Nirmala’s Budget Is Much-Needed Morale Booster

The asset reconstruction company to buy and resolve stressed portfolio is much needed one especially with stressed assets expected to reach 14%, writes DIVAKAR VIJAYASARATHY* Founder & Managing Partner, DVS Advisors LLP.

As expected, health has been given a prominent platform and was the first pillar of the budget speech and has increase in allocation of around 138% is definitely a welcome move.
On the direct tax front, the FM has given great relief by not increasing the rate. For the first time, the tax payers may not complain for not reducing the rates and appreciate for maintaining the rates given the extent of fiscal deficit. The exemption from filing ITRs for senior citizens with only pension and interest income is definitely welcome.

The increase in tax audit limit of 5 crs to 10 crs for businesses with digital transactions. The increase in time limit for affordable housing projects deduction and additional interest on loan borrowed for affordable housing will compensate the time lost due to the pandemic. In a similar manner, extended time has been provided to start-ups on all aspects.

The most important relief for all businesses would be the reduction in time limit for reopening of assessment would from 6 to 3 years for normal cases and only in the case of concealment of income of over 50 lacs it has been retained at 10 years. This would go long way in boosting investors’ confidence and ensuring tax certainty. In continuing with the reforms, now ITAT appeals have also been made faceless.

The other important amendments for the capital market would include no advance tax liability on dividend, unless it is declared or paid. 

On the tax exemption front, the government has announced to relax certain conditions for exemptions to be met by sovereign wealth funds. This would definitely positive indication that the government is listening to the investors and this comes in the backdrop of PM’s meeting with the sovereign wealth funds last year. Further the government has also extended tax incentives to funds which relocate to IFSC in Gujarat. This would definitely encourage the funds to think on relocating to IFSC. 

There are other steps which are on the expected line – the increase in FDI limit for insurance companies from 49% to 74% was overdue. The response is to this, however, is to be seen since still majority in board and conditions of independent director have been stipulated.

The setting up of DFI is inevitable if the infrastructure target is to be met. 5 lac cr of debt portfolio has been set over a period of 5 years has been set. The same might have to be increased but it’s a good start.

The asset reconstruction company to buy and resolve stressed portfolio is much needed one especially with stressed assets expected to reach 14%. Recapitalisation of 20,000 crores seems to be on the lower side.

The permitting of one-man company with flexibility to conversion to any other constitution definitely would support ease of doing business. Increase in capex by around 35% to 5.54 lac crore but as done in the FY 20 – 21, the spending is expected to be over and above this limit.

The fiscal deficit has been much higher than expected at 9.5% for 20 – 21 but in the ensuing year it is estimated at 6.8%. More importantly the government has spelt the road map of fiscal consolidation and to achieve less than 4.5% of GDP by FY 25-26.

The government has clearly full steam to promote IFSC (GIFT City) and to rationalise regulations to boost investor confidence on tax certainty and ease of compliance. It has made significant amendments to expand exemption for units in IFSC especially for relocation of funds to IFSC, airline leasing and investment arms of the foreign banks. Further, the government has also proposed to ease conditions for sovereign debt and wealth funds to enable investments. The reduction of time limit for reopening of cases from 6 years to 3 years and expansion of faceless assessments to Tribunals ensures commitment to certainty and transparency.  On the whole, the budget has checked all the right boxes and sent affirmative signals across stakeholder diaspora. It has evidently boosted the morale at a much-needed time for the nation.

(*An ex-banker Divakar Vijayasarathy is the Founder and Managing Partner of DVS Advisors LLP – an international professional services company offering Tax, Legal, Risk and M&A Advisory Services for domestic and global businesses.}