The Finance Minister Nirmala Sitharaman announced the first budget of the new government earlier this morning. Here are the key technology policy takeaways:

Reiterate Vision for the Decade

Listed 10 points of the Vision that were first presented in the interim budget 2019-20 in February 2019. The vision includes from a tech perspective:

  • Digital India reaching every sector of the economy
  • Make in India with particular emphasis on MSMEs, start-ups, defence manufacturing, automobiles, electronics, fabs and batteries, and medical devices

Digital Payments/less cash economy

  • 2% TDS will be imposed on cash withdrawal above ₹1 crore per year from one bank account w.e.f. September 1, 2019
  • Proposed that all businesses with annual turnover of more than ₹50 crore that offer digital modes of payment to their customers get MDR (Merchant Discount Rate) waiver; RBI and banks to absorb these costs from savings accrued from cashless transactions
  • Businesses with annual turnover of more than ₹50 crore in the preceding year shall shall accept payments digitally w.e.f. November 1, 2019; failure to comply will lead to a proposed penalty of ₹5,000 for every day the failure continues
  • Proposed amendments in the Payments and Settlements Act 2007 to provide that no bank shall impose any charges for using electronic payment modes, w.e.f. November 1, 2019
  • Amendments to Section 269SS, 269ST, and 269T of the Income Tax Act to include electronic modes of payment as may be prescribed, w.e.f. September 1, 2019
  • Amendments to Section 13A, 35AD, 40A, 43CA, 44AD, and 80JJAA of the Income Tax Act to include electronic modes of payment as may be prescribed, w.e.f. April 1, 2020

Aadhaar

  • Proposed to consider issuing Aadhaar to NRIs with Indian passports on arrival without waiting for 180 days
  • Interchangeability of PAN with Aadhaar number: Proposed to make PAN card and Aadhaar interchangeable, including in IT returns, as long as a person’s Aadhaar and PAN have been linked under Section 139A. W.e.f. September 1, 2019, if a person fails to intimate Aadhaar number under Section 139A, then it’s proposed that the PAN of the person “shall be made inoperative” “to protect the validity of transactions previously carried out through the PAN”. [Clause 41 of the Finance Bill 2]

Start-ups and Entrepreneurship

  • On Angel Tax: Start-ups and their investors who file requisite declarations and provide information in their returns will not be subjected to any kind of scrutiny in respect of valuations of share premiums. E-verification mechanism to be put in place to establish the identity of the investor and the source of his/her funds. Thus, no IT Department scrutiny of funds raised by start-ups.
  • Special administrative arrangements to be made by CBDT for pending assessment of start-ups and redressal of their grievances; Assessing Officer to carry out inquiry or verification in such cases only with approvaly of his/her supervisory officer
  • Proposed to exempt Category-II Alternative Investment Funds from needing to justify the fair market value of shares issued to them by start-ups; thus, valuation of shares issued to these funds will be outside income tax scrutiny
  • Proposed to relax some of the conditions for carry forward and set off of losses in the case of start-ups
  • Proposed to extend the period of exemption of capital gains arising from sale of residential house for investment in start-ups up to March 31, 2021, and relax certain conditions of this exemption
  • Proposed that the condition of minimum holding of 50% of share capital or voting rights in the start-up is be relaxed to 25%
  • Proposed that the condition restricting transfer of new asset being computer or computer software be relaxed from the current 5 years to 3 years
  • Propose to start a TV programme exclusively for start-ups, designed and executed by start-ups themselves, on DD; will be a platform for promoting start-ups, discussing their growth and factors affecting it, matchmaking with VCs, and for funding and tax planning

Banking and insurance

  • Finance Bill proposed strengthening regulatory authority of RBI over NBFCs
  • Proposed for public sector banks to offer online personal loans and doorstep banking, and enabling customers of one public sector bank to access services across all public sector banks
  • For purchase of high-rated pooled assets of financially sounds NBFCs, up to ₹1 lakh crore during the current FY, government will provide provide one time 6 months’ partical credit guarantee to public sector banks for first loss of up to 10%
  • Proposed reducing Net Owned Fun requirement from ₹5,000 crore to ₹1,000 crore to enable facilitate on-shoring on international insurance transactions, and to enable foreign reinsurers to open branches in the International Financial Services Centre

Electric vehicles

  • FAME Scheme Phase-II: Outlay of ₹10,000 crore for 3 years, commenced on April 1, 2019. Aim to encourage faster adoption of EVs by offering incentives on purchase, and by establishing necessary charging infrastructure. Incentives only for advanced battery and registered EVs, with emphasis on providing eco-friendly and affordable public transportation options.
  • Individuals taking a loan to purchase an EV shall get additional tax exemption of upto ₹1.5 lakh on interest to be paid w.e.f April 1, 2020; loan has to be sanctioned between April 2019 and March 2023, and the individual must not already own an EV
  • Certain parts of EVs to be exempted from customs duty, including e-drive assembly, on board charger, e-compressor, and charging gun

Credit for MSMEs

  • Loans up to ₹1 crore for MSMEs to approved within 59 minutes on a dedicated online portal
  • ₹350 crore allocated for FY2019-20 for 2% interest subvention for all GST registered MSMEs on fresh or incremental loans under the Interest Subvention Scheme for MSMEs
  • Government to create a payment platform for MSMEs to file and pay bills, and thus reduce delays in payments from government to suppliers and contractors

Electronic Fund Raising Platform

  • Proposed created an electronic fund raising platform under SEBI to list social enterprises and voluntary organisations so that they can raise capital as equity, debts, or as units like a mutual fund

FDI

  • FDI inflows at $64.375 billion grew by 6% over 2018-19
  • Proposed to allow 100% FDI for insurance intermediaries
  • Proposed to ease local sourcing norms for FDI in single-brand retail sector

Rural Development

  • Scheme for Promotion of Innovation, Rural Industry and Entrepreneurship (ASPIRE) consolidated for setting up 80 Livelihood Business Incubators (LBIs) and 20 Technology Business Incubators (TBIs) in 2019-20 to develop 75,000 skilled entrepreneurs in agro-rural industrial sectors
  • Central government to work with state governments so that farmers benefit from e-NAM (National Agriculture Market)

Skills Development

  • To increase focus on skill sets needed abroad, like language training
  • To focus on “new-age skills” like AI, IoT, Big Data, 3D Printing, Virtual Reality and Robotics
  • Proposed establishing National Research Foundation (NRF) to fund, coordinate and promote research in the country

Make in India

  • Government to launch a scheme to invite global companies to set up mega-manufacturing plants in sunrise and advanced technology areas via competitive bidding; areas include semi-conductor fabrication (FAB), solar photovoltaic cells, lithium storage batteries, solar electric charging infrastructure computer servers, laptops, etc.; give them investment-linked tax exemptions under Income Tax Act (Section 35 AD), and other indirect tax benefits.
  • Customs duty hikes on items such as cashew kernels, PVC, Vinyl flooring, tiles, metal fittings, mountings for furniture, auto parts, certain kinds of synthetic rubbers, marble slabs, optical fibre cable, CCTV camera, IP camera, digital and network video recorders, etc.
    • DVR and network video recorder hiked from 15% to 20%
    • CCTV cameras and IP cameras hiked from 15% to 20%
    • Optical fibres, optical fibre bundles and cables hiked from 10% to 15%
  • Exemption from customs duty on electronic items that are now manufacture in India is withdrawn
  • Customs duty exemption for capital goods required for manufacturing specified electronic goods
  • Proposed amendment to Customs Act, 1962: “Introducing provisions for verification of Aadhar or any other identity and other compliance by a person for protecting the interests of revenue or to prevent smuggling [New section 99B]

Intellectual Property Rights protection

  • Will launch a mission to link traditional artisans with the economy, and protect their IPR wherever required, to take to the national international markets
  • Preserve tribal cultural heritage through a digital repository

Taxes

  • Launching faceless assessment in electronic mode involving no human interface to carry out scrutiny assessments in the IT Department to prevent corruption; cases selected for scrutiny to be allocated to assessment units randomly and notices to be issued electronically by a Central Cell, without disclosing the name, designation or location of the Assessing Officer. Central Cell to be the single point of contact between the taxpayer and the IT Department
  • Amendement to Income Tax Act that enables online filing of application seeking determination of TDS on payment to non-residents, w.e.f. November 1, 2019
  • Fully automated GST refund module to be implemented; multiple tax ledgers for a taxpayer to be replaced by one
  • Proposed to move to an electronic invoice system wherein invoice details will be captured in a central system at the time of issuance, w.e.f. January 2020

Research contributed by Trisha Jalan, Soumyarendra Barik and Shreya Ganguly.