The FM also sought to resolve the long-standing complaints of FIIs on the difficulty faced in the characterisation of their income arising from transaction in securitieswhether they are to be classified as capital gains or business income. It has now been clarified that all such income will only be classified as capital gains income and fund managers managing funds from India will not risk any adverse tax consequences.The dampener surely has been the FMs reluctance to roll-back the retrospective amendment on indirect transfer and the continuation of the minimum alternative tax and the dividend distribution tax (DDT) for SEZs. There has been no increase in the tax rates. However, the rationalisation of the calculation of DDT has raised the effective DDT tax rate to 20.47% from the present rate of around 17%. Long-term capital gains on debt mutual funds and unlisted securities will now be calculated with reference to the holding period of 36 months as is presently applicable to all assets (other than listed equity oriented securities).
The other daunting task the FM has decided to tackle is the fiscal deficit. In the Budget speech, Jaitley spoke of curtailing subsidies, with the government setting up an Expenditure Management Commission to look into government spending, including that on various subsidy headsfood, fuel and fertiliser. This will however take time.
The second way to tackle fiscal deficit is generating more resources. The Budget has many steps to bolster the manufacturing and infrastructure sectors as well as for stabilising taxes, which are likely to increase revenue. The raising of the FDI caps in insurance and defence manufacturing will help. However, these steps might not be enough and hence, the FM will have to rely on disinvestment. With strong stock market and investor confidence, he might be able to achieve this.
The next step is implementation and this is where the new government has the advantage in a prime minister with a sound track record on governance. Much of what the FM hopes to achieve will be a direct outcome of how these policies get implemented. As one reads the fine print of the Budget, there will be more clarity and better understanding and over the next few months, there will emerge a clearer picture of policy formulation.
The writer is Leader (Tax), PwC India. Views are personal