Whilst the tax rate reduction in the last budget for foreign companies was a welcome move, still there remains a significant gap in the tax rate applicable to foreign bank operating in India through a branch vis-à-vis the Indian Banks. Since foreign bank branches also significantly contribute to the growth of Indian economy, for them to be competitive/ at par with the Indian banks, further reduction in tax rate for them should be considered.
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Securities Transaction Tax (STT) was introduced in lieu of an exemption for long-term capital gains and concessional tax for short-term capital gains from listed equity shares/ units of equity oriented mutual fund. Now that both are being taxed at competitive rate, it warrants abolition of STT.NBFCs are growing at a good pace due to the increasing demand for financial credit and overall digital transformation. Since many NBFCs are functioning like banks (sans their ability to seek deposits), income-tax benefits available to banks have been gradually extended to certain categories of NBFCs. On the said lines, enabling amendment was made to exclude certain class of NBFCs from thin capitalization interest disallowance. It is imperative that certain class of NBFCs are notified immediately to give effect to the said amendment. It is also expected that suitable amendment be made i) to regard the conversion of interest payable into debentures/ bonds under specific circumstances as payment of interest and ii) to extend exemption from TDS on interest payable to NBFCs.
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The GIFT-IFSC has been a significant initiative to position India as a global financial hub. To promote financial activities within IFSC, the Government has time to time provided various tax incentives (which includes tax holiday in respect of the business income of the units established therein). The following incentives would further make GIFT-IFSC robust and attractive:
- Insurance companies when compared to companies of other sectors typically have a longer gestation period. To enable insurance companies to penetrate their roots in IFSC and for their growth, tax holiday period should be increased to 15 or 20 years.
- Non-residents are exempt from tax on income earned from the transfer of ODIs and distribution of income on ODIs issued by offshore banking units in the IFSC (registered as FPIs). Similar exemption should be extended for ODIs issued by IFSCA registered / permissible non-bank entities (registered as FPIs). Whilst green and sustainable finance is the need of the hour from the ESG standpoint, absence of any lucrative tax incentives puts it on the slow track. To make it attractive, suitable tax relief (exemption of income from green bonds issued by IFSC entities, weighted deduction for the borrower, etc.) can be considered.
While CBDT has extended tax relief for SWFs/ Pension Funds to 31 March 2025, as against the previous sunset date of 31 March 2024, further extension and relaxation in conditions (eligible range of sectors, duration of holding investments, etc.) for tax relief should help in meeting the development needs of India.
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Budget 2023 eliminated exemption of TDS on payment of interest on listed debentures. This created issues in expected cash flow, inaccuracies in yield-to-maturity calculations, etc. Reinstating the exemption should remove complexity and bring ease of compliance.
Timely processing of appeal effect applications and issuance of tax refunds is the luxury which the taxpayers look forward to. Specific amendment mandating the Jurisdictional Assessing Officer/ Centralized Processing Centre to take required action within the specified timelines should draw confidence.
The Government’s continued focus on enhancing the ease of doing business reflects its commitment to fostering an investor/ taxpayer friendly environment and driving economic growth. Over the years, measures such as simplifying compliance processes, digitizing regulatory framework, and introducing single window clearances have improved India’s growth. The above expected changes should further comprehend the vision of the Government for the Viksit Bharat.
(The authors Sunil Badala is Deputy Head of Tax and National Head BFSI-Tax at KPMG in India and Bhavesh Malde is a Chartered Accountant)
