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India’s growth trends leading up to the Interim Budget have been robust, but in view of the current global headwinds the govt would need to continue its thrust on public capex, Ficci said in a note on January 24.

There is a need for an “Indian Taxonomy” comparable and interoperable with global taxonomies, frameworks and principles, it said, adding that evaluating exposure to sustainable versus non-sustainable activities is difficult for banks and other financial institutions without a taxonomy.

China plus one: Given the current global business dynamics and most advanced economies looking at China plus one strategy, India has a big manufacturing opportunity knocking at its doors. India must keep making efforts to become a global manufacturing hub by incentivising and attracting large investments from global manufacturing companies, Ficci said in its budget recommendations.

PLI scheme: While the Production Linked Incentive (PLI) schemes have worked well, the government could look at extending the concessional tax regime for manufacturing operations for at least five years, Ficci recommended. Given that many global investors are looking to put money to work in India, extending these concessions will boost investor confidence further, it said.

R&D and patent regime
Despite many initiatives taken by the government, India’s patent regime is at present “restrictive and requires rationalisation to reap the true benefits of this wholesome incentive”, Ficci said in its note. In its recommendations, it put forward a number of suggestions:

  • It is recommended that the benefit of concessional rate of tax of 10 percent of income by way of royalty in respect of a patent developed and registered in India be also extended to sale of patented products manufactured in India. This will indirectly encourage “Make in India” and align with the Government’s policy of making India an attractive destination for manufacturing.
  • The benefit of provision is restricted to ‘true and first inventor of the invention’ which is technically difficult to comply since ‘true and first inventor’ of patent under the Patent law is always an individual. It is recommended that the condition of joint patentee also being ‘true and first inventor’ be omitted to facilitate the company funding the R&D for development of the patent and owning it as first assignee can claim the benefit of 10% tax rate.
  • The requirement of patent being registered in India under the Patents Act raises an ambiguity whether royalty received from overseas in respect of patent which is registered both in India and outside India will be denied the benefit on the ground that the royalty is relatable to foreign patent and not Indian patent. It should be clarified that royalty received from overseas for a patent which is registered in India as also in a foreign country also qualifies for concessional rate of tax.
  • Royalty from a patent which is ‘registered’ alone qualifies for the patent box regime. If royalty income is earned when patent application is filed but registration is awaited, there may be unwarranted denial of the benefit. Hence, it is recommended that the concessional tax regime be extended to royalty income earned from patents which are applied for and awaiting registration as well.
  • Furthermore, to supplement the Patent Box Regime and encourage investment in innovation and research in India, the concessional tax rate of 15% (effective rate of 17.16% with surcharge and cess) u/s. 115BAB may be extended to new R&D companies which set up R&D facilities of a substantial size within next 5 years. This will incentivise industrial groups to house their R&D activities in a separate entity (instead of “inhouse R&D”). There can be appropriate checks & balances to check abuse like DSIR approval of the facility, investment in new plant & machinery, transfer pricing compliance for transactions with related parties, etc.

Revise the qualifying criterion for mandatory registration on TReDS platform: The TReDS initiative by the Government is a wonderful tool for MSMEs to access fund due at ease. It enables MSMEs to get funds at a cheaper cost with an option to select the offer from various banks without recourse to borrowing.Currently it is mandatory for all CPSEs and companies having annual turnover of more than Rs 500 crore to register on TReDS platform. It is suggested that registration should be mandatory for all companies having the turnover of more than Rs. 250 crore as it would increase the purview of TReDS.

Leverage Account Aggregator framework for MSME lending: Currently, legal and compliance issues are preventing joint and corporate accounts from the scope of AA, thereby excluding a vital market segment of MSMEs from benefiting from AA. A concerted effort led by Ministry of Finance and regulators would help address this issue.

Change in NPA classification norms of MSMEs: It is recommended that the 90 days limit for classifying overdue of MSMEs should be increased to 180 days so that MSMEs are not constrained to divert their working capital towards servicing of their loan-instalments and clearing of their overdues at the cost of normal business operations. This improvement will save a large number of MSMEs from turning sick or getting closed resulting in loss of economic activity and employment. This will also prevent avoidable classification of bad debts and unwarranted litigation by banks, thereby saving the banks from losses.

The provisions of tax deduction at source (TDS) have made the taxpayer’s compliance burden more complicated, Ficci said. “There is a wide variety of TDS provisions applicable to payments to residents with different rates and different thresholds”, it said, adding that it gives rise to unwarranted disputes related to categorisation and interpretation.

The government should look at laying down a roadmap for rationalisation of TDS rate structure, which would add to the ease of doing business in India, it recommended.

For this purpose, Ficci suggested only three rate structures for TDS — TDS on salary at slab rate, and two standard rates for TDS for different categories. Besides, there should be a “negative list” of payments which will not be liable to TDS (like payments to senior citizens, exempt income payments, purchases from GST registered entities on which GST is paid, etc), it said.

In case of open market purchases, the Buyback Distribution Tax should be exempted in case of listed shares so as to avoid double taxation, Ficci’s note argued.

Consequentially, exemption under section 10(34A) should also not be applicable and the transactions should continue to be subject to capital gains or business income tax in the hands of the shareholders, it said.

  • Published On Jan 24, 2024 at 06:50 PM IST

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