India’s Annual Budget 2022-23 - Key Takeaways (InCorp Global)
Business OpportunitiesMarch 11, 2022 - InCorp Global Pte Ltd
On February 1st 2022, the Honorable Finance Minister of India, Ms. Nirmala Sitharaman, presented India’s Annual Budget for the coming year.
It focuses on PM Gati Shakti’s plan, productivity enhancement, financing investments, and climate action.
To help businesses make strategic decisions when investing in India, this thought leadership article from PrimeGlobal member firm InCorp Global in Singapore highlights some key policies and takeaways from the budget.
1. Capital Investment Commitments
In the Indian budget 2022-23, the Government has focused on “Gati Shakti” master planning and the National Infrastructure pipeline. This budget allocated an additional USD 10 billion, up by 34% from the previous year’s budget.
2. Focus on developing the digital economy
Under the theme of ‘Atmanirbhar Bharat’ (translated to ‘India becoming Self Reliant’) the Government has announced various reforms that focus on the digital economy, including production-linked Incentives to create an ecosystem for 5G technology. Additionally, a digital currency will be launched by the Reserve Bank of India (central bank of India). Further, data centers and energy storage systems across the country shall be considered as a part of the infrastructure sector. This status will provide the data center and energy sector access to foreign funding through the external commercial borrowing route.
3. Strong pivot towards Climate Change and Clean Energy transition
The Government proposed contributions to the research and development of various sectors such as Alternative energy, Pharma, Artificial Intelligence, Semiconductors and Green Energy. The Government will issue sovereign Green Bonds to mobilize resources for green/climate friendly infrastructure. USD 2.6 Billion Production Linked Incentives (PLIs) has been rolled out for domestic manufacturing of solar modules (280 GW installed solar capacity).
With an aim to reduce annual 38 metric tonne CO2 emissions, use of biomass pellets @5-7% in the fuel mix of thermal power plants has been mandated. Further, battery swapping policy along with interoperability standards were introduced to improve the EV (Electric Vehicles) ecosystem.
4. Incentives for Entities incorporated in India SEZ (Special Economic Zones)
In India, an SEZ is considered a foreign territory (treating the goods / services going into SEZ as exports and goods / services coming from the SEZ as imports). An SEZ aims to benefit certain sectors with its competitive tax regime. The SEZ Act will be replaced by new legislation. This new law shall be introduced to cover existing and new entities to optimally utilize the infrastructure facilities in SEZs. This shall encourage competitiveness in the export of goods and services. Further, customs administration of SEZs will function on a proposed online portal (the Customs National Portal) with effect from 30th September 2022. The earlier process shall be decentralized.
5. Scaling Up PE/ VC (Private Equity / Venture Capital) investments
PE/ VC’s have contributed to more than 37% of overall investment in start-ups. The startups in 2021 were valued at USD 28 8 billion. A committee has been formed to ease out the regulatory challenges and key issues faced by PE/VC.
6. Ease of Doing Business 2.0
The Indian Budget 2022-23 aims to simplify the process of conducting business in India. In this connection, the government has proposed digital portals in various sectors including infrastructure, agriculture, health, education, etc. The program represents the efforts taken to create a more business-friendly environment.
1. GIFT (Gujarat International Finance Tec) City an International Financial Services Centre (‘IFSC”)
An IFSC is a special region and jurisdiction in GIFT city (India) where global financial service providers offer financial services and products in foreign currencies to worldwide customers. The Government has been working along with various regulators to make it a global financial hub. An IFSC provides the very competitive cost of operations with various tax benefits. Let us take a look at the existing provisions in GIFT city.
The entities incorporated in Gift City IFSC are entitled to 100% tax exemption on profits earned for 10 consecutive years out of 15 years. IFSC incorporated entities have the flexibility to select any 10 years out of 15 years block for claim of the above tax exemptions. Minimum Alternate Tax (MAT) is payable @ 9% on book profits applied to Company/ others that are setup in IFSC (instead of normal rate of 15%). MAT is not applicable to companies incorporated in IFSC subject to certain conditions.
Apart from the existing provision in the Indian Budget 2022-23, the government has announced various exemptions such as:
- Exemption in respect of income of a non-resident from transfer of non-deliverable forward contracts entered into with an Offshore Banking Unit (OBU) of an IFSC has now extended to offshore derivative instruments or over-the-counter derivatives.
- Exemption in respect of income of a non-resident from a portfolio of securities or financial product or funds managed by a portfolio manager in an account maintained with OBU in an IFSC.
- Further, an exemption in respect of income of a non-resident by way of royalty or interest paid by an entity of IFSC on account of lease of an aircraft has been now extended to lease of ship. Deduction in respect of income arising from transfer of an aircraft leased by an entity of an IFSC has now extended to ships.
- ‘Angel Tax exemption’ i.e., securities can be issued at premium to Category I and Category II AIFs regulated under IFSC will not be subject to litigation.
Further, World Class International Universities/Institutions can now offer courses in Financial Management, FinTech, Science, Technology, Engineering and Mathematics in GIFT city. These universities shall be free from domestic regulations and requirements. International Arbitration Centres shall be incorporated to ensure timely settlement of disputes under international jurisprudence. To ensure global capital for sustainable climate finance a variety of services shall be facilitated from GIFT City.
2. Virtual Digital Assets (‘VDA’)
VDA has been brought within the ambit of Income Tax Laws through the Indian Budget 2022-23. A VDA is defined as any information or code or number or token (Crypto Currencies like Bitcoins, Doge Coins etc.), non-fungible token (‘NFT”) or any other digital asset as may be prescribed.
As per law, income from transfer of VDA to be taxed at the rate of 30% (plus applicable surcharge and cess). One shall not be eligible for any deduction/ allowance/ set off of losses arising from sale of VDA other than the cost of acquisition. Loss from transfer of VDA is not allowed to be set off against any other income. Carrying forward of such losses is not permissible. Receipt of VDA without consideration/ for inadequate consideration from non-relatives is taxable (‘Gift Tax’) in the hands of the recipient. Further, withholding taxes at 1% was introduced for virtual digital assets transactions as follows:
- On transfer consideration payable/ paid to residents.
- Where consideration is wholly/partly in kind or in exchange of another virtual digital asset.
- Will override withholding tax obligations that apply to payments made by e-commerce operators to e-commerce participants.
- This provision of withholding taxes shall take effect from 1st July 2022.
3. Incentives for Entities incorporated in India
- For Startups - Eligible Startups can enjoy 100% tax deduction on profits/gains for 3 out of 10 years from the date of incorporation. Earlier, a startup was eligible for the above benefits if the same was set up on or before March 31 2022. In the Indian Budget 2022-23 the time limit has been extended to March 31 2023.
- For Manufacturing Companies - Eligible Manufacturing companies may claim benefit of lower tax rate of 15% for corporates in India instead of 22% or 30%. Earlier, a manufacturing company was eligible for the above benefits if the same was operational on or before March 31 2022 In the Indian Budget 2022 the time limit has been extended to March 31 2023.
- Cap on Surcharge for income from Long Term Capital Gains - 15% cap on surcharge on income earned by way of long-term capital gains earned on sale of any capital assets.
- Bonus stripping and dividend stripping to be made applicable to securities and entities - Provisions of bonus and dividend stripping now made applicable to shares and units of a fund of InvITs (Infrastructure Investments) / REITs (Real Estate Investment Trusts) / AIFs (Alternate Investment Funds) and securities.
4. Other miscellaneous provisions
- For Income earned outside India - Withdrawal of concessional tax rate of 15 on dividend income received by an Indian company from a foreign company, where the Indian company holds 26% or more in such foreign company. Claim of refund of withholding tax deposited can now be made by filing an application before the local jurisdiction officer Earlier it had to be filed with a higher authority.
- For reduction of litigation - Revenue authorities can now defer filing an appeal before the High Court and Tribunal if an identical question of law is pending before the jurisdictional High Court or the Supreme Court including in case of another taxpayer into to reduce multiplicity of appeal before Revenue Judicial Authorities. Application for deferral to be filed only on receipt of acceptance from the taxpayer. This amendment shall be effective from 1 April 2022.
- Amendment in Customs Duty rates - Several changes to rates aligned to “Make in India” and Atmanirbhar Bharat” policy. Proposal to phase out concessional rates in Import of Capital goods and it has been proposed to levy moderate rate of 7.5%. Government has provided clarifications on the applicability of Social Welfare Surcharge on goods exempted from Basic Customs Duty.
With the release of the India Budget 2022-23, India now has a blueprint for steering its economy over the next 25 years. The Government’s announced policies will strengthen its economic development and ensure sustainable economic growth.
InCorp Global Pte Ltd
Headquartered in Singapore, InCorp Global is a leading corporate services provider, with an established regional presence across seven Asian countries, including Indonesia, India, Hong Kong, Philippines, Vietnam, and Malaysia. The group services more than 12,000 corporate clients across various industries, including asset / fund managers, as well as family offices. They are official partners with key government authorities in the region, such as Singapore’s Economic Development Board, a government agency that is tasked with bringing in foreign direct investments into Singapore.Learn more