In the context of the rising warning about the economic trends, the Finance Minister Ms Nirmala Sitharaman unveiled a booster package to the economy. The package that has 32 measures is expected to bring up consumption and investment besides pacifying the markets that registered steep decline in the last two days.
The measures include correction of the some of the tax measures – the budget announced surcharge on FPIs and the infamous angel tax. Another step is the withdrawal of criminal treatment to non-realization of CSR norms. Incentives for banks and NBFCs to induce liquidity, support measures for MSMEs, encouragements for the auto and housing sectors are the other major components of the package.
Following are the major support measures announced under the package:
Housing sector: NHB will increase housing loan funding from Rs 20000 crores to Rs 30000 crore. The step will provide additional fund flow to the real estate sector and may revive demand. Corporate sector: CSR violation no more a criminal offence: violation of CSR regulation by corporate will come under civil proceedings. This will improve good will between the government and the corporate.
Startups: Angel tax withdrawn for all startup registered with the DPIIT: The Angel tax which is an income tax to be paid by a startup entrepreneur on the higher valuation he obtained from investors has been a trust deficit in the government’s support measures for the sector. Here, the government announced several concessions for removing the tax with conditionalities. Now, under the package, the startups that registered with DPIIT; that is the nodal institution for startup policy are completely exempted from the tax. As of now, there are nearly 21500 startups registered with the DPIIT. For all these startups, the angel tax will not be applicable.
Banks will have to pass on repo rate reduction to consumers: the meaning of the policy is that
whenever the RBI reduces the repo rate, the banks should come out with interest rate reduction.
But the implementation of the policy needs more preparation. The government has to force the
bank management to follow the RBI step. At present, banks are reluctant to do the rate cut, fearing
business loss and administrative costs.
Automobile sector: BS IV Vehicles can be operated till the cars registration period ends. Similarly,
both EVs and liquid fuel vehicles can be continued till the validity period.
Government departments can buy new vehicles to replace the old ones.
Higher vehicle registration fee is deferred till June 2020.
MSMEs: All pending GST refunds for MSMEs will be settled in 30 days from august 23 rd . Future
refunds will be cleared in 60 days.
Tax administration: All income tax notices will be sent through a centralized computer system. Some of the measures announced by the FM is corrective ones especially the withdrawal of surcharge on FPIs. Here, in the last budget when the FM announced higher surcharge of 42.7% for individual and entities with income above Rs 5 core, it indirectly hit the Foreign Portfolio Investors (FPI). Most of the FPIs in India are not registered as corporate or companies. Hence, they are subjected to the tax rules of individuals and are bound to give tax rate of 42.5% (if their income cross Rs five crore). This has adversely affected the FPIs and the new step is expected to improve sentiments among FPIs.
Support measures to the auto sector and the housing sector will give relief as these two are the base sector for household expenditure. Revival of these two is expected to arrest the slowdown.