Finance Minister Nirmala Sitharaman will present the 2024-25 Union Budget on July 23. Ahead of the budget, the fintech industry has several expectations from the government. These expectations aim to support the sector, helping India achieve its goal of becoming the third largest economy in the world and becoming a developed country by 2047, in line with the government’s target.
The pre-budget discussions with industry groups have already kicked in and several industry leaders are expecting the government to make this budget growth-centric. Here are some key expectations from the upcoming budget.
Tax Relief Measures to Boost Consumption
There is widespread expectation that the Union Budget 2024 will introduce income tax reforms aimed at reducing the tax burden on lower income brackets to stimulate spending. Currently, income tax rates range from 5% for earnings above Rs 3 lakh to 30% for incomes exceeding Rs 15 lakh, in the new tax regime. There is potential for rationalising this structure to increase disposable incomes, thereby stimulating economic activity and GST collections.
Also Read: Union Budget 2024: Why Standard Deduction limit needs to be increased to Rs 100,000!
Enhancements to the Tax Regime
Many taxpayers are eagerly anticipating changes in the new tax regime, which has not seen widespread adoption despite offering lower rates. There is hope for additional deductions to make this regime more attractive. A significant proposal under consideration is raising the Section 80C deduction limit from Rs 1.5 lakh to Rs 2 lakh, a limit last revised during Arun Jaitley’s tenure as Finance Minister.
Expanding Benefits Under the Old Tax Regime
Section 80C of the Income-Tax Act, 1961, includes various savings and investments such as LIC and PPF contributions. However, stakeholders argue that the current Rs 1.5-lakh limit restricts investments in areas like fixed deposits, ELSS, and housing loan principal. There is strong anticipation for this deduction limit to be increased to Rs 2 lakh annually to accommodate a broader range of investment options.
Inclusion of additional documents in DigiLocker
Given the proven success and popularity of DigiLocker among Indian citizens, the inclusion of additional documents frequently required by banks and other financial institutions on the platform would further increase user convenience and help in the quick, secure, and transparent digital issuance of credit. These documents are EPFO passbook, e-PAN, and Form26 AS.
Adhil Shetty, CEO of Bankbankbazaar.com, says, “These additional documents can act as a digital proof of verification carried out by banks and lending institutions. Inclusion in DigiLocker would enable users to digitally access and submit their documents for quick approval of credit applications by banks and other financial institutions. For customers, they would have convenient, anytime access to their documents.”
Digital Lending Regulations for Fintechs
There is need for a level playing field between online and offline lending. Hence, there is a need to extend the consumer-centric regulation implemented for digital lending industry to the offline loan industry, too. This includes various consumer-centric measures mandated for digital loans such as key fact sheet of terms, grievance redressal processes, cooling-off period for loans, consent-based consumer data collection, storage, usage, and several such other measures currently limited to digital lending (Digital Lending Apps (DLAs)) only, being extended to all loans including loans disbursed via offline channels, which constitutes the majority of the market in India. Extending all regulations equally to both online and offline lending will create a level playing field for both types of lenders to grow and power India’s economic growth towards Vision 2046.
Taxation Parity of Listed and Unlisted Equities
Listed and unlisted equities should be treated at par for computation of LTCG. It goes without saying that the government should weed out shell companies for such LTCG benefit. This benefit can be extended to unlisted entities, including legitimate and genuine unlisted FinTechs and Start-Ups that provide critical value-addition to economy, with requisite qualification criteria:
1. In the BFSI sector, those fintech entities who are registered with one of the financial sector regulators.
2. In the MSME sector, those entities with Udyam Registration that meet requisite capital and revenue requirements.
Special Treatment for Startup ESOPs
In an earlier Union Budget, the Finance Ministry has aimed to revise the ESOP tax burden for start-up employees. To resolve the issue of dual taxation on employee-held ESOPs, the government proposed the deferment of the tax payment by five years, or until employees leave the company, or sell their shares – whichever comes earlier. However, due to the qualification criteria, benefits of this move have been limited to a few start-ups.
The industry recommends extending these benefits to more start-ups by relaxing the criteria:
1. In the BFSI sector, those fintech entities who are registered with one of the financial sector regulators
2. In the MSME sector, those entities with Udyam Registration that meeting requisite capital and revenue requirements.
Digital India Act
The Digital India Act requirements to align with other Regulated Entities and Digital Intermediaries.
Financial services entities are governed by multiple regulators including RBI, SEBI, PFRDA, and IRDA. They also come under guidelines like the Digital Lending Guidelines, and the DPDP Act, which outlines the norms for evolving digital ecosystem, digital services, digital apps, and financial intermediaries providing services to these regulated entities.
Regulated entities in the financial services industry, and financial intermediaries (including loan service providers, web aggregators, etc.) need unique considerations and distinct regulations due to their role in a multi-stakeholder ecosystem. These entities are subject to comprehensive, risk- based regulations. For instance, they retain data for longer, and report it far more broadly than other types of intermediaries due to KYC, anti-money laundering norms or obligations under the Prevention of Money Laundering Act 2002.
Compliance with the financial sector digital norms should grant regulated entities and digital financial intermediaries safe harbor protection under the DIA. Financial intermediaries are often required to take specific actions on behalf of regulated entities and have extensive due diligence and due care obligations mandated under law. Liability imposed on financial intermediaries despite their compliance with extensive regulations should be rationalised as they could have unfair and damaging effects on the whole financial services sector. Therefore, that protection should continue to be made available to them till such time as they remain compliant with sector regulations.
These initiatives will help reduce the burden on the common man by leaving more money in their hands and pave the way for the growth of the fintech industry in the country.
