Union Budget 2021: Govt should consider light touch regulatory regime to attract global lenders in IFSC

The International Financial Services Centre (IFSC)’s Gujarat International Finance Tech-City (GIFT) is the first smart city in India that is fast emerging as an attractive destination for financial services players. After the setting up of the International Financial Services Centre Authority (IFSCA) [being the Unified Regulator for IFSC], it has witnessed some path-breaking regulations and policy announcements in a very short span of time for different aspects of financial services such as banking, stock-broking, investors in IFSC, etc.

Recently, the IFSCA permitted Global In-House Centres (GICs) of financial companies to be set up in IFSC. The Alternative Investment Funds regime is also attractive and it should see funds/fund managers setting up base in IFSC soon. One must also applaud the IFSCA on being very open to suggestions from investors and pro-development. The IFSCA works closely with the government to address the changing business environment/needs and providing more business opportunities/competitive advantages for units in IFSC. Whilst a lot has already been done, some of the key tax considerations which the government may address in the Budget 2021 to make IFSC more attractive are:

Banking units in IFSC

Banks set up in IFSC can invest through Foreign Portfolio Investment (FPI) route (post-seeking FPI license) into the domestic market and such income from FPI activity shall be governed by Section 115AD (special tax regime applicable for FPI). Such income is not eligible for a tax holiday. However, in order to encourage banks to set up in IFSC and to make it simpler for them to operate, the entire income of the banking unit, including income from FPI activity should be eligible for deduction under section 80LA.

Recently, non-delivery based forward trading has been permitted to banks in IFSC. In order to encourage their clients, i.e. the bank’s clients, such as hedge funds to also trade in the IFSC market, a tax exemption could be proposed for the foreign funds earning income from such trading, to move their trading to IFSC.  Without clarity on the taxation of NDF trades, there is an apprehension that it may be taxed at the maximum rate and hence the market may not pick up.

Relaxation of MAT for stock broking

The IFSCA has permitted eligible foreign entities to set up a branch office as a stockbroker or GIC. The income from such a branch would be eligible for tax holiday [section 80LA]. However, such a branch would be liable to pay tax on its book profits under the Minimum Alternate Tax (MAT) provisions disregarding tax holiday otherwise available. These units should be exempted from MAT provisions or MAT rate should be reduced. This would reduce the imbalance between the overall tax cost for such branches vis-a-vis stock broking units of domestic entities in IFSC which would be paying tax under the concessional tax regime provided under section 115BAA of the Act (post-the tax holiday period) and to whom MAT provisions are not applicable.

Objective criteria for fund managers

In order to address the likely invocation of General Anti-Avoidance Rules (‘GAAR’) by tax officers, objective criteria for fund managers in IFSC (e.g. certain minimum activities, employees, etc.) must be laid down. Further, the criteria could vary depending on the size of the fund or it could be spelt out for each fund while granting approval depending on the peculiarities of each structure. This would address subjectivity around the applicability and invocation of the GAAR provisions and provide certainty.

Dividend, repatriation of funds

The earlier benefit of dividend being tax-free should be reinstated for dividend income earned by the parent companies from their subsidiaries incorporated in IFSC. Also, the buy-back/income distribution tax should not be made applicable to companies set up in IFSC. This shall allow companies in IFSC to upstream profits / repatriate the capital in a tax-efficient manner. For all foreign investors/lenders, the ability to repatriate capital and ease of winding up operations is very important. 

Therefore, this would give a good boost to foreign investors. Equally important is the ease of winding up operations and repatriating balance capital. These ease of business measures would go a long way in boosting the confidence of foreign investors to come to IFSC.

The above are only a few thoughts to make IFSC more attractive. There’s lots more coming up in IFSC like aircraft leasing, which has been recently recognized as a financial services activity.  It is important that a light-touch regulatory regime be put in place to attract global lenders.

On the tax front also, it is important to make it easy for both the lessor and lessee to avoid tax leakage. The authority could consider blanket exemption from withholding tax for interest received/earned by financer (i.e. entity undertaking lending to entities engaged in aircraft leasing activity) on loan advanced to the entity undertaking aircraft leasing activity; to the interest portion of finance lease rentals earned/received by SPV from the airlines; and lease rentals payable by airlines to SPV.

This would reduce the administrative burden of obtaining Nil withholding tax certificate under section 197 of the Act given that units in IFSC (i.e. Financer/SPV) would be claiming tax holiday.

The mutual funds and foreign lending companies are other new and exciting businesses in IFSC to watch out for.  Here also it will be important to put in easy and lucid tax and regulatory policies. 

So far one of the key complaints of the foreign investors was on the ease of doing business in India. IFSCA, with its attractive policies, a very proactive regulator and a conducive business environment seems to have addressed these concerns.

The writer is Partner and Head, Financial Services Tax, KPMG in India and Nilesh Pal, CA

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Union Budget 2021: Enhance tax benefit in interest on housing loan to Rs 3 lakh from current Rs 2 lakh

The Union Budget comes with a lot of expectations, especially amidst the recovery from the pandemic. We expect that the government’s agenda of ‘Housing for All’ will see a major push through this Budget as well.

As a Housing Finance Company (HFC) we also expect announcements which will enhance/ renew of prospective buyers towards owning a house and further propels investments in real estate as an asset class. Needless to say the real estate sector, along with manufacturing and services, is also a huge employment generator, and any positive activity in this sector aids the overall buoyancy in the economy.

We feel, keeping in mind the real estate price inflation over the last decade or so, as a first step, the government can consider enhancement in a tax benefit for interest in housing loan to Rs 3 lakh from the current levels of Rs 2 lakh. The limit can be higher up to Rs 4-5 lakh in metro locations, which will be in line with the real estate price difference which exists between metros and other major cities.

Also, the enhancement in 80C benefits especially with respect to limits for housing loan principal repayment by retail borrowers would be beneficial. The introduction of loss on housing property should be revisited and the limits on the same can be enhanced as well. This would encourage more end investments in the sector.

The initiative should be taken towards liquidity enhancement for small HFCs as well. Schemes/measures like Targeted Long Term Repo Operations or TLTRO and Partial Credit Guarantee or PCG etc., which have seen considerable success over the last few months, should be a part of business and be used by the regulator whenever there is an inherent need in system for the same. Also some kind of SOPs should be given to encourage mutual funds to move back into the debt capital markets so they can invest in long tenor bonds of investment-grade companies.

In the medium to long-term, the government may look at easing of External Commercial Borrowing (ECB) guidelines for HFCs. The investment concentration/group exposure limits etc. can be looked upon with a view to facilitating easier foreign currency borrowing for the sector.

In turn, this will ease the volatility in the domestic real estate markets. On the other hand, encouragement should be given to insurance funds/pension funds to invest in long term debt issuance of HFCs. This will help both parties on Asset Liability Management as HFCs look for long term debt and pension/insurance funds need long term debt investment avenues.

Introduction of housing bonds is another avenue which the government may look at where investment by retail investors is allowed. The finance minister may consider in granting special status to HFCs, at par with the banking sector. This will help in smoothening of any kind of Asset Liability Management mismatch for HFCs who are engaged in financing long tenor retail assets.

The thrust should be given to the initiative taken by the Prime Minister for the housing sector, which is ‘Housing for All’.

Overall, there are initiatives for both HFCs and the end-consumers which are expected, and we do hope that the Union Finance Minister Nirmala Sitharaman will look at the real estate sector favourably.

The writer MD and CEO, Shriram Housing Finance

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Union Budget 2021: Govt should speedily release GST refund dues to allow locked-up capital flow into economy

The current financial year 2020-21 has seen deep erosion in the economy with sources pegging the year to close with a contraction of 7.7 percent in the gross domestic product (GDP). However, after the steep drop in the first two quarters, the economy is seen to be recovering with positive GDP growth in the last two quarters. The manufacturing sector has shown a swift recovery from Q2 and is poised to deliver further growth provided the market is ready for it.

While the supply side has striven to recover its operations to pre-COVID levels, the demand is still lagging in several sectors of the economy. The government must focus its efforts firstly on improving demand in the domestic market. One major step towards this objective is to reduce the Goods and Service Tax (GST) rate for certain categories like furniture and air conditioners which are also identified as key thrust areas for investment by the government.

The inflationary pressure on commodities like metals and plastics will impact end-product prices -- both for the domestic and export markets. In order to improve demand, price of inputs and supply constraints should be managed within the bounds of the global markets. There should be predictability of prices and availability of the inputs over the short and medium-term which will, in turn, stabilise prices of the end-products, resulting in improved consumer confidence.

The government should speedily release all outstanding payments or tax refunds owed to service providers in the form of pending bills. This includes GST refund dues. This locked up capital would flow back into the economy through increased spending by the recipients.

On the supply side, import duty on components should be reduced in order to encourage local product manufacturing. The infrastructure for local component manufacturing for furniture is not yet well developed in India. The government should formulate standards for the import of finished goods and apply them effectively to prevent the import of sub-standard products into India.

In addition to the development of road and rail transport infrastructure, coastal and inland shipping should also be developed. It will reduce logistics costs and speed up supply substantially. While logistics has been given industry status, the warehousing space remains largely unorganised. The cold chain infrastructure also needs to be developed. The costs of exports from India should be benchmarked with leading ASEAN nations and corrective actions taken to make us more competitive.

Energy is a major factor in the economy. We must establish a national energy policy framework to support the development of a secure, sustainable and affordable energy system with the adoption of international best practices. There should be a greater focus on Renewable Energy and Open Access mechanism along with their cost-effectiveness and payment security. The implementation of renewable purchase obligations (RPOs) of utilities is very important.

We should continue to encourage investment in India’s energy sector and make the electric distribution companies (DISCOMs) debt-free and enable them to adopt the latest technologies. The government should adopt the direct benefit transfer approach for subsidy payments to consumers.

The writer is Executive Director and President, Godrej and Boyce Mfg. Co.

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Union Budget 2021: Govt should provide incentives to increase new GST registrations

The Goods and Service Tax (GST) is a comparatively new law in force that is triggered with various changes till it enters the area of perfection. It is natural to have changes and amendments in the law for a decent number of years after its application.

However, GST has witnessed so many amendment times and again that its original structure which was kept by the Parliament before the country seems to be taking new shape and a new variant of GST, considering the recent amendments and approach of amendments in the law, is quite brainstorming as well as full of complexities as far as taxpayer is concerned.

Here are some structural changes which I feel should be at the core of the discussion for smooth compliance with GST law:

Ensuring free flow of input tax credit

Recently various input tax credit (ITC) restriction measures have been introduced to fill up the loopholes, which fraudsters are taking advantages of.

The first and foremost change is the restriction in the claim of ITC. When an invoice is not furnished by the supplier or vendor, the ITC available before the amendment was 10 percent which is now replaced with 5 percent. Earlier, if you have made a bonafide purchase and the supplier failed to furnish the invoice details, a claim of 10 percent was allowed. The ITC will now be 105 percent of the invoice furnished. This rate is continuously reducing as ITC was 20 percent before, 10 percent and now it’s 5 percent . It can be said that this limit might abolish soon. This will hamper working capital requirement in small taxpayers resulting in the slow growth of the economy.

A threshold amount of Rs 25,000 to Rs. 50,000 per month shall be allowed to be claimed additionally (above 2A/2B)  along with above-said rule so that not only fraudsters can be stopped in time but small bonafide businessmen are also safeguarded adequately.

Cash crunch versus handholding of SME

Rule 86B is newly inserted that provides no ITC above 99 percent of Electronic Credit Ledger can be utilised by the taxpayer. This rule applies in cases where taxable supplies, i.e. turnover other than exempted supply of zero-rated supply above 50 lakhs per month. (These will majorly affect small and medium enterprises ranging from Rs 5 crore annual turnover to Rs 10-20 crores  per annum)

It is compulsory now to pay 1 percent in cash of Electronic cash ledger credit available. There are certain exceptions to this rule. Yet this provision will unnecessarily defeat the purpose of seamless credit being promised by the government at the time of the launch of GST.

More automation than manual

India is a vast country and more online automated processes and systems are required with ease of implementation. However, recently it has been noticed that complexities have been increased. Some of the noticeable manual powers given to GST Officers are:

• System-based registration had a time limit of 3 days earlier which is now extended to 7 days from the date of filing the registration application.
• Where the applicant has not opted for Adhaar verification and the department feels necessary to have physical verification for granting registration--the limit was of 7 days which is now extended to 30 days’ time limit.

GST registration cancellation/suspension powers to officers

The Goods and Service Tax department has the power to suspend the GSTIN of a holder in the following small irregularities:-

• If the GSTIN holder avails credit more than admissible under Rule 16 of CGST Act, 2017
• If there is variation in the taxable value and tax payable under GSTR 3B and GSTR 1
• If Rule 86B is violated department may cancel the registration.

The most draconian part is: there is no Concept of Opportunity of being heard before suspension to the GSTIN holder to safeguard its registration. It is a very crucial situation where the registration gets cancelled. Every business can fight against the raised orders of penalty and interest, but a registration being cancelled is a big issue as the supply will stop, the whole business will be stopped and for the same, no opportunity of being heard will be given is a grey provision.

Simplify GST return structure

The blocking of GSTR1 if GSTR3B is not filled. It was observed by the government that GSTR1 was filed by the taxpayer as the customer was getting credit and when it comes to payment of GST under GSTR3B, taxpayers were avoiding filing the return. Hence, Rule 59 was amended from blockage of E-way bill to blockage of GSTR1 as well.

Such provision applies when a monthly return is not filled GSTR3B for 2 months u/s 37, a quarterly return is not filled GSTR3B for the previous quarter and the Rule 86B is applicable-GSTR 3B not filled. There is a huge need to simplify this return process so that heavy compliance and the burden on the part of the taxpayer can be minimised.

Changes concerning E-way bill

Earlier there was a provision that the E-way bill will be valid 100 km/day. That is before a recent amendment on every 100 km one day (24 hours) was provided, but now this limit has been made 200 km/day. This provision has made business difficult as now we need to travel more in less time and this structural change is very crucial for smooth functioning

Rationalisation of GST rates

GST, when introduced, was promised to be One Nation One Tax but due to the federal structure of our country, we were gifted CGST, SGST, and IGST. Moreover, tax rates are not one. These range from 3 percent to 28 percent in various slabs. Simplification in the form of a lower number of tax rates to ensure easement in the practical world is the need of the hour. The government may consider deriving two rates by merging 5 percent, 12 percent, and 18 percent.

Widening of GST base

A large part of government machinery is focused on increasing revenue collection from an already registered person. However, a substantial section of business (especially where cash is the major dealing mode) are still out of the ambit. The government should incentivise new registration so as to boost the tax base.

We may conclude that regarding the major aspects stated above, it was clarified by the government that such actions are only applicable to the taxpayers who are using malicious ways to save tax under the act. But none of the provisions had any kind of clarification that other genuine taxpayers will be safe.

It can be said that the government intended to clear the circulation of fake invoices and dummy business taking action but the genuine registered taxpayer will have to pay more attention to the provisions and compliances rather than doing business. Such amendments do not have revenue generation for the government but only rules and restrictions that will create a fear among the taxpayers.

The writer, a qualified CPA (Ireland) and Fellow Chartered Accountant (India) is founder and chairman, HostBooks Ltd

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NCERT releases admit card for NTS Stage-2 Examination 2020; steps to download hall ticket from ncert.nic.in

The National Council of Educational Research and Training (NCERT) released the NTSE Stage 2 Exam 2020 admit card on 29 January. Students can download the NTSE Admit Card 2020 by logging into the official website ncert.nic.in.

According to a report in Jagran Josh, the NTSE Stage 2 Exam 2020 hall ticket has been released for students who have cleared the first stage and have qualified to participate in the all-India level test.

Here's how to download the NTSE Stage 2 Admit Card:

Step 1: Candidates need to visit the official website ncert.nic.in.

Step 2: Once there, they need to click on the NTSE icon and find the link for 'Admit card for NTS Stage-II Examination 2020'.

Step 3: Candidates will be redirected to a new page with input fields where they will have to enter their roll number, date of birth, and security captcha.

Step 4: Candidates need to verify all details and submit on the website.

Step 5: The NTSE Stage 2 Admit Card 2020 will be displayed on the screen. Candidates need to download the hall ticket and take a printout for future reference.

According to a report in Careers 360, students have to carry either their Aadhar card or school identity card to the exam centre during NTSE 2021. The admit card will have the student's name, category, state/UT, roll number, exam date, time and centre as well as instructions to follow.

Candidates must check the details mentioned on the NTSE admit card for errors and in case of any discrepancy, contact the state's liaison officer or a concerned person of respective school to get them rectified.

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Pune's Serum Institute of India applies for permission to start trials of 'Covovax' vaccine

Pune: Serum Institute of India (SII) CEO Adar Poonawalla on Saturday said his company has applied to start the trials of another COVID-19 vaccine and that it hopes to launch it by June 2021.

The city-based firm has already produced 'Covishield' vaccine, co-developed by the University of Oxford and British-Swedish company AstraZeneca. The Centre has purchased 11 million doses of Covishield vaccine for the ongoing inoculation drive.

In a tweet, Poonawalla said, "Our partnership for a COVID-19 vaccine with @Novavax has also published excellent efficacy results. We have also applied to start trials in India. Hope to launch #COVOVAX by June 2021!"

The country launched its COVID-19 vaccination drive from 16 January in what Prime Minister Narendra Modi has called the world's largest inoculation programme with priority to be given to nearly three crore healthcare and frontline workers.

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Ex-West Bengal minister Rajib Banerjee, 5 former TMC MLAs to meet BJP top brass in Delhi today

Kolkata: Former West Bengal minister Rajib Banerjee, who recently quit the TMC, will Saturday fly with a few other disgruntled MLAs and leaders to New Delhi where they may join the BJP, sources in the saffron party said.

Banerjee and MLAs Prabir Ghosal and Baishali Dalmiya, who was recently expelled from the TMC, and former Howrah mayor Rathin Chakraborty, will be flying to the National Capital on a special plane, and meet central BJP leaders.

Former TMC MLA from Ranaghat Paschim in Nadia district Parthasarathi Chattopadhyay is also likely to accompany them.

Banerjee said he had a word with Union Home Minister Amit Shah who called him to Delhi.

"After I resigned from the TMC, I received a call from the BJP leadership.....Amit Shah ji told me to come over to Delhi. If I get assurances regarding the state's development, I will join the party," he told a Bengali news channel.

When asked what role does he expect to play in the BJP, Banerjee said it is for the party to decide.

"I want to work for the people. So whatever role is assigned to me, I will accept," he said.

BJP sources said the former TMC leaders will take a special flight to Delhi. They may join the BJP today or come back and be inducted into the party at Dumurjula stadium programme on Sunday, a senior BJP leader said.

According to BJP sources, these TMC leaders were supposed to join the saffron party during Shah's rally at Dumurjula in Howrah on Sunday. However, Shah's two-day visit to West Bengal was cancelled at the last minute following a blast outside the Israeli Embassy in Delhi.

Union minister Smriti Irani will now deputise for Shah at the programme.

Ghosal told reporters that he will be flying to Delhi this afternoon and will join the BJP.

The ruling TMC in West Bengal was rocked by a fresh bout of desertions on Friday with Rajib Banerjee quitting the party and several other leaders rallying behind him.

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