SGB Tax Jolt to FY27 Budget

This single amendment, unfortunately, overshadows much of the Budget's promise, explains Harsh Roongta.

As I glanced at the FY27 Budget proposals, they looked fairly positive until I noticed the provision taxing capital gains on sovereign gold bonds (SGB) bought from the market rather than at issuance.

SGB Retrospective Tax Amendment

So far, the RBI encashment after the required holding period was exempt, regardless of how the bonds were acquired.

But the exemption will now apply only to original subscribers, not secondary-market buyers -- effectively a retrospective amendment.

A quick calculation suggests that if gold prices remain unchanged, the capital gains tax involved would be about Rs 8,000 crore (at 13 per cent), assuming roughly 50 per cent of the bonds were bought from the secondary market.

This single amendment, unfortunately, overshadows much of the Budget's promise.

Capital Gains Tax on Sovereign Gold Bonds

On investments, allowing banks to sell down corporate bond exposure via total return swaps -- giving investors bond exposure without holding the bonds on their books -- may finally provide a fillip to a corporate bond market that has struggled, despite repeated efforts over the past decade.

Second, permitting 'foreigners' (non-Indian origin individuals) living abroad to invest in Indian equities -- like non-resident Indians (NRIs) or overseas citizens of India (OCIs), though with lower limits, should widen participation.

Hopefully, overseas online KYC will be implemented quickly, the rules will mirror the NRI route, and the facility will extend to mutual funds as well.

Total Return Swaps for Corporate Bond Market

On the taxation front, while details are awaited, one proposal stands out: Exempting global (non-India-sourced) income of a non-resident expert for five years in India.

If implemented well, it could help attract global talent, including highly skilled members of the diaspora, by allowing them to return without worrying about Indian tax on overseas income.

Foreign Investors in Indian Equities

Another welcome step is the move to enable online issuance of certificates for lower or nil tax deducted at source (TDS).

This could be particularly helpful for startups, which often make losses in their early years.

TDS deducted by customers effectively becomes a refund that can remain stuck for at least two years, adding to cashflow stress.

From personal experience, I can attest to how important this reform could be in easing the cash crunch many startups face.

Five-Year Global Income Tax Exemption

The proposal for common filing of Form 15G and Form 15H is also positive, though it may have worked better if routed through the tax department rather than depositories, so that a single filing could also have covered banks and other deductors.

Online Lower/Nil TDS Certificates for Startups

Among areas where more could have been done, TCS on overseas tours booked through Indian operators has been reduced to 2 per cent (from 5 per cent) -- a good move but one that should ideally have gone further.

TCS is often mistaken for a tax rather than advance tax, and many travellers simply buy tours from operators abroad, where no TCS applies up to Rs 10 lakh, causing Indian operators to lose business in today's online world.

A consistent rule -- nil up to Rs 10 lakh and 20 per cent above, with the foreign portion routed through the Liberalised Remittance Scheme to prevent double use of the exemption -- would be preferable.

Common Form 15G and 15H Filing

The move to allow payment of TDS on property purchases from non-residents without requiring a TAN is also excellent, though it should have been extended to rent paid to non-resident landlords, since the TAN requirement deters tenants.

Finally, the increase in STT on futures & options could have been better calibrated: Options perhaps deserve higher rates, but it would have gone down better with a simultaneous reduction in STT for cash equity markets.

TCS on Overseas Tours Cut

A rollback of the retrospective amendment on SGB is essential: A potential tax gain of Rs 8,000 crore cannot justify reviving the shadow of retrospective taxation and risking India's hard-earned credibility after the Hutchison episode of the United Progressive Alliance era.

It would also allow attention to return to the Budget's many constructive measures.

TDS Without TAN for Property Deals

Harsh Roongta heads Fee-Only Investment Advisors LLP, a Sebi-registered investment advisor; X: @harshroongta

Feature Presentation: Ashish Narsale/Rediff