‘Know Your Budget’ better with finance ministry’s Twitter series

Seeking to educate the general public about the budgetary process, the finance ministry Tuesday started a series on Twitter providing definitions of various terms used in the budget.

The ‘Know Your Budget’ series, which explains the importance of Union Budget and its making, would continue for about a fortnight. The government on February 1 would unveil the interim Budget for 2019-20 as the general elections are due in the next couple of months. The final Budget for the next fiscal would be presented by the new government.

What is Budget?

Budget is the most comprehensive report of the government’s finances in which revenues from all sources and outlays for all activities are consolidated. The Budget also contains estimates of the government’s accounts for the next fiscal year called Budget estimates.

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Partial Relief for Start-Ups as Centre Eases Angel Tax Exemption Rules

On the third anniversary of the government’s flagship Startup India campaign, the government has notified changes to Section 56 of the Income Tax Act, in a move that brings relief to start-up founders and investors dealing with the issue of “Angel Tax”. In a notification, the government on Wednesday said that all DIPP-recognised start-ups can apply to the department for approvals requesting an exemption from Angel Tax, or Section 56 2 (viib) of the Income Tax Act, which will then be sent to the Central Board of Direct Taxes (CBDT) for approval. But the changes do not ensure that start-ups will no longer receive notices on angel tax from the tax department.

Major Changes introduced:

As per the changes, all DIPP-recognised start-ups can apply to the department for approvals requesting an exemption from Angel Tax, or Section 56 2 (viib) of the Income Tax Act, which will then be sent to the Central Board of Direct Taxes (CBDT) for approval.

The changes are applicable to start-ups, recognized by DIPP, where the amount of paid-up share capital, and share premium of the capital after the proposed issue of share does not exceed Rs. 10 crore.

The notification specifies a list of documents that start-ups will have to submit to the DIPP while seeking approval. The CBDT is mandated to either approve or reject the applications within 45 days.


At least 80 startups have received notices to pay angel tax since last year. Many founders have said they have been asked to pay up as much as 30% of their funding as a tax. Angels have also received multiple notices asking them to furnish details on their source of income, their bank account statements, and other financial data.

Way ahead:

The changes proposed do not ensure that start-ups will no longer receive notices on angel tax from the tax department. The start-up community views this as a step in the right direction but insists that the issues facing founders and investors due to angel tax remain unaddressed through the notification.

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Market risk, economic growth to drive gold demand in 2019: WGC

Increased market uncertainty and expansion of protectionist economic policies will make gold increasingly attractive as a hedge in 2019, says the latest report by the World Gold Council (WGC), adding that structural economic reforms in key markets will continue to support demand for gold in jewelry, technology and as means of savings in the year.

 important observations made:

Performance of financial markets, monetary policy in key economies including India, and the dollar movement will determine gold demand in 2019.

Since gold is considered a safe haven, during choppy markets, the demand for gold improves, normally. Emerging markets, led by India and China–the biggest consuming markets–make up 70% of consumer demand for the metal.

The World Gold Council is the market development organization for the gold industry. It works across all parts of the industry, from gold mining to investment, and their aim is to stimulate and sustain the demand for gold.

The World Gold Council is an association whose members comprise the world’s leading gold mining companies. It helps to support its members to mine in a responsible way and developed the Conflict-Free Gold Standard.

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Manufacturers expect faster growth rate in 2019: PwC-FICCI report

India Inc. is upbeat about the future of the economy as they expect growth to be driven by strong domestic demand and an increased focus on export markets, says a new survey of manufacturers by global consulting firm PwC and industry body Federation of Indian Chambers of Commerce and Industry (FICCI).

The study found that 74% of the manufacturers hope for a faster growth rate in their respective sectors over the next year, while more than half expect their sector to grow faster by at least 5% in the next 12 months.

The PwC-FICCI report, ‘Manufacturing Barometer’ also said that in the next year, over 7% growth in the gross domestic product (GDP) looks achievable for the country.

While 66% of the manufacturers said they believed that introduction of the goods and services tax (GST) will help attract foreign and domestic investments across new locations, 80% expect exports to increase in the next five years.

The report suggests that to make export growth more sustainable, the industry requires an ecosystem that promotes manufacturing competitiveness and facilitates the production of goods of global quality standards at competitive prices. Stronger economic relations with focus countries in target sectors will enable the development of competitive supply chains beyond Indian borders, it said.

The report also suggests that with India aspiring to become a $5 trillion economy in the next few years, with manufacturing contributing $1 trillion. The backward integration with global value chains and increased use of technology would be required to increase export competitiveness of India’s manufacturing industry.

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GST burden on small businesses eased

The GST Council in its 32nd meeting  — the last before the Budget — took a slew of decisions aimed at reducing the tax and compliance burden on small and medium enterprises, including increasing the threshold limit below which companies are exempt from GST, extending the Composition Scheme to small service providers, and allowing small companies to file annual returns.

The annual turnover limit under which companies would be exempt from GST has been raised to ₹40 lakh for most States and ₹20 lakh for the North Eastern and hill states, from the earlier limit of ₹20 lakh and ₹10 lakh, respectively.

The limit for eligibility for the Composition Scheme is raised to an annual turnover of ₹1.5 crore from April 1, 2019. So far, only manufacturers and traders were eligible for this scheme. The Scheme now has been extended to small service providers with an annual turnover of up to ₹50 lakh, at a tax rate of 6%.

Kerala can levy a cess of up to 1% for up to two years on intra-State supplies to help finance the disaster relief efforts following the recent floods in the state.

Implications and outcomes of these measures:

A very large part of GST revenue comes from the formal sector and large companies. These measures have been taken to help the small and medium companies. The revenue impact due to these will be minimal.

Allowing disaster cess of 1% to be introduced in the State of Kerala on local supplies may be an administrative issue for both businesses and government and this may set a precedent for other States to demand additional levy.

Increasing the GST threshold limit would allow about 10 lakh traders to be exempt from the compliance burden of GST, and increasing the Composition Scheme limit would benefit about 20 lakh small businesses that fall between the annual turnover brackets of ₹1 crore and ₹1.5 crore.

The Composition Scheme currently allows companies with an annual turnover of up to ₹1 crore to opt for it, and file returns on a quarterly basis at a nominal rate of 1%

The GST council is the key decision-making body that will take all important decisions regarding the GST. The GST Council dictates tax rate, tax exemption, the due date of forms, tax laws, and tax deadlines, keeping in mind special rates and provisions for some states. The predominant responsibility of the GST Council is to ensure to have one uniform tax rate for goods and services across the nation.

The Goods and Services Tax (GST) is governed by the GST Council. Article 279 (1) of the amended Indian Constitution states that the GST Council has to be constituted by the President within 60 days of the commencement of the Article 279A.

According to the article, GST Council will be a joint forum for the Centre and the States. It consists of the following members:

  • The Union Finance Minister will be the Chairperson
  • As a member, the Union Minister of State will be in charge of Revenue of Finance
  • The Minister in charge of finance or taxation or any other Minister nominated by each State government, as members.

Article 279A (4) specifies that the Council will make recommendations to the Union and the States on the important issues related to GST, such as, the goods and services will be subject or exempted from the Goods and Services Tax.

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RBI allows tokenization of card transactions, even for third party apps

The Reserve Bank of India has allowed tokenization of debit, credit and prepaid card transactions to enhance the safety of the digital payments ecosystem in the country. By this means the regulator will allow the card details to be masked while a transaction is processed at the point of sales, QR codes and other payment modes.

The regulator has clearly said that additional factor authentication will still be applicable for tokenized card transactions. However, the RBI has opened up this mode of the transaction only for mobile phone or tablets and not for any other electronic devices.

What is Tokenization?

Tokenization will replace card details with a code, called a “token,” which will be specifically for the card, the token requestor and the device being used to pay. Instead of the card’s details, the token will act as the card at the point of sale (POS) terminals and quick response (QR) code payment systems. The goal of the process is to improve the safety and security of payments.

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National Anti-Profiteering Authority (NAA)

The National Anti-Profiteering Authority (NAA) has been constituted under Section 171 of the Central Goods and Services Tax Act, 2017 to ensure that the reduction in the rate of tax or the benefit of the input tax credit is passed on to the recipient by way of commensurate reduction in prices.

It is to ensure the reduction in the rate of tax or the benefit of the input tax credit is passed on to the recipient by way of commensurate reduction in prices.

NAA has taken the following steps for customers get the full benefit of tax cuts:

  • Holding regular meetings with the Zonal Screening Committees and the Chief Commissioners of Central Tax to stress upon consumer awareness programs.
  • Launching a helpline to resolve the queries of citizens regarding registration of complaints against profiteering.
  • Receiving complaints through email and NAA portal.
  • Working with consumer welfare organizations to facilitate outreach activities.
  • A number of complaints regarding companies not passing on the full benefits of tax cuts to consumers have been received by the National Anti-Profiteering Authority (NAA).

Vision and Mission of NAA –

The National Anti-profiteering Authority (NAA) is the institutional mechanism under GST law to check the unfair profit-making activities by the trading community.

The Authority’s core function is to ensure that the benefits of the reduction are GST rates on goods and services made by GST Council and proportional change in the Input tax credit passed on to the ultimate consumers and recipient respectively by way of reduction in the prices by the suppliers.

Institutional Mechanism:

This institutional framework comprises the NAA, a Standing Committee, Screening Committees in every State and the Directorate General of Safeguards in the Central Board of Excise & Customs (CBEC).

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RBI MSME loan restructuring plan to help borrowers, state-owned banks

Even as the Reserve Bank of India (RBI) allowed banks and non-banking financial companies (NBFCs) to undertake a one-time restructuring exercise of micro, small and medium enterprise (MSME) loans up to Rs 25 crore, which are stressed but not yet classified as non-performing assets, the poor quality of MSME loans in public sector banks, especially those under PCA, has turned out to be a cause for concern.

The central bank, in its Financial Stability Report, has flagged concerns regarding the deterioration in the asset quality of the loans given out to the MSME sector. The MSME exposure of public sector banks (PSBs), which has turned into NPAs, was 15.2 percent as on June 2018. For private banks, it was 3.9 percent and NBFCs’ bad assets to this sector were 5 percent. In June 2017, NPAs of PSBs was 14.5 percent, while that of private banks was 4 percent and NBFCs was 5 percent.

With the high NPAs, the MSME sector has been facing difficulty in raising funds. Experts are of the opinion that this move of allowing one-time loan restructuring will improve their liquidity position and also give them more time to repay debts.

“From the borrower’s perspective, the measure is positive as loan restructuring, which can include elongation of repayment schedule, additional funding for capital expenditure or working capital and moratorium on interest servicing; as it will provide them additional funding and respite in their cash outflows in the near term,” Karthik Srinivasan, group head, Icra said.

The MSME sector, accounting for 25 percent of the commercial lending in India, amounting to Rs 23 trillion, reported an 18 percent growth in Q1 FY19. The exposure of loans up to Rs 25 crore, accounted for 13 percent of the total loans and these loans recorded 16 percent growth.

State-owned banks have lost out on their market share in MSME lending to private banks and NBFCs. While PSBs accounted for 59.4 percent of the market in June 2016, it fell to 50.7 percent in June 2018. The market shares of the private banks have grown to 29.9 percent and 11.3 percent, respectively, in June 2018.

The new measures are expected to have an impact on PSBs. “The impact of this guideline would be mostly on public banks, especially those that are under prompt corrective action (PCA),” said Kotak Institutional Equities Research in a report. The brokerage said there will not be a material impact on private banks or the NBFCs, as the trends do not suggest any sign of deterioration.

PSBs, which are under the RBI’s PCA, have seen their exposure to loans less than Rs 5 crore increase by 166 percent from Rs 22,680 crore to Rs 60,280 crore between FY17 and FY18.

A day after the restructuring of MSME loans was announced by the central bank, the RBI governor said that he will meet representatives of MSME and NBFCs next week. The RBI has also set up a committee to identify the causes and propose long-term solutions, for the economic and financial sustainability of the MSME sector.

According to rating agency Icra, MSME loans under forbearance stood at less than Rs 10,000 crore for the banking sector as on September 30.

The MSME sector demanded the RBI’s loan restructuring scheme be also extended to the companies not yet registered under the GST, and called for the restoration of priority sector lending tag for such enterprises.

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Mahua flower comes under minimum support price

At a time when the Union government is scrambling to fix its rural agenda, it has declared inclusion of 17 new minor forest produce (MFP) under the government’s minimum support price scheme.

The new MFP under the scheme includes Mahua flowers (dried), Tejpatta (dried) and Kokum (dry). On December 27, the ministry of tribal affairs made the announcement, while also increasing the MSP of MFPs already included in the scheme since 2013.

The new MFP under the scheme includes Mahua flowers (dried), Tejpatta (dried) and Kokum (dry).

The Pricing Cell, constituted by the Tribal Cooperative Marketing Development Federation of India Ltd (TRIFED), recommended the inclusion of new MFPs under the scheme, given their importance to the economy of local communities.

A Planning Commission report had noted that MFP contributes to 20 to 40 per cent of the income of forest-dependent communities, especially the landless with a dominant population of tribals, and “provides critical subsistence during lean seasons.”

The MFP economy, however, is also known to suffer from unorganised and uncertain market demands, affecting economic returns to these communities.

In theory, an MSP is a minimum price set by the Government at which farmers can expect to sell their produce for the season. When market prices fall below the announced MSPs, procurement agencies step in to procure the crop and ‘support’ the prices.

The Cabinet Committee of Economic Affairs announces MSP for various crops at the beginning of each sowing season based on the recommendations of the Commission for Agricultural Costs and Prices (CACP). The CACP takes into account demand and supply, the cost of production and price trends in the market among other things when fixing MSPs.

Price volatility makes life difficult for farmers. Though prices of agri commodities may soar while in short supply, during years of bumper production, prices of the very same commodities plummet. MSPs ensure that farmers get a minimum price for their produce in adverse markets. MSPs have also been used as a tool by the Government to incentivise farmers to grow crops that are in short supply.

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Bimal Jalan to head six-member panel on RBI’s economic capital framework

The Reserve Bank of India (RBI), in consultation with the government, has set up a six-member committee to review the economic capital framework of the central bank.

Former RBI Governor Bimal Jalan will be the committee’s chairman and former Deputy Governor Rakesh Mohan deputy chairman.

The committee would submit its report within 90 days from the date of its first meeting, the RBI said in a statement on Wednesday.

The terms of reference of the committee would be to review status, need and justification of various provisions, reserves, and buffers presently provided for by the RBI, keeping in mind ‘public policy mandate of the RBI, including financial stability considerations.’

The committee will also review best practices followed by the central banks globally in making assessment and provisions for risks, to which central bank balance sheets are subjected.

The panel would also suggest an adequate level of risk provisioning that the RBI needs to maintain and to determine whether it is holding provisions, reserves, and buffers in the surplus or deficit of the required level.

The committee would also propose a suitable profit distribution policy taking into account all the likely situations of the RBI, including holding more provisions than required and the RBI holding fewer provisions than required, the statement said.

After the government started pushing the central bank to review its economic capital framework, the RBI board, at its meeting on November 19, decided to set up a committee to review the issue.

The economic capital issue was a bone of contention, among other issues, between the central bank and the Finance Ministry.

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