It goes to be a frightening process for the federal government and the finance minister is predicted to take some essential steps to kickstart the economy and produce the demand again to the pre-COVID-19 ranges.
The pandemic has thrown many conventional fiscal administration measures to the wind and challenged the regulators to the hilt. Never has there been extra anticipation for the Union Budget as this yr. It goes to be a frightening process for the federal government and the finance minister is predicted to take some essential steps to kickstart the economy and produce the demand again to the pre- COVID-19 ranges.
We have seen a collection of measures to ease the burden on individuals and business since the beginning of the pandemic. Now there’s a higher perspective on how now we have fared, the place we’re heading and that should give the finance minister higher manoeuvring capabilities to consolidate all of the measures introduced until now and go in for some large bang
As India seems to recuperate from the devastating COVID-19 blow, the financial sector, the spine of the economy that holds all of it collectively, should get special consideration.
Here are among the key recommendations which Finance Minister Nirmala Sitharaman may contemplate for giving
a a lot-wanted increase to the financial sector:
Banking, NBFC sectors brace for delinquencies
Under the unprecedented COVID-19 disaster, the banking and Non-Banking Finance Company (NBFC) sectors are bracing for elevated delinquencies leading to money circulate issues and hit in profitability, doubtlessly main to vital improve within the provisions for unhealthy and uncertain debt and precise unhealthy money owed. Considering the outlook, one-time accelerated deduction on account of provision for uncertain money owed for banks and NBFCs can be a a lot-required reduction. NBFCs have additionally requested that curiosity revenue on uncertain property be made taxable solely within the yr of receipt and never ‘on time basis’ as per IND-AS accounting system.
Taxes deducted at supply (TDS) on curiosity earned by banks will not be relevant beneath part 194A. Tax on the revenue earned by such banking models is paid in the type of ‘advance-tax’, guaranteeing no income loss to the federal government. As the character of lending enterprise for banking models and NBFCs are virtually comparable, such TDS exemption should be made relevant to NBFCs as effectively, by notifying them beneath the lately launched provisions of part 194A(5) of the Act.
This will assist NBFCs to handle the liquidity disaster within the present instances. Banks and NBFCs have additionally been demanding leisure from the applicability of tax collected at supply (TCS) and the equalisation levy norms launched within the final Budget.
Another rapid change the NBFC sector has been asking is the exemption from the skinny capitalisation norms. The cap on the curiosity bills in such circumstances is harsh and never conducive for a greater funding setting local weather in India and is counter-productive to the superb initiatives of the federal government within the type of ‘Make in India’, ‘Start-up India’ and Financial Inclusion agenda. Since the skinny capitalisation norms had been launched, the sector has been asking for it to be on par with banks and contemplating the general financial state of affairs.
IFSC deserves special consideration and care and IFSC being the primary financial companies centre deserves special consideration and nurturing. While a unit in IFSC has rightly been given numerous tax relaxations, there’s apprehension among the many buyers that General Anti Avoidance Rule (GAAR) provisions is perhaps relevant and subsequently to handle such points, it’s recommended that the federal government should come out with some goal pointers for substance requirement which if glad by the unit in IFSC, GAAR shall not be invoked.
Banks integrated in IFSC are allowed to acquire Foreign Portfolio Investor (FPI) license for investing into the home inventory market. Further, being an FPI, the revenue earned by such banks shall be ruled by the provisions of Section 115AD (tax regime for FPI). However, so as to encourage banks to arrange in IFSC and to make it easier for them to function, all the revenue of the banking unit, together with revenue from FPI exercise should be thought of to be eligible for deduction beneath part 80LA.
Similarly, plane leasing has been notified as a financial service for IFSC. In order to compete with mature international markets and given an impetus to develop it, a light-weight contact tax and the regulatory regime should be put in place.
Rollback tax on LTCG
The Indian markets have been a favorite of the international portfolio buyers (FPIs) for a very long time given the chance for good returns. However, one lengthy-standing demand of the FPIs has been that tax on Long Term Capital Gain (LTCG) should be rolled again. In the present state of affairs, India wants much more funding, and this may be the welcome transfer to repose the belief in buyers. Alternatively, the levy of STT should be abolished.
The authorities should contemplate offering leisure to the FPIs that are subjected to discriminative withholding taxes at 20 p.c (plus relevant surcharge and cess) on the dividend revenue obtained from Indian firms. The FPIs could declare the decrease charge of tax prescribed beneath the tax treaty, topic to fulfilment of sure situations, on the time of submitting the tax return in India.
However, this leads to an elevated compliance burden for the FPIs and the authorities should contemplate offering leisure on this regard and permit firms to contemplate the helpful treaty provisions whereas withholding taxes for
It shall be attention-grabbing to see what number of of those adjustments come by means of on 1 February 2021, and whether or not the adjustments proposed within the upcoming Budget will actually put the financial sector again on observe beneath the unprecedented COVID-19 established order.
The author is Partner and Head, Financial Services Tax, KPMG in India.
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