India Interim Budget 2019

Ring in the New Year with Accounting Cheer

-         Avoid the Year End Chaos

“NOT Merely an interim budget...”

Mr Piyush Goyal presented his first budget, more a report card-cummanifesto. He may well be presenting future budgets as the country’s Finance Minister, should the current government be back post elections. Much was spoken of transparency and accountability, particularly in the financial sector. The Insolvency and Bankruptcy Code (‘IBC’) was highlighted with much gusto, as were other major policy revamps and infrastructure initiatives. An overview was given of rural upliftment, pension scheme for the less privileged, women empowerment, etc. The theme was “5 years back vs now”. It was a well presented report and, if voters were glued to the TV, certainly impactful. Demonetization and other efforts to rout corruption were there too. Then the scene shifted to 2030 and a sort of 10 point wish list emerged viz. future infrastructure to match the likely trillion dollar economy, digital India, pollution management, clean rivers, getting our astronauts into space by 2022, better food production, a proactive bureaucracy, etc. Sounds good. The challenge which presently sits before us is to give more teeth to IBC and real estate law, as also simplify GST. Exports need bigger thrust to balance the import bill. Credit offtake from banks should be as much worry as recovering NPA’s. Certainly, privatizing banks and some other business should be priority. He closed with a fiscal deficit projection of 3.4 per cent, which is not too bad. But the best came in form of tangible tax sops aimed at the middle class i.e. no tax for those earning less than `5 lacs, dropping notional rent for up to 2 houses and doing away with tax withholding on smaller interest earnings. We are certainly cheering, and if the increasing tax base is encouraging the government to think like this, we may well have lesser tax litigations in the years ahead.

This is a synopsis of the India Interim Budget 2019-20 presented by the Finance Minister on February 1, 2019. The India Fiscal Budget 2019-20 (annual fiscal budget) shall be presented post the general elections, by the newly elected government.
The proposals contained in the Finance Bill are subject to ratification by the Parliament.


DIRECT TAXES

INCOME TAX

  • The basic tax slabs for individual and HUF remains unchanged i.e.

  • Tax rates on partnership firms and co-operative societies remain unchanged. Surcharge at 12 per cent where income exceeds `10 million.
  • Corporate tax rate remains unchanged i.e.

  • Health and Education cess at 4 per cent remain unchanged.

SALARY

  • Threshold for Standard deduction enhanced from `40,000 to 50,000.

INCOME FROM HOUSE PROPERTY

  • No notional rental income on second self-occupied house and aggregate deduction for interest on borrowed capital capped at `0.2 million.
  • Time period of exemption for considering notional rental income on unsold property held as stock in trade enhanced from 1 to 2 years – relief to real estate sector.

CAPITAL GAINS

  • Deduction of Capital gains under section 54 i.e. on re-investing sale proceeds of long term capital asset, investment to be made in one residential unit in India, extended to two residential unit, where capital gain does not exceed `20 million. The option to be exercised once in a lifetime.

REBATES AND DEDUCTIONS

EXTENDED

  • Deduction of 100 per cent deduction of profits from developing and building approved affordable housing project extended for one more year, i.e. up to April 1, 2020.

ENHANCED

  • Resident individuals with annual income up to `0.5 million now eligible for higher rebate of up to `12,500.

TAX WITHHOLDING

  • Threshold for tax withholding enhanced

î    On interest income from banks/co-operative society/ post office from `10,000 to 40,000.

î    On rental income from `0.18 to 0.24 million.


COMMERCE AND TRADE FOCUS

AGRICULTURE

  • Pradhan Mantri Kisan Samman Nidhi to be launched with an outlay of `750 billion (US$10.55 billion). The scheme to provide direct income support at the rate of `6,000 (US$84.38) per annum to farmers having cultivable land up to 2 hectares.
  • Allocation to Rashtriya Gokul Mission increased to `7.5 billion (US$105.47 million) to boost Animal Husbandry. Rashtriya Kamdhenu Aayog announced for enhancing genetic productivity. A new Department of Fisheries to be created to focus attention on development of Fisheries.
  • Farmers affected by natural calamities to get 2 per cent interest subvention on loans taken on Kisan Credit Card. An additional 3 per cent interest subvention to be given on timely repayment.

LABOUR

  • Pradhan Mantri Shram Yogi Maandhan to be launched for workers in the unorganised sector with monthly income up to

`15,000 (US$210.94). Beneficiaries to get a monthly pension of `3,000 (US$42.19) post retirement.

HEALTH, EDUCATION & SOCIAL PROTECTION

  • 10 per cent reservation introduced for the poor in educational institutions and government services.
  • For economic and social advancement of Scheduled Castes (‘SCs’) and Scheduled Tribes (‘STs’), the total allocation increased to `768.01 billion (US$10.80 billion) for SCs and

`500.86 billion (US$7.04 billion) for STs.

  • `600 billion (US$8.44) allocated towards MGNREGA.

MEDIUM SMALL AND MICRO ENTERPRISES (‘MSME’)

  • GST registered units to get an interest rebate of 2 per cent on loans in excess of `10 million (US$140,627.19)

INFRASTRUCTURE AND DEFENCE

  • Capital support for Railways proposed at `645.87 billion (US$9.08 billion).
  • Budgetary allocation for the North Eastern States proposed to be increased by 21 per cent to `581.66 billion (US$8.18 billion).

Englobally Yours

Englobally Yours

There is something about year ends that makes us extremely emotional. It is a time to reflect upon the year gone by and make commitments with renewed vigour for the year ahead. For businesses, it is also the time to take stock of financial accounts and align all business interests. This, as we all know, is easier said than done.

 

 

The Challenges

 

The challenges are similar for most business across the world and can pertain to both internal land mines as well as compliance with regulatory requirements. Some of the pain points are closely associated with manual oversight while others pertain to complying with the key differences in the approach determined by the GAAP (generally accepted accounting principles) that is being applied, i.e. IFRS (international financial reporting standards) or local GAAP or US GAAP.

 

A close examination would indicate that most of the internal issues start earlier in the financial year and get magnified by year-end. These usually stem from:

 

*      Financial surprises during year-end review

*      Delayed or incorrect data

*      Smaller issues which could have appeared during the monthly or quarterly close, but had not been discovered until year-end

*      Communication gaps amongst teams

 

Companies that operate in multiple jurisdictions have to additionally contend with preparing both group as well as local financial statements. For such companies, the challenges primarily stem from identifying the substance as well as the form of economic transactions. Local rules can vary significantly and what might be in compliance in one jurisdiction might be lacking in another. For example, the scope of provisioning in the Netherlands is different from the provisioning requirements in Germany and Italy. The former allows a provision to be made even if an obligation does not exist, while in the latter countries, the risk areas covered by provision are larger. In China, individual branches of companies are subject to virtually the same level of compliance obligation as a local headquarters, even if they are not separate legal entities. In HongKong, on the other hand, a private company which has applied for a dormant status (i.e. a company that has no relevant accounting transactions during a financial year) under the Companies Ordinance is altogether exempted from filing annual returns.

 

There can also be significant differences in the contents of the financial statements and the level of disclosures required. For example, in France and Germany, cash flow statements are required to be prepared only for consolidated accounts or enterprises listed in capital markets whose financial statements follow the IFRS while other jurisdictions like the Netherlands, Italy and Portugal have done away with the requirement of a cash flow statement.

 

Local rules can vary greatly and such differences combined with internal inefficiencies can have a significant impact on both local as well as group accounts. These issues can mount through the year and cause unwarranted stress at year-end.

 

Solution

 

Navigating the legal and tax quagmire is no easy task. Which is why companies should adopt a proactive and consistent approach that can make the year-end closing process smoother and less edgy. Close communication and coordination amongst teams is fundamental to this. Instead of working in silos, legal, accounting and finance teams should regularly communicate and ensure that local as well as group compliance requirements are being met.

 

The year-end Framework

 

 

The bottom line is that planning and operating proactively for the year-end is a best-practice approach for success. This can help companies save cost as well as time and focus on what they do best i.e. building a business. Looking forward instead of concentrating on the rear-view will ensure a smooth and successful journey ahead.

 

The Englobally Group

 

The Englobally Team is present across the major regions of the world and is focused on helping firms build as well as expand their businesses, beyond geographical boundaries. Our in-depth local knowledge and expertise and personalised solutions ensure that we become trusted long-term partners to our clients. Contact us to know more about us and understand how we can add value to your business.