The second budget tabled in the parliament by Smt Nirmala Sitharaman focuses on issues that propels the growth of aspirational India. The budget presents roadmap to strengthen chemicals, oil & gas industry, pharmaceutical, fertilizer industries as well as overall industry & individuals in general, as peresented here.
Introduction
On weekend of 1st February 2020, where majority of the Indians were probably welcoming the 2nd month of the Year 2020, our Finance Minister Smt. Nirmala Sitharaman took up the responsibility to present the Union Budget 2020-21, which was one of the longest budget speeches of the budget history.
With less than three months before the budget to inject confidence into India’s economy, the Finance Minister slashed the corporate tax rates. However, due to slow growth in global economy, this was washed out. All the eyes were on new announcements to revive the Indian economy.
There was very less space left for Finance Minister to cover all the expectations of public and industry in this Union Budget 2020-21. A fabulous attempt was made to specify India’s mission for Year 2020-21by focusing on three prominent themes:
1. Aspirational India – Better standards of living, with access to health, education and better jobs;
2. Economic Development – Ensuring higher productivity and greater efficiency;
3. Caring India – Human and compassionate society.
Salient proposals in the Budget affecting chemical, oil and gas, pharma, fertilizers, science and technology and healthcare industry alongwith few major Budget announcements are discussed under.
Industry Specific Proposals
Chemical industry
While there are no specific policy provisions for the Chemical industry, the Government has proposed to abolish the anti-dumping duty on import of purified terephthalic acid (PTA) from certain countries, which is a critical input for textile fibres and yarns.
Further, to boost the chemical industry in India, the Government has proposed certain reductions on custom duty on raw materials and inputs imported by domestic manufacturers including raw materials used by chemical industry, (e.g. for import of Polyester Liquid Crystal Polymers for use in manufacture of connectors, the custom duty rate reduced from 7.5% to Nil).
However, it is pertinent to note that custom duty on following chemical industry related products have increased:
> Custom duty on Butyl Acrylate increased from 5% to 7.5%
> Custom duty on other prepared binders for foundry moulds or cores, chemical products and preparations of the chemical or allied industries increased from 10% to 17.5%.
Oil and gas industry
As far as oil and gas industry is concerned, from tax perspective, the Government has proposed to provide specific exemption to Indian Strategic Petroleum Reserves Limited (ISPRL) in respect of income accruing or arising as a result of arrangement for replenishment of crude oil stored in its storage facility. This is in pursuance to directions of the Central Government and subject to condition of replenishment of crude oil within three years.
The Finance Minister also proposed to reduce custom duty on few items related to oil and gas industry:
> Very low sulphur fuel oil meeting ISO 8217:2017 RMG380Viscosity in 220-400 CST standards/Marine Fuel 0.5% (FO) from 10% to 0%;
> Calcined Petroleum Coke from 10% to 7.5%
To deepen gas markets in India, the Government has been proposed to expand the national gas grid from the present 16,200 km to 27,000 km.
Pharmaceutical industry
The Government has paved the road ahead with ‘Pharma Vision 2020’ to catapult India’s contributions to the top of the global pharmaceuticals market. The Government is also streamlining its drug approval process and has amended the existing FDI policy to further tap into the potential of this sector.
The Government has identified that many mid-size pharma companies are successful domestically but not inexport markets and to boost such companies in export market, the Government has proposed to extend handholding support – for technology upgradations, R&D, business strategy, etc.
Further, to generate more opportunities for medical devices in domestic market the Government has proposed to impose 5% health cess on import of specified medical devices. The push for local medical equipment manufacturing will boost the devices industry.
Fertilizers industry
While there are no specific policy provisions for fertilizer industry, the Government has encouraged use of all kinds of fertilizers including the traditional organic and other innovative fertilizers to bring about a change in the prevailing regime that encourages excessive use of chemical fertilizers.
Science and technology
There are no specific policy provisions for the Science and Technology sector either. The Government has introduced new technology reform under the taxation laws in the form of e-appeal to impart greater efficiency, transparency, accountability and to ensure that the reforms initiated by the Government to eliminate human interface from the system reaches to the next level.
Healthcare industry
One of the key focus areas for this Budget 2020-21 on socio-welfare front is to widen the reach of affordable healthcare services.
Further, to promote domestic manufacturing of medical equipment, the Government has proposed to levy a health cess of 5% on the import of medical equipment (with certain exemptions). Proceeds from such a cess may be utilised towards building healthcare infrastructure in aspirational districts.
Other major Budget announcements
Personal tax
A new tax regime introduced to provide relief to certain taxpayers. The bill proposed to provide for an option to an individual and HUF taxpayers to apply lower tax rates as per new tax regime.
In order to prevent tax abuse, the Government has proposed to modify the provisions relating to residency for individual tax payers particularly Indian Citizens or Person of Indian Origin living outside India.
Further, to rationalize the tax treatment of employer’s contribution to recognized PFs, superannuation funds and National Pension Scheme, the limit of employer’s contribution towards aforesaid funds has been capped to INR 0.75 m in the previous year.
Corporate tax
Dividend Taxation
As a step to rationalize the provisions of the Act, the dividend distribution tax (DTT) has been proposed to abolish and the incidence of dividend taxation has been shifted in the hands of the recipient/shareholder. The domestic company or mutual fund will not be required to pay any additional tax on distribution of income. Further, on account of change in the dividend distribution tax regime, additional tax of 10% on individual shareholders has also been proposed to be abolished.
Rationalization of provisions for startups
The Government has proposed to defer perquisite taxation on exercise of ESOP for employees of eligible startups. Further, the turnover criteria for eligible startups to qualify for tax holiday has been proposed to increase to INR 100 crore (from the existing INR 25 crore).
Apart from the above, the flexibility has been provided to eligible startups to claim tax holiday for three consecutive years out of ten years from incorporation (from existing seven years).
Widening and Deepening of Tax Base
In order to widen and deepen the tax net by bringing participants of e-commerce within the tax net, withholding tax on e-commerce transactions @1% (5% if no PAN/Aadhaar) has been introduced whereby e-commerce operator is required to withhold tax on proceeds paid to e-commerce participant (i.e. seller).
A new provision related to levy of Tax Collection at Source (TCS) on (a) remittances made under Liberalized Remittance Scheme of RBI, (b) sale of overseas tour packages and (c) sale of goods has been introduced.
Further, the withholding tax rate on Fee for Technical Services (other than professional services) has also been reduced from 10% to 2%.
Removing Difficulties Faced by Taxpayers
In order to settle existing direct tax litigation, an alternative dispute resolution scheme “Vivad Se Vishwas Scheme” has been introduced by the Government. The scheme is introduced to provide complete waiver of interest and penalty where payment of disputed tax arrears is made by the tax payer on or before 31 March 2020.
The safe harbor limit for real estate transactions has been increased to 10% (existing 5%).
Further, it has also been proposed to extend relief to non-resident tax payers / foreign companies to furnish tax returns in India if income consists of royalty or FTS and appropriate taxes has been withheld in accordance with the withholding tax rates provided under the Act.
Other
- To enhance effectiveness of tax administration e-appeals has been introduced
- Turnover / gross receipts threshold limit for tax audit requirement increased from Rs 1 crore to Rs 5 crores in certain cases
- Changes in due date for filing tax return, tax audit and transfer pricing report proposed:
Concluding Remarks
It seems attempts are made to create a win-win situation for both the Government (in achieving its aim of USD 5 trillion economy by year 2024) as well as for the public at large (with alterative taxation scheme for individuals and boost to start-ups). On a macro level, our Finance Minister has focused on building trust, bringing in certainty, attracting investments and in reducing litigation.
