India: India Budget Analysis 2019-20

Earlier today, the Indian Finance Minister (FM) presented the 1st Budget of the newly formed government for financial year (FY) 2019-20. While there were many expectations before the Budget to revive animal spirits in the economy, the Budget has presented a mixed bag. The focus of the Budget was on the rural economy and Make in India, while limited proposals appear to have been made to increase disposable income and increase consumption.

At the outset, while the FM has not changed corporate tax rates, the Budget proposes to extend the reduced corporate tax rates of 25% for Indian companies whose turnover is less than INR 4 billion, which would cover almost 99.3% of domestic companies. However, for individuals falling in the rich and super-rich category, the Budget proposes a higher surcharge on income tax resulting in the highest effective tax rate of between 38-42%. Increasing taxes through surcharges is not an appropriate way of increasing taxes, especially when surcharges which are introduced never get removed. The rates for the rich are amongst the highest in the world for developing countries and we will see increased movement of the rich and super rich out of the country.

From a foreign investor perspective, relaxations have been proposed to the investment norms in aviation, media, insurance, insurance intermediaries and single brand retail sectors. For incentivizing Foreign Portfolio Investors (FPI), the Budget proposes: (i) a deemed increase in the statutory limit for FPI investment in a company from 24% to the sectoral foreign investment limit; (ii) to permit FPIs to subscribe to listed debt securities issued by Real Estate Investment Trusts (REITs) and Infrastructure Investment Trusts (InvITs); and (iii) to ease KYC norms for FPIs.

The Government appears to have recognized some of the issues pertaining to start-ups and they continue to benefit in this year's proposals. To resolve the 'angel tax' issue on capital subscription, the Budget proposes that start-ups will not be subjected to any kind of scrutiny in respect of valuations of share premiums, if requisite declarations and tax filings are made. Other changes include: (i) the removal of angel tax on investment by Category II Alternative Investment Funds (AIFs) in start-ups; and (ii) extended roll-over benefits in respect of capital gains from the sale of residential property, if invested in an eligible start-up. On the softer side, the FM has also indicated that a television channel will be broadcast exclusively for the promotion of start-ups.

Another area where the Budget has tried to address concerns is in relation to Non-Banking Financial Companies (NBFCs), which have been under a lot of stress in the recent past. In order to facilitate securitization transactions by financially sound NBFCs with public sector banks, the Budget proposes a six-month partial credit guarantee for the first loss up to 10%. The requirement to create a Debenture Redemption Reserve for public debt issuances by NBFCs has also been dispensed with. Additional tax rationalization for NBFCs has been undertaken to put them on par with banks and allow for interest on bad or doubtful debts to be recognized in the year of receipt.

Interestingly, the FM has addressed certain conflicts in case of insurance and housing finance sector. The nodal regulator for housing finance companies will now be the Reserve Bank of India (RBI) instead of the existing regulator i.e., the National Housing Bank (NHB). In case of the National Pension System, separation of the National Pension Trust from the regulator, Pension Fund and Regulatory Authority (PFRDA), has been proposed.

The FM has also proposed a slew of changes to provide further thrust to financial services enterprises operating in International Financial Services Centres (IFSCs), such as GIFT City. These include (i) the expansion of exemptions on transfers of specified instruments by a non-resident through stock exchanges set up in IFSCs; (ii) exemption from tax on interest payable to a non-resident by units in IFSCs; and (iii) exemption from tax on distributions by companies and mutual funds in IFSCs.

The Budget proposes to extend buyback tax to listed companies. This seems to have been done to check the practice of listed companies resorting to buybacks of shares instead of payment of dividends. This would effectively limit the quantum of distributions that listed companies make in light of the tax inefficiencies and does not make any economic sense. One fails to understand why policy makers do not appreciate that imposing an effective tax of more than 42% on profits distributed to shareholders is counterproductive to reviving animal spirits in the economy.

In the interim budget presented earlier this year, an impetus was given to technological development, creation of digital infrastructure and digitization of governance. To this end, the Budget proposes to implement e-assessments in a phased manner in order to eliminate human intervention, which would lead to simplification and greater transparency. Specifically, the Budget proposes: (i) online application for nil / lower withholding certificate for payments made to non-residents; and (ii) electronic filing of statements in respect of payment of interest income. Another important facet of the Budget is the introduction of pre-filled tax returns to taxpayers with the objective of reducing time and increasing accuracy in tax filing. It will be interesting to see how these changes actually benefit the taxpayer in practice.

Another interesting takeaway from the Budget has been the Government's increasing interest in environment protection measure which include incentivising the purchase and manufacture of e-vehicles, promote use of solar stoves and battery chargers in the country.

In summary, the Budget seems to give the picture that revenues for meeting expenditure are in place and hence there is no need to further widen the tax base. The tax measures proposed are limited to rationalization of existing provisions and providing a boost to certain targeted sectors. Whether the proposals will rekindle the flagging growth in the economy is something that will need to be seen in the coming months.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

Similar Articles
Relevancy Powered by MondaqAI
Nishith Desai Associates
In association with
Related Topics
Similar Articles
Relevancy Powered by MondaqAI
Nishith Desai Associates
Related Articles
Up-coming Events Search
Font Size:
Mondaq on Twitter
Mondaq Free Registration
Gain access to Mondaq global archive of over 375,000 articles covering 200 countries with a personalised News Alert and automatic login on this device.
Mondaq News Alert (some suggested topics and region)
Select Topics
Registration (please scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of

To Use you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.


The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.


Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions