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Jan2016_MoF Representation on Finance Billl

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Post Budget Memorandum of Suggestions to Respected Shri Arun Jaitley, MP
Hon. Finance Minister
Government of India

Published in: Economy & Finance
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Jan2016_MoF Representation on Finance Billl

  1. 1. Post Budget Memorandum of Suggestions to Respected Shri Arun Jaitley, MP Hon. Finance Minister Government of India CA Vinit Vyankatesh Deo
  2. 2. Ideas to Kickstart the economy through MSMEs Dear Readers, The pandemic of Covid 19 which is also now know (in)famously as Corona, will lead to a major remake of the World Economy. Unlike the other crises of this century viz the Dot Com bust of 2001 and the Lehman crisis of 2008, this crisis will not just affect the financial world but will shake the foundations of economies of all the countries - right from Villages and Cities to State and the Nation. Governments at all levels will need to take drastic measures to first stabilise the economy and then to plan for its growth. MSMEs are like the veins of the economy. They are essential to keep the supply of money flowing between the vital organs viz. Large corporates, MNCs, Banks, Government etc. This brief Concept Note presents 5 ideas that can help revive and grow the MSME sector. We urge the Central and State Governments to take swift and drastic steps to revive the MSME Sector so that it can become a solid foundation for building the revival of Indian economy in the post-Corona world. CA Vinit Deo Founder & CEO, Posiview Policy Solutions Feedback to mdoffice@posiview.in or +91 89757 61062
  3. 3. Finance Bill 2016: Representation Committee Name Designation Email ID Shri Prakash Sarode President prashantsarode@yahoo.com Shri Shantilal Kataria Vice President info@adityabuilders.com katariashantilal@gmail.com CA Vinit Vyankatesh Deo CMD, Posiview Consulting (Knowledge Partner) vinit@posiview.in (www.posiview.in)
  4. 4. Letter to Hon. Finance Minister Respected Shri Arun Jaitley ji Hon. Union Minister for Finance Government of India New Delhi, INDIA We express our sense of gratitude for accepting the long standing demand of the Real Estate industry for extending benefits to the critical sector of “Affordable Housing” through introduction of special section 80IBA in the Finance Bill 2016. On behalf of CREDAI – Maharashtra, we would like to bring to your kind attention certain issues in the above section as well as some other provisions where small but critical amendments will give a boost to this critical sector and empower it to become a strong partner in Government’s Housing for All mission. We humbly request you to review our suggestions and oblige. Thanking You, Yours in Service, President CREDAI – Maharashtra & Members, Finance Bill Representation Committee
  5. 5. Section 1: Suggestions on Sec 80IBA
  6. 6. Date of Original approval after 1st June 2016 Section Clause Issue Suggestion Benefit Sec 80IBA Sub Section 2 Clause b Proviso (i) Where the approval in respect of a housing project is obtained more than once, the project shall be deemed to have been approved on the date on which the project was first approved by the competent authority If Developers have approved Projects which before 1st June 2016 but wish to revise the Plan to make an affordable housing project deduction will not be allowed. Deduction should also be allowed even if original plan is approved before 1st June and project has not started. Supply of affordable housing units will start immediately if Developers are allowed to revise plans of existing projects.
  7. 7. Date of Original approval after 1st June 2016 Section Clause Issue Suggestion Benefit Sec 80IBA In Slum Rehabilitation Projects, Developer generates income by sale of Transferable Development Rights (TDR) and not sale of apartments Income generated from Slum Rehabilitation (SRA) Projects should also be eligible for the deduction under this Section In Urban Areas 25-40 pc of the population is living in slums. There are existing schemes called Slum Rehabilitation Authority (SRA) which provide affordable housing free of cost to residents of slums and a large target of Housing for All will be if Developers who undertake such projects are given the incentives.
  8. 8. Completion of the Project Section Clause Issue Suggestion Benefit Sec 80IBA - Sub Section 2 - Clause b - sub clause 2: “the project shall be deemed to have been completed when a certificate of completion of project as a whole is obtained in writing from the competent authority; It is in the interest of Developers to complete the projects in time. However if there is a condition of losing entire deduction for not completing even 10% of the project, Developers will hesitate to take up such projects as partial completion of the Project will not be allowed ie partial deduction cannot be claimed Partial Project completion should be allowed. Government can put some reasonable condition that deduction will be given in proportion to: (Area that gets Completion Certificate / Total Project Area) Objective of the Government is to maximise supply of affordable housing units. Developers will be encouraged to take up larger affordable housing projects and make a sincere attempt to complete them as they know that completing in time would help them avail full deduction.
  9. 9. Restriction on area for Shops to 3% of Total Builtup Area Section Clause Issue Suggestion Benefit Sec 80IBA Sub Section 2 Clause c (c) the built-up area of the shops and other commercial establishments included in the housing project does not exceed three per cent of the aggregate built-up area; Commercial Area restricted to 3% of Project area. Affordable Housing projects will typically be 10-25 kms of City limits for metros and outskirts of the City areas in case of non- metros. Essential shopping like Kirana stores, pharmacies, small restaurants etc will be needed to make the project habitable to citizens. Commercial Area should be 5% of Built up Area (Ref: Earlier Sec 80IB had this limit as 5% This was later revised to 3% or 5000 sq ft whichever is higher) Citizens will need a livable environment to make the project and the area livable.
  10. 10. Projects allowed only within Municipal limits of non-metros Section Clause Issue Suggestion Benefit Sec 80IBA Sub Section 2 Clause d the project is on a plot…...... or two thousand square metres within the jurisdiction of any other municipality or cantonment board; For metros of Delhi, Mumbai, Kolkatta and Chennai, the project can be located within 25kms of the Municipal limits. However for non- metros, the project has to be located only within municipal or Cantonment Board limits. As the cost of the land in such limits is already high and not in control of developers, it may become unviable to make such projects. For non-metros which have a Development Authority (MMRDA for Mumbai, PMRDA for Pune), the affordable housing projects should be allowed within jurisdiction of such authorities. For others, a limit of 10 kms from municipal limits can be kept. The Government’s objective of bringing maximum possible land area within the purview of affordable housing will be achieved as vacant land is most available in the outskirts of metros / within few kms of municipal limits.
  11. 11. Area of Units - Whether Carpet or Builtup Section Clause Issue Suggestion Benefit Sec 80IBA Sub Section 2 Clause e “the residential units comprised in the housing project does not exceed thirty square metres….. or sixty square metres….” The clause does not mention carpet or builtup for size of residential units. Definition of builtup area is given in the section. The incentives in Prime Minister Awas Yojana (PMAY) are based on Carpet Area. Since this deduction is being given to meet the objectives under the Housing for All 2022 Policy, we suggest the same definition be adopted for Income Tax purposes as this deduction is being given under the Housing for All Policy. There will be an alignment of projects under the Housing for All Policy and Income Tax Act. This is important as for customers to avail the benefits like the Credit Linked Interest Subsidy are given under the HFA policy, Developers will have to plan their projects as per the area requirements of that scheme.
  12. 12. Utilisation of 90% Area of land for the Project (Metros) Section Clause Issue Suggestion Benefit Sec 80IBA Sub Section 2 Clause g Sub-clause (i) i) not less than ninety per cent of the floor area ratio permissible in respect of the plot of land under the rules to be made by the Central Government or the State Government or the local authority, as the case may be where the project is located within the cities of Chennai, Delhi, Kolkata or Mumbai or within the area of twenty- five kilometres from the municipal limits of these cities, or It seems that the Developer will have to consume 90% of PERMISSBLE FAR of the land which creates issue like: 1. Getting sanction on part of a larger plot may not be allowed 2. If the developer wants to consume less than 90% FAR, it may not be allowed since words used are 90% of PERMISSIBLE and not SANCTIONED 1 . If Developer wants to do a Affordable Housing project on part of a larger Land parcel, the same should be allowed. As per the section, it seems they will have to subdivide the land and carve out the plot for affordable housing 2. Restriction of minimum UTILISATION of 90% FAR should be removed as it is unnecessarily creating pressure on Developer. Developers who already have land parcels / projects under sanction should be encouraged to take up affordable housing project. The restriction on utilisation of minimum area will become a non-starter for many projects.
  13. 13. Utilisation of 90% Area of land for the Project (Non-Metros) Section Clause Issue Suggestion Benefit Sec 80IBA Sub Section 2 Clause g Sub-clause (ii) (ii) not less than eighty per cent. of such floor area ratio where such project is located in any area other than the areas referred to in sub- clause (i); A) It seems that the Developer will have to consume 80% of PERMISSBLE FAR of the land which creates issue like: 1. Getting sanction on part of a larger plot may not be allowed 2. If the developer wants to consume less than 90% FAR, it may not be allowed since words used are 90% of PERMISSIBLE and not SANCTIONED 1 . If Developer wants to do a Affordable Housing project on part of a larger Land parcel, the same should be allowed. As per the section, it seems they will have to subdivide the land and carve out the plot for affordable housing 2. Restriction of minimum UTILISATION of 80% FAR should be removed as it will create Developers who already have land parcels / projects under sanction should be encouraged to take up affordable housing project. The restriction on utilisation of minimum area will become a non-starter for many projects.
  14. 14. Other Points Section Issue Suggestion Benefit Minimum Alternate Tax 1) Generally projects are undertaken in independent SPVs. Hence the MAT become an expense to developers as most of them will not be able to set off credit. 2) Developers will have to incur 20% outflow every year which will reduce the benefit of the deduction to only 10% of profits MAT should not be applicable for affordable housing projects The incentive of just a 10% benefit and in many cases practically no benefit due to loss of MAT credit will make make it unviable to take up affordable housing projects under this provision Special Economic Zones, Industrial Zones Deduction is allowed only for Projects within 25 kms of Metros and within Municipal limits for non-metros Deduction should also be allowed for affordable housing projects under taken in special notified zones such as SEZ, Industrial Parks, proximity of notified Industrial Areas, Ports etc There is a need for housing in proximity of Industrial and Commercial areas which are far away from city. Incentive to develop housing in such areas will boost Industries also as they will get quality manpower close by.
  15. 15. Section 2: Other Suggestions
  16. 16. Conversion of Company into LLP Section Issue Suggestion Conversion of company into LLP Conduct of business through LLP is one of the smoother ways of managing and conducting business. · S.47(xiiib) provides for an exemption enabling smooth conversion, subject to compliance with the conditions. · There was a case for making the exemption liberal by relaxing the turnover limit which is one of the present conditions. · Far from it, conversion will become all the more difficult as a result of an additional condition which will deny exemption in a case where the company was possessed of total assets worth Rs. 5 Cr. in any of the 3 years. · Further, Rs 60 lakhs turnover limit, which is one of the present conditions, is in respect of gross receipts from business. However, value of total assets conditions takes into sweeps all type of assets (i.e. investments, stock-in-trade etc.) and not restricted to business assets like stock-in-trade. The condition of asset base being less than Rs. 5crs be dropped. · Alternatively, provision should apply prospectively to the conversion proposals filed on or after 1 April 2016. · The scope of the term ‘value of total assets as appearing in the books of accounts’ be clarified. · The scope of the term ‘value of total assets as appearing in the books of accounts’ to be restricted to stock-in-trade in line with turnover limit. · The expression “value of total assets appearing in the books of accounts” is not defined and may create certain interpretational issues such as whether status of assets is to be seen on balance sheet date or even one day’s presence during the year will be considered if asset no longer exists with the assessee as on balance sheet date. Also, whether ‘Miscellaneous Expense’ as an item reflected on balance sheet will constitute an asset, treatment of advance tax paid shown on asset side (with corresponding provisions for tax on liability side), etc.
  17. 17. Sec 50C – Computation of Section Suggestion Benefit In relation to computing capital gains tax liability on transfer of land or building, proposed amendment takes into consideration stamp duty value as on date of agreement as compared to existing provision of stamp duty value on date of registration. The proposed amendment to s.50C is an extremely healthy amendment. In all fairness, the amendment should be given a retrospective effect. Alternatively, a circular may be issued to achieve the same result in pending assessments or appeals. It restores the injustice and hardship which the taxpayers have suffered over the years.
  18. 18. Founders & Advisors ▪ CA Vinit Deo, Founder & CEO Vinit is a Chartered Accountant and an entrepreneur at heart. After a brief stint in leading Corporates (Times of India Group & Geometric Software Solutions), he co- founded Posiview Consulting Partners, an investment banking firm which has has closed over 200 advisory transactions of advising entrepreneurs on business planning, debt and equity raising. His passion for research and governance led to the founding of Posiview Policy Solutions, an Data and Insights driven organisation that will suggest innovative but pragmatic policy initiatives to Governments (Central, State, Local), Industry Associations, Development Institutions etc. (www.posiview.in) ▪ Shweta Shalini, Mentor & Senior Advisor After a successful stint as a entrepreneur where she founded and scaled up companies (Fortune Cookie,Real Time Wave), Shweta joined politics and became Spokesperson for BJP Maharashtra as well as a key person driving BJP’s Social Media effort. She also plays a key role in the Startup and Innovation arena with her unique skill sets spanning Corporates, Political, Social and Entrepreneurial Worlds. She will mentor and guide Posiview Policy Solutions to focus on the right issues and devise solutions that can be implemented within India’s governance framework. (www.shwetashalini.com)
  19. 19. Disclaimer: Presentation represents personal views of the author and not that of Posiview. It is prepared based on publicly available data to the best of the author’s knowledge. The author does not take responsibility of the authenticity, accuracy of the publicly available data. The contents of this presentation are for information purposes only and the author will not be responsible for any decisions made on the same Office 202, Chintamani Pride Near City Prid Multiplex, Kothrud, Pune 411038 Cell: +91 8975761062 Email : vinit@posiview.in THANK YOU!
  20. 20. “Tough times never last. Tough people do.” Robert H Schuller Incubation, Mentoring & Fund Raising for Startups Fund Raising for Real Estate & SME Enterprises Policy Advisory to Government & Industry Associations www.posiview.in / mdoffice@posiview.in / +919130018000

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