Budget News

New Delhi: The income tax department has notified the minimum fee to be received by India-based fund managers of an overseas fund.

While the minimum remuneration stipulated by the Central Board of Direct Taxes (CBDT) for Category-I Foreign Portfolio Investor (FPI) is 0.1 percent of the fund’s assets under management (AUM).

In case of other entities, the minimum fee prescribed by CBDT is either of 0.3 percent of the assets under management; or 10 percent of profits derived by the fund in excess of the specified hurdle rate, where the remuneration is only to income or profit linked.

In cases where the fund is paying a management fee to another fund manager also, the minimum fee would be 50 percent share of the management fee from the management activity undertaken by the eligible fund manager, as reduced by the amount incurred towards operational expenses including distribution expenses, if any.

The CBDT while notifying the amended income tax rules said in case where the amount of remuneration is lower than the amount arrived at as per CBDT’s minimum fee formula, the fund will have the option to seek approval of the apex direct tax body.

In order to encourage fund management from India, the Finance Act, 2015, had introduced Section 9A in the Income Tax Act, 1961, to provide a safe harbour rule for onshore management of offshore funds subject to certain conditions.

The Finance Act, 2019, amended one of the conditions for availing the safe harbour by removing the requirement for the eligible fund manager to receive an arm’s length fee for performing the fund management activity and replacing it with a minimum fee to be prescribed by the CBDT.

Following this, on 5 December, 2019, the CBDT released the draft rules prescribing the minimum fee to be received by the fund manager in India managing different type of offshore funds.

CBDT has now issued a final notification on the same lines as the draft notification.

Nangia Andersen LLP Partner Sunil Gidwani said that since the offshore fund would continue to pay lower tax as FPIs or Foreign Venture Capital Investors or FDI investors on its gains from India at capital gains rates or even nil if treaty benefits are available, the government expects minimum income to be reported by the Indian fund manager.

“Category-I FPIs have once again been given a favourable treatment as compared to category-II FPIs with a lower floor rate of fee. Private equity funds/ alternative investment funds and FPI Cat-II will have to report higher fees in India,” he said.

Gidwani further said the replacement of arm’s length price determined in accordance with a fixed percentage as a minimum amount does away with the use of transfer pricing methodologies and makes it easy for fund managers to plan and conceive a structure and get it approved by CBDT.

New Delhi: The tax department on Friday said it has issued I-T refunds of Rs 26,242 crore to 16.84 lakh taxpayers since April as part of efforts to hasten refund process for making liquidity available with people and firms to deal with COVID-19 crisis.

The Central Board of Direct Taxes (CBDT) said 16,84,298 tax assesses have received refunds between 1 April and 21 May.

Income-tax refund of Rs 14,632 crore to 15,81,906 assesses and corporate tax refund amounting to Rs 11,610 crore to 1,02,392 assesses have been processed during this period, the CBDT said in a statement.

 Income Tax Department issues refunds of Rs 26,242 cr since April to 16.84 lakh taxpayers; move to ease liquidity


The refund process has been further expedited at a greater pace since Finance Minister Nirmala Sitharaman’s announcement made in the ‘Atamanirbhar Bharat Abhiyan’ last week.

“We are not delaying (refund). We are not sitting over it. I am giving it to you now because money is required now and it should reach now. I didn’t mention even then…tax refund money has not gone into our calculation in claiming what we are giving as a stimulus,” she had said.

The CBDT has released a sum of Rs 2,050.61 crore in the previous week ended on 16 May to 37,531 income tax assesses and a sum of Rs 867.62 crore to 2,878 corporate tax assesses, it said.

“While in this week ended on 21 May, i.e., between 17-21 May another 1,22,764 income tax assesses were refunded Rs 2,672.97 crore and 33,774 corporate assesses including trusts, MSMEs, proprietorships, partnerships, etc. were issued refunds worth Rs 6714.34 crore, totalling the amount refunded as worth Rs 9387.31 crore to 1,56,538 tax assesses,” it said.

New Delhi: The government on Thursday said it has released Rs 92,077 crore towards the devolution of central taxes to states for April and May.

In a tweet, the Office of Finance Minister Nirmala Sitharaman said, “GoI has released a total amount of Rs 92,077 crore, as state’s share in the devolution of central taxes and duties for the months of April and May 2020.”

The devolution amount for April stood at Rs 46,038.10 crore, while for May, it is Rs 46,038.70 crore.

The tweet further said that these releases are according to projections of receipts in Budget Estimate 2020-21 and have not been adjusted for the actual tax collections, impacting the Centre’s cash balances.

“This is a special gesture to ensure that the states’ cash flows remain undisturbed at this crucial time,” it added.

The Budget had projected the share of the states in taxes at Rs 7.84 lakh crore for 2020-21.

The 15th Finance Commission had recommended the share of states at 41 percent of the divisible pool and 1 percent for the newly-created Union Territories of Jammu and Kashmir, and Ladakh.

The 14th Finance Commission had recommended that the states be given 42 percent share in taxes.

New Delhi: The Income-Tax Department has asked taxpayers to guard against possible breach of their personal e-filing account and report such an instance to the police cybersecurity wing.

“If you think your e-filing account many have been compromised or accessed in an unauthorised manner, then you may be a victim of cybercrime,” the department said in an advisory.

“Please report the incident to the concerned police or cyber cell authorities as a first step,” it said.

 Income Tax Department asks taxpayers to guard against possible breach of their personal e-filing account

The e-filing account of an individual or entity is accessed by logging on to the web portal of the department– https://www.incometaxindiaefiling.gov.in.


A senior official said the advisory has been issued in the wake of an increased vulnerability and attacks on online systems as the country and the world battle the COVID-19
pandemic and more online systems are being used due to a major scaling down of the human interface.

The department also suggested that a person can also file an online criminal complaint/FIR by visiting https://cybercrime.gov.in/ that has been launched by the government “to facilitate victims and complainants to report cybercrime complaints online.”

The advisory added that the department, on its part, will also share information related to a cybercrime instance “with relevant law enforcement authorities when so summoned under their statutory powers of investigation.”

“As a general precaution, please do not share your login credentials or other sensitive information,” it said.

The e-filing account is used by taxpayers to file their income tax returns (ITRs) and perform a host of other tax-related works.

Shares of ITC rose nearly 3% touching to Rs. 217, on reports that the company had hiked prices of cigarettes by 10-12%.

The company has hiked prices across various lengths of cigarettes by 10-12%, as per reports.

While presenting Union Budget 2020, Finance Minister Nirmala Sitharaman said the government proposed to raise excise duty on tobacco and cigarettes.

At 10.32 am, ITC was trading at Rs. 214, up by 1.57%, with a volume of 2.80 lakh shares on the BSE.

Before Finance Minister Sitharaman’s 165-min exertion in Parliament, I had posited that the true touchstone of her success would not be a tax nick here and an expenditure tuck there; instead, the only way she could revive our flagging economy is by creating T.R.U.S.T.

So, Did She Pull It Off?

Well, Yes And No. There were several pious proclamations about nurturing wealth creators, curbing tax excesses, and making life and business easier. But as always, when these noble thoughts were refracted via a bureaucratic prism, they came through mangled and defeated. Nothing illustrates this better than the much-touted ‘reform’ on the taxation of employees’ stock ownership plan.

Alas, ESOP continues to be a much-abused acronym. As it stands today, it expands to an Egregious State Oppressing Performers!

                                               Budget 2020: Egregious State Oppressing Performers... ESOP

A Quick Detour To History

An umbilical cord links me with ESOP-taxation in India. When I founded TV18 in the early-1990s, we had given generous stock options to our critical team members. In that sense, we belonged to a clutch of ESOP pioneers in India. And since we were leaders in business news, we also drilled hard into issues around entrepreneurship, taxation and union budgets.

Now cut to that fateful Union Budget of 2007. The aggressive P Chidambaram had unveiled a shocking model of ESOP-taxation. Let me explain with a simple example. Imagine a stock/share whose Fair Market Value is Rs 100. To incentivise a key employee, assume she is given a Grant of 10 lakh options at Rs 10, thereby giving her a potential income of Rs 9 crore – it’s a potential, and not real/realised, income because no actual shares have come into her possession yet. Now assume further that she has two years to tell the company whether she is accepting the Grant or not. This is called the Exercise Period. The minute she says “yes, I want the Grant”, she has Exercised it. But note that it could take several more weeks, even months, of regulatory steps for her to actually own these shares after she said “yes”.

This is where the trouble started. Chidambaram said she should pay the tax immediately upon the Exercise. But there’s a problem, right? She has yet to get the shares; all the ‘gains’ are notional, on paper. So how and why should she pay a tax on an illusory income? Worse, imagine that she gets the shares in three months, but some adverse event had occurred in that hiatus, and the value of each each stock had dropped to Rs 5 from Rs 90.

Now see the ridiculous situation that she finds herself in: she would have paid tax on an ‘income’ of Rs 9 crore, even though she has made a loss of Rs 50 lakh.

So Chidambaram’s budget’s logic was clearly absurd. It flew in the face of every canon of taxation, ie paying a tax on notional income, even losses. It happened only in India! When I aggressively questioned a harried Chidambaram on the perfidy of his proposed ESOP tax, he dug in and defended his thesis, trotting out his copious legal expertise.

But I persisted. “Sir, it’s so anti-employee that I am at a loss for words. Instead of creating incentives, you are victimising the poor lady, asking her to cough up taxes when she hasn’t earned even a twisted paisa, and may indeed lose if the business turns down in the interregnum. This is almost penal”, I protested. But the erudite Chidambaram stuck to his guns.

                                                          P Chidambaram, then Finance Minister of India, arrives at Parliament, in New Delhi, on Feb. 28, 2007. (Photographer: Sondeep Shankar/Bloomberg News)

What Chidambaram Did, Jaitley Did Not Undo

This ESOP perfidy persisted over a dozen years, with generation after generation of startup entrepreneurs crying blue murder over such a patently unfair/regressive tax regime. The crescendo only got louder after Prime Minister Modi extolled first-generation founders to the status of ‘Demi Gods’. Unfortunately, his accolades, while grand and verbose, failed to kill the tax or cut any ice with his finance minister. For five years, the venerable Arun Jaitley, a legal titan like Chidambaram, remained unmoved.

Until Nirmala Sitharaman Did…

But the yelling and screaming escalated, until a chastened M/s Modi & Sitharaman decided to accede. With equal grandeur, Sitharaman announced that she had fixed the long-festering ESOP tax wound.

                                                  Budget 2020: Egregious State Oppressing Performers... ESOP

Indian startups erupted in cheers. Frankly, we are a strange country, which applauds when a mistake, that should not have happened in the first place, is corrected after a dozen years of exploitative, vicious implementation.

Because in India, an excruciatingly delayed correction is called a ‘reform’! And We The People sing hosannas, being grateful for something that should have accrued to us as a right.

Wait. Her Bureaucrats Struck Back… Anyway, the real drama and tragedy, a la a Garam Dharam Bollywood potboiler, lay coiled in the fine print. As usual, unwaveringly, with deadly precision, India’s bureaucrats struck to neuter even this tiny ‘reform’. Just see what they did.

It’s not a general policy applicable to all 20,000 odd startups. No sir, it’s restricted to only about 250 of the ‘few chosen’ by a committee of government secretaries who have ordained, with divine conviction, that ‘come hither, you innovative newbies, enjoy these ESOP tax concessions’.

There is a sharper sting in the tail – the perverse tax is not abolished, only deferred by five years; and if you leave the company, you lose the concession, with one stroke creating a rigid, inflexible market for hiring talent. So there they go again, micro-managing and tinkering with the free market of mobile talent! And finally, why is this concession not given to any ESOP holder? Is the engineer who made Facebook apps work on Jio feature phones any less talented and creative? Why is he denied this concession just because he works in a large company? Is talent the determinant or the size of the employer’s balance sheet? What can I say in the end? I truly believe that Sitharaman’s quest was honest. She wanted to correct an injustice. But her bureaucrats simply torpedoed her noble intention.

Unfortunately, that’s how her Budget failed to win T.R.U.S.T.

Middle Class Shareholders Will Pay Tax On Dividends At Lower Rate, Says FM

A large section of the middle class will pay tax on dividends at a lower rate, Sitharaman said, adding that the middle class will have more money in their hand to spend post the new proposed rules in The Finance Bill. 

LIC IPO Will Bring Retail Investors: Finance Minister

The proposed initial public offering of Life Insurance Corporation Of India will bring retail investors into the picture and make issues more transparent, according to Finance Minister Nirmala Sitharaman.

Aiming To Simplify Tax Regime, Says Finance Minister

The intent of the current government is to move towards simplification of tax regime, according to Finance Minister Nirmala Sitharaman. We are trying to implement many of the recommendations of the Direct Tax Code committee, Sitharaman added. 

Wish To Decriminalise Laws, Says Finance Minister

We wish to decriminalise laws. We started with Companies Act and now are looking at the Income Tax Act, Sitharaman says, adding that we want to ensure that civil offences are not treated as criminal offences.

Finance Minister Nirmala Sitharaman In Mumbai

Finance Minister Nirmala Sitharaman will address a press conference in Mumbai after an interactive session to discuss the budget proposals presented last week. The session is being attended by academicians, professionals, economists and journalists. In her over two-and-a-half-hour budget speech, Sitharaman had made a host of announcements including an optional alternate income tax regime, abolishing the dividend distribution tax, invoking the escape clause for fiscal deficit, hiking deposit insurance cover and proposed the listing of Life Insurance Corporation of India.

Following the budget, Sitharaman then attended a Confederation of Indian Industry event where she exhorted India Inc. to shun hesitation and push growth through investments.

The approach has been “we shall spend on asset creation and it is the cascading effect of this spend which is going to help the industry. So we expect you to be… the engine to pull the economy forward”, the finance minister said.

Sitharaman has also signalled that the government is willing to do more in terms of necessary measures to prop up the economy.

Today’s meeting is the first of three such consultations Sitharaman is holding with various stakeholders. The next interactions will be held in Chennai and Kolkata to interact with industry, economists, trade bodies and farmers.

The Indian rupee to take a cautious stance in opening trades on Thursday, 06 February 2020 ahead of the Reserve Banks monetary policy outcome later in the day. The RBI is scheduled to announce the outcome of its sixth bi-monthly monetary policy statement amid concerns over fiscal deficit and inflation.

The Indian rupee opened marginally lower at 71.24 per dollar versus Wednesday’s close 71.21.

On February 5 the Indian rupee ended higher at 71.21 against the US dollar, as market participants await fresh cues from the RBI’s monetary policy.

Oil futures rose for a second day on Thursday as investors took optimism around unconfirmed reports of possible medical advances to combat the coronavirus outbreak in China as a sign fuel demand could rebound in the world’s biggest oil importer.

Indian indices-

The benchmark indices rallied for the second consecutive day on February 4, which helped the market to recouped their Budget day losses. The Sensex surged by 2.30% or 917.07 points to 40,789.38. The Nifty soared by 2.32% or 271.75 to 11,979.65.

Stocks in the news-

1. Piramal Enterprises Q3 consolidated net profit up by 20% YoY to Rs. 725 crore

2. Titan Company Q3 net profit up by 12.9% YoY to Rs. 470 crore

3. JSW Energy Q3 net profit at Rs. 404 crore

Buzzing stocks on BSE-

1. Bajaj Auto slipped by 3.86% to Rs. 3,162.50, after total domestic auto sales fell by 3.11% to 3.94 lakh units in January 2020 as against 4.07 lakh units sold in January 2019

2. Reliance Industries (RIL) rose by 2.89% to Rs. 1,425.85, after it informed that new production from KG D6 project on track to start by mid-2020.

Global Signals-

Asian markets gained on February 04, as stocks in mainland China turned positive after plunging on February 03.

European markets were higher on February 04, as sentiment improved and investors brush aside economic fears over the coronavirus outbreak.

The budget has introduced higher Deposit guarantee for deposits in Banks. Currently banks pay 10 paise for per Rs 100 of deposits. As explained by as Govt. official, the premium won’t go up substantially and may be hiked to 12-13 paise (per deposit of Rs 100 a year). A higher deposit insurance is likely to increase in the insurance premium outgo for banks. However, over the long term the move is also likely to see higher deposit accretion with banks which being a lower cost of liability and also allows opportunity for Retail cross sell of other products etc and hence will likely offset some of the impact of higher costs. – Sentimentally negative for banks. PSU Banks may be impacted more.