As India's GDP growth plummeted to nearly five-year low of 5.8 per cent in January-March and it is widely believed that the growth might not have picked up in the first quarter of the current fiscal also, with the auto sector is facing the worst crisis in about 20 years and reports suggest job losses in thousands and in the real estate space, the number of unsold homes has increased while fast-moving consumer goods companies have reported a decline in volume growth and lending to job-creating MSMEs by banks has actually going further low. It is raising alarm to take action and correction by the Finance Ministry as the Government is positive towards the business growth.
The government announced various measures to revive economic growth and markets including the withdrawal of higher taxes for foreign portfolio investors (FPIs) and said it would release funds for bank recapitalisation upfront. FM Nirmala Sitharaman told reporters, the government had decided to withdraw the surcharge on FPIs which she had unveiled in her budget earlier this year. The Centre also announced the release of funds to recapitalise public sector banks. The Finance Minister also announced that the 'angel tax' provision will be withdrawn for startups and their investors.
FM Sitharaman has concerns over the on-going economic slowdown in the country. This development came after Moody's Investors Service on Friday cut India's GDP growth forecast for 2019 calendar year to 6.2 per cent from the previous estimation of 6.8 per cent. For 2020 calendar year, it reduced the estimate by a similar measure to 6.7 per cent. There are concerns around the declining GDP growth too, which is a sign of worry for the government. The first quarter of 2019-20 is expected to dip further to 5.6 per cent.
Though Nirmala Sitharaman had earlier declined to comment on the speculations of a stimulus package, she has been meeting industry representatives from auto, telecom, banking and financial, SMEs (Small and Medium Enterprises), among others, for the past several days to understand their concerns. Major demands of the slowdown-hit industries, especially automobile, FMCG (Fast-Moving Consumer Goods), include a reduction in the GST (Goods and Services Tax) and the rollback of the super-rich tax for FPIs (Foreign Portfolio Investors).
Angel Tax for startups dropped; Section 56(2) (viib) shall not be applicable to startups registered under DPIIT. To mitigate genuine difficulties of startups, the Centre will set up cell led by member of CBDT for addressing problems of startups. Startups with an I-T issue can approach this panel.
Section 56 of the Income Tax Act, which is also called Angel Tax provision, has been a contentious issue for the startup ecosystem. The Section was applied by the tax department to ask startups to pay tax on angel investment. Many startups who raised funds also received demand notices from the CBDT. While the clause does not apply to startups receiving funds from registered venture capital investors and AIF–I category, the industry wanted the scope of the exemption to be expanded.
"With India having more than 50 million SMEs today, the announcement by Finance Minister Nirmala Sitharaman seems very promising in terms of further augmenting their growth and development. The Government's measure of GST refunds to be paid back to the industry within 60 days from the date of application will potentially change the SME game. Additionally, better credit flow to MSMEs and online tracking of loan applications will help them improve the turnaround time for customers. All these steps will further enable businesses to boost their overall productivity while providing them an opportunity to innovate and grow. I believe that to achieve India's target of becoming a USD 5 trillion economy by 2025, we have to strengthen our SME segment. Along with the Government, we too have been at the forefront of helping SMEs become digitally advanced. The initiatives announced by the Finance Minister today will give a strong boost to the Indian economy, " said Shashank Dixit, Founder & CEO, Deskera.
Jitendra Chaturvedi, Director & Co-Founder, Batooni said, “We welcome Finance Minister Nirmala Sitharaman’s announcement that angel tax will be dropped, this news has brought a huge relief among the startup community. Also, measures such as simpler tax-filing process, easier regulation on digital banking and digitization of transactions will boost growth of the Indian startup ecosystem. Additionally, with the Government having begun simplifying the tax-filing process for startups along with the announcement of tax rebates for investors will encourage them to further invest in startups. All these initiatives will help in enhancing the startup ecosystem in India and we hope the economy turns a corner very soon.”
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