Sidhartha & Surojit Gupta
India budget 2014: new beginnings and new direction
- July 10 2014
- Income in the nature of interest
- Income in the nature of dividend
- Income in the nature of capital gains
- Income in the nature of business profits/lease rentals/management fee
- Tax treatment of the sponsor
- PSU banks likely to get more retail investments and see consolidation
- FSLRC initiatives and banking sector measures
- amending licensing norms to provide for new private banks on an ongoing basis rather than the current structure where licenses are granted selectively every couple of years. It is also proposed to bring in a separate licensing regime for small and differentiated banks serving targeted interests.
- introduction of uniform know-your-customer (KYC) norms and usability of records across the financial sector. This positive step should streamline procedural formalities and reduce processing timelines and costs.
- encouraging long term lending to the infrastructure sector - owing to the prevalent state of the infrastructure industry and the extremely high rate of credit defaults, banks to a great extent have been shying away from financing infrastructure projects. The Budget proposes to reduce statutory and other liquidity requirements that banks would need to maintain whilst extending credit to this sector. Though this is a much needed reform, its implementation will need to carefully tread systemic risk concerns.
- setting up of 6 new debt recovery tribunals in Chandigarh, Bengaluru, Ernakulum, Dehradun, Siliguri and Hyderabad. This step is likely to improve the immense lag in recovery suits which in turn should free up resources and ultimately improve the availability of credit.
- Revamping the Indian Depositary Receipts (IDR) Regime
- Limited two way fungibility: Initially the regulations for IDRs did not allow holders of underlying equity shares to convert such equity shares into IDRs. However, redemption of an IDR into underlying equity shares was permissible subject to the fulfillment of certain conditions. As an impetus for the issuance of IDRs, SEBI and RBI in August 2012 provided for a limited two-way fungibility. Despite this change, Indian stock exchanges have not seen a foreign company seeking to list its IDRs.
- Uncertainty on taxation: At present tax implications at the time of redemption of IDRs into underlying equity shares are not provided under the ITA. Accordingly, any gains arising on redemptions of IDRs into the underlying equity shares, if not specifically exempt under the IT Act, would lead to the situation of the holder being subjected to tax in the absence of any realized gains, and hence making a redemption unattractive
- Expanding the ADR/GDR framework
- Dampener for Mutual funds