In a move that is meant to counter the 48 days of turbulence in the stock market, the Government on Friday came with its first booster shot for the economy, rolling back the higher super-rich surcharge levied on capital gains in equity market for domestic and foreign investors.

It also announced relief for India Inc by clarifying that violations of Corporate Social Responsibility (CSR)-related provisions will not be a criminal offence.

 

A package with 32 measures

Sharing the ‘package’ with the media, Finance Minister Nirmala Sitharaman said these are part of 32 measures worked out to boost the slowing economy. These measures come at a time when there is a fear that growth in the first quarter could be lower and projections for the entire year are being revised downwards.

In fact, there is an apprehensions that lower investment and consumption demand are affecting jobs, and in the automobile sector alone, more that 3.5 lakh people have lost their jobs. However, the government did not give any assurance on industry’s demand for lowering the Goods & Services Tax (GST) on automobiles and biscuits. “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 transfer of equity shares/units referred in Section 111A and 112 A, respectively,” Sitharaman said. This will cover gains in the cash market through equity and equity-oriented mutual funds.

In her maiden Budget presented on July 5, Sitharaman had announced enhancement of surcharge on individuals having taxable income of ₹ 2 crore to ₹5 crore and ₹5 crore and above, increasing the effective tax rates for these two categories by around 3 per cent and 7 per cent, respectively. The fine-print made it clear that not only domestic but non-corporate foreign portfolio investors (FPI) will also be required to pay higher surcharge.

Since 40 per cent of the FPIs fall under the non-corporate category, it affected market sentiment and the FPIs took out ₹12,419 crore in July and ₹12,105 crore this month (till August 23).

 

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‘Big relief for FPIs’

Sunil Gidwani, Partner with Nangia Advisors (Andersen Global), said that the reversal of the surcharge is a big relief for FPIs. “It would eliminate the need to look for any exotic solutions like restructuring or changing PAN status of SICAV type of structures. It’s a bonus for domestic investors as well,” he added.

Fillip to MSMEs

In a bid to give fillip to job-creating Micro, Small and Medium Enterprises (MSME), Sitharaman said pending GST refunds would be done within 30 days, while start-ups, a major avenue for employment and new entrepreneurship, would be exempt from so-called ‘Angel Tax’

She also announced an immediate infusion of ₹70,000 crore into banks to boost their liquidity and lending capacity of banks by ₹5 lakh crore while housing finance companies would get up to ₹30,000 crore with a view to reviving the real estate sector.

The Minister said banks would be required to link lending rates to the RBI’s benchmark rate in order to accelerate the transmission of the central bank’s policy easing. Till now, banks generally have lagged in transmitting the RBI’s reduction in repo rates to borrowers.

So far this year, the RBI has cut rates by 110 basis points in four instalments but banks have passed only a part of it to borrowers. Before the last reduction, earlier this month of 35 basis points, banks on an average had passed only 29 basis points out of 75 basis points cut affected during 2019.

Relief for auto sector

For the auto sector, she doubled depreciation to 30 per cent and lifted the ban on government departments buying new vehicles. BS-IV vehicles purchased till March 31, 2020, before the country switches to lower-emitting BS-VI vehicles, would continue to be operational valid for till their registration period.

The Minister hoped that the revenue target will be met, but also said that two more big announcements will come soon.

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