India Union Budget 2018 – A Step Towards Incredible India
India Union Budget 2018 – Pro-growth and a step towards Incredible India
The presentation of the Union Budget in India is an intense affair every year, with a certain amount of drama associated with the event.
This year was no exception as both - India Inc and the common man eagerly awaited the first Union Budget subsequent to the implementation of India’s landmark tax reform - Goods and Services Tax (GST) in 2017. Further, the Budget garnered special interest as it was the last Budget being presented by the National Democratic Alliance (NDA) in power, prior to the general elections due next year.
This year the Government of India (GoI) managed to present an overall low risk and pro-growth Union Budget at the Indian Parliament on February 1, 2018. The budget proposals this year encompassed a wide gamut of areas ranging from increasing farmers’ income to exploring blockchain technology.
Going with the motto ‘Only a Swasth Bharat can be a Samriddha Bharat’ which translates into – ‘Only a Healthy India can be a Prosperous India’, the GoI announced the World’s Largest Government Funded Health Care Programme, under the National Health Protection Scheme. The said scheme proposes to provide insurance coverage of up to INR 0.5 million per family per year to 100 million families (approximately 500 million beneficiaries) in respect of secondary and tertiary care hospitalization.
‘Operation Green’ is another policy measure proposed which aims to boost the agrarian economy and increase farmers’ income. Further, other programmes / schemes have been introduced to increase use of technology in the education space, step up investments in research and development infrastructure of educational institutions; improve infrastructure through programmes such as the Smart Cities Mission, Atal Mission for Rejuvenation and Urban Transformation (AMRUT) etc.
Further, the announcement to increase research and development activities in the areas of artificial intelligence, machine learning and other cutting edge technologies in the digital space has been welcomed and is seen as a firm step towards the Digital India Vision.
On the direct tax and regulatory front, the Budget proposals have aimed to further rationalize the cash economy, address tax erosion issues and provide a stable environment for businesses.
While India Inc’s expectations of significant cuts in tax rates (especially in the wake of the recent US tax rate reductions) did not see the light of the day; the GoI announced a beneficial tax rate of 25 percent from the extant 30 percent tax rate for companies having a turnover of less than INR 2,500 million. The same has been welcomed and is perceived to encourage entrepreneurship and be a growth enabler by business leaders and tax pundits alike.
The other key tax amendment which shall impact digital products and services and agency arrangements undertaken by foreign companies is the widening of the scope of ‘Business Connection’ to include significant economic presence of foreign entities, in line with the Base Erosion and Profit Shifting (BEPS) Action Plans of the Organisation for Economic Co-operation and Development (OECD).
In order to widen and deepen the tax base in India, extant deemed dividend provisions in the tax law have been strengthened to move the incidence of tax on domestic companies granting loans to group entities from the shareholders, as provided in the extant provisions. Notably, the GoI kept up its promise to not introduce retrospective taxation amendments.
Further, with the tax treaty amendments with Mauritius and Singapore introduced in the recent past which accorded India the rights to tax capital gains from sale of shares, the introduction of long-term capital gains at 10 percent for gains on sale of equity shares / units of equity oriented fund / business trusts exceeding INR 0.1 million may prove to be a double whammy to Foreign Portfolio Investors.
On the sunny side, incentives to provide impetus to the Financial Services sector have been included, in addition to establishment of unified authority for regulating all financial services in International Financial Services Centres and set-up a coherent and integrated regulatory framework.
In the context of bankruptcy and insolvency laws, the GoI seems to be adopting a pro-active approach to increase interest in distressed assets. Tax incentives including permissibility to carry forward losses despite change in shareholding have been introduced to promote restructuring plans and ensure efficacy of the bankruptcy process.
Additionally, to bring in transparency and accountability in governance, a new scheme to conduct revenue assessments using digital platforms which shall eliminate interface between the revenue authorities and the tax payers is proposed to be introduced.
In a nutshell, the Budget 2018 focuses on reviving the rural economy, encouraging entrepreneurship, improving healthcare, education, and infrastructure facilities and portrays the present Government’s objective to build a new, digital, skilled and a healthy Incredible India.