The Honorable Finance Minister presented her second Budget with the longest speech in history, announcing various policy reforms for sectors like agriculture, rural development, irrigation, education etc. which, if implemented in its true spirit, wouuld certainly boost the economy to achieve its target of $5 trillion in the coming years. Budget proposals reinforce the government’s commitment to promote digital and Make in India initiatives, increase livelihood for farmers, attract foreign capital and speed up infrastructure development.
In spite of the long speech that was expected to clearly spell out details of tax proposals, a careful reading of the Budget document brings out several aspects that significantly alter the tax landscape in India. A lot has already been said about the new tax slabs, which, though optional to the taxpayers are extremely difficult for an ordinary taxpayer to comprehend and assess its suitability or relevance.
The new regime apparently seems attractive on paper, but it may not actually lower the tax outflow when compared to the existing tax structure. Also, the new tax regime would demotivate an individual to save and invest, where hitherto a tax benefit was a sweetener, thereby adversely impacting the wealth creation in the economy; which is not in line with the importance given to wealth creation in the Economic Survey.
Some of the other amendments where the fine print may need some refinement include the income tax amnesty scheme which without any special waivers or relaxations, may not get a similar response as the amnesty scheme for Indirect Taxes; abolishment of DDT regime without introducing a lower rate of taxation on dividend income and limiting the interest expenditure allowance adversely impacts most resident high-income taxpayers by a potentially higher effective tax outgo. While there is a provision that permits set-off of dividend received by one domestic company from another domestic company to eliminate cascading, there is no express provision to deal with dividend received by a domestic company from its foreign subsidiary resulting in cascading impact on such dividend for India companies with global operations.
Global Indians are feeling scorched in these February winters by some of the Budget proposals. The proposal for taxation based on a lower threshold of stay in India, and lack of tax residency in another country, tax withholding on overseas remittances and compliance requirements could impact personal lifestyles and encourage the flight of capital and talent pool from India. For a stable and simple tax regime, there is an urgent need for clarification on some of the amendments to ease the anxiety and apprehension in the minds of many honest taxpayers, the NRI community, high net-worth investors and promoters. Hope the Finance Minister is listening to the murmurs from all the impacted sections of society and brings necessary changes or clarifications before the Budget provisions come into force.