Thursday, 2 February 2017

Budget 2017-2018 – Highlights of Financial Sector

Budget 2017-2018 – Highlights of Financial Sector
(In respect to Unlisted and Listed Market – Listing, Trading & Settlement, Transfer and Tax provision)
  1. Since more than 90% of the total FDI inflow is now through automatic route and FIPB has successfully implemented e-filling and online processing of FDI applications, the budget proposes to phase out FIPB in 2017-18 and roadmap for the same will be announced in few months.
  2. In order to benefit farmers a comprehensive legal and operational framework will be set to integrate spot market and derivative market for commodities trading with e-NAM being the integral part.
  3. Government will ensure a revised procedure for time bound listing of all CPSEs stocks on the exchanges and will be following the disinvestment policy in same manner as proposed in Budget 2016-2017. The shares of Railway PSEs like IRCTC, IRFC and IRCON will be listed in stock exchanges thus unlocking the true value of these companies. The government sees opportunities to strengthen our CPSEs through mergers, consolidation and acquisition. This all shall result into CPSEs bearing higher risk, economies of scale, help them take higher investment decision and create more value for shareholders.
  4. ETF, comprising of ten CPSEs has got a very good response in recent further fund offering thus Government will continue to use ETF for disinvestment of shares.
  5. The legal framework has been strengthened to facilitate resolution, through the enactment of the Insolvency and Bankruptcy Code and the amendments to the SARFAESI and Debt Recovery Tribunal Acts. In line with the ‘Indradhanush’ roadmap, I have provided ` 10,000 crores for recapitalization of Banks in 2017-18. Additional allocation will be provided, as may be required.
  6. Listing and trading of Security Receipts issued by a securitization company or a reconstruction company under the SARFAESI Act will be permitted in SEBI registered stock exchanges. This will enhance capital flows into the securitization industry and will particularly be helpful to deal with bank NPAs.
  7. The process of registration of financial market intermediaries like mutual funds, brokers, portfolio managers, etc. will be made fully online by SEBI.
  8. For operational efficiency a common application form for registration, opening of bank and demat accounts, and issue of PAN will be introduced for Foreign Portfolio Investors (FPIs). SEBI, RBI and CBDT will jointly put in place the necessary systems and procedures.
  9. Linking of individual demat account with Aadhar.
  10. Along with banks and insurance companies being classified as QIBs by SEBI , now even systematically important NBFCs regulated by RBI and above a certain net worth , are to be classified as QIBs thereby channelizing more investment in IPO market.
  11. Budget proposed to restrict the exemption from long term capital gains in case of transfer of listed shares by providing that the exemption, subject to notification of certain exceptions, shall be available if security transaction tax has been paid at the time of acquisition of such shares where they have been acquired after 1st October, 2004.
  12. It is proposed to provide that in case of transfer of unquoted equity shares, where the fair market value, determined in the prescribed manner is less than the consideration received, such fair market value shall be the deemed value of consideration for the purpose of computation of capital gains.
  13. It is proposed to provide tax neutrality in case of conversion of preference shares of a company into equity shares of that company.
  14. It is proposed to provide that the cost of acquisition of share of an Indian company in the hands of demerged foreign company in a tax neutral demerger shall be taken as the cost of acquisition in the hands of resulting foreign company.
  15. It is proposed to exempt capital gains arising out of transfer of a rupee denominated bond by a non-resident to a non-resident.
  16. It is proposed to provide a sun set clause(*) in respect of deduction allowed to certain persons in respect of investment in listed equity shares and listed units of an equity oriented fund.
  17. It is proposed to clarify that the amendment made by the Finance Act, 2016 in Section 112 of the Income-tax Act providing for concessional rate of tax in respect of transfer of share of a private limited company shall be applicable retrospectively from assessment year 2013-14.
  18. Holding period for immovable property is reduced to 2 years from 3 years for considering gain. Base year for indexation has been shifted to 1/4/2001 from 1/4/1981 for all classes of assets including immovable properties. This will increases mobility of assets and reduced capital gain liability. Budget proposes to extend basket of financial instruments in which the capital gain can be invested without payment of tax.
  19. The Government gave income tax exemptions to start-ups with certain conditions last year. For the purpose of carry forward of losses in respect of such start-ups, the condition of continuous holding of 51% of voting rights has been relaxed subject to the condition that the holding of the original promoter/promoters continues. Also the profit linked deduction available to the start-ups for 3 years out of 5 years is being changed to 3 years out of 7 years.
  20. In 2012, Income-tax Act was amended to provide for taxation of those transactions of transfer of shares or interest in a foreign entity deriving its value substantially from Indian assets. Due to some difficulties faced under this amendment, Government proposed to exempt Foreign Portfolio Investor (FPI) Category I & II from indirect transfer provision. I also propose to issue a clarification that indirect transfer provision shall not apply in case of redemption of shares or interests outside India as a result of or arising out of redemption or sale of investment in India which is chargeable to tax in India.

*(Note - sunset provision or clause is a measure within a statute, regulation or other law that provides that the law shall cease to have effect after a specific date, unless further legislative action is taken to extend the law.)

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