Vijay Kumar Gaba

ले दे के अपने पास फ़क़त इक नज़र तो है, क्यूँ देखें ज़िंदगी को किसी की नज़र से हम —साहिर लुधियानवी

Last Thursday, the finance minister presented an interim budget for the fiscal year 2024-25. The budget presentation had two part – (i) rhetorical and (ii) substantive.

The first part included a speech about the performance of the governments led by Prime Minister Narendra Modi for the past 10 years and promises for the next 23 years. The finance minister spoke about how in 2014 their government inherited an economy that was in shambles; and how they have pulled it out from a total mess and put it on the fast track to achieve the status of a developed nation by the year 2047; when we would celebrate 100 years of our independence from the colonial British rule. The finance minister also promised to implement a slew of development schemes over the next five years. She however refrained from listing any specifics or financial details.

The second part included (i) the accounts of the government for FY24; (ii) fiscal proposals for FY25, and (iii) a vote on account to meet the government’s expenses till a new government is formed and a full budget is approved by the parliament. This is the part that needs to be discussed and analyzed.

Fiscal prudence – achievement vs desirability

The finance minister presented that the fiscal deficit target for FY24 has been revised downward to 5.8% (Budget estimates (BE) 5.9%) and budgeted a fiscal deficit for FY25BE at 5.1% of GDP. She emphasized that the government is well on course to achieve the FRBMA target of a 4.5% fiscal deficit by FY26. The sharp improvement in the fiscal deficit has been received well by most. A tight balance is particularly commendable given the impending general elections. In my view, we need to ponder deeply over the following five points:

1.    At this stage of economic development, whether this degree of fiscal tightening is desirable? FY24RE shows that to meet the fiscal targets, the government has cut capex spending also. Is it appropriate to save on capital expenditure to meet fiscal targets? FY25BE growth in capex spend on key sectors is very moderate.

2.    FY25BE further confirms the trend of the past three years that the government is systematically cutting its consumption expenditure, subsidies, and social sector spending while allocating more for manufacturing and export incentives. Should investors assume that our economy is taking a left turn toward the Chinese model of growth (primarily manufacturing and infrastructure capacity building) from a largely consumption and social sector capacity building led growth?

3.    The budget does not explain why Rs one trillion, 50-year interest-free loan to states shall not be considered part of the fiscal deficit. For all practical purposes, it’s a drain on the center’s finances that will likely never be returned.

4.    Interest expense now constitutes 25% of the total government spending. There is no indication that this proportion will come down any time soon. On the contrary, with fiscal deficit staying at 4% of GDP or above for at least three more years, and greater reliance on high-cost small savings funding of deficit, it is likely that the proportion of interest in total expenditure may rise further. Under these circumstances, the sovereign rating of India may not see any upgrade anytime soon.

5.   With the current valuations of PSEs, disinvestment looks increasingly improbable. The government has not presented an alternative plan for fundraising so far.

 

…

“Sir, I rise to present the Budget of the Central Government for the year 1962-63. The main purpose of this Budget is to place before Parliament an account of the finances of the Central Government for the current year and to obtain from the House a vote on account to meet the expenditure of the Government until the new Parliament considers the Budget again.” (Shri Morarji R. Desai, Minister of Finance, introducing the interim budget for the year 1962-63)

Tomorrow, the union finance minister will present an interim budget for the fiscal year 2024-25. An interim budget is necessitated due to the impending general elections, which ought to be completed by the end of May 2024. The union budget for the current fiscal year 2023-24 authorized the expenses of the union government till 31 March 2024. The incumbent government has the mandate to be in power only till the general elections are completed and a new government is sworn in. It is a convention of parliamentary ethics that the incumbent governments make policies and programs only for the period they are mandated by the electorates to be in power.

Therefore, conventionally, governments have avoided making any policy announcements in the budgets, if general elections are to be held within 2-3 months of the due date for the budget. The finance minister usually seeks a vote on account to get parliamentary sanction for the government expenses to be incurred between the beginning of the new fiscal year (1 April) and the presentation & approval of the normal budget by the newly elected parliament. Though ‘Vote-on-Account’ has been referred to as an “interim budget” by many finance ministers, it may not be the correct description of this exercise.

I considered this introduction necessary to put the discussions and narratives being run in media and markets, in right context. Even industry associations and professionals are making suggestions to the government and fueling speculations about tax reliefs, industry-specific incentives, tax-rate restructurings, etc. The whole narrative appears to be based on assumptions that the incumbent government does not care about the established conventions of parliamentary ethics and it may make populist announcements ahead of the general elections.

These assumptions are based on the breach of convention by Shri Piyush Goyal, the extant finance minister, in the interim budget of 2019. The government announced ₹6,000 direct cash transfer to farmers having up to 2 hectares of land. under Pradhan Mantri Kisan Samman Nidhi; ₹3,000 per month pension after 60 years of age to unorganized sector labor under Pradhan Mantri Shram Yogi Mandhan; hike in the standard deduction for salaried people, and some relief in TDS. These schemes entailed an additional fiscal burden of approximately rupees one trillion.

I would like to consider the 2019 interim budget as an exception rather than a norm. I am therefore not expecting any breach of parliamentary ethics in the 2024 interim budget. I shall watch the interim budget only for two data points –

(i)      Fiscal deficit for FY24, considering it was the first complete normal year post-Covid and Ukraine war-led disruptions.

(ii)     Nominal GDP projection for FY25, since this is used as a denominator for calculating fiscal deficit as a percentage of GDP; Tax to GDP ratio; corporate profit to GDP ratio, etc.

More on this tomorrow…

 India rates: Liquidity update (Nomura Securities)

 The Government of India has rolled out an integrated food security scheme effective from 1 January 2023. The new scheme shall remain effective till 31 December 2023. The scheme is estimated to cost the central government rupees two trillion. Under the scheme, the government would provide 5kg food grains per person to Priority Households (PHH) beneficiaries and 35 kg per household to Antyodaya Anna Yojana (AAY) beneficiaries, free of cost.

The scheme has apparently subsumed two extant food subsidy schemes of the central government, viz.,

(a)   Food Subsidy to Food Corporation of India (FCI) for discharge of obligations under The National Food Security Act, 2013 (NFSA). Under this scheme Under the scheme, 5 kg food grains per person is provided to Priority Households (PHH) beneficiaries and 35 kg per household to Antyodaya Anna Yojana (AAY) beneficiaries at a subsidized rate of Rs 3 per kg for rice, Rs 2 per kg for wheat, and Rs 1 per kg for coarse grain.

(b)   Food subsidy for decentralized procurement states, dealing with procurement, allocation and delivery of food grains to the states under NFSA, popularly known as the Pradhan Mantri Garib Kalyan Anna Yojana (PMGKAY) started for 9 months in April 2020 to mitigate the effect of Covid pandemic on poor and extended twice thereafter. Under this scheme beneficiaries registered under the NFSA were provided an additional 5 kg of foodgrain per month for free.

This implies that by implementing the new integrated food security scheme:

(i)    The central government would save about Rs1.5 trillion on food subsidies in the calendar year 2023.

(ii)   The beneficiaries registered under NFSA would get free ration for one year; though the quantity of ration available will be less.

(iii)  The state governments who were claiming credit for free ration actually funded by the central government will not be able to do so.

The new scheme is thus a fiscally prudent and politically smart move by the central government. It has however evoked a variety of criticism. For example, the political opponents are criticizing the government that the very fact that over 81 crore still need subsidized or free food indicates the failure of the government's economic policies. The economic and financial market experts have criticized the government for failing in controlling subsidies. Their criticism is that the government is increasing subsidies which it will find politically inexpedient to unwind; and hence burden the future governments.

In my view, the criticism may not be fair, or, inter alia, the following reasons.

·         The National Food Security Act was enacted in 2013 by the UPA government, in recognition of the fact that the fundamental right to life enshrined in Article 21 of the Constitution includes the right to live dignity that essentially includes the right to food and other basic necessities. This in fact is a globally accepted good practice for welfare states.

·         The fact that 75% of the rural population and 50% of the urban population is entitled under NFSA to subsidized food does not necessarily imply that as many households cannot afford to buy food for their sustenance. This could just be a mechanism to compensate for poor minimum wage structure; faulty agriculture pricing mechanism; disproportionate indirect tax structure; and inadequate social infrastructure, especially health and education. Besides, this should be seen as a direct and effective wealth redistribution mechanism.

·         Number of people availing subsidized food cannot be a good measure of poverty.

·         The incumbent government has shown resolve in managing subsidies by not increasing fuel subsidy, despite political pressures, increasing fertilizer prices and imposing GST on common food items. Despite being a challenging year, the government is most likely to meet its budgeted fiscal deficit targets. Consequently, the Indian bond markets have shown remarkable stability, defying turmoil in the global bond markets.

·         The restructuring of food subsidy schemes could be the first step in the direction of further rationalization of food subsidy from 2024 onwards.

Overall, in my view, NFSA, like MNREGA, is a transformative legislation. This ensures a dignified life for over 800 million people; and thus provides stability and resilience to the economy. The government’s commitment to obligations under NFSA must be commended, not criticized.

 The benchmark indices in India are now trading at their highest ever levels. In fact, in the past one year, India (+9.6%) has been one of the best performing equity markets in the world, in line with the emerging market peers like Brazil (+8%), Russia (+9%), and Indonesia (+7.5%) etc. Only a few emerging markets like Venezuela (+107%), Argentina (108%), and Egypt (+15%) have done much better.

For many Indian investors these statistics could be meaningless. To some it may actually be annoying as the performance of their individual portfolio may not be reflecting the benchmark performance. Regardless, largely the equity market returns have been reasonable, considering the challenging environment. It is therefore a moment to celebrate.

Once the celebrations are over, it would be appropriate to ask ourselves “whether at ~18700, Nifty is adequately taking into account all the factors that may impact the corporate performance, risk appetite, liquidity and financial stability in 2023?” In particularly, I would like to assess the risk-reward equation of my portfolio especially in light of the factors like the following:

Stress on discretionary spending

In the recent months several companies have rationalized (or announced the plans) their workforce. A significant number of highly paid workers are facing prospects of job loss. Anecdotal evidence suggests that the uncertainty created by a 2% workforce rationalization could temporarily impact the discretionary consumption plans of at least another 48% employees who retain their jobs.

Reportedly, IT hiring from the top colleges in India are likely to witness a 50% fall in 2023 (see here). We might see similar trends in other sectors also as most management have guided for a moderate growth in next few quarters.

My recent visits to several rural areas indicated that discretionary consumption in farmer households has already been impacted by poor income in the 2022 Kharif season. As per reports La Nina (excess rains) conditions that impacted crops for the past four seasons, are likely to persist through Rabi season, while the 2023 Kharif season might witness El Nino (drought like) conditions. (See here)

Erosion in wealth effect

On the last count India had more than 115 million crypto investors (see here). About two fifth of these investors were below the age of 30, thus having a strong risk appetite. These investors had seen sharp gains in their crypto in 2020-21m but apparently they are now sitting on material losses in their portfolio.

A significant number of new listings, especially from tech enabled businesses, are trading at material losses to their immediate post listing prices. These businesses typically have a material part of their employee compensation in the form of ESOPs. Many employees who had seen substantial MTM gains in their ESOP values have witnessed material drawdowns in their portfolio values. A few of them might be facing double whammy of material MTM losses and tax liability.

A number of small and midcap stocks that jumped sharply higher in 2020-21 have corrected significantly in 2022.

Obviously, the wealth effect created by the euphoric movement in stock and crypto prices has subsided to some extent. This submission of wealth effect shall also reflect on risk appetite, consumption pattern and investment behaviour of the concerned investors.

Tightening fiscal conditions

Lot of market participants are betting on continued fiscal support to infrastructure & defence spending, and incentives like PLI etc.

It is pertinent to note that the forthcoming budget would be the last full budget before the general elections to be held in 2024. It is likely the government chooses to increase the social sector funding at the expense of capital expenditure next year. The disinvestment program might also be slowed down to avoid adverse publicity for the government. Imposition of additional tax(es) or hike in capital gains tax could also be considered. All these events could impact the investors’ sentiment.

Rising external vulnerabilities

The external sector has been weak for a few quarters now. The trade deficit in October 2022 widened to a worrisome US$26.91bn. Exports dropped ~17% in October 2022 on slower global demand; while imports were still higher by ~6%.

Notwithstanding the efforts of the government to improve trade account by import substitution and export promotion; the exports have grown at a slow 4.3% CAGR in the past three years; whereas the imports have registered 14.3% CAGR in the same period, resulting in larger trade deficit. The external situation thus remains tenuous.

It is pertinent to note that the World Trade Organization (WTO) has projected a sharp slowdown in world trade growth in 2023. (see here) Obviously, the pressure on balance of payment will remain elevated in 2023.

Cash on sidelines may protect the downside

Overnight (liquid) funds are now yielding a return of ~5% p.a. Bank deposits are offering 5.5-6% return. Under the present circumstances, at ~18700, the upside appears limited to 8-10% while the downside could be much more than 10%. Obviously, the risk-reward equation is not favorably placed at this point in time, and the opportunity cost of holding cash is not bad. This could keep a lot of money waiting at the sidelines.

Higher cost of carry and margins have also resulted in lesser leveraged positions in the market. 

The cash on the sidelines and lower leverage may keep the downside somewhat protected.

The latest macro data indicates that the Indian economy may be standing at an inflection point. Having survived a major accident in the form of Covid19 pandemic, the economy looks stable, having progressed well to reach closer to the pre Covid level of activity. Of course, for next few quarters the economy may still need to use the support of government spending, before the virtuous cycle of higher investment and consumption kick starts.

Post pandemic, the challenges before the government are multifold; and so are the opportunities. A successful resolution of these challenges could trigger a virtuous cycle of growth and catapult the economy to the higher orbit. A failure may not be an option, as it could cause a disaster of unfathomable proportion.

Besides, merely achieving a full ‘V’ recovery to the pre pandemic level of economic activity will be inadequate, since pre pandemic the economy was slowing for many years and was completely unable to generate adequate jobs for the burgeoning youth population. The government will need to apply multiple accelerators for the sustainable growth to reach to the target of 8% plus.

The pandemic has widened the divide in the society, as the recovery so far has been rather ‘K’ shaped. Income and wealth inequalities have widened. Disparities in access to digital infrastructure have amplified the divide in social sectors like healthcare and education. The gap between organized and unorganized sectors has enlarged materially. To maintain harmony and peace in the society, these gulfs would need to be managed.

As per a study done by the Azim Premji University scholars, “one year of Covid-19 pandemic has pushed 230 million people into poverty with a 15 per cent increase in poverty rate in rural India and a 20 per cent surge in urban India."

CMIE data showed that “the unemployment rate has gone up as high as 12 per cent in May 2021, 10 million jobs have been lost just on account of the second wave and 97 per cent of the households in the country have experienced declines in incomes”.

The labour force participation rate was at 40.22% in the period between May-August 2021, according to latest data by the CMIE. It has remained at about 40% since the start of the pandemic, compared to about 43% before it. This is the lowest the labour force participation rate has been since 2016, when data was first compiled.

Exports, one of the key growth drivers, have persistently failed to deliver in past one decade. There is no sign of any major improvement in exports, especially when the global growth has already plateaued after post pandemic push. Considering that India’s capex is closely related to exports and global trade, the probability of any material pick up in private capex appears slim.

Poor export growth and high petroleum and gold imports have resulted in sharp increase in trade deficit for India. Consequently, INR has come under pressure. USDINR is its weakest level now and looking even more vulnerable given its outperformance vs EM peers in past one year.

Persistent food and energy inflation is key concern, though other industrial input prices have shown signs of stabilizing. Given the poor wage growth for semi-skilled and unskilled workers, a large part of the population is reeling under the impact of stagflation, hurting the consumer sentiments. Consumption slowdown is one of the key economic concerns currently.

The best thing for Indian economy is that the government has sufficient fiscal leverage available to accelerate the investments. At Rs5.5bn the FY22e gross fiscal deficit is lower than the pre pandemic years. The April-October 2021 fiscal deficit is just ~36% of budget estimates. The government has thus gathered enough ammunition by adhering to higher duties on fuel and lower revenue spending to manage its fiscal balance. Buoyant revenue and aggressive disinvestment may help in improving it further.

 The localized lockdown and mobility restrictions in past 6weeks have led to scaling down of FY22 GDP growth estimates. The new estimates mostly imply that Indian economy may record marginally negative growth during two period from April 2020 to March 2022. These estimates though assume (i) No community transmission of infections; (ii) no nationwide lockdown; (iii) no wider shutdown of industries and construction work; and (iv) normalization of mobility restriction in 2HFY22. Any further worsening of pandemic situation may lead to further downgrade of growth estimates resulting in spillover impact over FY23 as well.

The global rating agency S&P, recently published a note saying, “The possibility the government will impose more local lockdowns may thwart what was looking like a robust rebound in corporate profits, liquidity, funding access, government revenues, and banking system profitability.” The note further stated that agency is “looking at two scenarios, both entailing a cut in its GDP growth forecast for India:

·         In a moderate scenario, new infections peak in May 2021. If that happens, the hit to India’s GDP growth is estimated at 1.2 percentage points, indicating that India’s GDP is likely to grow 9.8% in FY22 compared with 11% growth estimated previously.

·         In a more severe scenario, new infections peak in late June 2021. In this case, the hit is estimated at 2.8 percentage points, with growth of 8.2%.”

As reported by Bloomberg, the scenario projections by S&P assume that initial shocks to private consumption and investment filter through to the rest of the economy. For instance, lower consumption will mean less hiring, lower wages, and a second hit to consumption, the note said. The severe scenario, which assumes hits to economic growth and infrastructure sector cash flows, presents more downside risks. Leverage remains elevate.

Incidentally, the current estimates appear to assuming a fast normalizing developed world, and hence buoyant export sector and capital flows.

IMF has projected US and China economies to move beyond their pre-Covid levels in 2021 itself, led by sharp rise in both consumption and investment. Even EU that bore the brunt of pandemic in 2020, is expected to reach near pre-covid level in 2021. This essentially implies rising global inflationary pressures creating possibilities for an earlier than currently forecasted monetary tightening. The capital flows to emerging market may there get impacted, if these forecast come true.

What no one is forecasting is a re-lapse of pandemic in the developed world. Rationally, it does not look likely, given the speed of vaccination, development of preventive ecosystem and treatment protocols. However given that the virus is mutating itself fast, assigning zero probability to this occurrence in economic forecasts may not be fully appropriate. God forbid, if this happens, Indian economy may decline rather precipitously.

The government had surprised the markets by maintaining strict fiscal discipline in Union Budget for FY22. So far we have not heard any relaxation in budget estimates of fiscal deficit. However, any worsening of conditions from here may require another dose of fiscal stimulus. It is pertinent to note that the fiscal stimulus last year was mostly focused on capacity building and easing liquidity. The present conditions require strong social sector spending program, which primarily aims at cash handouts. The recent setback to the ruling BJP in UP local body elections and West Bengal assembly elections; and continuing farmers’ agitation may motivate the government to consider material cash subsidies to poor and farmer ahead of critical state assembly elections in UP, Punjab, Odisha, Goa and Uttrkhand. All these elections are due in February/March 2022.

Insofar as stock market is concerned, the consensus appears to be leaning towards the strategy that the localized lockdowns may not hamper the industrial and construction sector like 2020, as the government has spared the manufacturing and infrastructure activities from lockdown restrictions. The consumption may however get impacted materially. Cyclical over Consumers appears the preferred trade as of now.

More on this next week.

 “Progress lies not in enhancing what is, but in advancing toward what will be.”

—Khalil Gibran (Lebanese Thinker Poet, 1883-1931)

Allaying all fears, the finance minister presented a brave budget. She took all Covid-19 blows on (fiscal) body and refused to yield to fiscal pressures. She prudently refused to indulge in allurements of raising resources through additional taxation. The Budget for FY22 is continuation of various measures announced during 2020 to support the economy. The recognition of the need of new economy (ecommerce workers, startups, e-learning, new education techniques etc.) and willingness to let go the control over even strategic CPSEs are signs of pragmatism. This is perhaps the only budget in independent India that does not propose to make any change in income tax rate structure.

It is now upon the administrative ministries, departments and state governments responsible for executing the proposals. Like Rishabh Pant, who went to Australia with a poor record of recent execution, the performance of these executing organs of the government in recent past has not been encouraging. It is to be hoped that the execution will improve materially in next 15 months and Indian economy shall emerge winner.

The stock market celebrated the budget ebulliently. This is despite the warnings by RBI Governor and CEA (Economic Survey) that stock market appear disconnected from the real economy.

Six core ideas of the budget

1.    Health and Wellbeing of citizens - Preventive healthcare, better sanitization and clean water

2.    Physical & Financial Capital, and Infrastructure – investment in building physical and financial infrastructure.

3.    Inclusive Development for Aspirational India – Recognition of the needs of new economy

4.    Reinvigorating Human Capital – Modern education policy

5.    Innovation and R&D – National Research Foundation to research ecosystem in country

6.    Minimum Government and Maximum Governance – Aggressive disinvestment; administrative reforms; easier and transparent tax administration

Key development proposals

·         Rs 64180cr to develop capacities of primary, secondary, and tertiary care Health Systems, strengthen existing national institutions, and create new institutions, to cater to detection and cure of new and emerging diseases.

·         Universal water supply in all Urban Local Bodies; and liquid waste management in 500 AMRUT cities. (Rs. 2,87,000cr in 5yrs)

·         The Urban Swachh Bharat Mission 2.0 (Rs. 1,41,678cr over 5years).

·         Voluntary vehicle scrapping policy Commercial vehicles 15yrs age and personal vehicles 20yrs age would need a fitness test.

·         Rs. 35000 allocated for Covid-19 vaccination. More to be allocated if needed.

·         Mega Investment Textiles Parks (MITRA) Scheme to be announced in addition to PLI.

·         A Development Financial Institution (DFI) with Rs20000cr initial capital to be set up. The institution to have Rs5trn loan book in 3yrs.

·         Proposal to set up National Monetization Pipeline. DFC to be monetized after commissioning in June 2022.

·         Award of 8500kms of road under Bharatmala project in FY22.

·         Private sector may be allowed to own and operate 20000 city busses under PPP mode.

·         Portability to be allowed between power distribution companies. Rs3.05trn for upgrade of power distribution infrastructure.

·         Proposal to launch a Hydrogen Energy Mission in 2021-22 for generating hydrogen from green power sources.

·         Private players to be allowed to manage and operate major Ports.

·         Proposal to consolidate the provisions of SEBI Act, 1992, Depositories Act, 1996, Securities Contracts (Regulation) Act, 1956 and Government Securities Act, 2007 into a rationalized single Securities Markets Code.

·         Proposal to introduce an investor charter as a right of all financial investors across all financial products.

·         FDI limit in insurance sector increased to 74% from present 49%.

·         Asset Reconstruction Company and Asset Management Company to be set up to consolidate and take over the existing stressed debt and then manage and dispose of the assets to Alternate Investment Funds and other potential investors for eventual value realization.

·         Rs. 20000 cr allocated for recapitalization of public sector banks.

·         The limit of Rs50lac outstanding for action under SARFASI Act reduced to Rs20lac for large NBFCs.

·         Proposal to launch data analytics, artificial intelligence, machine learning driven MCA21 Version 3.0 with modules for e-scrutiny, e-Adjudication, e-Consultation and Compliance Management.

·         Clear roadmap for privatization of CPSE. Proposal to take up the privatization of two Public Sector Banks and one General Insurance company and IPO of LIC in FY22. Rs1.75trn to be raised from disinvestment in FY22.

·         Social security benefits will extend to gig and platform workers. Minimum wages will apply to all categories of workers, and they will all be covered by the ESIC.

·         15,000 schools to be qualitatively strengthened to include all components of the National Education Policy.

·         Higher Education Commission to be set up for standard-setting, accreditation, regulation, and funding of higher education institution.

·         National Research Foundation to be set up to develop research ecosystem in the country. (Rs50000 over 5years)

Direct proposals

Personal taxation

·         No change in tax rates and slabs.

·         Assesses above 75yr of age having only pension and interest income need not file return, if TDS covers their full tax liability.

·         Dividend income to be considered for advance tax only when announced. For FPI, TDS on dividend to be at lower treaty rate.

·         ULIPs Premium over Rs2.5lac in a year to be treated at par with Mutual Fund Investment.

·         Interest on contribution to Provident Funds on contribution exceeding Rs2.5/year to be taxable. (Wef 1-04-2021)

·         The additional deduction of `1.5 lakh shall therefore be available for loans taken up till 31st March 2022, for the purchase of an affordable house.

·         IT Returns to come pre filled with salary, interest, dividend and capital gain of listed securities.

·         Person in whose case TDS/TCS of Rs50,000 or more has been made for the past two years and who has not filed return of income, the rate of TDS/TCS shall be at the double of the specified rate or 5%, whichever is higher.

·         Proposal to increase safe harbor limit from 10% to 20% for the specified primary sale of residential units.

Business taxation

·         Further affordable housing projects can avail a tax holiday for one more year – till 31st March, 2022. Tax exemption to be notified for Affordable Rental Housing Projects.

·         For assesses carrying 95% or more transactions digitally, Tax Audit would be needed only if turnover exceeds, Rs10cr.

·         Eligibility for claiming tax holiday for start-ups extended by one more year - till 31st March, 2022.

·         TDS of 0.1% required on purchase transaction exceeding ` 50 lakh in a year, provided the supplier’s turnover exceeds rs10cr.

·         TDS requirement on dividend paid to Trusts (REITs/InVits) in whose hand dividend is not taxable.

·         Provisions for Equalization Levy on ecommerce players rationalized.

Assessment Procedures

·         Time limit for reopening of assessment reduced to 3yrs from present 6yrs. Re-opening for serious tax evasion to be made more objective and system driven.

·         Dispute Resolution Committee to be set up for small assesses and Settlement Commission to be wound up. ITAT to also go faceless.

·         Time limit for completing assessment reduced to 9months from the end of relevant assessment year.

Budget at a glance