Tax Exemption to Boost Infra?

Tax Exemption to Boost Infra

The Infrastructure sector is a key driver for the Indian economy, and for any country as a matter of fact.  This sector is majorly responsible for the county’s overall development. It enjoys intense focus from the Government. For example, the development of the first bullet train in Korea and Japan created a great boost for their economy. Singapore was an empty bare land. After they built their marvelous infrastructure like the Bay Area and Bedok, tourists started flocking in. China could never have achieved this much economic growth or the title of “the world’s factory” if it had lacked infrastructure.

The Indian government has been initiating policies to ensure time-bound creation of world-class infrastructure. These include power, bridges, dams, roads, and urban infrastructure development.

India ranked 44th out of 167 countries in the World Bank's Logistics Performance Index (LPI) 2018. India ranked 2nd in the 2019 Agility Emerging Markets Logistics Index. Also, India ranked 63rd in the World Bank’s ease of doing business for the year 2019. This was a jump from the 74th position.

The Tax Reform

FM Nirmala Sitharaman had announced in Budget 2020, “In order to incentivize the investment made by the sovereign wealth fund of foreign governments in the priority sectors, I propose to grant 100% tax exemption to their interest, dividend and capital gains incomes in respect of investment made in infrastructure and other notified sectors before March 31, 2024, and with a minimum lock-in period of 3 years.”

CBDT (Central Board of Direct Taxes) announced a major reform on July 6. It notified tax exemption for SWFs’ (sovereign wealth funds) income from investment in the infrastructure sector. This shall take effect from April 1, 2021. Also, it shall be applicable for the AY 2021-22 and the subsequent AYs. The CBDT has widened the scope of 'infrastructure'. This is for the sole purpose of claiming income tax exemption under Section 10 (23FE) of the I-T Act. (introduced via the Finance Act 2020)

The section provides a  complete tax exemption on interest, dividend, and capital gain incomes of sovereign wealth funds (SWFs) and global pension funds arising from investment in Indian infrastructure. The said Section permits a complete tax exemption to certain exclusive categories of non-resident investors.

Inflow of FDI

index of 8 core infrastructure industries

The past:

Foreign Direct Investment (FDI) in the Construction Development sector (townships, housing, built-up infrastructure, and construction development projects) stood at USD 25.66 billion during April 2000 to March 2020. (according to the Department for Promotion of Industry and Internal Trade or DPIIT) The logistics sector in India is growing at a CAGR (compound annual growth rate) of 10.5% annually. It expects to reach USD 215 billion in 2020.

The present:

Moreover, India has been witnessing significant interest from international investors in the infrastructure space. Some of the important aspects are:

  • Large investment in infrastructure has seen momentum. The overall PE (private equity)/VC (venture capital) investment touched an all-time high of USD 14.5 billion in 2019.
  • In 2019, the infrastructure sector witnessed seven merger and acquisition (M&A) deals worth USD 1,461 million.
  • In FY20, the cumulative growth of eight core industries stood at 0.6%.
  • As of March 31, 26.02 million households get electricity connection under the Saubhagya Scheme.
  • The largest deal was done by Abu Dhabi Investment Authority, Public Sector Pension Investment Board, and National Investment and Infrastructure Fund. They made an investment worth USD 1.1 billion in GVK Airport Holdings Ltd.

The future:

India requires investments worth INR 50 trillion (USD 777.73 billion) in infrastructure by 2020/2021. For sustainable development of the country, India plans to spend USD 1.4 trillion during 2019-23. The Government has suggested investment of INR 5,000,000 crore (USD 750 billion) for railways infrastructure between 2018-2030.

To sum it up:

Better infrastructure leads to increasing FDI. Investors never fail to notice the development of roads, availability of power, smooth logistics and better infrastructure of any country. And India understands the need for this.

Reduce dependency on China

china's increasing presence in india's infra sector

Investment in Indian infrastructure has been a sweet spot for China. (according to policy think tank Brookings India) India ranked 31st in the list of countries where China invested. These investments have played a vital role for industries allied with infrastructure. Construction equipment and steel industries depend immensely on such investments. For example, nearly half of the Tunnel Boring Machines that are to be used in building an underground Metro line in Mumbai are owned by Chinese companies. The remaining are owned by western countries but made in China. The reason companies like Tesla, etc invest more in China rather than India is because China is miles ahead of India with respect to their infrastructure sector.

But India’s decision to cut ties with China is going to have a lot of implications. The state of Maharashtra has put on hold three deals worth INR 5,000 crore. Work on the Delhi-Meerut Regional Rapid Transit System has been curtailed.

Is it possible to replace the sources of equipment required for these projects?

Yes, it is.

But not until we find alternative investors or start manufacturing equipment on our own. Firms like BHEL [Bharat Heavy Electricals] or BEML need to speed up their game. And on the other hand, India needs to open routes and provide better trading options to other nations. The tax reform seems to be an attempt to achieve this.

Tweet Us--Like Us--Join Us


facebook twitter

CBDT partners with SEBI to curb tax evasion

CBDT partners with SEBI to curb tax evasion

The Central Board of Direct Taxes (CBDT), the governing body for income tax and Securities Exchange Board of India (SEBI), the capital market regulator, have joined hands for exchange of information and data. “The MoU marks beginning of new era of cooperation and synergy between SEBI and CBDT,” CBDT said in a release. The CBDT and SEBI partnership would help in the smooth functioning of both organisations.

On 8th July 2020, CBDT and SEBI signed a Memorandum of Understanding (MOU) for the exchange of data. Both these authorities mutually agreed to share data of traders in three ways - request-based exchange, suo moto exchange, automatic exchange. As a part of the MOU, there would be sharing of data and information, maintaining the confidentiality and safe preservation of data.

What will CBDT share with SEBI?

Under the exchange of data, the Income Tax Department would share PAN details, ITR information, and trading transactions with SEBI. Further, CBDT will also share the date of PAN application, father's name or husband's name, date of birth, or date of incorporation, photograph, and signature. Further, ITR related information such as mobile, email, address, IP address, financial particulars, bank details, TDS & TCS, and income from trading in securities would also be shared.

In the capital market, stock market manipulation is a widely used fraudulent practice where various entities manipulate the price of stocks by leaking misleading information into the market. With the help of the information shared by IT Department, SEBI can trace such entities and take action against them.

Tax Alert! ITD can now catch you for ignoring trading transactions

The Income Tax Department is working to build a warehouse of information of taxpayers by sourcing data from third parties. The IT Department would be able to fetch details of trading transactions using the data shared by SEBI.

Many investors who trade in equity having negligible profit/loss often ignore transactions and do not report them in the ITR. Earlier, the IT Department did not have details of such trades and thus could not detect such non-disclosure of income.

To trace such taxpayers, the IT department added a new Schedule 112A in the ITR Utility. The taxpayer should report details of LTCG from the sale of equity shares, equity-oriented mutual funds, or unit of business trust on which STT is paid under Section 112A. However, after many objections, the ITD made this trade-wise reporting optional for FY 2018-19 (AY 2019-20). Unfortunately, the ITR Utility for FY 2019-20 has once again made Schedule 112A reporting mandatory.

As a result of the SEBI-CBDT partnership, the IT department now has access to the trading data. It would now keep an eye on tax-evaders by sending out scrutiny notice for non-disclosure of income. On the other hand, the taxpayers should ensure reporting correct information and all their incomes in the Income Tax Return.

On a brighter side, the IT Department can pre-fill data of trading transactions in the ITR making tax filing simplified for traders and investors. As a result, this initiative has been applauded by a large number of taxpayers.

[sc name="sc-banner-itr-for-traders" ]
Tweet Us--Like Us--Join Us


facebook twitter

📰 Decline of The Press?

[sc name="newsletter_subcription_button" ]


Mexico is finally taking steps to minimize the glaring gap between its rich and poor: It’s time for Mexico to tax the rich it says!

“Here we understand austerity not only as an administrative matter but as a politics of principle.” - The President of Mexico, Andres Manuel Lopez Obrador, has been a backbone to start this journey for authentically making the rich and wealthy cough up what they owe. His actions are simple and successful: Track down companies that issue false tax receipts and make them pay - by hook or by crook!  

This Week’s Dose-

  • Decline of the Press?
  • Hashtag Love What You Do
  • OECD Gets to The Bottom of Tax Reports

Decline of the Press?

Point at Issue

Journalists across the world scramble to cover the impact of coronavirus. They are struggling with a bitter irony: as demand for their stories is rising, the decline of the business model that funds them is in dire straits. Most newspapers and magazines have hit a record number of readers due to the ‘story of the generation’ i.e. Covid-19. Yet, the virus may end ‘hundreds’ of those organizations, especially the smaller ones. 

The Response

Media outlets are seeing a large decline in advertising triggered by the economic shutdown. Some have responded by sacking dozens of employees, while others have stopped printing. They have reverted to a digital-only operation which is just as vulnerable as the whims of the advertisers.

The Measure

The French government has taken a stand to protect its newspaper industry. The MPs have voted ‘in-favour’ to grant tax-credit to anyone taking out a new subscription to current affairs newspaper or magazine. Deputies voted to allow a one-off deduction of up to €50 (£45) to households subscribing for the first time and for at least 12 months, to a newspaper, magazine or online news service “providing news of a general or political character”.A desperate attempt to save the fourth estate.

Hashtag Love What You Do

Society: How much do you love your work?
Shia LaBeouf: Yes!

The American actor Shia LaBeouf has made a head-turning and jaw-dropping dedication to his upcoming film. He permanently (cannot get over it) tattooed his ENTIRE chest to “authentically” play his role as a Cholo gangster in The Tax Collector.

Hopefully, we can catch this enthusiasm and dedication in collecting taxes as a nation this year!  

OECD Gets to The Bottom of Tax Reports

The new country-by-country data on big multinational companies’ tax reports put straight a very crucial fact. The companies tend to book profits in low tax financial hubs rather than where they really do much of their business. International tax laws invariably have loopholes, and the intellect at MNCs are able to spot and take advantage of them by parking their profits in low tax jurisdiction. They park their profits in low tax jurisdictions. OECD’s first insights from the trove of data reveal a “misalignment between the location where profits are reported and the location where economic activities occur.”

The following 2 facts will make things easier to understand:

  1. The operations of multinationals in investment hubs report a profit of 25%(approx). Surprisingly, it reports only 4% of employees and 11% of tangible assets operating in these hubs.
  2. The median value of revenue per employee in jurisdictions with no income tax was a whopping USD 1.4 million. On the contrary, the same value of revenue per employee in jurisdictions where corporate income tax is more than 20% stands at just USD 370,000. And the ones where the corporate income tax is less than 20% stands at USD 240,000. Taxing such huge multinationals ‘more’ doesn’t seem so cruel now. (By more taxes, we mean digital taxes)

What's happening- Tax Updates

ITD Utilities for ITR-2 are out for AY 2020-21. Section 112A is mandatory now. Complicating reporting for Investors/Traders, now you have to report LTCG trade wise (including ISIN, Buy/Sell, FMV & Transfer expenses).
@IncomeTaxIndia has released utilities for ITR 1, ITR 2 & ITR 4.

Although ITR due dates are extended, the Tax filing season is gearing up! While you wait for the remaining utilities, check out which ITR Form is applicable to you.

GST / Goods and Services Tax has completed 3 years! It was introduced as a single domestic uniform tax in the year 2017. Have a look at how GST upheld its promises and at the same time suffered some hiccups.

India’s FOREX reserve has crossed the $500 billion mark to become the fifth largest reserve in the world. If you are looking for how India achieved this and what are its implications, we've got you covered.

Barter With Work - Crazy Tax Story

Inca Empire - Crazy Tax Story

The story takes us back to the Inca Empire.  The Inca civilization flourished in ancient Peru between c. 1400 and 1533 CE. It was a monarchy ruled by a single leader called the Sapa Inca. Now that you can visualize the times and kingdom, get this: Citizens of the Inca Empire paid their taxes in the form of physical work.

This is the ancient version of washing dishes at the restaurant if you can't pay for food!

Imagine if this worked today, can’t pay your taxes? Work more and work off the debt instead

Byte of The Day

I hate Taxes!
But I like Roads, Firemen, some cops, traffic lights(except red ones), National Parks, the Coast Guard, various TLAs, etc…

So I pay them anyway!


Tweet Us--Like Us--Join Us


facebook twitter

India's Ban on China: A Rare Opportunity

India's China-Ban: A Rare Opportunity

Day in and day out, we receive messages to boycott Chinese products. News channels are talking about it all day. It started with Wangchuk’s video which went viral on social media. The implications of importing from China is injurious. India's ban on China could be useful to us in many ways.

So many of us have consciously stopped buying Chinese products. My family business used to deal in Chinese electrical goods. We put a stop to it years ago. So many around me have been doing the same. My neighbour was ready to lose a sum of 20 lakh he paid in advance to a Chinese furniture brand. Yes, all of us have been patriotic. But are we being sensible and rational? Many have argued about globalization. Meaning, a lot of products that we use might have its parts manufactured in China but assembled elsewhere.

India has been raising the import duties since the last three budgets. This will give boost to local manufacturers to produce cheaper alternatives. Recently, India has been holding all shipments coming from China. As a part of anti-chinese movement, 150 Foxconn shipments containing smartphones and electronic parts are stuck in the ports of Chennai. This is a good move. It has resulted in Apple moving its manufacturing unit to India. Also, Apple saves almost USD 100-200 on import taxes. This in turn makes the iPhone cheaper.

The question is, can this be done for all products? The major problem is that India imports a hefty amount of raw materials from China. This includes more than 8,000 items and a total of INR 4,40,101 crore worth of imports. The important fact to note is that import from the USA amounted to INR 2,36,933 crore, which is way less compared to China. 60-70% of pharmaceutical ingredients for many common medicines like paracetamol are imported. Delaying clearance of such ingredients might not be the very best option. India has to step forward to make a replacement facility for such raw materials. Bajaj used INR 1,000 crore of Chinese components. But it also exported two and three wheelers worth INR 15,000 crore. This would not have been a bad thing, if Bajaj could have bought all the components from India.

The government also banned 59 Chinese apps. A lot of these apps had a huge consumer base in India. With the ban, the tech companies are likely to suffer a major setback. Apps, is one field where India can compete on a global level. Narendra Modi launched the “Let us code” campaign. It focuses on giving a boost to the Indian startup ecosystem to create alternative apps. Chingari, a TikTok alternative, has already seen 10M plus downloads. KagazScanner, a replacement to CamScanner saw 100k in only 24 hours. Inida's ban on China is going to have major implications on Indian startup ecosystem.

It is really crucial for us to think at a global level and multi-dimensional level. And we must think about why we are where we are. China has attained domination in the world economy. Although it might be really hard to be the next China, it is not impossible.

We need a single free national market. The Goods and Services Tax has been trying to achieve this since 3 years, but in no vain. It has failed to meet objectives and suffered a lot of hiccups. Even after three years, it still remains in the process of evolution. And our apparatchiks are still stuck at changing rates of Popcorn.

India has climbed to 63rd rank among the 190 countries in the World Bank’s ease-of-doing-business ranking. But we still have ways to go. There are so many forms to fill and so many clearances to go through. India has to do much better in this aspect to allow the citizens to be able to manufacture 'anything and everything'. Someone has well-spoken by saying, “we can make superb satellites, but can’t make a safe safety pin.”

A large number of startups in India have been funded by Chinese companies. Even if we have tighter rules over Chinese FDI, investments can still easily be routed to India from Hong Kong or investment hubs like the Cayman Islands. Establishing investment hubs within the country can also be another great opportunity for India. Our very own version of SharkTank!

Indians are everywhere. Be it any country, Indians are never rare. As a country with such a huge population, at home and abroad, we need to make use of the immense brain-power.

It is said that employees working for Chinese companies like Huawei and ByteDance get paid anywhere between 70-80k. And that too with an experience of a  year or two. In some professions and industries, even people with 10 years worth of experience aren’t paid as much. This is only possible because of the massive amount of sales the companies make.

The telecommunication industry of India has been underestimated. They contribute 6.5% to India’s GDP. They are not allowed input tax credit on telecom towers. Also, there is no refund of the accumulated Goods and Services Tax paid on spectrum charges. On the other hand, China recognizes this sector as its national ‘champion’. Telecom industries in India have to pay approx 30% in GST, license fee, spectrum usage charge and others. Companies have INR 50,000 crore stuck as input credit with the government until March, impacting the cash flows. The current pandemic has shown how crucial the industry is. Furthermore, Reliance JIO has hit a record high of USD 16 billion in FDI from giants like Facebook, Intel and many more. We need to make the utmost use of our crucial industries. 

India is facing a lot of adverse situations; the pandemic along with tensions with China. But as someone has rightly said “innovation comes from adversity”. The biggest example being the PPE-kit industry. India has moved on to become the world’s second largest manufacturer in just two months. The surprising fact is that it started from near-zero!

The current scenario, hence, is a rare opportunity for India to realize its potential and capitalize on the areas she is lacking.

Tweet Us--Like Us--Join Us


facebook twitter

Section 112A - Tradewise details of LTCG (Nightmare for Traders)

Under Budget 2018, the Finance Minister, Shri Arun Jaitley, removed the exemption under Section 10(38). He also introduced a new Section 112A with a 10% tax on LTCG in excess of INR 1 lac in the case of a capital asset on which STT is paid. The new Section 112A was applicable from FY 2018-19 (AY 2019-20).

Section 112A Tradewise details of LTCG

Controversy surrounding Section 10(38) & it's removal

Up to FY 2017-18 (AY 2018-19), Long Term Capital Gain (LTCG) on the sale of a capital asset on which STT (Securities Transaction Tax) is paid was exempt under Section 10(38) of the Income Tax Act. Thus, profit on the sale of listed equity shares, equity-oriented mutual funds, and units of business trust held for more than a year was exempt from income tax.

Since investors already paid STT on listed securities, provisions u/s 10(38) provided relief from double taxation to such investors. However, there was a growing sentiment that the provision encouraged diversion of funds from sectors such as manufacturing & infrastructure into capital markets.

Further, many taxpayers misused the exemption leading to loss of revenue and tax evasion due to abusive practices. Certain taxpayers earned windfall tax-free gains on the sale of penny stocks after inflating its market price by leaking misleading information amongst the investors. Many other taxpayers earned compensation in the form of less salary and more stock options. Such taxpayers paid tax on salary only while they earned tax-free long term capital gains on the sale of shares. Thus, several taxpayers earned bogus long term capital gains without paying tax.

As a result, CBDT removed the exemption under Section 10(38) and made LTCG in excess of INR 1 lac taxable at 10% under Section 112A.

Confusion Galore: Grandfathering Rule Section 112A

Many investors invest in equity markets with an intention to earn tax-free profits in the form of Long Term Capital Gains. For such investors, CBDT introduced the grandfathering rule to ensure that gains up to 31st January 2018 are not taxed. For equity shares and equity mutual funds purchased on or before 31st January 2018 and sold after a year, Cost of Acquisition would be:

  • Fair Market Value as on 31st Jan 2018 or the Actual Selling Price whichever is lower
  • Step 1 or Actual Purchase Price whichever is higher

Long Term Capital Gain = Sales Value - Cost of Acquisition (as per grandfathering rule) - Transfer Expenses

Tax Liability = 10% (LTCG - INR 1 lac)

[sc name="read-more" link="" title="Long Term Captial Gain Tax on Shares - Equity Shares & Equity Mutual Funds" description="Learn how to calculate LTCG on sale of equity shares and mutual funds by applying the grandfathering rule"][/sc]

ITD Utility & Reporting woes of Section 112A

The grandfathering rule and Section 112A has increased complexity and confusion for the investors to Compute Capital Gains and file Income Tax Return. In the ITR utility, the IT department added a new Schedule 112A to calculate LTCG on trade wise basis after applying grandfathering rule.

After much uproar, Schedule 112A, the IT deparment made trade wise reporting optional for FY 2018-19 (AY 2019-20). However, the utilities released by the IT department this year has reignited the discussion.

The IT department issued ITR-2 excel utility for FY 2019-20 (AY 2020-21) on the Income Tax Website on 26th June 2020. It is now mandatory for the taxpayer to enter details of each trade under Schedule 112A. The taxpayer should enter details of each trade with ISIN, share name, quantity, sale price, purchase price, fair market value as on 31st Jan 2018, and transfer expenses to calculate LTCG (Long Term Capital Gain) or LTCL (Long Term Capital Loss).

ITR-1 - Tool 112A

P&L Reports from Brokers (Inadequate)

Investors/traders can download Tax P&L report from their brokers. Brokers like Zerodha provide both FMV as on 31st Jan 2018 and the cost of acquisition as per grandfathering rule in their Tradewise Tax P&L Report. However, the reports of many other brokers do not reflect such details making it extremely challenging for the traders and investors to file their Income Tax Returns.

With such reporting requirements in the ITR and missing information in the broker's reports, the process of tax filing has become drastically complicated for traders and investors this year. Let us hope that the Income Tax Department comes out with a solution that makes tax filing less tedious for the taxpayers.

[sc name="sc-banner-itr-for-traders" ]

We are Quicko, a team of accountants, developers and designers on a mission to simplify taxes for all. For any queries or questions comment below.

Tweet Us--Like Us--Join Us


facebook twitter
Newer postsOlder posts
Close Bitnami banner