post budget fsi

8/2/2019 Post Budget FSI

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Getting to the CoreBudget 2012 Analysis forbanking and financial services


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The Finance Minister, Dr. Pranab Mukherjees

Annual Budget or 2012-13 carried a lot o

expectations, especially ater the Railway budget

that undertook the bold step o increasing

passenger ares across the board ater a gap o

8 years in an attempt to bring back lie in to an

ailing behemoth. Similar to the Railways, the

Indian economy is also in a slowdown mode widening scal decit, uncontrolled expenditure

and subsidies, high infation, moderate credit o

take, low industrial production and an overall

slowdown in growth momentum amidst a global

crisis all raising the expectations rom the

budget that would bring a resh lease o lie in

the Indian economy.

While Dr. Mukherjees budget did deliver on a

ew counts, it would be a ar cry to call it a revo-

lutionary budget. It is a realistic and pragmatic

budget, with an overall ocus on bringing down

the scal decit. Most o the policies and amend-

ments proposed in the budget are thus aimed at

either controlling the expenditure (subsidies will

be controlled at 2% o GDP) or increasing the

revenue or the Government (additional mop-up

o Rs.45,000 Crores through indirect taxes) along

with ew measures o policy reorms. However,

an over-riding concern is that the budget is

more infationary in nature, has hardly any majorsurprises and the announcements are incremental

in nature with limited impact on aggregate

earnings estimates.

For Financial Services industry, the budget has

been a bit more positive. Similar to last year, the

key changes proposed by the Union Budget 2012

or the nancial sector ulcrum around 4 broad

themes:

IncreasingcapitalintheFinancialsector

PromotingFinancialInclusion

PromotingInfrastructureFinancing

Incrementalpoliciesandreformstomake

the nancial markets more responsive and

ecient

An increase in the banking capital by provi-

sioning o Rs.15,888 Crores is likely to provide

the leverage and the growth or Public Sector

Banks helping them readily meet the Tier I capital

requirements under Basel III norms and also

bring a greater ocus on the return on capital

employed.

Foreword


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Getting to the Core Budget 2012 Analysis or banking and nancial services| 3

Financial Inclusion has remained as the top

agenda or the Government and is widely viewed

as the next big accelerator or pushing demand

or nancial services. For this, various small steps

have been taken which includes extension o

the scheme Swabhimaan to habitations with

population o more than 1,000 in NE and hilly

states, Kisan Credit Card to now act as smart cardwhich could be used in ATMs, nancial support

o Rs.10,000 Crores to NABARD to renance

RRBs and encouraging UID-Aadhaar platorm to

support payments o MG-NREGA, pensions and

scholarships.

Inrastructure sector has been the other major

ocus area in this budget and several proposals

have been introduced to improve the capital

inusion in this sector like setting up o and

Inrastructure Debt Fund with an initial size o

approximately Rs.8,000 Crores to tap overseas

markets, increasing the target o tax ree bonds

to Rs.60,000 Crores and including more sectorsunder VGF scheme. To have access to low cost

unds, the Government has permitted External

Commercial Borrowings (ECBs) to partly nance

power projects, ulll working capital requirement

o airline industry and to und low cost housing

projects.

In terms o reorms, the budget proposes a ew

measures that are aimed at making the nancial

markets more responsive and ecient. It has

shown the right intent by proposing to present

the Standing Committee recommendations or

Banking, Insurance and Pension Amendment Bills

to the Parliament or approval in the next scal

year. While some o the recommendations are

reorm oriented increase the ceiling on voting

rights in case o private banks etc.; the most

awaited Insurance amendment bill o increasing

the FDI rom 26% to 49%, however, has been

suppressed in the recommendations. There is

also a ocus on deepening the reorms in CapitalMarkets by allowing oreign investors (QFIs)

to access Indian Capital markets, introducing

two-way ungibility o IDRs, bringing in more

transparency and better governance by encour-

aging e-voting acilities or extensive shareholders

participation.


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Key announcements in Union Budget2012-13 and its impact on Banking andFinancial Services Sector

Legislative Reforms

Budget Highlights

TheStandingCommitteerecommendations

on the The Pension Fund Regulatory and

Development Authority Bill 2011, The

Banking Laws (Amendment) Bill, 2011

and The Insurance Laws (Amendment) Bill

2008 to be moved in the current session othe Parliament

Proposaltotakeforwardtheprocessof

Financial Sector Legislative Reorms by

moving the ollowing bills in the current

Budget session o the Parliament:

The Micro Finance Institutions

(Development and Regulation) Bill, 2012

The National Housing Bank (Amendment)

Bill, 2012

The Small Industries Development Bank

o India (Amendment) Bill, 2012

National Bank or Agriculture and Rural

Development (Amendment) Bill, 2012

Regional Rural Banks (Amendment) Bill,

2012

Indian Stamp (Amendment) Bill, 2012

Public Debt Management Agency o

India Bill, 2012

Implications

Withthetablingofrecommendationsin the Parliament, the Government is

indicating its intent o taking orward the

reorms. However, the Standing Committee

recommendations on Banking, Insurance

and Pension Amendment bills are a mixed

bag.

While the Standing Committee has accepted

most o the recommendations in case o the

Banking Bill, including taking bank mergers

out o the purview o CCI to allow timely

approvals by RBI, however greater scrutiny

powers have been given to RBI; ceiling o

voting rights in case o private banks have

been retained though increased rom 10%

to 26%; quashed the most awaited proposalin the Insurance Amendment bill that o

increasing FDI rom 26% to 49%, potentially

depriving Indian Insurance rms the avenue

to raise growth capital

ThepassingoftheBankingBillwillpave

way or RBI to issue new licenses as the

regulator had set grant o more powers as

a pre-condition or allowing new players to

enter the business

Amongthenewbillsthatarebeing

introduced, the MFI bill will help reduce

uncertainty around regulatory ront and

make way or clear set o guidelines or

the MFIs to operate. Meanwhile, the Public

Debt Management Bill is the most critical

- proposing to set up an independent debt

management oce citing confict o interest

between RBI and its monetary policy

Tax Reforms

Budget Highlights TheexpeditiousenactmentofDTC

ThecommitmentontheintroductionofGST

CreatingastructureofGSTnetworkand

towards the drating o model legislation or

Centre and State GST

UseofPANasacommonidentierinboth

direct and indirect taxes


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Implications

Introductionofnewlegislationsfor

simplication o law and better compliance

Sharingofinformationbetweendirecttax

and indirect tax authorities

Banking

Budget Highlights ProvisionofRs.15,888Croresfor

capitalization o Public Sector Banks,

Regional Rural Banks (RRBs) and other

Financial Institutions including NABARD

Considerationforcreatinganancialholding

company to raise resources and meet the

capital requirements o Public Sector Banks

Extensionofnancialinclusionscheme

Swabhimaan to habitations with population

o more than 1,000 in NE and Hilly States

and more than 2,000 in other habitations

ProposaltotransformtheKCCintosmart

card which could be used at ATMs making

it an eective instrument or making

agricultural credit available to the armers

UID-Aadhaarplatformtosupportthe

payments o MG-NREGA; old age, widow

and disability pensions; and scholarships

directly to the beneciary accounts in

selected areas

CentralKYCdepositorytobedevelopedin2012-13 to avoid multiplicity o registration

and data upkeep

ForeignCompanysincomefromsaleof

crude oil to any person in India in Indian

Currency is proposed to be exempt subject

to conditions. This may incentivize payments

in Indian currency and strengthen the Indian

Rupee

BanksandInsurancecompaniesgoverned

under the applicable regulations have

been brought under MAT regime. (Judicial

precedents overruled). Gains on disposal o

revalued assets, even i not credited to the

prot and loss account, to be considered or

MAT purposes

Implications

Therecapitalizationprovisionwouldensure

continuation o balance sheet expansion

and business growth or the Public Sector

Banks, RRBs and other Financial Institutions

including NABARD, especially the entities

which could ace inadequacy o Tier-1 capital

in near to medium uture due to application

o Basel III norms in the current scal year

Strongerbalancesheetandhigher

Government share may also pave way or

consolidation in the Public sector banking

space in the medium term

Creationofanancialholdingscompany

is expected to assist the Government in

overcoming the trouble o periodic capital

investment in public sector banks that upsets

scal calculations

WiththeSwabhimaanschemeachieving

its earmarked target or the current scal,

the extension in this scheme coupled withprovision or PDS using the Aadhaar card

would help the Government move towards

its long term objective o nancial inclusion

TheproposedtransformationoftheKCC

into a smart card would aid Government

eorts in improving awareness and

promoting usage o nancial products

among the armer community


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ACentralKYCisexpectedtogoalongway

in avoiding multiplicity o registration and

data upkeep. This initiative would help in

establishing uniormity o customer data and

would simpliy and expedite the individual

KYCprocessforbanksandothernancial

institutions

Regional Rural Banks

Budget Highlights

Proposaltoextendtheschemeof

capitalization o nancially weak RRBs by

another 2 years to enable all the States to

contribute their share

ProposaltoallocateRs.10,000Croresto

NABARD or renancing the RRBs

Proposaltoset-upashorttermRRBcredit

Renance Fund to enhance the capacity o

RRBs to disburse short term crop loans to

the small and marginal armers

Implications

WithasignicantnumberoftheRRBs

having low CRAR, the Government through

its recapitalization eorts, intends to inject

resh capital to improve their CRAR and

enable these banks to enhance their lending

towards arm sector

WithRRBsaccountingfor~29%ofthetotalcredit extended by NABARD in 2010-11,

the Government intends to allocate a

large corpus to NABARD specically or

renancing the RRBs

Morethan80%ofthetotalcreditofRRBs

arises rom priority sector lending activities

and a signicant portion o this is accounted

by the agricultural sector and crop loans. A

short term RRB credit Renance Fund would

signicantly help in enhancing the capacity

o RRBs to disburse short term crop loans to

the small and marginal armers

Infrastructure Finance

Budget Highlights

Approvedaharmonizedmasterlistof

inrastructure to remove ambiguity in the

policy and regulatory domain and encourage

investment in the inrastructure sector

Encouragementofandinformationon

the set-up o an IDF with an initial size oRs.8,000 Crores to tap the overseas markets

or long term pension and insurance unds,

or nancing inrastructure projects

ProposedallocationofRs.50lakhCrores

towards inrastructure investment during the

12thPlanperiodwith~50%expectedto

come rom the private sector

Rs.60,000Crorestargetforthetaxfree


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bonds or nancing inrastructure projects

in 2012-13 including Rs.10,000 Crores each

or NHAI, IRFC, IIFCL and power sector, and

Rs.5,000 Crores each or HUDCO, National

Housing Bank, SIDBI, and ports

Inclusionofmoresectorsinthelistofsectors

eligible VGF under the scheme or support

to PPP in inrastructure - irrigation (includingdams, channels and embankments),

terminal markets, common inrastructure in

agriculture markets, soil testing laboratories,

capital investment in ertilizer, oil and gas/

LNG storage acilities, oil and gas pipelines,

xed network or telecommunication and

telecommunication towers

ProposaltooperationalizeaGovernment

owned Irrigation and Water Resource

Finance Company to mobilize large

resources to und irrigation projects

Implications

TheGovernmenthasshownitsstrong

inclination towards developing the

inrastructure in India. The harmonized

list would help the market participants

in removing ambiguity in the policy and

regulatory aspects and are expected to

catalyze investments in the inrastructure

sector IDFasaninvestmentvehiclefordeveloping

inrastructure in India as announced in the

previous year is seeing signs o ruition with

the recent announcement o Rs.8,000 Crores

IDF set-up by ICICI group, Bank o Baroda,

Citigroup, and LIC in March 2012. The

IDFs would urther boost nancing to the

investment starved inrastructure sub-sectors

such as power, telecommunications, roads

and ports in India

Itisexpectedthatthedevelopmentofthe

sector would need greater participation rom

theprivatesectortothetuneof~Rs.25

lakh Crores. This is expected to lead to more

expansive policies and regulatory reorms

avoring private participation in uture romthe Government and regulatory bodies

Withthehugesuccessoflongtermtax-free

inrastructure bonds in the past scal, the

budget has doubled the target or these bonds

to~Rs.60,000Crores.Thismovewouldallow

market participants to raise debt at a lower

rate compared to the market linked borrowings

in current high interest rate scenario and would

attempt to reduce the uture debt burden on

the inrastructure developers, encouraging

more investments in the sector

ExtendingVGFtomoresectorswould

encourage investments in those sectors and

would acilitate the Government in meeting its

inrastructure development targets or the scal

AGovernmentownedIrrigationandWater

Resource Finance Company to mobilize large

resources to und irrigation projects would

help the agricultural sector, however, the

details and timelines need to pondered upon

or more insights regarding the set-up andoperations o such a company

Capital Markets Securities

Budget Highlights

Proposalforaseriesofstepsindeepening

the reorms in Capital Market including:

Allowing QFIs access to Indian corporate

bond market


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Simplication o process o issuing IPOs

and lowering o associated costs

Mandatory to issue IPOs o Rs.10 Crores

and above in electronic orm

Allowing e-voting acility to provide

opportunities or wider shareholder

participation

Introduction o a two-way ungibility inIDRs permitted subject to a ceiling

ProposaltoreducetheSTToncashdelivery

transactions by 20%, rom 0.125% to 0.1%

Proposaltoallowbuybacks,stockexchange

listings allowed to CPSEs in divestment

mode

ProposaltointroduceRajivGandhiEquity

Savings Scheme where income tax deduction

o 50% o investment will be available to new

retail investors, who invest up to Rs.50,000

directly in equities and whose annual income

is below Rs.10 lakh. The scheme will have a

lock-in period o 3 years

Implications

Itisexpectedthatmeasuressuchas

allowing QFIs access to bond market,

simplication o IPO process, e-voting and

two-way ungibility would improve depth,

transparency, participation and fexibility o

the Indian capital markets WiththeproposedreductionintheSTTon

cash delivery transactions, there will be a

positive impact on the turnover in the cash

delivery segment

Theproposaltoallowpracticessuchas

buy-backs and listing or CPSEs at stock

exchange would provide a level-playing eld

compared to the private sector. This would

help the CPSEs to improve their returns

on public assets inducing a transparent

environment or the divestment process.

Capital Markets External Commercial

Borrowing (ECB)

Budget Highlights

PermissionofECBsinthepowersectorinorder to partly nance the Rupee debt o

existing power plants

PermissionofECBsforworkingcapital

requirement o the airline industry or one

year subject to total ceiling o US $ 1 billion

AllowingECBsforcapitalexpenditureonthe

maintenance and operations o toll systems

or roads and highways, i they are part o

original project

AllowingECBsforlowcostaffordable

housing projects

Proposalforreducingtherateof

withholding tax on interest payments on

ECBs rom 20% to 5% or three years or

sectors: power, roads and bridges, airlines,

ports and shipyards, aordable housing,

ertilizer and dams

Implications

Withhugeinvestmentsneededinthepower

sector, the permission or raising unds andpartly nance the Rupee debt o the existing

power plants through the lower interest rate

ECB route would be a huge positive or the

capital intensive industry

Inthelastfewyears,theIndianaviation

sector has seen a signicant amount o

turmoil, with large players such as Air India

and Kingsher Airlines showing signs o


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distress due to high ATF prices and their

inability to repay substantial debts on their

books. Other large players such as Jet Airways

and Spice Jet have also been acing similar

issues and allowing ECBs or working capital

nancing would lead to at least 150-200 bps

savings or these cash strapped players

AllowingECBsforcapitalexpenditurefortoll systems or roads and highways and low

cost aordable housing projects would give

an impetus to these sectors as the market

would have the fexibility to borrow at lower

rates through this route. Reduction in the

withholding tax rom 20% to 5% would

make lending to these attractive or the

lenders and is a move in the right direction

to boost urther infows in the country

Housing Finance

Budget Highlights

Proposalforsetting-upofaCreditGuarantee

Trust Fund to ensure improved fow o

institutional credit or housing loans

EnhancementofprovisionsundertheRural

Housing Fund rom Rs.3,000 Crores to

Rs.4,000 Crores

Proposalforenhancementoflimitofindirect

nance under priority sector rom Rs.5 lakhs

to Rs.10 lakhs Extensionoftheschemeofinterest

subvention o 1% on housing loan up to

Rs.15 lakhs where the cost o the house

does not exceed Rs.25 lakhs or another year

Implications

Theproposalsaddresstheshortageof

housing in rural and low income population

in urban areas by easing the availability o

unds or housing projects.

Theproposaltoenhancelimitforindirect

nance under priority sector aims to include

a larger gamut o indirect nance improving

the nance availability to priority sector

SME FinanceBudget Highlights

Proposalforsetting-upofaRs.5,000Crores

India Opportunities Venture Fund with SIDBI

InformationontwoSMEexchangesthat

have been launched in Mumbai recently to

enable these enterprises greater access to

nance

ApprovalforapolicyunderwhichMinistries

and CPSEs are required to make a minimum

o 20% o their annual purchase rom Micro-

and Small Enterprises (MSEs), o which 4%

will be earmarked or procurement rom

MSEs owned by SC/ST entrepreneurs

Exemptionavailableforcapitalgainsonsale

o residential property (house or land) where

the net consideration is invested in a Small

and medium enterprise (SME) subject to

specied conditions.

Implications

Proposalsaimtoprovideencouragementto MSMEs and SME in the manuacturing

sector with better access to unds

Priority Sector Lending

Budget Highlights

Revisedguidelineswillbeissuedonthe

existing classication and priority sector

lending ater stakeholder consultation


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Allowingtheinterestsubventionschemefor

providing short term crop loans to armers

at 7% interest per annum to continue or

2012-13

Anadditionalsubventionof3%tobe

available to prompt paying armers. In

addition, the same interest subvention on

post-harvest loans up to six months againstnegotiable warehouse receipt to be available

to encourage the armers to keep their

produce in warehouses

Proposaltoraisethetargetforagricultural

credit in 2012-13 to Rs.5,75,000 Crores

representing an increase o Rs.1,00,000

Crores over the previous period

Implications

Theproposalwillprovidereneddenition

o priority sector lending to widen the

net and make the priority sector lending

more eective in its reach and applicability.

This should address suggestions and

recommendations provided by various

bodies to dene priority sector such that it

includes areas o public benets. The banks

will need to update their policies in line with

the revised priority sector lending guidelines.

Theproposaltoraisetargetforagricultural

credit while being benecial to armersgiving them timely access to aordable

credit, will however be marginally negative

or banks. This especially considering the

act that agricultural sector contributed 44%

o the total incremental NPAs o domestic

banks in 2010-11, and this proposal would

place increased pressure on the margins or

banks

Venture Capital Funds

Budget Highlights

AllincomeofVCFsregisteredwithSEBIto

be tax ree and the investors in such VCF

to be taxed. Present restriction limiting the

exemption to income rom investments rom

only 9 specied sectors to be removed

Implications

AllowingincomeexemptionofallVCFs

would attract a greater number o

international unds to set-up their operations

in India and existing players to increase

their investment corpus. Although, the

current investments through this route are

not signicant in the economy, the current

proposal would be benecial or the sector

Direct Tax Proposals (Tax Rates)

Budget Highlights

Eective Corporate tax rates are:

Fordomesticcompanies,whereincome

exceeds Rs.1 crore - 32.445%, where

income is less than Rs.1 crore 30.6%.

Forforeigncompanies,whereincome

exceeds Rs.1 crore 42.024%, where

income is less than Rs.1 crore 41.2%.

Benecialtaxrateof15%ondividend

income rom oreign subsidiaries extendedby 1 year.

ExemptionfromDDTifdividenddeclaredby

holding company in same year as d ividend

received rom the subsidiary company on

which subsidiary company has paid DDT.

Implications

Nochangeinbasecorporatetaxrate,


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surcharge and cess or domestic and oreign

companies and DDT

CascadingeffectofDDTinmulti-tier

corporate structure removed

Direct Tax Proposals (Indirect transfer of

capital assets )

Budget Highlights Scopeofdeemedincomeexpandedto

include income rom transer o share or

interest in a Company / entity registered /

incorporated outside India i the share or

interest derives, directly or indirectly, its

value substantially rom the assets located in

India.

Thetermpropertyasusedinthedenition

o capital asset to include any rights o

management or control or any other

rights whatsoever in relation to an Indian

Company.

Enablingprovisionsalsoincludedinthe

denition o the term transer includes

disposing o or parting with an assets or any

interest therein notwithstanding that the

same is fowing rom the transer o shares

o a company registered or incorporated

outside India.

Validationofdemand

Notwithstanding anything contained in anyjudgment, decree or order o any Court

or Tribunal or any authority, any demand

arising on indirect transer o capital asset

shall be deemed to have been validly made

and can be collected or recovered and there

shall be no liability or obligation to make any

reund whatsoever.

Implications

Judicialprecedentsreversedbyretrospective

amendments

Possibilityofreopeningofassessments

Taxabilityofoffshorederivative(PNotes)

holders in India?

Whetherremovingofthedefectinthetax

law retrospectively (ex post acto law), which

could be construed as overruling o the

judicial decision by the legislation; would

be ultra vires o the principle o separation

o powers between the legislature and thejudiciary as each has its own respective

jurisdiction and powers?

Direct Tax Proposals (Taxable Income)

Budget Highlights

Sotware

Denitionofroyaltyamendedretrospectively

rom 01 June 1976 to specically cover


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the use or right to use computer sotware

(including granting o a licence). Medium

o transer not relevant or determining

taxability.

Bandwidth / Satellite transmission

Thetermprocessusedinthedenition

o royalty has been claried to includetransmission by satellite, cable, optic bre

or by any other similar technology, whether

or not such process is secret. Eective

retrospectively rom 01 June 1976.

Capital Gains

Incaseswhereconsiderationfortransferof

capital asset is not determinable, air market

value o the asset to be treated as sale

consideration.

Income rom Other Sources

Sharepremiumreceivedfromanyresident

by a company in which public is not

substantially interested, in excess o the air

market value, shall be liable to tax. However,

this does not apply to consideration received

by a venture capital undertaking rom a

Venture Capital Company / und.

Implications Increaseinscopeoftaxableincome

Direct Tax Proposals (Deductions)

Budget Highlights

Certain business expenditure like interest,

commission, brokerage, proessional ee, etc.,

paid to resident companies, proposed to be

allowed even i no tax has been deducted at

source, provided the resident payee has paid tax

on such sum

Implications

Reliefgiventotaxpayers

Direct Tax Proposals (International

Taxation)Budget Highlights

ResidencyCerticatemandatoryforclaiming

benet under the tax treaty

GAARintroducedprimarilytocodifythe

doctrine o substance over orm and to deal

with aggressive tax planning.

GAARprovisionsmayoverridetaxtreatiesto

prevent treaty abuse and bring certain cross

border transactions under taxation.

Anarrangemententeredintobytaxpayer

may be declared to be an impermissible

avoidance arrangement with attendant tax

consequences.

Consequencesofanimpermissible

avoidance arrangement:

disregard or ignore the arrangement or

part thereo,

recharacterise any step,

disregard any corporate structure,

denial o benets under tax treaty, etc.

Implications Conditionstoavailbenetsunderthetax

treaty

GAARintroducedtocounteraggressivetax

planning.

TheParliamentaryStandingCommitteeon

DTC GAAR recommends that the onus o

proving tax avoidance should rest with the

Department and GAAR should not lead


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to scal uncertainty. The Committee has

recommended prospective application o

GAAR. The Committee has highlighted tax

treaty override under GAAR as a serious

concern

Direct Tax Proposals (Transfer Pricing)

Budget HighlightsAdvance Pricing Arrangement (APA)

introduced

Introduction o Transer Pricing provisions to

Specied Domestic Transactions i the value o

such transactions in aggregate exceeds Rs.5

Crore.

TheSpecicDomesticTransactionsforthe

purposes o application o Transer Pricing

provisions would be as ollows:

Expenses/ payment transactions between

related persons;

Transer o goods/ services/ business rom

one unit/ undertaking o the Assesse to

another unit/ undertaking o the assesse,

claiming tax holiday

Clarifcation on applicability o allowable

variation rom Arms Length Price

Standarddeductionof5%cannotbe

claimedforalltheFinancialYearsstarting2001-02, but benet only i the variation

between Transer Price and Arms Length

price is within 5% o the Transer Price.

FromFY2012-13,thevariationpercentage

would be limited to 3% instead o 5%

International Transaction- Defnition clarifed

(with retrospective eect rom FY 2001-02)

Clarieddenitionoftangiblepropertyto

include building, transportation vehicle,

machinery, urniture, equipment etc. or

commodity or any other article, product or

thing etc.

Clarieddenitionofintangiblepropertyto include use o rights regarding land

rights, customer list, ranchise, marketing

channel, brand etc. or any other business or

commercial rights o similar nature.

Denitionnowincludesbusiness

restructuring or re-organization irrespective

o bearing on prot, income, losses current

or uture.

Reerence to TPO

TPOcandetermineArmsLengthPriceof

any international transaction entered into by

the assesse, not reerred to him by the AO,

provided that the taxpayer has not reported

the same under section 92E. Amendment

retrospectively rom 1 June 2002.

For cases concluded beore 1 July 2012, the

Assessing ocer will not have right to re-open

the case only on account o such amendment.

Implications

APAwillgrantincreasedcertaintyonarms

length price

Increaseinscopeoftaxabletransactions


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14

Direct Tax Proposals (Withholding and

collection of tax)

Budget Highlights

TDSontransferorcertainimmovable

properties (other than agricultural land)

TDS @ 1% i the consideration on

transer exceeds

Rs.50lakhsincasesuchpropertysituatedin

specied urban agglomeration; or

Rs.20lakhsincasesuchpropertyissituatedin

any other area.

I consideration is less than value adopted

or assessed by stamp duty authorities,

such value be deemed as consideration

or transer o such immovable property.

TDSonremuneration(otherthansalary)toa

director @ 10%.

Thresholdlimittowithholdtaxesoninterest

on debentures is increased rom 2,500 to

5,000. Itisclariedthatnon-residentsarerequired

to withhold taxes at source or any

payments made to any other non-resident

i the payment represents income o the

non-resident payee chargeable to tax in

India.

Tax Collection at Source (TCS)

Sellerofbullionorjewelleryshallcollect

tax @ 1% o sale consideration rom every

buyer i sale consideration in cash exceeds

Rs.2 lakhs.

Implications

Rationalizationofwithholdingandcollection

o tax at source

Direct Tax Proposals (Others)

Budget Highlights

Requirementtoissuesharesdispensed

with in case o amalgamation o subsidiary

company into holding company.

Requirementtoissueshareson

proportionate basis in case o demerger

is dispensed with where the demerged

company is subsidiary o the resultant

company

Dispute Resolution Panel (DRP)

TheorderofDRPisnowappealablebythe

Assessing Ocer to the ITAT with eect

rom 1st July 2012.

DRPisempoweredtopassdirectionson

any matter arising out o the assessment


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proceedings irrespective whether such

matter was raised or not. Amendment

effectiveFY2008-09.

Implications

Claricationofexistingpositiononmergers

and demergers

DRPmechanismatparwithrstappellateauthority

Indirect Tax Proposals

Budget Highlights

Servicetaxrateincreasedfrom10%to12%

Newslabsproposedforservicesinrelation

to purchase and sale o oreign currency

including money changing

Servicesprovidedbyalifeinsuranceservice

provider in cases where the entire premium

is not towards risk cover, in the rst year to

increase rom 1.5% to 3%

Invoicesfortaxableserviceshavetobe

issued within 30 days o provision o

taxable services. In case o banks, nancial

institutions or any other body corporate,

providing banking and other nancial

services, the time period shall be 45 days

Servicesreceivedbyaninsurancecompany

in respect o motor vehicle insured orreinsured by the company and by motor

vehicle manuacturers in relation to

insurance, repair, reconditioning, etc. o

motor vehicles will be an input service

Negativelistofservicescoversspecied

services related to Financial services

Implications

Increasedtaxburden


16/18

16

Conclusion

In conclusion, the budget was broadly positive

or the banking services sector. The strength-

ening o public sector banks and RRBs through

capital inusion is a big positive; so is the

process o carrying orward the reorms in the

nancial markets through introduction o new

bills and amendments in the Parliament. The

permission o ECBs in a variety o sectors is alsopositive and so is the big emphasis on inra-

structure nancing and nancial inclusion.

However some o the areas that the street

was expecting reorms in tax policy and

missed out, include, reduction and parity o

lock-in period or tax-saving bonds; increase in

exemption limits or housing loans; benet o

deduction in relation to NPA provisioning or

NBFCs; comments on wholly owned subsidiary

structure or oreign banks; and entry o new

private sector banks, etc. Tax burden or banks

is likely to increase due to tax proposals like

applicability o MAT provisions, increase in

service tax, etc.

While a lot more could have been accomplished

and addressed especially with regard to the

capital markets, mutual unds and insurance,

considering the current state o the economy,

the Finance Minister has done a credible job o

balancing infation with growth.


17/18


Glossary

ATF Aviation Turbine Fuel

ATM Automated Teller Machine

CCI Competition Commission o

India

CPSE Central Public Sector

Enterprises

CRAR Capital to Risk- weightedAssets Ratio

DDT Dividend Distribution Tax

DTC Direct Tax Code

ECB External Commercial

Borrowing

FDI Foreign Direct Investment

GDP Gross Domestic Product

GST Goods and Services Tax

HUDCO Housing and Urban

Development Corporation

Limited

IDF Inrastructure Debt Fund

IDR Indian Depository Receipts

IIFCL Indian Inrastructure Finance

Corporation Ltd

IPO Initial Public Oering

IRFC Indian Railway Finance

Corporation

KCC Kisan Credit Card

KYC KnowYourCustomer

LNG Liqueed Natural Gas

MAT Minimum Alternate Tax

MFI Micro Finance Institutions

MG-NREGA Mahatma Gandhi National

Rural Employment Guarantee

Act

MSME Micro Small and Medium

Enterprise

NABARD National Bank or Agriculture

and Rural Development

NHAI National Highway Authority

o India

NPAs Non-Perorming AssetsPAN Permanent Account Number

PDS Public Distribution System

PPP Public Private Partnership

QFIs Qualied Foreign Investors

RBI Reserve Bank o India

RRBs Regional Rural Banks

SIDBI Small Industrial Development

Bank o India

SME Small and Medium Enterprises

STT Securities Transaction Tax

UID Unique Identication

Authority o India

VCFs Venture Capital Funds

VGF Viability Gap Funding


18/18

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