Super-rich surcharge on FPIs dropped; Rs 70K cr infusion in banks to lower EMIs; Rs 100L cr for infrastructure

A day after Chief Economic Adviser (CEA) Krishnamurthy Subramanian  ruled out a major stimulus package for the economy triggering a massive sell-off in the equity market, the Government did just the opposite on Friday.

Finance Minister Nirmala Sitharaman on Friday announced a slew of measures to perk up the economy and address the concerns of foreign portfolio investors , who  pulled out nearly $3 billion from the India stock markets ever since the Budget imposed surcharge on their investment. Relentless selling by the foreign portfolio investors (FPIs) and concerns about the health of economy saw sensex losing more than 4,000 points in less than two months.

The stimulus package included rollback of super-rich surcharge on FPIs, domestic investors on gains from stock market, frontloading of already announced Rs 70,000 crore of recapitulation package for PSU banks, CSR violation not to be treated as criminal offence, reduction on EMIs for housing loans, vehicle and other retail loans and providing protection to honest decision-making by bankers for boosting lending. Also it included additional liquidity support to HFCs raised to Rs 30,000 crore, pending GST refunds to MSMEs to be paid within 30 days, amendment to MSME Act to move towards single definition to be considered, issue of IT orders, notices, etc through a centralised system to cut harassment, etc.

Besides, the Government said it will set up an inter-Ministerial task force to shortlist infrastructure projects for its ambitious target of spending Rs 100 lakh crore in the sector.

With several major companies reporting sinking profit and announcing job cuts, the Government had a few option, but to come out with some relief for both the equity market and corportates as well as commoners. The Finance Minister did try to cover all the key stakeholders within the constraints of not too rosy tax revenue  scenario.

The reveral of FPI surcharge shows that the people engaged in the Budget making completely failed to understand the mindset of foreign investors.

It is also baffling why someone like the CEA made such a comment about no stimuls, the news was one of the prime reason of sail-off in the market and estimated loss of  nearly Rs 2 lakh crore of investors’ wealth in a single day.

“In order to encourage investment in the capital market, it has been decided to withdraw the enhanced surcharge levied by Finance (No.2) Act, 2019 on long/short term capital gains arising from the transfer of equity shares/units,” Sitharaman told reporters here. 

The move will dent Government revenues by Rs 1,400 crore.

Sitharaman had in her maiden Budget hiked the surcharge on income tax paid by super-rich individuals. The surcharge, levied on top of the applicable income tax rate, was hiked from 15 per cent to 25 per cent for those with taxable income of Rs 2-5 crore and to 37 per cent for those earning more than Rs 5 crore. This increased the effective tax rate for these two groups by 3.12 per cent and 7 per cent to 39 per cent and 42.74 per cent, respectively.

Some 40 per cent FPIs automatically came under the higher tax rate as they have been investing as a non-corporate entity such as trust or association of persons (AOPs), which in the Income Tax law are classified as an individual for the purpose of taxation.

Sitharaman also announced exempting start--ups from the so-called angel tax.  “To mitigate genuine difficulties of start-ups and their investors, it has been decided that section 56(2)((viib) of the Income Tax Act shall not be applicable to a start-up registered with DPIIT,” she said.

The  Government also announced several relief measures, including deferring one-time registration fee, lifting ban on purchase  of petrol/diesel vehicles and allowing higher depreciation, but it remained non-committal on the demand for a reduction in GST rates.

In a bid to help clear rising inventory of BS-IV emission compliant vehicles, it said such vehicles purchased till March 31, 2020 will be allowed to ply till the validity of their registration. This is because the country is to leapfrog to selling only BS-VI emission compliant vehicles from April 1, 2020.

Auto sales in the country have been declining for almost a year now with the passenger vehicles (PVs) segment being the worst hit. Industry estimates suggest that 2 lakh jobs have been cut in the last three months as auto companies and component makers grapple with slow demand.

 Finance Minister Nirmala Sitharaman said representatives from the automotive sector had held meetings - both as an industry and individually.

 “BS-IV vehicles was a big issue. There was a confusion because the government wanted to make an announcement to encourage electric vehicles and electric batteries (production)... BS-IV vehicles, which are purchased up to March 2020 will all remain operational for their entire period of registration,” she told reporters while announcing measures to boost the sagging economic growth.

The  government also  announced an additional Rs 20,000-crore liquidity support to the struggling housing finance companies (HFCs), a move aimed at enhancing their lending capacity.

The additional liquidity support to be provided by the National Housing Bank (NHB) will help the real estate sector which is facing a demand slowdown and cash crunch. The Rs 20,000 crore is in addition to Rs 10,000 crore support announced earlier by the housing sector regulator NHB.

Announcing this as part of measures to prop up the economy, the Finance Minister  said now the liquidity support for HFCs would be Rs 30,000 crore.