹1,882.60 +28.30
nifty IT ₹2,206.80 +30.85
nifty bank ₹1,318.95 -14.95
index Price Change
nifty 50 ₹16,986.00 -7.15
sensex ₹1,882.60 +8.30
nifty IT ₹2,206.80 +3.85
nifty bank ₹1,318.95 -1.95
index Price Change
nifty 50 ₹16,986.00 -7.15
sensex ₹1,882.60 +8.30
nifty IT ₹2,206.80 +3.85
nifty bank ₹1,318.95 -1.95

Currency

Company Price Chng %Chng
Dollar-Rupee 73.3500 0.0000 0.00
Euro-Rupee 89.0980 0.0100 0.01
Pound-Rupee 103.6360 -0.0750 -0.07
Rupee-100 Yen 0.6734 -0.0003 -0.05
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Budget 2020: Incentives for startups, DDT abolition are big positives for tech sector

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

 Listen to the Article (6 Minutes)

Summary

To leverage on technology, we have seen the government focus on the likes of e-assessment, e-transfer of subsidies and encouraging e-payments. To take the involvement of technology further, the FM has introduced faceless appeals, faceless penalty proceedings and pre-filled return forms in this Budget. 

Union Budget 2020 was tabled by the finance minister on February 1, 2020.  The FM’s speech was focused on three areas — aspirational India, economic development and caring society. The FM also highlighted that technology is the backbone of the new economy.

To leverage on technology, we have seen the government focus on the likes of e-assessment, e-transfer of subsidies and encouraging e-payments. To take the involvement of technology further, the FM has introduced faceless appeals, faceless penalty proceedings and pre-filled return forms in this Budget.

One of the biggest expectations of the technology sector was the abolishment of Dividend Distribution Tax (DDT) and reverting back to the traditional way of taxing dividends. The Budget has now abolished DDT and dividend income is now taxable in the hands of the shareholder. This will help foreign investors claim credit of the tax paid on dividend in India and prevent tax leakages. The Budget also provides for relief from cascading effect on taxation of dividend received by a domestic company from another domestic company provided it is distributed further within a specified timeframe. The deduction of expenses against the dividend income is restricted to 20 percent of the dividend declared.  Further, such relief is also available for companies which avail the lower tax rate of 15 percent or 22 percent.

To incentivise start-ups, the FM has proposed to set up knowledge transition centres, early life funding and seed funds for early-stage start-ups. The income-tax benefits to start-ups have been enhanced. Now, start-ups with up to Rs 100 crore of revenue can now claim a tax holiday for a three out of the first 10-year period. The government has also provided relaxation in the timing of taxability of ESOP perquisite provided by start-ups. This should boost talent retention in start-ups.

To reduce the backlog of cases in appeals, the FM has also announced a ‘Vivad se Vishwas scheme’ which is yet to be notified. The FM announced that where the disputed tax is paid by March 31, 2020, full waiver would be provided for interest and penalty. For payments till June 30, 2020, partial waiver of interest and penalty is likely to be provided.

The FM has also extended the 5 percent taxability of interest on rupee denominated bonds till July 1, 2023. The FM has also reduced the tax withholding on technical services from 10 percent to 2 percent.

Initiatives for e-commerce

For the e-commerce sector, the FM has introduced tax withholding on sale of goods or provision of services facilitated by an e-commerce platform. The e-commerce operator, whether a resident or a non-resident, will have to withhold 1 percent of the amount paid to Indian residents selling goods or performing services via the platform.

The FM has also deferred the applicability of Significant Economic Provisions by another year in line with the BEPS related discussions. Further, clarifications have also been introduced around income accruing in India from advertisement, data collection and sale of goods and services using such data.

To reduce compliance, non-residents earning income from fees for technical service and royalty, on which appropriate tax has been withheld, are exempted from filing its income tax return in India.

On the indirect tax front, the FM has announced simplification of GST return and automation of refund process.

There were expectations of Budget providing relief to listed companies from buyback tax and incentivising spending on R&D but there were no such proposals in the Finance Bill. As regards the income tax incentives for SEZ units, the message from the government is clear – since the corporate tax rate for companies has been reduced to 22 percent and since DDT has been abolished, there is no further incentive that would now be forthcoming for the technology sector.

The industry now looks forward to the discussion on SEP in the G20 report which is expected by end of December 2020.

Ravi Mahajan is Tax Partner and Rohit Biyani is Director at EY India.

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index Price Change
nifty 50 ₹16,986.00 -72.15
sensex ₹1,882.60 +28.30
nifty IT ₹2,206.80 +30.85
nifty bank ₹1,318.95 -14.95
index Price Change
nifty 50 ₹16,986.00 -7.15
sensex ₹1,882.60 +8.30
nifty IT ₹2,206.80 +3.85
nifty bank ₹1,318.95 -1.95
index Price Change
nifty 50 ₹16,986.00 -7.15
sensex ₹1,882.60 +8.30
nifty IT ₹2,206.80 +3.85
nifty bank ₹1,318.95 -1.95

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