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You are here : IndiaNotes >> Research & Analysis >> Industries >> Finance >> Research

Budget Should Provide a Bigger Impetus to Financial Services

Dynamic Equities Pvt Ltd | 30 Jan, 2017  | Follow Author | Add to my Favourites 
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The Union Budget 2017 is estimated to have numerous distinctive features in comparison to earlier budgets:

  • It is scheduled to be introduced on 1st February instead of 28th February in past years.
  • It’s the first budget after demonetisation.
  • It will be silent on plan and non-plan expenditure.
  • It combines the railway budget.

 

It shall also be interesting to witness how benchmark Nifty is going to react to the Union Budget 2017. The Indian government’s fiscal reforms to boost investor confidence have raised expectations from the Union Budget 2017, which range from fiscal incentives to administrative conveniences to higher allocations. Similar are the expectations of the financial services industry which could be summarised as follows:

 

Digital push incentives


Ever since demonetisation, the government has increased its promotion of digital payments. While in the long term the cost of digital transactions may be evidently lower than the cost of handling cash, in the short run, significant investment might be needed for capacity building and ensuring a safe digital environment. Therefore, any investment needed for a digital push should be compensated by reduced tax outgo either via accelerated depreciation or deduction of expenditure or compensating the losses suffered by the banks/payment entities as a consequence of reduction in transactions costs to push/ incentivise cashless transactions.


Stressed assets


The Indian banking industry is still mired in high levels of NPAs. On the one hand, it eats into the capital of the banks. Also tax deduction for provision for NPAs is restricted to a certain per cent of taxable income as against the actual amount of NPA provision created in the books of account, culminating in a higher tax outflow.

 

It is therefore required that:

  • Full tax deduction for NPA provision created in the books of account should be allowed.
  • The government should allocate a higher kitty for recapitalisation of banks.
  • For quick resolution of stressed assets, adequate capacity should be built in terms of benches, judges and judicial staff of NCLT - National Company Law Tribunal and DRT - Debt Recovery Tribunal) to take care of the anticipated volume of cases with the introduction of the Insolvency and Bankruptcy Code, 2016.

Taxability of rupee denominated borrowings

 

Currently, Section 194LC of the Act offers a concessional rate of tax of 5 per cent in case of interest payable on monies borrowed in foreign currency by an Indian company. Given the language of Section 194LC, doubts have risen whether the concessional rate of 5 per cent applies even in relation to borrowings from abroad but expressed in terms of rupee. To calm these doubts, it should be clarified that the provisions of Section 194LC apply even in relation to rupee-denominated borrowings from abroad.


Trading in abroad-listed bonds


Oftenly, the bonds issued by Indian companies are listed on securities exchanges outside the nation and are actively traded. While technically any transfer of such bonds between 2 non-residents is taxable in India and even obligates the acquirer to withhold tax according to the Indian tax laws, adherence to such requirements is hardly practicable.


Accordingly, any transfer of the bonds issued by the Indian companies on a stock exchange outside the country should be exempt from tax in India. Any attempt to tax such transfers may restrain the ability of the Indian companies to raise money outside the nation.



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About Dynamic Equities Pvt Ltd

Dynamic Equities Pvt. Ltd. is a a SEBI Registered Investment Advisor and Stock Broker, a leading financial services provider, and one of the major players in the Equity markets in India. With an experience of over 15+ years in Stock Markets and Equity Research, they provide daily updated Support & Resistance of 4200 instruments across 93 exchanges and 56 countries globally. They have an in-house team of over 25 analysts. Under the guidance and mentorship of Mr. Shailesh Saraf, MD of Dynamic Equities Pvt. Ltd., these analysts are dedicately involved in guiding their clients and users of the website www.dynamiclevels.com for trading in the market. Mr. Shailesh Saraf has an experience of over 24 years in the financial market, especially in capital & derivatives market operations, trading, research and management related areas. Dynamic Levels is a website owned by Dynamic Equities Pvt. Ltd. The website can be reached at www.dynamiclevels.com.


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