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Slew of measures announced to pull economy out of slump

Govt to release Rs 70,000 cr upfront, and additional lending of Rs 5 lakh for PSBs

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Union Finance Minister Nirmala Sitharaman
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In a serious bid to address the concerns raised by investors and corporate houses, Finance Minister Nirmala Sitharaman announced a slew of measures for the revival of a flagging economy, which hit a five-year low of 5.8% in January-March

She declared rollback of additional levy on foreign funds, withdrawal of enhanced surcharge on long and short term capital gains, immediate infusion of Rs 70,000 crore, which was earmarked in the Budget to boost the capital of banks. The move to frontload capital injections for state-run banks will help spur fresh loans, she said. Further, due to the increase in surcharge in the Budget, the effective income tax rate for individuals with a taxable income of Rs 2 crore to Rs 5 crore went up to 39% from 35.88% and for those above Rs 5 crore to 42.7%. She also introduced a transparent mechanism to end alleged tax harassment of businesses.

"The pre-Budget position is restored," she said, adding it was done to encourage investment in the capital market. The tax proposal, along with a lack of measures to boost the economy announced in the Budget, had resulted in foreigners withdrawing more than $3 billion from Indian shares, putting pressure on stocks and the Rupee.

The Finance Minister said CSR violations will not be treated as a criminal offence, and the Ministry of Corporate Affairs will review sections in Companies Act on CSR violations.

For startups and their investors, angel tax provision has been withdrawn. Also, banks will issue improved one-time settlement plan for MSMEs, Sitharaman added. According to the minister, a dedicated cell under a member of CBDT will be set up for addressing the problems of start-ups.

On the issue of pending GST refunds for MSMEs, she said that they will be paid within 30 days and in future, all GST refund matters will be resolved within 60 days. NFBCs will now be able to use Aadhaar-authenticated KYCs to simplify the taking up of credit.

A Leg Up

 Withdrawal of enhanced surcharge on Foreign Portfolio Investors on long and short-term capital gains
 Govt to release Rs 70,000 cr upfront, and additional lending of Rs 5 lakh for PSBs
 Ban on purchase of vehicles by govt depts lifted. BS-IV vehicles bought up to March 2020 to remain operational

Home and auto loans are also set to cheaper, she said, as banks have agreed to pass on the rate cut announced by the Reserve Bank of India (RBI) to customers. "Banks have agreed to link Repo Rate to interest rate, which will reduce EMIs for housing and vehicle loans, and other retail loans," Sitharaman said. "It will also benefit customers who have mortgaged assets."

To address the slowdown in the auto sector, the ban on the purchase of vehicles by government departments will be lifted and allowed an additional 15% depreciation making it 30% on vehicles acquired from now till March 2020. Apart from this, BS-IV vehicles purchased up to March 2020 will remain operational for the entire period of registration. The government is also considering a scrappage policy. The revision of one-time registration fees has been deferred until June 2020, and both electric vehicles (EVs) and Internal Combustion Vehicles (ICV) will continue to be registered.

Tax experts have welcomed this stimulus package. PwC India Partner Bhavin Shah said that the removal of higher surcharge on capital gains will not apply to Alternative Investment Funds (AIFs) which deal in derivative securities where the characterisation of income is business income.

On the other hand, Deloitte India Partner Rajesh H Gandhi said FM's announcement of measures is a very positive development which would give fill up to the capital markets. "Tax rates for FPIs will come down by 4% to 7% back to the pre-Budget levels and this removes the anomaly created by the Budget 2019,'' he noted.

Ashish Shanker, head of Investment Advisory at Motilal Oswal, said this should help stir positivity. The steps taken to infuse liquidity in the banking and NBFC sector should help alleviate stress in the system and set in motion the recovery process.

''Reforms is a continuous process for this government," said the minister. "Now, faster approvals are being given for mergers and acquisitions. GST filing will also be simplified further with fewer forms and will meet GSTN officials to remove further glitches in GST filing process," she added.

She expressed optimism saying India's growth is still much higher than global growth especially when US and Germany are seeing inverted yield curves, indicating lower growth.

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