Budget - 2019

1. Budget - 2019 My Views By YVST Sai Commissioner of Income Tax (Judicial) & (DR) Hyderabad saiyvst@gmail.com

2. What does the Economic Survey indicate? • Ambitious agenda for behavioural change by applying the principles of behavioural economics to several issues including gender equality, a healthy and beautiful India, savings, tax compliance and credit quality • Impact created by Government's flagship initiatives such as Swacch Bharat Mission, Jan Dhan Yojana and the BetiBachaoBetiPadhaoprovide testimony to the potential for behavioural change in India • Given our rich cultural and spiritual heritage, social norms play a very important role in shaping the behaviour of each one of us • Countless opportunities in creating data as a public good "of the people, for the people and by the people“ • Vision of India becoming a $5 trillion economy by 2025 • “Blue sky thinking“ - idea of complementary inter-linkages between macroeconomic variables using the pictorial description of several inter-linked gears

3. What does the Economic Survey indicate? • Private Investment as the Key Driver of Growth, Jobs, Exports and Demand - capital investment fosters job creation as the production of capital goods, research & development and supply chains generate jobs • Job creation, demand, exports and economic growth are not separate problems • Focus on policies that nourish MSMEs to create more jobs and become more productive, reduce the cost of capital, and rationalize the risk-return trade-off for investments – MSMEs provide jobs – unshackle them – Dwarfs are less productive than infant small firms – Incentivize infant firms – Age based policy • Focus on high employment elastic sectors – focus on service sector with spillovers like Tourism • Data of the people, by the people, for the people • Ramp up capacity in lower judiciary • Swach Bharath to Sundar Bharat via Swasth Bharath • Affordable, reliable and sustainable energy • National level minimum wage system for inclusive growth • Labour laws need to be revisited • Derides Anglo – Saxon view of economy but heavily relies on Anglo – Saxon theories and also does not present any viable alternative

4. The past five years • India became the sixth largest economy by sustaining growth rates higher than China • Average inflation was less than half the inflation level of the preceding five years, matching the lowest levels attained in the country’s post post-independence history. • The current account deficit (CAD) remained within manageable levels • Foreign exchange reserves rose to all-time highs • Beneficiary focus and targeted delivery – Aadhar as universal identifier for delivery of benefits through Act in 2016 – JAM (Jan Dhan Yojana, Aadhar, Mobile) for DBT in schemes like MNREGA, NSAP, PMAY-G, PMUY – LPG, Ayushman Bharat Yojana (ABY) • Infrastructure – Electricity to all villages, NHAI roads, UDAAN • Fiscal Federalism - Increase in share of States in central pool, GST, IBC • Labour Force Participation Rate (LFPR) in India has declined to 36.9 per cent in 2017-18 from 39.5 per cent in 2011-12 (NSSO) as per usual status. In rural areas, it has declined by 3.6 percentage points while it has declined by 0.1 percentage points in urban areas – Data from Periodic Labour Force Survey, 2017

5. Behavioral Change • BetiBachao – BetiPadhao improved the child sex ratio • Swach Bharat Mission increased the percentage of ODF villages • IBC helped recovery of NPAs • Technology improved tax administration • Belief in Nudge?

6. Budget Speech • In the past five years: • Mudra loans helped common man to do business • Smokeless kitchens, Electricity to each house, Toilet in each house • Investment in Infrastructure – digital economy, MSME sector • Connectivity • Now: Kickstarting Investments – Govt to invest ` 100 lakh Cr in 5 years in infrastructure • Upfront incentives will be provided for purchase of electric cars. • Railways to use Public-Private Partnership to unleash faster development and completion of tracks, rolling stock manufacturing and delivery of passenger freight services – Waterways to be given importance • 'One Nation One Grid' to ensure power availability of electricity in India • Government will adopt suitable policy interventions to create a congenial atmosphere for the development of MRO in the country

7. Budget Speech • Pension will be provided to retail trader having turnover of less than Rs. 1.5 crore under 'Pradhan Mantri Man Dhan Scheme’ – enlarging existing scheme • 2% leverage in rate of interest on fresh or incremental loan for GST registered MSMEs - loans upto 1 crore for MSMEs within 59 minutes through online portal • Threshold for public shareholding in listed Cos is proposed to be raised from current 25% to 35% • KYC Norms for Foreign Portfolio Investors (FPIs) would be streamlined to attract more investment • A new National Education Policy will be brought to transform India's education system to global standards – setting up NRF for convergence • To launch a television channel exclusively for Start-ups • To streamline the multiple laws dealing with labour welfare • NRIs having Indian Passport won't have to wait for mandatory 180 days after arriving in India to get Aadhar

8. Budget Speech • A Model Tenancy Law will also be finalized and circulated to the States • Large public infrastructure can be built on land parcels held by Central Ministries and Central Public Sector Enterprises through innovative instruments such as joint development and concession, public infrastructure and affordable housing will be taken up • Measures to develop corporate debt markets • To rationalize and streamline the existing Know Your Customer (KYC) norms for FPIs to make it more investor friendly without compromising the integrity of cross-border capital flows • Setting up of a social stock exchange – listing social enterprises and voluntary organizations • 100% FDI in insurance intermediaries • Local outsourcing norms to be eased for FDI in single brand retails

9. Budget Speech • To increase the statutory limit for FPI (Foreign Portfolio Investors) from 24% to sectoral foreign investment limit - FPIs will be permitted to subscribe to listed debt securities issued by ReITs and InvITs • To merge the NRI-Portfolio Investment Scheme Route with the Foreign Portfolio Investment Route • New Space India Limited (NSIL) has been incorporated as a new commercial arm of Department of Space to tap the benefits of the R&D carried out by ISRO • Pradhan Mantri MatsyaSampada Yojana (PMMSY) – the Department of Fisheries will establish a robust fisheries management framework to help fishermen • PMGSY-III to upgrade 1,25,000kms of road length over the next five years, with an estimated cost of 80,250 crore • Support private entrepreneurships in driving value-addition to farmers’ produce from the field and for those from allied activities, like Bamboo and timber from the hedges and for generating renewable energy. • Annadata can also be Urjadata • New Jal Shakti Ministry to ensure piped water to all through Jal Jeevan Mission by 2024

10. Taxation – Direct Taxes • Basic Exemption limit raised to ` 5 lakhs – Surcharge of 3% on income from ` 2 – 5 Cr and 7% on income of ` 5 Cr and above • 25% tax rate extended to companies with turnover upto` 400 Cr from earlier ` 250 Cr – covers 99.3% of companies • GST on electric vehicles 5% (reduced from 12%) • Startups with angel investment would not be subject to scrutiny on the issue of valuation of share premium – e-verification of identify and source – Category AIF – II funds also need not justify FMV of their shares – this is already available to AIF – I • Relaxation of conditions for carry forward of loss for startups • Exemption of tax on capital gains on sale of residential house for investment in startup to be available till 31/03/2021 • Deduction on housing loans taken upto 31/03/2020 to be ` 3.5 lakhs in case the value of the house is upto` 45 lakh

11. Taxation – Direct Taxes • NBFCs to offer interest on bad and doubtful debts in the year of receipt like banks – wef AY 2020-21 • In case of exercise of options STT would be only on difference between settlement price and strike price • Can quote AADHAR in place of PAN – AO will allot PAN in such cases • Pre filled tax returns • Faceless e-assessments – jurisdiction less assessments allotted by central cell • TDS of 2% on withdrawal of cash of ` 1 Crore and above in an year from bank or cooperative bank or post office except in case of exempt businesses which require large cash transactions like banking business, post office, banking correspondents and white label ATM operators – w.e.f from 01/09/2019 • No charges on digital transactions for establishments with turnover of ` 50 Cr and above – Banks/RBI to absorb costs – penalty for failure by establishment – w.e.f 01/11/2019 • Threshold limit of tax ` 10,000 for prosecution for non-filing of returns • Deeming FMV would not apply for prescribed transactions in case of deemed gift u/s 50CA and 56(2)(x)

12. Taxation – Direct Taxes • Individual or HUF to deduct TDS at 5% if annual payment made to a contractor or professional exceeds ` 50 lakh – new 194M – can pay on PAN – with effect from 01/09/2019 • TDS on purchase of immovable property – consideration to include incidental charges like club fees, parking fee, water fees etc – w.e.f 01/09/2019 • Income on gifts made to non-residents after 5/7/2019 would be deemed to accrue or arise in India u/s 9 – w.e.f from A.Y 2020-21 • Compulsory filing of returns by –persons, who have deposited more than ` 1 crore in a current account in a year or spent more than ` 2 lakh on foreign travel or more than ` 1 lakh on electricity consumption in a year or enter into high value transactions or whose income becomes lower than maximum amount not chargeable to tax due to claim of rollover benefit of capital gains u/s 54. 54F etc – w.e.f from AY 2020-21 • PAN and AADHAR interchangeable from 01/09/2019 - PAN will be deactivated if not linked with Aaadhar after notice • Widening of scope of SFT w.e.f from 01/09/2019

13. Taxation – Direct Taxes • In certain cases of distressed companies before NCLT, carry forward of loss to be permitted even when there is change in shareholding – Also for computation of MAT, accumulated losses and UAD to be deducted from profit • Interest earned by non-resident from RDB issued between 17/09/2018 and 31/03/2019 is exempt • Deduction of ` 1.5 lakh on loan taken from Bank/NBFC to purchase electric vehicle upto 31/03/2023 • NPS – exemption increased from 40% to 60% of withdrawals – employee contribution exempt upto14% of salary (earlier 10%) for central government employees – deduction u/s 80C for contribution to tier – II NPS • In case of buy back of shares 20% tax on gains extended to listed companies also • Registrations of trusts can be cancelled for violation of local laws, if the violation is not contested or the issue reached finality

14. Taxation – Direct Taxes • Definition of “demerger” to be relaxed to enable resulting entities to value the property and liabilities at a value different from book value in compliance with IAS • Relaxation of deduction of TDS available to residents u/s 40(a)(ia) and 201 extended to non-residents also • Concessional rate of STCG available to disinvestment funds set up by CPSEs – earlier they had for LTCG • Like pass through of income, pass through would be allowed for losses of AIF – I and AIF – II • TDS on payout by life insurance companies to be at 5% of net instead of 1% on gross • Deemed penalty provisions for under reporting of income incase of disclosure for first time u/s 148 • To claim refund, return has to be filed

15. Taxation – Direct Taxes • Time period to auction property by TRO after finalization of proceedings extended to 7 years from 3. Board can extend for 3 more years • In case correction statement is filed, extra time would be available to pass order u/s 201 on TDS default • In case of Benami Property Prohibition Act, residential status of the assessee in the year in which income is earned or asset is acquired is the determinative factor