Great expectations: What India wants from the Budget

KS Badri Narayanan

The Union Budget for FY21-22, which will be presented on February 1, is awaited by all stake holders, especially India Inc and investors, with huge expectations. As Finance Minister Nirmala Sitharaman gets ready to present her third Budget, growth-inducing ideas and inputs are being sought from industry, which would be used to formulate a post-pandemic ‘Budget as never before’. Hopes are running high in Dalal Street of an all-front development, growth-oriented Budget. There is no second opinion on what the government’s focus will be on in this Budget: With Covid-19 pandemic exposing weaknesses in India’s healthcare system, experts see a jump in healthcare spending. Besides, with top priority on creating jobs, the Budget will spend additionally on urban housing that will generate low-skilled jobs.

Boost for logistics

Most analysts are pinning hopes on some favourable announcements for logistics and automobile sectors.

The Centre is expected to come out with a roadmap for vehicle scrapage scheme to drive the automobile sector, on the whole, and the commercial vehicle segment, in particular. There is also demand for subsidy/incentives for using (electric vehicle) EVs for commercial/logistics purposes and for transportation of essential/food products.

With the logistics industry going into the digital mode in a big way, analysts want Government support in the form of tax concession to encourage investment in technology that will improve operational and cost efficiency in the long term and make India’s logistics industry more competitive globally.

Another focus area would be the banking and finance space. With talks of the government setting up a bad bank to takeover NPAs from public sector banks, experts are keen on how that would be capitalised. Based on the recommendations of the 2014 PJ Nayak committee, the Centre is looking to create a bank investment company to consolidate its holdings in the PSBs, experts believe.

LTCG, STT in focus

On the stock market front, there are constant demands such as tweaks in long-term capital gains (LTCG) tax and securities tax transaction (STT). While some expect the complete abolition of LTCG, others see the possibility of extending the definition of holding period to two years from the current one year. Similarly, there are calls for reduction in STT to reduce trading cost .

Similarly, analysts also expect the minimum threshold for dividend distribution tax to be hiked from ₹5,000 to ₹50,000.

AMFI demand

The Association of Mutual Funds in India (AMFI) wants the LTCG tax to be scrapped for intra-scheme switches. It also expects the Budget to bring parity in tax treatment with respect to capital gains on withdrawal of investments in ULIPs of life insurance companies and redemption of MF units, to bring about a level-playing field.

The mutual fund body is also for abolition of the STT levied at the time of redemption of units by the investor.

Another major demand from the AMFI is for bringing in uniformity in the holding period for LTCG for direct investment in listed debt securities/and zero-coupon bonds (listed or unlisted) and for investment through debt mutual funds.

The minimum holding period now for units of debt-oriented mutual funds (listed or unlisted) to qualify as long-term capital asset is more than 36 months.

However, for direct investments in listed securities — such as bonds/debentures, Government Securities and derivatives listed on a recognised stock exchange in India and zero coupon bonds (listed or unlisted) — the holding period to qualify as long-term capital asset is just 12 months.

For REIT, market participants want, the government should reduce the timelines of investment from three years to one year for LTCG to attract larger retail investor participation and easing a long-term funding challenge for such projects.