Provisions for increased public expenditure, impetus on infrastructure spending and extension of exemption to investors in a majority of small savings instruments in the upcoming budget can be a key trigger in accelerating the pace of the investment cycle in the economy and put it on a higher development trajectory.
The government needs to revive the weak demand sentiments, which have pervaded the agrarian sector through the formulation of an effective investment strategy and provision of fiscal incentives along the line of the Start-up India initiative. This demand can be unleashed through the introduction of a large-scale public works programme or a big ticket social sector scheme.
The budget should push for making financial instruments like fixed deposits and the accrued interest therewith tax-free whereby additional liquidity can be injected in the economy which can be invested to fast-pace the development of the infrastructure sector. The investment potential of long-term savings products like Unit Linked Pension Plans, Pension Plans and National Pension Schemes also needs to be enhanced by bringing them under the gamut of the Exempt, Exempt, Exempt (EEE) model in the upcoming budget wherein the amount invested in the product, interest earned on the product and the total income earned from the product are altogether exempted from tax. A majority of these plans, except the Public Provident Fund (PPF), presently come under the gamut of the Exempt, Exempt, Tax (EET) model wherein only the investment made and income on the investment are not taxed whereas the maturity amount of withdrawals are subject to taxation as determined by the tax slab of the individual investor.
The present income tax slabs need to be restructured by the government and more people need to be brought under the tax net. Emphasis needs to be given to taxing unorganized businesses under the presumptive taxation scheme.
With a view to providing affordable housing for all, especially in Tier I and Tier II cities, the government needs to uncork the potential of the private sector through measures like public private partnership (PPP). Private players can be encouraged to participate in large public housing schemes through the provision of fiscal incentives.
Impetus also needs to be given by the government to enhance investor confidence and bring retail investors back in the capital markets, largely through IPOs. All income accrued from alternate investment funds (AIF) should be given the pass through treatment, irrespective of the head of income, for improving business ease sentiment and the income classification into various heads should be done at the level of the investor. A debate continues to rage on whether income earned on divestment of securities should be classified as business income or capital gains. The issue remains complicated on account of amendments made by Finance Act, 2015 which omits pass through treatment for business income. Income earned on divestment of securities by AIF need to be categorized as capital gains by amending sec 2 (14) of the ITA. The government needs to eliminate taxation on dividend paid by companies as distribution tax on payouts are construed as double taxation on profits.
(The author is managing director and CEO of IndoStar Capital Finance.)
Views expressed here are personal