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Cyril Amarchand Mangaldas: Perspectives on Union Budget 2023-24
Mumbai: A cross-domain and cross-sectoral ready-reaconer, summarising the perspective of Partner's at Cyril Amarchand Mangaldas, on the implications of the key proposals of the Union Budget 2023 - 24.
Perspective of Cyril Shroff, Managing Partner, Cyril Amarchand Mangaldas, "By laying a significant emphasis on Capex and Energy Transition, the FM has provided foundation for strong anti-cyclical momentum that should enable robust domestic economic growth and help counter the expected global headwinds. The focus on making India future-ready by way of AI labs, Agri-tech, R&D in healthcare, further boosting Digital Public Infrastructure and holistically expanding physical infrastructure, auger very well for sustained long-term economic growth." Taxation: Overall
1. Private sector capital investment
Perspective of SR Patnaik, Partner & Head - Taxation, Cyril Amarchand Mangaldas, "As expected, the FM has proposed to extend the timelines for new undertakings to be set up till March 31, 2024 for tax holidays available under section 80IAC of the IT Act. This will encourage further investments by taxpayers by another year which can help significant amount of private sector capital investment."
Perspective of SR Patnaik, Partner & Head - Taxation, Cyril Amarchand Mangaldas, "The proposal to carry forward unabsorbed losses for a period of ten years will assist start-up companies to plan their business operations in a more effective way, especially those industries that has a longer gestation period."
3. Changes in taxation on Online Gaming
Perspective of SR Patnaik, Partner & Head - Taxation, Cyril Amarchand Mangaldas, "The proposal to tax earnings from online games at the rate of 30 per cent may help in formalising the industry even though it may impact the growth."
4. Taxation w.r.t. ReITs and InvITs
Perspective of SR Patnaik, Partner & Head - Taxation, Cyril Amarchand Mangaldas, "Budget 2023 has proposed to make distributions (other than interest, dividend and rent) from a business trust to a unitholder taxable under the head 'income from other sources' from FY 2023-24.
Repayment of debts/ redemption of unit would be covered under the proposed change.
This is subject to the following:
1. The distribution should not be chargeable to tax in the hands of the business trust (under 115UA(2))
2. Sum received on redemption of unit will be reduced by cost of acquisition of the units.
The issue that is there is that in case a person had given a loan and is receiving repayment of the same, he may be liable to pay tax on the gross amount received by him without deduction the original amount of loan granted by him."
1. Faster processing of IT Returns
Perspective of SR Patnaik, Partner & Head - Taxation, Cyril Amarchand Mangaldas, "The emphasis of the Government to internalise information technology seems to have borne results because the average processing period of 6.5 crore returns is 16 days only with 45% of the same getting completed within 24 hours."
2. Focus on reducing pending Tax appeals
Perspective of SR Patnaik, Partner & Head - Taxation, Cyril Amarchand Mangaldas, "The intent of the Government to reduce pending appeals by allocating work to 100 Joint Commissioners is a welcome move and can further the objective of ease of doing business."
3. Agniveer Fund
Perspective of SR Patnaik, Partner & Head - Taxation, Cyril Amarchand Mangaldas, "Proposal to grant "EEE" status to Agniveer Fund is expected to popularise the Fund."
Taxation: Capital Gains, LRS and HNI's
1. Capital Gains Tax
Perspective of Kunal Savani, Partner, Cyril Amarchand Mangaldas, "The leitmotif in the numerous representations made by various stakeholder in the run up to the Budget 2023, was the need for rationalisation of the extant capital gains tax regime to remove disparities therein and thereby simplifying it. Stakeholders across sectors had expressed concerns over the varied tax treatments meted out under capital tax regime, depending on period of holding, nature of asset, manner of disposal, residential status of the taxpayer, the legal status of the taxpayer etc. Unfortunately, these expectations and representations have failed to find a place in the Budget 2023."
On the contrary, the Budget 2023 proposes to introduce a separate tax regime for tax taxation of capital gains arising in case of 'market linked debentures. Further, the exemptions available to taxpayers on re-investment of capital gains in residential property have also been proposed to be capped.
2. Increase in TCS in foreign remittances under LRS remittances
Perspective of Kunal Savani, Partner, Cyril Amarchand Mangaldas, "The proposed increase in the TCS on foreign remittance under the LRS scheme (and sale of overseas tour packages) is likely to pose challenges for resident investors looking to invest in foreign stocks and securities/investment products in the Gift City. While taxpayers can claim credit or refund for such TCS applicable on such remittances can be claimed back as refund, it does cause cashflow issues. Accordingly, the proposed increase in the TCS rates would effectively reduce the exiting LRS limits available to resident investors for investing in offshore securities."
3. Capital Gains Tax and Real Estate Impact
Perspective of Kunal Savani, Partner, Cyril Amarchand Mangaldas, "Capping of long-term capital gains tax exemption on acquisition of real estates to INR 100 million is a major speed breaker for luxury real estate projects. Contrary to the intention of these provisions i.e. to mitigate shortage of housing, such provisions exempting capital gains on acquisition of residential house were frequently used by HNI's/UHNIs for offsetting their gains on sale of prime residential houses or on sale of other eligible capital assets (mainly equity shares). Quite a few unicorn promoters and key management team members holding stock options have taken advantage of these provisions and invested in luxury residential properties. Accordingly, in order to curb these practices, the government has now proposed to curtail the benefits available under these provisions to the extent of INR 100 million."
Financial Sector Regulations and Reforms
Perspective of Richa Roy, Partner, Cyril Amarchand Mangaldas, "The proposal to encourage all financial sector regulators to undertake a comprehensive review of regulations indicates a move towards more evolved regulatory governance. This buttresses the move of trust-based regulation - a recurring policy theme. It is an opportunity foster a deeper culture of compliance, allow regulations to be pre-emptive rather than reactive to leapfrogging technology and market developments. It could also be an opportunity for enhancing the process for regulation making to engender both legitimacy and accountability. The proposal on enhancing bank governance through legislative amendments is an opportunity create a uniform, levelled up playing field for bank governance. This will significantly augment confidence in the banking sector and improve confidence in the functioning of the banking system".
Perspective of Ketaki Mehta, Partner - GIFT City, Cyril Amarchand Mangaldas, "In relation to GIFT IFSC, Budget 2023 greatly emphasized on ease of doing business by streamlining the procedure through establishment of a single window clearance system for various inter-regulatory approvals and processes and providing a solution to dual legislation. This will greatly encourage many private entities to consider GIFT IFSC with renewed enthusiasm."
1. Energy Transition and Green Energy
Perspective of Ramanuj Kumar, Partner, Cyril Amarchand Mangaldas, "As expected, the Union Budget has increased allocations for infrastructure investment and energy transition with special emphasis on logistics and transportation. This will create greater opportunity for private sector investment and help achieve India's NDC commitment under the Paris Agreement."
2. Railways: Impact of capex boost on Railways
Perspective of Ajay Sawhney, Partner, Cyril Amarchand Mangaldas, "The outlay will bolster construction activities including demand for steel, aluminium and electronics products among others, provide employment opportunities and enhance logistics network strengthening last mile connectivity to ports giving impetus to schemes like Indian Maritime Vision 2030."
3. Shipping: Impact of supporting PPP model through VGF
Perspective of Ajay Sawhney, Partner, Cyril Amarchand Mangaldas, "Focus on enhancing coastal shipping though PPP mode and VGF would help towards achieving aggressive targets for capacity expansion which have been identified under the Sagarmala project. Deployment of funds towards coastal shipping would also lead to cost optimisation at end user side".
ESG: Budget Goes for Green Economic Growth
Perspective of Bose Varghese, Sr. Director - ESG, Cyril Amarchand Mangaldas, "Budget goes big on green growth. Net zero push sees investments in energy transition, energy storage, and interstate power transmission.
The green credit program, if notified under the Environment (protection) Act, can lead to large scale afforestation projects in the private sector. While this may not make significant additional contribution to climate mitigation, it can certainly help accelerate infrastructure projects that require forest land. The compensatory afforestation can indeed become real."
AI and setting up of Centres of AI centres in educational institutions
Perspective of Vivek Kathpalia, Managing Director & CEO - Singapore, Cyril Amarchand Mangaldas, "The announcement of opening 3 AI centers in some of the top educational institutions is very timely. The gov needs to urgently supplement and support the work the private sector is doing in the AI space. China is leading us and most of the world in the AI race and we need to catch up fast."
Data Embassies and focus on Technology Media & Telecom (TMT)
Perspective of Arun Prabhu, Partner & Head - TMT, Cyril Amarchand Mangaldas, "The first union budget of Amrit Kaal reflects a demand side and supply side focus on key technology such as AI, Robotics and Drones. This includes inclusion of key imperatives such as inclusion and unleashing potential, and creating capability, through centres of excellence in AI, and a skill India platform. Data embassies under the IFSC framework promise to be an innovative and exciting new avenue of growth for the emerging data centre economy in India."
R&D focus in Pharma and Healthcare
Perspective of Ashwin Sapra Partner & Head-Healthcare, Cyril Amarchand Mangaldas, "Support to R&D in the pharma sector is a welcome decision. It will help India become a leader in pharma innovation on the global stage."
Real Estate impetus through Sustainable Cities, Urban Infrastructure and Logistics
Perspective of Abhilash Pillai, Partner, Cyril Amarchand Mangaldas, "Transit oriented development (TOD) will have a significant role in developing 'Sustainable Cities'. This will free up more FSI for both residential and commercial development. A lot more stress has been given for urban infra development. Further, focusing on 100 critical transport infra projects for last mile connectivity will be a shot in the arm of logistics business. The regional air connectivity will also give new impetus to city side developments."
Enhancing support and infrastructure Disputes Resolution and Arbitration
Perspective of Shaneen Parikh, Partner & Head - International Arbitration, Cyril Amarchand Mangaldas, "Perhaps recognising that the government is the country's most prolific litigant, a welcome measure is the setting up of a standard voluntary settlement scheme for government entities where an arbitral award is under challenge. Such settlements would give much needed relief to both the government entities as well as private organisations who would otherwise be mired in long drawn and costly litigations."
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