Budget PART B – Finance Bill 2019

1.   Rate of Tax:-

This year we saw increase in tax on super rich. The surcharge was already there now it has increased to following rates. (Page 4)

  

Now when you put the rate into table you can observe that Companies earning above 1 crore are paying 7% surcharge while Individual earning the same income is paying more than twice the surcharge amount. Now ad into this fact that Nirmala Sitaraman proposed to reduce tax rate of companies having turnover of Rs. 400.00 Crore to 25% from previous 30%.

        So if you are a company having turnover in 2017-18 400.00 Crore and income Rs. 10.00 Crore your Tax liability will be Rs. 2.78 Crore or 27.82% But An Individual earning same amount of Income will be paying Tax at 35.66%.

        Also see the co-operative society stuck on same surcharge as Company? The co-operative societies still has Tax slabs which are more than 15 years old. They are Rs. 10,000 Rs. 20,000 and Above Rs. 20,000. Those tax slabs were never reconciled with inflation.

There is a growing demand of doing away with all the number updation in every budget. The amount of Tax Slabs and penalties should be linked to inflation so no Finance Minister has to spend the valuable time in determining whether to offer increase in slab limit of Rs. 50,000 this year or next year. Also rather than having Surcharge on Tax, it would be much beneficial to introduce them as Tax Slab. This makes taxation process little bit easy without any loss of revenue.

“The entire taxation structure in India, if not law in itself, needs an overhaul!” Said by many for many years.

2.   Apart from that, the FM declared that companies with turnover upto 400 Crore will be taxable at 25% rate. I could not find the said provision in Annexure of Finance Bill 2019. I am little confused.(Page 66)

3.   The another surprising announcement was that off, allowing Rs. 1.50 Lacs as deduction for interest on loan on purchase of Electric Vehicle. India as set forth the “Mission 2030 Electric India” under this mission, India will allow to sell only electric vehicles by 2030. The infrastructure for electric vehicles in missing. It is easier to implement infrastructure for Busses, because they have dedicated parking and repairing space like Depot. But for average individual consumer Rs. 1.50 Lacs deduction of Interest is not attractive right now. There a re practical problems.

What more I learned that this deduction will be available for only 4 years i.e. From 1^st April 2019 to 31st March 2023. (page 21 Sec. 80EEB(3) Finance Bill 2019)This is 7 years before India is planning to go full electric. Even after India goes full electric, the Petrol/Diesel cars will run for few more years. So just 4 years of deduction without available infrastructure in place does not make any sense. I am not seeing any of my clients claiming deduction under Sec. 80EEB any time soon.

4.   There is a constant wording replacing transactions done through “bank account” with “Bank account or through such other electronic mode as may be prescribed” Is Modi planning to introduce an mobile fund transferring app? If true then this app will act like a payment bank. It will enable to move funds from one Bank account/Aadhar No./Mobile number to other without any fee. The App might be based on E-Aadhar verification. Let’s see.

5.   The one thing that wasn’t mentioned in the Budget speech of Nirmala Sitaraman was changes in return filling requirement. Return is normally required to be filled on the basis of income. But few new clauses were inserted which makes following people mandatory to fill return.

a.   Deposited more than 1.00 Crore in a year in current account. If a person holds more than 1 current account in same or different bank then volume of all such cash deposit is to be clubbed. Now Banks are already reporting such things under AIR. And limit there is 10.00 Lacs. So I feel this requirement is pointless.

b.   Person incurred total expenditure during the year of Rs. 2.00 Lacs or more for foreign travel. This includes expenditure incurred for him as well as family members. Now if you consider standard plane ticket of Rs. 30,000 round trip will cost you Rs. 60,000 for family of four it will definitely exceed the said limit. I feel limit is too low here.

c.   Total electricity consumption during the year above Rs. 1.00 Lac. Now here some small shopkeepers, businessmen, consultants might have problem. Because you have to add their shop+house electricity consumption. Consumption of electricity as basis for filling income tax return is really novel proposal. (Page 25)

d.   “Fulfils such condition as may be prescribed” opens the door for many such requirement. I am expecting in near future there will requirement based on daily mobile data usage.

6.   I was little confused hearing of interchangeability of PAN and Aadhar. But plain reading of amendment to Section 139A suggest that PAN is not done away with. Person furnishing Aadhar will be allotted PAN. And person who already holds PAN is not at an option to either quote PAN or Aadhar. Person who already got PAN has to mandatorily quote PAN. They do not have Aadhar option.

I was worried on this point because person might quote PAN till he exhaust limit of Rs. 1.00 Lac under 194C and then go on to quote Aadhar so to avoid TDS. But thankfully this condition is only applicable to a person who does not have PAN yet but he has Aadhar.(Page 26)

7.   TDS on life insurance sum under 194DA is increased from 1% to 5% (Page 27)

8.   New TDS section 194M is introduced for Individual/HUF paying contractor above Rs. 50 Lacs. This section will apply to those contracts which does  not fall under 194C and 194J. The rate of Tax under this section will be 5%. (Page27)

9.   New TDS section 194N is introduced to tax Cash withdrawals. This provision found mention in the budget speech. Banking company/Co-operative banks and post office are liable to deduct TDS. The TDS will be deducted on amount withdrawn, above Rs. 1.00 Crore. Rate of TDS is 2%. Now this provision is introduced to prevent people from going back to cash economy or keeping track of hording of cash. P Chidambaram tried something similar to this called as Banking Cash Transaction Tax or BCTT in short. This tax existed from 2005 to 2009. The limit set by him ludicrously low of Rs. 50,000. Which comes to Rs. 1.19 Lacs after adjustment for inflation in today’s term. Also this was tax, so amount was payable to government. FM Nirmala Sitaraman introduced TDS, which is available for Credit while paying taxes. The limit I feel is too high to provide any significant data on black money.

10. How income tax act is used and misused to purpose other than collection of tax has fascinated me. I was reading Chinese Individual Income Tax act out of curiosity. That was only 7 pages long. Simple and to the point. This new section 269SU requires any business with annual turnover above Rs. 50.00 Crore to provide facility of accepting payment through electronic mode. Failure to comply will attract penalty of Rs. 5,000 per day under section 271DA(Page 29)

For years income Tax Act used a tool to channelize invest by using Section 80C. Now the responsibility of electronic transaction is also put on the tax administrators. But using income tax act to promote electronic transactions is not proper in my opinion. This is the reason why we have world’s biggest income tax act and not because people trying to avoid tax.

This is just quick review of provision relating to Income Tax. Other provision and remaining part will follow soon.
* All the page numbers are of Finance Bill 2019

Budget Part- A 2019-20

This was first budget of Nirmala Sitaraman. She is the finance minister, formerly was defense minister. So she was not coming as someone new but, someone who has proved herself. Finance Minister of all top 4 is very technical ministry. It is unlike any other ministry or depart of the government. So person heading this ministry needs to be qualified. Nirmala Sitaraman was indeed qualified having vast experience and expertise. She has doctorate in Economics and worked with BBC and PwC.

First let me tell you the thing I found striking in this budget. It was one of the best budget speech I have heard in past 10 years. It was informative, explanatory and despite all that she managed to keep it simple.

Finance Minister stated that she has not given numbers for expenditure on schemes. That was hallmark for all the past budgets. But she has put forth proposal. And there is lot to unpack. Every paragraph of her speech can be commented upon. Let’s dive into budget speech Part A:-

Her 6^th Paragraph titled “Vision for the decade”. This shows the mind-set of the government. Budget is not just annual exercise. It is implementing the vision for the year and also keeping the eyes on successive years.

Under this paragraph Nirmala Sitaraman described essential area for making India 5 trillion dollar economy in 5 years. Currently India is around USD 2.7 Trillion. So government is planning to double the size of economy. Shekhar Gupta has made a video stating how that will be possible.

Few very critical points out of 10 points listed are:-

1.    Pollution free Healthy India

2.    Start-up and MSME sector.

3.    Water & River Management.

Connectivity was highly talked about. And massive boost to Road and Waterways network was proposed in the speech. Freight corridor was discussed at par with Industrial corridor was also decent surprise. Finance Minister also highlighted Metro and Aviation schemes and how they are connecting India.

There was mention of One Nation One Grid. This being technical point in Electricity Distribution I am not going to comment on.

Para 27 & 28 Specially important for MSMEs had two major announcements. One being 350 crore allocated for Loan @2% interest subvention and automated payment platform of uploading of bills and payment process for MSMEs. This would further reduce bureaucracy and corruption.

Pradhan Mantri Karma Yogi Mandhan Scheme or PMKYMS Pension scheme launched for Retailers and shopkeepers who can enrol with Aadhar and Bank account is a great step forward.

This budget has surprised me with innovative ideas. One of this was Social Stock Exchange for Social Enterprises and Voluntary Organisations to raise funds under watchdog SEBI.

Cashing on success of ISRO New Space India Limited has incorporated as commercial arm of ISRO to explore opportunities of production of launch vehicles, transfer to technologies and marketing of space products. This is pretty bold move. This shows government is serious about space business and ready to provide it a boost in a global market with very few dependable players. But then again my criticism of this move is, this is taking India back to Nehruvian Socialism which doomed Indian Economy by 1990. Government would be better off by encouraging private players to co-operate with ISRO to take advantage of India’s growing expertise in this space.

An ambitious target was set for Pradhan Mantri Awas Yojana – Gramin (PMAY-G). 1.54 Crore homes were built in 2014-2019. And now additional 1.95 Crore homes are to be built during 2019-2022. These houses must be equipped with Toilets, Electricity and Gas.  This is such a great vision which is part of even more ambitious Housing for all plan.

Pradhan Mantri Gram Sadak Yojana (PMGSY) has also got major boost. Roads built under this scheme has already reached up to 97% of Habitation with all-weather connectivity. road constructed of 130 to 135 km per day in the last 1,000 days using Green Technology, Waste Plastic and Cold Mix Technology. PMGSY-III is envisaged to upgrade 1,25,000 kms of road length over the next five years, with an estimated cost of Rs. 80,250 crore. Now simple calculation will tell you that building road around 135 KM per day will achieve that target by 2.5 years. This I think as PM Narendra Modi promised that he will be giving stock of his work by the end of 2^nd year. The Minister who is tasked to achieve this is Nitin Gadkari known as Road-Kari in Maharashtra for his understanding and execution of road contracts.

The only mention specific to railways came in Para 59 of the speech and finds Mumbai Suburban mentioned before long-distance trains. FM Nirmala Sitaraman went on to say Railways will be encouraged to invest more in suburban railways through Special Purpose Vehicle (SPV) structures like Rapid Regional Transport System (RRTS) proposed on the Delhi-Meerut route. This certainly will be good news for Mumbaikars.

As India hoping to replace China as manufacturing hub, the biggest hurdle in the path are old-archaic labour laws which pertains to era of socialism and trade unions. And reforming them is complicated but some laws are subject matter of the State Government. Government in its first step releasing four model labour laws to stream line all the provisions and reduce confusion. We will have to wait and see how they are received by various stakeholders.

Announcement in Para 69 on TV program of Start-up by Start-ups for Start-ups will be nothing more than "Jumla". There is no standard format for any start-up. It is when they starts growing standardization kicks in. I don’t know why a TV program should find a mention in a budget speech of the nation.

While addressing women under title Nari tu Narayani FM Nirmala Sitaraman proposed Rs. 5,000 shall be allowed. One woman in every SHG will also be made eligible for a loan up to Rs. 1 lakh under the MUDRA Scheme. This will definitely help the Self Help Groups to grow and develop into SMEs.

Tourism is big industry and government developing 17 sites as a model for other tourist sites is another great idea. This will give us valuable data on developing tourist destination. We then can use it to draw solutions which will be uniquely Indian for our problems. I see this a big positive move.

Finally government has found cleaver work around to keep it’s holding in PSUs up to 51% and still go for disinvestment. Government has also decided to modify present policy of  retaining 51% Government stake to retaining 51% stake inclusive of the stake of Government controlled institutions. Which means earlier 51% shareholding was counted only of Government of India. Now 51% will be counted of Government of India + LIC + other government companies. This will give new push for disinvestment.