TAX IT, LIKE PUJARA

Like the performance of Cheteshwar Pujara, the Budget presented by the Finance Minister, is brave, stable, with no heroics and creates a strong foundation for growth. The FM has shown courage by choosing tax stability, ease of doing business through simplification and direct spending over immediate fiscal consolidation. The six pillars of ‘Atmanirbharta’ (self-reliance) steer structural reforms, reinforcing deep confidence in India’s growth potential.

The Budget builds on government’s consistent focus on attracting investments by liberalising tax reliefs given earlier, plugging gaps in the provisions relating to business reorganisation and attacking the deep-rooted malaise of tax disputes. For offshore funds, relaxing certain conditions of safe harbours for not triggering tax in India and granting exemption for investment divisions of foreign offshore banking units, aircraft leasing companies and relocating foreign funds to International Financial Services Centre (IFSC) will help attract more foreign investments. A sunset date of 31 March 2024 (31 March 2023 for relocation) is proposed for setting up units in IFSC to avail such exemption. These measures build on incentives provided in the past and position IFSC as an attractive tax destination competing with other centres like London or Singapore at a much lower cost.

Long-term investment in infrastructure by Sovereign Wealth Funds (SWFS) and Pension Funds (PFS) will also receive a boost due to certain relaxations. Under existing rules, the SWFS/PFS had to make 100 per cent direct investment in eligible infrastructure company. The Budget proposes to relax it to 50 per cent, with pro-rata taxation of non-eligible investment. It is also proposed to permit indirect investment through holding company in India, investment in Invits and NBFC IDF/IFCS.

REITS/ Invits were facing challenge of TDS on dividends although dividend is exempt in their hands. FIIS were facing difficulty of higher TDS on dividends without considering treaty benefit. Both issues are proposed to be addressed, which will remove the procedural bottlenecks of claiming refunds from the Tax Department and improve ease of doing business. In case of business reorganisations, two controversial issues are proposed to be addressed to reduce litigation. First, clarification on slump sale, that it will include transfer of undertaking in any mode and hence a transaction like slump ‘exchange’ will be taxable, is a good step as it removes uncertainty for future transactions.

The second issue is of admissibility of depreciation on goodwill acquired in tax-neutral transaction like merger or demerger. Due to a Supreme Court ruling, one extreme view which prevailed was that depreciation is admissible even on self-generated goodwill acquired in tax neutral transactions like merger. The proposed amendment clarifies that not only self-generated but also potentially acquired goodwill will not be eligible for depreciation. The government has been making conscious efforts to reduce tax disputes through faceless assessment and ongoing Vivaad Se Vishwas scheme. In continuation of these measures, the FM has taken the bold step of weeding out two settled institutions, i.e., Settlement Commission and Authority for Advance Rulings (AAR), as they seem to have run their course. New institutions have been brought in to bring swifter tax certainty.

The proposed Dispute Resolution Committee provides a faceless mechanism for small taxpayers to resolve disputes and will hopefully bring in more efficiency, transparency and accountability. Considering that the Settlement Commission was the only forum for settling disputes outside the conventional litigation, the government should consider bringing in an alternative mechanism for settling tax disputes through mediation for large taxpayers as well.

The Board of Advance Ruling will replace AAR, which will function in faceless manner and its rulings will be appealable by both taxpayers and tax department before High Court. This will expedite further appeal to the Supreme Court. The government must act fast on the constitution of the new Board with seamless transition and disposal of pending matters. It is also necessary to put a specific timeline for delivering the rulings to improve certainty for investors.

The Budget holds many realistic promises and will accelerate the next wave of investments into the country. It’s time for Team India to shine again, against all odds.

LONG-TERM INVESTMENT IN INFRASTRUCTURE BY SOVEREIGN WEALTH FUNDS AND PENSION FUNDS WILL ALSO RECEIVE A BOOST OWING TO CERTAIN RELAXATIONS