As the Union Budget 2025 draws near, all eyes are on the Government’s fiscal strategy to navigate India’s economic aspirations amidst global uncertainties.
In the July 2024 budget, the Government had proposed a comprehensive review and overhaul of the Income-tax Act, 1961. Whilst the comprehensive review is underway, it would be good if some of the industry’s wishlists could be addressed in the upcoming budget. Some of the notable expectations from the banking and financial service sector standpoint are discussed below.
Whilst the tax rate reduction in the last budget for foreign companies was a welcome move, still there remains a significant gap in the tax rate applicable to foreign bank operating in India through a branch vis-à-vis the Indian Banks. Since foreign bank branches also significantly contribute to the growth of Indian economy, for them to be competitive/ at par with the Indian banks, further reduction in tax rate for them should be considered.
(Securities Transaction Tax) STT was introduced in lieu of an exemption for long-term capital gains and concessional tax for short-term capital gains from listed equity shares/ units of equity oriented mutual fund. Now that both are being taxed at competitive rate, it warrants abolition of STT.
NBFCs are growing at a good pace due to the increasing demand for financial credit and overall digital transformation. Since many NBFCs are functioning like banks (sans their ability to seek deposits), income-tax benefits available to banks have been gradually extended to certain categories of NBFCs. On the said lines, enabling amendment was made to exclude certain class of NBFCs from thin capitalization interest disallowance. It is imperative that certain class of NBFCs are notified immediately to give effect to the said amendment. It is also expected that suitable amendment be made i) to regard the conversion of interest payable into debentures/ bonds under specific circumstances as payment of interest and ii) to extend exemption from TDS on interest payable to NBFCs.
The GIFT-IFSC has been a significant initiative to position India as a global financial hub. To promote financial activities within IFSC, the Government has time to time provided various tax incentives (which includes tax holiday in respect of the business income of the units established therein). The following incentives would further make GIFT-IFSC robust and attractive:
