Hemal Mehta, Dipesh Jain and Dilip Sutar
The expectation from the Union Budget was to focus on strengthening the financial services sector, which is the backbone of India’s economic growth. Finance Minister Nirmala Sitharaman announced multiple policies to fuel liquidity in the industry and prioritise infrastructure, education, disinvestment, Naari Shakti and youth energy, among others.
To achieve growth in the economy, it is imperative to support the financial services sector and in this connection, the following measures have been proposed:
1. Relaxation of FDI norms for the aviation, media (animation, visual, gaming and comics) and insurance sectors.
2. 100 percent FDI in insurance intermediaries.
3. Allowing investments in NBFC debt instruments by foreign investors (FPI/FIIs).
4. Government to provide additional capital of Rs 70,000 crore to public sector banks.
5. “Social stock exchange” proposed to be set-up for listing social enterprises and voluntary organisations.
From a tax perspective, there are certain amendments proposed to be introduced that would be welcomed by the industry, such as passthrough of losses (other than business losses) to the unitholders of Categories I and II Alternative Investment Fund (AIF), extending exemption to investment by Category II AIF from the deeming taxation related to issue of shares at a value higher than fair market value.
The Finance Minister has also been forthcoming in introducing various incentives to International Financial Service Centre (IFSC) in terms of bringing in tax-neutral transfers held by Category III AIFs, exempting interest income, extending the deduction to 10 years, etc. The Budget also provides beneficial tax treatments to start-ups.
With a view to providing a level playing field to certain categories of NBFCs vis-a-vis banking companies, it is proposed that certain NBFCs can offer the interest income on NPAs on receipt basis. Deduction of such interest will be on payment basis. Conversion of unpaid interest into a loan is not allowed as deductible expenditure.
To achieve less-cash economy, banks and post offices are obligated to withhold tax on withdrawal beyond Rs 1 crore.
The author Mehta is Partner with Deloitte India; Jain a Director and Sutar a Senior Manager with Deloitte Haskins & Sells LLP.