The Union Budget 2017 for India was presented in Parliament on 1 February by finance minister Arun Jaitley.
His speech at Lok Sabha, the lower house of India’s two-tier Parliament, outlined new income tax rules, demonetisation and a push towards a digital economy.
The Budget announced a reduced corporate tax rate of 25% (versus the normal 30%rate) for Small and Medium Enterprises (SMEs) having annual turnover for the tax year 2015-16 around Rs500 million.
The finance minister explained that India is largely a tax non-compliant society, due to the predominance of cash, which enables tax evasion. Net tax is expected to increase from demonetisation, due to the increase in data received. The time period for revising tax returns will be reduced to 12 months.
Demonetisation has been undertaken in measures over the past two years, with long term benefit potential for GDP, and to help transfer resources from tax evaders to the government. However, the drop in economic activity due to remonetisation is expected to have only a transient effect, and Jaitley expects that it will soon reach comfortable levels.
In the financial sector, the Foreign Investment Promotion Board (FIPB) is to be abolished, whilst a new exchange-traded fund (ETF) is to be launched, and over 16,000 new enterprises have been set up. Also, a computer emergency response team is to be set up for cyber security, as India is ‘at the cusp’ of a digital revolution.
A centralised pension distribution system will be established and the government will also introduce laws to confiscate assets of economic defaulters.
Jaitley stated that the government was elected amidst huge expectations and that now the government is seen as a trusted custodian of public money. He also mentioned the uncertainty of the world economy, along with the challenges emerging economies face.
The budget proposals were divided into 10 themes: financial sector; digital economy; public service; prudent fiscal management; and tax administration; farmers; rural population; energizing youth; poor and underprivileged; and infrastructure.
The total budget expenditure is Rs21 trillion (£250.8bn), and the defence expenditure excluding pensions is Rs2.74 trillion. The fiscal deficit for FY18 was pegged at 3.2% of GDP and the revenue deficit for FY18 at 1.9%.
Gagan Malik, international director, India tax desk at Asia-Pacific Tax Centre, EY said: “The Finance Bill has proposed to exempt indirect transfer taxation – investors who directly or indirectly invest in Foreign Portfolio Investors (FPIs), categories I and II; essentially regulated and government funds. This is a huge step forward and would be a big relief for FPI investors out of Singapore.”
Mazars’ report examined the Bill and pointed out the amendment of the Indirect Transfers of shares of Foreign Institutional Investors (FIIs), and Investors (FPIs) not taxable in India. Explanation 5 was inserted below Section 9(1)(i) regarding the tax transfer of shares of a foreign company which shares derive their value substantially from the assets located in India. It is not applicable in the case of transfer of shares held in a Foreign Institutional Investor / Foreign Portfolio Investor by a non-resident.