The Union Budget, presented by Finance Minister Arun Jaitley Monday, announced a string of tax sops for India’s first International Financial Services Centre (IFSC) being built at GIFT-City in Gandhinagar. While the Budget also doled out benefits for other sectors in Gujarat, like real-estate and ship-repair units, it imposed fresh tax on the Ahmedabad Metro project.
Tax benefits announced by the minister “to facilitate setting up of the IFSC in India” include complete exemption from dividend distribution tax, securities transaction tax, long-term capital gain tax and commodity transaction tax. “The companies located in IFSC shall not be liable to dividend distribution tax. The Minimum Alternate Tax (MAT) shall be charged at the rate of nine percent from units located in IFSC,” states the minister in the annexure to part-B of the Budget speech. This reduction in MAT, that currently stands at 18.5% provides a competitive tax regime to IFSC at GIFT-City.
The transaction in foreign currency of the sale of equity share or units of equity-oriented funds or units of a business trust taking place on a recognised stock exchange established in IFSC shall not be liable to securities transaction tax. The Budget also proposes that the gains arising from the transfer of such long-term capital asset shall be exempt from tax.
Similarly, the transaction in foreign currency of sale of commodity derivatives taking place on a recognised association established in IFSC shall not be liable to commodity transaction tax. These tax sops are in addition to those announced by state government on February 23, where the state finance minister Saurabh Patel announced stamp duty exemption for the transactions of share brokers who establish their registered office in GIFT-City and also operate and trade from the same place. Ajay Pandey, MD & Group CEO of GIFT-City, said, “We welcome the Union Budget’s important regulations for the development of IFSC in India. These incentives could not have come at a more opportune time than this as India stands out as the only bright spot in the world with a GDP growth rate of over seven percent even as the rest of the world is facing varying levels of slowdown.”
The Budget also allows 100 percent FDI through the Foreign Investment Promotion Board (FIPB) route in marketing of food products produced and manufactured in India. “This will benefit farmers and give a boost to food processing industry in the state,” said Devanshu Gandhi, MD, Vadilal Industries Ltd and chairman of Confederation of Indian Industry (CII) Gujarat State Council. Officials of the CII said that the raising of the turnover limit for Presumptive Taxation scheme under Section 44AD of the Income Tax Act to Rs two crore will free a number of MSME units in the state from the burden of maintaining detailed books of account and getting audits done. The lowering of the corporate income tax ( to 29 percent plus surcharge and cess) for companies with turnover not exceeding Rs five crore is also expected to benefit the MSME sector. Real-estate players in Gujarat welcomed the provisions in the Budget for promoting affordable housing. “The proposal to exempt service tax on the construction of affordable houses up to 60 square metres that cost about Rs 30 lakh in a city like Ahmedabad will provide a direct benefit of Rs 1.25 lakh to home-buyers. Secondly, the move to give 100 percent deduction for profits to real-estate firms for building 60 square metre houses in cities like Ahmedabad will provide the much needed impetus to the housing sector in the state,” said NK Patel, CMD of Sun Group, one of the larger players in affordable housing segment.
For the textile sector, customs duty on specified fibres and yarns has been reduced to 2.5 percent from the current five percent. This is expected to provide some relief to the morale of the textile sector in the state.
However, the Budget imposes a 5.6% tax on contracts entered into on or after March 1, 2016 for works pertaining to the construction, erection, commissioning or installation of Metro or Monorail projects. This tax is expected to have an impact on the cost of the Rs 10,600 crore Ahmedabad Metro project. The Finance Minister has allocated Rs 6,60 crore for this project.
The “infrastructure cess” being levied on motor vehicles — ranging from one to four percent — has been dubbed as “harsh” by industrialists in Gujarat.
“The state government had already increased the tax on cars and SUVs priced more than Rs 15 lakh and two-wheelers costing more than Rs 2.5 lakh by five percent and now the move from the Union government to impose similar tax on this segment is a bit too harsh,” said Naishadh Parikh, CMD of Equinox Solutions Ltd.
Piruz Khambatta, chairman of Rasna Pvt Ltd, said, “In the agriculture space, the Gujarat model is being implemented fully with soil health cards, irrigation projects and 100% rural electrification soon.”