Nine point Budget Wishlist from Financial Services

The stakeholder expectations from the decisively re-elected Central Government and the new Finance Minister’s maiden Union Budget are diverse and understandably optimistic. But considering the sops already offered by the populist Interim Budget, the overhauling of the income-tax law by the impending Direct Tax Code and the need for a pragmatic approach to tackle the current fiscal conundrum, one needs to tame the expectations from the 5^th July event.

Having said that, certain financial services sectoral wish-lists warrant attention and action:

1. The exemption from thin capitalisation rules granted to banking and insurance sector, if extended to NBFCs, will grant much needed respite to the liquidity crunch hit shadow-banking industry.
2. Like Category I AIF and Category II AIF, income-tax pass-through status to be extended to Category III AIFs.
3. Like Category I FPI and Category II FPI, exemption from overseas transfer provisions to be extended to Category III FPIs.
4. To encourage investments by FPI in debt, the sunset clause for lower withholding tax rate of 5% on interest income earned on certain bonds and Government securities be extended beyond 30 June 2020.
5. Restrictive caps on FDI need to be relaxed (say for instance in the insurance sector) for proliferation of FDI inflows.
6. Fresh issue of tax-free bonds to provide the requisite impetus to infrastructure projects.
7. With the withdrawal of long-term capital gains tax exemption, levy of STT needs to be reconsidered – either STT to be abolished, or allowing rebate of STT paid, or allowing deduction of STT paid for computation of capital gains.
8. Indian branches of foreign banks set up in International Financial Services Centre be taxed on a net basis and after allowing Chapter VIA deductions.
9. Apart from the MAT provisions, providing clarifications on income-tax impact of transitioning to IndAS accounting.