Booster for DeMo as FM Lim­its Cash Dona­tions to Po­lit­i­cal Par­ties at ₹ 2,000

The Economic Times - - Front Page -

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

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