Smart cities to tax incentives : Here are the key sops in Budget 2014

Finance Minsiter Arun Jaitley’s maiden budget offers no big bang reforms but does focus on boosting investor confidence in a bid to revive India’s investment cycle and attract household savings into financial assets.

Here are the key proposals announced by Jaitley:

Infrastructure and investment related

1. Hike in foreign direct investment (FDI) limit from 26%to 49% in insurance and defence sectors

2. Easing of FDI norms for building smart cities from $10million to $5 million with the built-up area also reducedto 20,000 square metres from 50,000 square metres

3. Sops for real estate investment trusts (REIT) andinfrastructure investment trusts; regulatoryforbearance (cash reserve ratio [CRR>, statutoryliquidity ratio [SLR>) for banks to raising long-termresources for infrastructure sector

4. Separate power feeder lines for rural regions underDDU Gram Jyoti Yojana; though the allocation of Rs500crore appears meagre

5. Allocation of Rs37,850 crore to National HighwaysAuthority of India (NHAI) for kick-starting investmentsin road projects; targets to build 15,000km of additionalgas pipeline network through private participation Investment allowance of 15% for investment in plantand machinery of more than Rs25 crore (down fromRs100 crore earlier

6. To set up a Rs 10,000-crore fund for equity investmentin the micro, small and medium enterprises sector (midandsmall-sized companies

Capital market related
1. Mutual fund linked retirement plan to get tax incentivesin line with pension funds to attract long-term domesticsavings into the equity market

2. Income arising to foreign portfolio investors fromtransaction in securities will be treated as capital gainsand not business income

3. To liberalise regulations for issue of Americandepository receipts and global depository receipts

4. To extend liberalised regime of 5% withholding tax onbonds for foreign investors

5. To reduce tax arbitrage by increasing capital gains taxfrom 10% to 20% on transfer of mutual fund units (other
than equity funds) and also to increase the holdingperiod to 36 months from 12 months to avail the same

6. To remove anomaly in calculation of tax due to nettingof dividend paid from company and mutual funds; this
would lead to higher tax outgo for corporatestransaction in securities will be treated as capital gainsand not business income

Other key proposals

1. To roll-out soil health cards to educate farmers on right usage of agri-inputs depending on quality of soil in their farms

2. To set up advanced ruling mechanism to curtail tax disputes even in case of resident Indians

3. Extension of 15% concessional tax rate on dividends received by Indian companies from foreign subsidiaries

4. Concessional tax rate of 5% for low-cost long-term borrowings by Indian companies