Budget 2023 | Call for GST, TDS relief for financial inclusion services

With a little over a week to go for Union Budget 2023-24, the industry is readying its wishlists. Topping the agenda for the financial services industry is a waiver on Goods and Services Tax (GST) and Tax Deducted at Source (TDS) for financial inclusion services at Business Correspondent (BC) outlets across the country. There is also a growing plea for crypto-friendly tax regulations. 

Business correspondents (BCs) are retail agents engaged by banks to provide banking services at locations other than a bank branch/ATM. They are bank representatives who help villagers to open savings accounts, taking banking services to the doorstep in rural areas. They get commission from the bank for the services, and are the backbone of the nation’s financial inclusion programme. 

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Dilip Modi, founder of Spice Money, a rural fintech company, said the digital payments space proved its mettle as a stable growth avenue during the COVID pandemic. 

Call for benign taxation

“A positive impact was seen on digital payments due to benign taxation for self-service digital customers. To ensure the same benefits reach less tech-savvy citizens, our government could waive GST and TDS for financial inclusion services at BC outlets across India,” he said.

“A waiver in GST and TDS will help reduce the cost of offering seamless financial services and help high-end tech reach the technology-oblivious segment. This will push for greater financial inclusion and a digital economy in the country. GST is being charged at 18 per cent on customer charges on small value cash remittances (domestic money transfer) which should be exempt from GST since this product is used by an underserved segment of the population like migrant labour,” Modi added.

Further, he said, initiatives like Open Network for Digital Commerce (ONDC) are democratising e-commerce in India and shaping the future of global e-commerce. In order to encourage e-commerce in rural India, the government can offer some waivers on GST and TDS to merchants and consumers, especially in rural India.

Digital banking units

Dilip Modi said that in 2022, the government’s move to set up 75 Digital Banking Units (DBU) in 75 districts should be continued this year as well. The involvement of existing fintech players, especially corporate BCs who are bank agnostic in driving DBUs, will help in further expanding universal banking services to the last mile, he said. This would be better than restricting BCs to one bank brand services, he pointed out.

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He also said the Budget should provide economic benefits in the form of tax exemptions and subsidies to improve the economic viability of BCs with the aim of enabling all 6 lakh villages with neighbourhood banking services.

Tax on dividend payouts

Fintech startups have said that the government should consider eliminating the tax on dividend payouts, lowering the tax bracket for investors, and increasing the basic tax exemption level from ₹2.5 lakh to ₹5 lakh or higher.

Puneet Maheshwari, Director of online trading platform Upstox, said a prime focus of the Budget may be to act on the several lessons and learnings that the previous year brought with it. “The government should consider regulations that make trading and investing in India a seamless and rewarding journey. From a trader/investor perspective, it will be beneficial to remove Long Term Capital Gains (LTCG) on equities, which is currently at 10 per cent if the capital gain is more than ₹1 lakh in a financial year. It would also be ideal to introduce tax exemption on Short Term Capital Gains (STCG) up to ₹1 lakh,” he said.

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“In order to put more money in the hands of our people, the government should also consider eliminating the tax on dividend payouts, lowering the tax bracket for investors, and increasing the basic tax exemption level from ₹2.5 lakh to ₹5 lakh or higher. More cash in the hands of the people will mean more money to invest.”

“For the overall fintech industry too, which is growing rapidly, there needs to be a mandate to regulate and simplify taxation, like on employee stock ownership plans (ESOPs), and provision of incentives for adopting AI (Artificial Intelligence) and ML (Machine Learning). Further, software products attract a GST of 18%. A reduction in GST will promote the development of indigenous technologies by fintech players. The creation of fintech innovation funds will be another avenue to incentivise start-ups.

“Broadly, the Budget should not only be concerned with improving the country’s economy but also take a comprehensive approach to enhance economic conditions for every citizen. We expect this budget to favour the needs of industries across India’s economic spectrum, and look forward to seeing how it unfolds,” Maheshwari added.

Transparency in crypto trading

Avinash Shekhar, founder and CEO of TaxNodes, a crypto tax advisory company, said the Budget should pave the way for more crypto-friendly tax regulations, such as reduction of TDS under 194S to 0.01 per cent, allowing set off and carry forward of losses and aligning tax rates to bring in line with other sectors.

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“We expect the government to reconsider the current putative tax structure and bring it at par with other normal business activities,” he said. “This will bring more transparency by enabling Indian crypto traders to trade on Indian exchanges rather than going to peer-to-peer and foreign exchanges. This will also encourage innovators and entrepreneurs to build this most innovative technology of our times, from India rather than from outside India.”

Shailendra Singh, MD & CEO, BOB Financial Solutions Ltd, said UPI on a credit card could prove to be a masterstroke, with a combo of instant payment and credit, and government focus on this through the Budget will be much appreciated.

“We expect the Budget to generate the tailwinds needed for credit card issuers to enhance their businesses and in turn have a multiplier effect on the nation’s prosperity and to help achieve our goal of becoming a $5 trillion economy,” Singh said.

ITC relief for QSR industry 

The last fiscal saw the QSR (quick service restaurants) industry benefiting from reviving economic growth and an increase in consumption, said Amit Jatia, Vice Chairman, Westlife Foodworld Ltd (McDonald’s India franchise holder).

“The QSR industry expects the upcoming Union Budget to focus on policies that will keep the economic recovery on track and further strengthen the ease of doing business. Additionally, the industry anticipates some relief in the ITC (Input tax credit) to help boost the sector’s growth. The current GST rate on restaurants is 5 per cent, with no input tax credit. This is a comparative disadvantage for the restaurant and food industry, as other sectors receive input credit back, leaving the restaurant and QSR chains as the only industry in India liable for GST input. This poses a significant challenge for the industry today,” said Jatia.

“Aside from that, import liberalisation on some raw materials and the acceleration of the free trade agreement will further aid overall industry growth,” he added.

Also read: Budget 2023 | I belong to middle class, understand their pressures: FM

Increase in education budget 

Startups and institutions in the education sector expect the government to increase the education budget to handle the rapid changes in technology. Bharat Mathukumilli, President of GITAM and founder of Kautilya School of Public Policy, said the government should increase the allocation for education to at least 3%-3.5 per cent from the current level of 2.6 per cent.

“There is an urgent and important need to transform the education system. For example, modern tools like ChatGPT require institutions to have a strong technology infrastructure and skilled human resource teams that understand how to deal with this rapid change in technology. The government has the desire to increase the gross enrollment ratio (GER) in higher education to 50 per cent. However, the institutions that are fueling this growth are largely private institutions. On the contrary, the support they get could be improved,” Mathukumill said.

Sops for semiconductor companies

Vivek Tyagi, Chairperson, India Electronics & Semiconductor Association, said that almost every appliance used in households today is replete with semiconductor chips, which makes it all the more important for the government to lay a greater focus on boosting semiconductor production in India.

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“Our self-reliance in terms of semiconductor manufacturing can go a long way in establishing India as a global hub for electronics goods, besides creating jobs and attracting investments from top firms around the world,” Tyagi said.

“Therefore, the PLI (Production Linked Incentive) scheme should be converted to a design-led manufacturing scheme or DPLI. We request the government to provide incentives if a company designs its electronics and manufactures locally as well. Imposing an import duty of 10 per cent on any imported electronics equipment and assembled PCB will encourage local manufacturing to a great extent.”