Booster for DeMo as FM Limits Cash Donations to Political Parties at ₹ 2,000
The Economic Survey tantalisingly flagged the tagline “Demonetisation: To Deify or Demonise?” and suggested follow-up actions to achieve its stated objective of curbing black economy.
It seems the finance minister has taken the bull by its horns and implemented some key recommendations of the Special Investigation Team (SIT) like disallowing any cash transaction above ₹ 3 lakh as a tax deduction (capital or revenue) and of the Election Commission to limit cash donations to ₹ 2,000 to a political party. The FM has gone further to address the holiest grail of all – tax exemption for political parties – to be dependent upon compliance of donation norms and filing of timely tax returns. An innovative electoral donation scheme through bonds has also been announced to facilitate non-cash donations to political parties.
On capital gains taxation, while there was a foreboding of some changes in long-term capital gains tax exemptions on listed securities, the FM has actually sprung a pleasant surprise instead by reducing the holding period for land and building assets from three to two years to characterise as long term.
On the corporate tax front, the FM has chosen to provide for the full reduction in corporate tax rate from 30% to 25% for MSMEs (micro, small and medium enterprises) with turnover up to ₹ 50 crore while retaining the 30% tax rate for larger companies.
Since the rate reduction extends to 96% of registered companies, it will have a salutary impact but will disappoint large contributors to the economy whose tax rate, including dividend distribution tax, continues to exceed 42% if they declare full dividends. Also, for the larger companies, the proposal to limit interest deduction to 30% of Ebitda may increase their tax outgo.
Finally, the move to reduce personal tax rate to 5% for income slabs up to ₹ 5 lakh will leave larger disposable incomes to spend in the economy while at the same time protecting the country’s tax base.
The FM has addressed the holiest grail of all – tax exemption for political parties – to be dependent upon compliance of donation norms & filing of timely tax returns