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Education in India: Time to Connect the Dots and Look at the Big Picture

In the last few days, I read news reports that are seemingly unrelated on the surface. However, I think there exists a deeper connection for those willing to think outside the box. I thought I would use this article to articulate my thoughts on the connections and their possible implications for India. 

India’s New Education Policy expected to gain traction

The first item was about various initiatives announced by the Union government on the first anniversary of India’s National Education Policy (NEP). While internationalization, multiple entry/exit options, and digital education will be key pillars, one other important component is to enable students to pursue first-year Engineering courses in Indian languages.

In the context of the broad-brush changes envisioned to India’s education system, it is time to rethink the role of the UGC as a body that enables the nation’s higher education system in ways beyond disbursing funds to be recognized universities. There also ought to be more harmony between the various Boards that govern school education. The roles of bodies responsible for governing professional education in India- e.g., AICTE, NMC (which replaced the MCI), ICAI, ICSI, ICWAI, Bar Council of India etc. should also be redefined to ensure that India’s professionals remain in tune with the needs of a fast-changing world.

English will play an important role in our continued growth

The second report that caught my attention was on two main points made by Mr. Narayana Murthy (the Founder of Infosys), in a recent media interaction. He stated that it is high time that English be formally acknowledged and designated as India’s official link language, and greater emphasis is given to its teaching and learning in Indian schools. He said that his opinion is based on his first-hand knowledge of many technically qualified students in Bangalore/Karnataka who lose out in the job market largely because they lack a certain expected level of proficiency in English.

In the same interview, Mr. Murthy went on to say that on a priority basis, India needs overseas universities and vocational educational institutions to set up facilities in India to train students and teachers in key areas like nursing. This too makes sense because our healthcare infrastructure needs massive upgrades- and human resources will be critical.

China’s tightening regulations threaten its US$100 Billion EdTechc industry

The third report was on China’s recent decision to tightly regulate its online tutoring companies. The new rules bar online tutoring ventures from going public or raising foreign capital. There are also restrictions on the number of hours for which tutors can teach during weekends and vacations. In fact, the rules go so far as to make online tutorial businesses “not for profit”.

Different views have been expressed on why Chinese authorities have taken this step. Some see it as a means to reduce the cost of children’s education- and thus encourage couples to have more children. They point to this as a logical enabler of the recent relaxations in China’s two-child policy. Others view it as a step designed to clip the wings of Chinese tech companies that are deeply entrenched in many consumer segments, and have, over the past decade, acquired significant financial muscle.

To put into perspective the size of Chinese EdTech companies, consider this data point: Byju’s, arguably India’s largest EdTech company, was valued at over US$16.5 Billion as of mid-June 2021. Despite this high valuation, Byju’s would have been smaller than the top 5 Chinese EdTech players (on the basis of valuations that existed before the recent draconian rules came into effect).

Implications for India

The majority of China’s EdTech ventures are financed through significant venture capital investments from the west. Analysts expect that China’s sudden actions will, at least in the short run, divert capital to other locations. India could be a potential beneficiary because it already fosters a large EdTech ecosystem.

Given our demographics, we have a significant domestic market for education across all levels- primary, secondary, and college. Since digital education will likely become the norm, this space is ripe for newfangled innovations in the days ahead. If online education can bridge the gaps that employers currently perceive in our fresh graduates, unemployability rates shall notably decline. . This will not only contribute directly to our GDP but also indirectly stimulate innovation and entrepreneurship.

India has a large technical skill base. Some of these resources can easily be harnessed to develop next-gen education solutions using cutting-edge technologies such as AI, ML, Language Processing, Augmented Reality, etc. To begin with, Indian start-ups can build, test, and scale EdTech platforms and solutions for our domestic market. Over time, these can be refined and repurposed for global markets. Similarly, features built for the global market can be adapted to Indian markets, thus creating a virtual cycle. Such a trend will not only proffer legs to implementing India’s NEP but will also enable us as a society to improve access to education to underprivileged sections of the society. This is critical to sustaining our growth on the path of socio-economic development.

By taking the right decisions now, we can attract capital, talent, and world-famous institutional brands to this critical sector. EdTech in India has the potential to become a powerful engine of growth for our services sector. Done right, I have no doubt that in a few years, India can become a “Vishwaguru” not just in the spiritual sense, but also literally.

PS: As with many other sectors in India, the legal framework that governs education too needs to be made more contemporary and relevant, but that’s for another time.

Image Credits: Photo by Nikhita S on Unsplash

By taking the right decisions now, we can attract capital, talent and world-famous institutional brands to this critical sector. EdTech in India has the potential to become a powerful engine of growth for our services sector. Done right, I have no doubt that in a few years, India can become a “Vishwaguru” not just in the spiritual sense, but also literally.

 

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Taxation (Amendment) Bill, 2021: Regaining Investor Confidence

The retrospective clarificatory amendment regarding taxability of indirect transfers and consequent demand raised in a few cases, had created doubts and serious concerns for potential investors in our country and had also tarnished India’s image in the international community. The country today stands at a juncture when quick recovery of the economy after the COVID-19 pandemic, is the need of the hour and foreign investment has an important role to play in promoting faster economic growth and employment.  With this objective in mind, the Hon. Finance Minister of India has proposed this Taxation Laws (Amendment) Bill 2021 (“the Bill’), to put an end to the protracted litigation on this subject matter.

 

The issue regarding taxability of indirect transfer of assets located within the country, by transferring shares of an intermediary foreign company, was first analyzed in the case of Vodafone International Holdings (‘Vodafone’). In that case, Vodafone had acquired 100 percent shares of a Cayman Island based subsidiary company, from Hutchison Telecommunication International Ltd. (‘HTIL’), which was holding 67 percent controlling interest in Hutchison Essar Limited (‘HEL’), an Indian Joint venture company. Through this transaction, Vodafone had indirectly acquired a controlling interest of 67% in HEL, without triggering any taxable event in India. However, the Indian Revenue authorities had served a notice on Vodafone for not withholding tax under section 195 of the Indian Income Tax Act, 1961 (‘the Act’) on the consideration that was paid by it to HTIL.

The controversy was finally settled by the Hon’ble Supreme Court (‘SC’) in 2012 in favour of Vodafone[1]. The SC had ruled that the word “through” in section 9 of the Act does not mean “in consequence of” and “sale of share in question to Vodafone, did not amount to transfer of capital asset within the meaning of section 2(14) of the Act”. Accordingly, an indirect transfer of Indian assets by transferring shares in a foreign company was not chargeable to tax in India and therefore was not liable to any withholding tax.

Retrospective Amendment in Finance Act, 2012:

In order to override the SC decision and tax such Indirect transfer transactions, the Central Board of Direct Taxes (CBDT) had introduced an amendment under section 9(1) of the Act, which was made effective retrospectively from 01 April 1962. The Finance Act, 2012 had inserted a clarificatory Explanation 4 and Explanation 5 to section 9(1)(i), as under:

“Explanation 4— For the removal of doubts, it is hereby clarified that the expression “through” shall mean and include and shall be deemed to have always meant and included “by means of”, “in consequence of” or “by reason of”.

Explanation 5— For the removal of doubts, it is hereby clarified that an asset or a capital asset being any share or interest in a company or entity registered or incorporated outside India shall be deemed to be and shall always be deemed to have been situated in India, if the share or interest derives, directly or indirectly, its value substantially from the assets located in India”

The above retrospective amendments created doubts in the minds of the stakeholders regarding the stability of India’s tax laws and also invited huge criticism and embarrassment at the international level.

Pursuant to this retrospective amendment, income tax demand had been raised in seventeen cases by the Revenue authorities. In four cases, the aggrieved taxpayers had preferred arbitration under India’s Bilateral Investment Protection Treaty with the United Kingdom and the Netherlands, respectively. Recently, the respective Arbitration Tribunals have, in the case of Vodafone International Holding BV vs. The Republic of India as well as in Cairn Energy PLC vs. The Republic of India, ruled in favour of the assessee and against the Government of India. The government of India has challenged both this arbitration award.

Proposed Amendment:

The Bill [2] proposes to amend the Act and abolish the retrospective tax on indirect transfer of Indian assets, if the transaction was undertaken before 28 May 2012 [3].

The amendment proposes to insert three provisos (fourth, fifth and sixth) under Explanation 5 to section 9(1)(i), thereby nullifying:

  • any pending or concluded assessment or reassessment; or
  • any order enhancing the demand / reducing the refund; or
  • any order deeming a person to be an “assessee in default” for non-withholding of tax; or
  • any order imposing a penalty

with respect to any income accruing or arising from the transfer of an Indian asset pursuant to the transfer of shares in a foreign company.

Therefore, all assessments or rectification applications (pending/ concluded) before the Revenue authorities, to the extent it relates to the computation of income from any indirect transfer of assets, shall be deemed to have concluded/ have never been passed without any additions.

Specified Conditions:

Relief under the proposed amendment would be available only to assessees fulfilling the following specified conditions:

  • The assessee shall either withdraw or submit an undertaking to withdraw any appeal filed before the Tribunal, High Court or Supreme Court with respect to the indirect transfer, in such form and manner as may be prescribed [4];
  • The assessee shall either withdraw or submit an undertaking to withdraw any proceeding for arbitration, conciliation or mediation, with respect to the indirect transfer, in such form and manner as may be prescribed [3];
  • The assessee shall furnish an undertaking waiving his right, whether direct or indirect, to seek or pursue any remedy or any claim in relation to indirect transfer in such form and manner as may be prescribed [3].

Pursuant to fulfillment of the specified conditions, where any amount becomes refundable to the person referred to in the fifth proviso, then, such amount shall be refunded to such person, without any interest on such refund under section 244A of the Act.

FM Comments:

The amendment is a proactive step aimed at neutralizing the criticism and embarrassment caused by retrospective amendment and regaining the stakeholder’s confidence in Indian judicial system. Such measures from the Government will certainly create a positive sentiment and a sense of tax certainty amongst the investors and hopefully, help in attracting incremental foreign investment into the country, which will play an important role in promoting faster economic growth and development.

 

References:

[1] Vodafone International Holdings B.V. vs. UOI (2012) 341 ITR 1 (SC)

[2] President is yet to give his assent on the said Amendment Bill

[3] Date on which Finance Bill, 2012 received assent of the President

[4] Form for submitting undertaking is yet to be prescribed

 

Image Credits: Photo by Michael Longmire on Unsplash

Such measures from the Government will certainly create a positive sentiment and a sense of tax certainty amongst the investors and hopefully, help in attracting incremental foreign investment into the country, that will play an important role in promoting faster economic growth and development.

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India Needs New Regulations - But Simplification of Compliance is Just as Critical

In earlier posts, I have touched upon the need for Indian laws to be updated to better reflect the current environment and foreseeable changes to it brought about by various forces, primarily technology-led innovation. This is not just because of the need to plug legal loopholes that are exploited to the nation’s detriment but also with the objectives of streamlining compliance and better enforcement.

 

Recently, the union government did exactly this when it announced a new set of rules to govern the operations of drones in India. A new draft of the Drone Rules, 2021, now out for public consultation, will, when approved and notified, replace the UAS Rules, 2021, which were announced in March 2021. The fact that the government has come out with a new set of rules within 4 months of issuing the earlier version is a welcome sign of change, as it signals recognition of a rapidly-changing environment as well as the importance of timely and appropriate responses.

Changes are aimed at simplification and less regulatory control

The new rules are remarkable for other reasons as well. At about 15 pages in length, the new rules are only a tenth of the earlier rules. The changes are not limited to the form; there are substantive changes too. The new rules seek to do away with a large number of approvals (e.g., Unique Authorization Number, Unique Prototype Identification Number etc.).  Licensing for micro drones for non-commercial use has been done away with. Recognizing the immense potential for drones to revolutionize our society and economy, the government proposes to develop “drone corridors” for cargo delivery. Prior authorization of drone-related R&D organizations is being removed. A drone promotion council is to be set up, in order to create a business-friendly regulatory regime that spurs innovation and use of drones. All this augurs well for the development of a robust drone ecosystem in India.

Implementing the “spirit” of underlying regulations is vital

The change to the drone rules is a welcome step- just as the consolidation of 29 of the country’s labour laws into four Codes during 2019 and 2020 was. But rationalization becomes futile if there is no element of reform- e.g., doing away with requirements that have outlived their utility or need significant changes to remain relevant in the current environment? There were many expectations around the Labour Codes, but in the months that followed, it is fair to say that there was also much disillusionment amongst industry stakeholders because sticky issues, such as the distinction between “employees” and “workers”, payment of overtime, role of facilitator-cum-inspector etc., remained.

Simplifying compliance is necessary to improve “ease of doing business” further

The World Bank’s 2020 “ease of doing business” report ranks India 63rd; we were ranked 130 in 2016. The 2020 report considered three areas: business regulatory reforms (starting a business, paying taxes, resolving insolvency etc.); contracting with the government, and employing workers. 

But there are miles to go before we sleep. To ensure that India’s entrepreneurial energies and creative intelligence are directed to areas that will be critical in the years to come- e.g., space, AI, robotics, electric vehicles, clean energy etc. all need new regulations or revamp of existing legislations and rules. But this alone will not suffice. Implementing the spirit, and not just the letter of the law and rules and the simplification of regulatory compliance are important angles that government must pay attention to. These are going to be key determinants in improving our “ease of doing business”.

 

Technology is a necessary enabler but it is not sufficient

All regulatory filings- whether for approvals or compliance- should ideally be enabled in digital format. Digital dashboards in the government and other regulatory bodies should facilitate real-time monitoring. Only exceptions or violations should need further actions. To be sure, the government has initiated some steps in this direction- e,g., “faceless” interactions between business and the Income Tax authorities with the intention to reduce human interventions and thus, the possibility of corruption. But if the underlying income tax portal itself is not working properly, as was widely reported soon after it was launched, the desired outcomes will not be achieved.

Moreover, it is not just about having the right technology platforms in place. It is equally critical to bring about a mindset change in the administrative machinery that helps political leadership formulate policy and thereafter, enable implementation and performance monitoring.

Given India’s large domestic market and attractiveness as a base for exports, we as a nation stand on the threshold of a phase of significant economic growth. Many Indian entrepreneurs are establishing businesses overseas; this means that the benefits of jobs, tax revenues and IPR creation all move to other jurisdictions. The longer anachronistic and irrelevant laws remain on our books, and the harder regulatory compliance remains, the more we stand to lose. In a world where global investment flows, trade and supply chains are facing significant change under the influence of numerous forces, it would truly be unfortunate if India loses out largely because of continued difficulties in regulatory compliance.

Image Credits: Photo by Medienstürmer on Unsplash

The longer anachronistic and irrelevant laws remain on our books, and the harder regulatory compliance remains, the more we stand to lose. In a world where global investment flows, trade and supply chains are facing significant change under the influence of numerous forces, it would truly be unfortunate if India loses out largely because of continued difficulties in regulatory compliance.

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The draft EIA notification, 2020: what went wrong?

India has witnessed consistent and rapid environmental degradation since the past 50 years which can be attributed to the depletion of forests, vehicular emissions, use of hazardous chemicals, improper disposal methods and various other undesirable human activities.  Incidents such as the Bhopal gas tragedy and the LG Polymers gas leak incident have accentuated the seriousness of the matter and the need for introspection and rectification as well as timely action. Implementation of regulatory norms to curb pollution may seem plausible, but it is even more crucial to check whether industrial units and other polluting entities are complying with the safety norms and standards laid down to check the adverse impact of their operations. In that light, The draft Environment Impact Assessment (EIA) Notification is bound to suffer implementational challenges and demands thorough revision to meet the environmental, developmental and sustainability parameters.

 

Concatenation of EIA in India

The current environmental laws seek to strike a balance between ‘ecology’ and ‘economy.’ The EIA framework is the practical aspect that guides towards striking this balance. Environmental Clearance (EC) is one of the most important features of an EIA framework. It refers to the process of assessing the impact of planned projects on the environment and people with an aim to abate/minimize the consequent environmental pollution. The clearance is mandatory of areas that are ecologically fragile, regardless of the type of project. 

The first EIA notification was notified in the year 1994, however, it covered only a few industries, leaving many out of the scope of impact assessment. In order to reflect upon the shortcomings of the 1994 framework, it was updated as EIA notification 2006[1].

However, the system curated by the EIA notification 2006 has been a far cry from perfect. Over the 15 odd years of its implementation, there have been quality issues with respect to the EIA reports,[2] and poor track record of post environmental clearance monitoring and compliance[3]. Over these years, it has also undergone numerous changes. In 2017, the Expert Appraisal Committee of the Environment Ministry exempted public hearings for coal mining projects which were undergoing capacity enhancements of up to 40 percent. However, the relaxation was subjected to due diligence of the EAC[4]. In 2015, the Ministry extended the validity of environmental clearance from 5 years to 7 years[5]. In March 2020, a draft notification[6] to replace the 2006 notification was issued for public comments. Since then, there have been many protests seeking a revaluation of the draft proposal.

In the meanwhile, vide an Office Memorandum dated 18th November 2020, the government proposed new set of rules to streamline the process to reduce the number of days taken by the authorities in granting EC.[7] This was in line with the government’s efforts to ensure the country’s growth trajectory in not blocked. Post that, another Office Memorandum was issued on 15th March 2021 that sought to streamline the process of granting environmental clearances with regard to essential details demanded.[8]

Very recently, another Notification dated 18th March 2021 was issued where the center exempted all projects from public hearing whose environmental clearance had expired and therefore had to apply afresh.[9]According to the notification, the prior environmental clearance for a project was granted for a maximum period of ten years, and in some cases five years. The projects which failed to complete within the granted time period had to undergo all the processes of scoping afresh, including conducting a public hearing. However, as per the new amendment, the compulsory step of conducting public hearing has been done away with if minimum 50% of the physical form of the project has been implemented. This was essential to remit further delay in such projects.

The notification has been introduced amidst the countrywide opposition to the contentious EIA Draft Notification 2020[10], that seeks to overhaul the environmental clearance process for large infrastructures and projects like dams, roads, mines townships, etc. The prepared draft proposes three major changes:

  1. Exemption from public consultation for certain construction projects.
  2. Powers to regularise projects retrospectively.
  3. Exemptions for process with strategic consultation.[11]

 

Contentious Issues in the Draft EIA Notification

Environmentalists across the country took an abhorrent view of the proposed Draft EIA Notification 2020, since it provided time and liberty to project proponents while strategically keeping the public uninvolved.

  1. Ex post facto environmental clearance

This rule allows any industry working in violation of the Environment (Protection) Act to apply for clearance. This seemed quite arbitrary since India has already witnessed severe disasters caused due to the lack of compliance to environmental clearances. Recently, in addition to the LG Polymers gas leakage at Vishakhapatnam, a natural gas well of Oil India Ltd. blew up and caught fire in Tinsukia, Assam.  Assam’s State Pollution Board reported that Oil India Ltd. was operating without any consent from the Board for more than 15 years!

  1. Defeats the purpose of public consultation

Generally, the interested stakeholders are given a period of 30 days to raise any concerns regarding the preliminary report of the assessment. The draft EIA 2020 seeks to reduce this period to a mere 20 days. Very often, the concerned stakeholders belong to poor communities residing in and around the project sites. The news of such a report usually reaches late, by the time consultations are considered, clearances are granted. This provision is in violation of Principle 10 of Rio Declaration which states that “Environmental issues are best handled with the participation of all concerned citizens”.

  1. Reducing the Number of Compliance Reports

The Compliance Report contains all the norms and regulations which are being followed by industries on a regular basis. It is an essential aspect of EIA since it helps the concerned authorities to put a system of checks and balance. However, as per the draft EIA 2020, this period has been increased to one year, granting unwarranted freedom to industrial units to grossly violate the environmental norms and cover it up with ease.

  1. Empowering the central govt. to declare certain projects as ‘strategic’ may have adverse outcomes

It is the Technical Expert Committee that has been endorsed with the power to categorize new projects rather than the Ministry of Environment, Climate and Forest Change. Once a particular project has been labelled/categorised as ‘strategic’ by the central government, information regarding it shall be removed from the public domain. Any information regarding environmental violations thus remain a privy to the government. Not being able to report violations except by the government or regulatory authority goes against the principles of natural justice. Diluting the norms with regards to detailed scrutiny by the Expert Committee, EIA studies, or public consultation leaves many projects and polluters out of the regulatory net.

  1. Exclusion of projects

Clause 26 of the Draft EIA Notification 2020 excludes a long list of projects from the purview of EIA. Further, Clause 14 of the said Notification excludes a number of projects from public consultation. Further, public consultation has also been exempted for the projects falling under Category B2.

 

Judicial Approach on the Draft EIA Notification

Since the issuance of the draft notification, various petitions have been filed in courts across the country demanding judicial scrutiny over specific controversial aspects as discussed above.

The notification allowing for grant of ex post facto environmental clearance for project proponents who have already commenced or completed projects without obtaining a prior EC was challenged in the case of Alembic Pharmaceuticals Ltd. v. Rohit Prajapati & Ors.[12], the Supreme Court held that the concept of ex post facto clearance as opposed to the fundamental principles of environmental jurisprudence and is violative of the previous EIA Notifications. It was further held in this case that such a clearance would lead to irreparable degradation of the environment. The grant of such problematic environmental clearances violates the precautionary principle and sustainable development. Furthermore, such clearances overturn the ‘polluter pays principle’ to make it ‘pay and pollute’ principle.

The court placed reliance on its previous ruling in the matter of Common Cause v. Union of India.[13] In this case, the Supreme Court held that “the concept of an ex post facto or a retrospective EC is completely alien to environmental jurisprudence including EIA 1994 and EIA 2006.” Therefore, relying on the verdict of the Hon’ble Supreme Court in the above two cases, it can be stated that ex post facto clearances are unsustainable is law and void.

In the case of Puducherry Environment Protection Association v. The Union of India.[14], the Madras HC addressed the issue in a different light. The question of whether an establishment providing livelihood to hundreds of people must be closed down on the grounds of non-compliance with prior EC, was addressed. After much deliberation, the HC arrived at the conclusion that violation of environmental norms can conveniently and effectively be checked. It also stressed on the fact that an ex post facto clearance takes away the scope of EIA.

Previously, the National Green Tribunal in S. P. Muthuraman v. Union of India[15], remarked that the law does not recognise any such examination which is made post-commencement and upon completion of a project. The Tribunal further went to acknowledge that the practice of conducting an EIA is internationally recognised. It also stated that granting post facto approvals could legalise and legitimise illegal and irregular projects which are in contravention of environmental norms and thus would defeat the purpose of the Environment Protection Act, 1986.

Another contention raised by the stakeholders was that the draft notification dilutes the EIA process making it easier for industries to escape accountability. Various courts also took stock of these concerns and the Delhi High Court granted an extension in the time allowed to the general public for giving suggestions to the Draft EIA Notification till August 11, 2020. It also suggested that the notification must be translated into other languages so that it can reach to even the remotest groups and seek recommendations.[16] However, the centre responded by saying that it was giving ‘thoughtful consideration’ to the HC’s views on translating the EIA Notification 2020 in twenty-two languages of the eighth schedule of the constitution.[17]The Karnataka High Court also took a similar approach and restrained the Ministry of Environment, Forest, and Climate Change from releasing the final notification till September 7, 2020, on the grounds of the ongoing pandemic.[18]

 

Giving Voice to the Voiceless

EIA is a part of participatory justice which gives voice to the voiceless[19].

The present EIA draft notification appears to be an attempt to promote the growth of industries and the corporate community at the cost of biodiversity, human rights and the environment. The draft is bound to suffer implementational challenges and demands thorough revision to meet the environmental, developmental and sustainability parameters. However, the final notification is not out yet and the judicial bent towards scrapping the post-commencement sanctions and increasing the period for public consultation period would most likely lead to a revision of those aspects. Moreover, provisions such as discretionary powers for the determination of strategic projects as well as a reduction in key compliance norms dilute the very essence of environmental assessments. Ease of doing business was ideally implemented to subvert bureaucratic dawdle but it should not become a veil for corporate subterfuge. Then again, too many compliance burdens deter participants in a sector from undertaking developmental projects. Some fine-tuning keeping the regulatory pressures minimal while balancing environmental repercussions would be the ideal course of action.

References 

1 GOVERNMENT OF INDIA – THE ENVIRONMENTAL IMPACT ASSESSMENT NOTIFICATION 2006,
http://www.environmentwb.gov.in/pdf/EIA%20Notification,%202006.pdf (last visited Aug. 29, 2020).

2 http://moef.gov.in/wp-content/uploads/2017/09/OM_IA_ownershipEIA.pdf

3 https://cag.gov.in/en/audit-report/details/27540

4 http://environmentclearance.nic.in/writereaddata/Form1A/Minutes/010820176ABWO9WXApprovedMOM15thEACheldon25July2017Coal.pdf

5 https://economictimes.indiatimes.com/news/economy/policy/government-extends-validity-of-environmentclearance-to-7-years/articleshow/49452693.cms?from=mdr


6 http://parivesh.nic.in/writereaddata/Draft_EIA_2020.pdf


7 http://dghindia.gov.in/assets/downloads/5fbb4c3cc3135moefccom.pdf

8 https://ficci-web.com/link/OMStreamlining.pdf


9 http://environmentclearance.nic.in/writereaddata/EIA_Notifications/52_SO1240E_12032021.pdf


10 http://parivesh.nic.in/writereaddata/Draft_EIA_2020.pdf

11 https://www.bloombergquint.com/law-and-policy/environment-law-proposed-norms-dilute-the-processrigours-experts-say

12 Alembic Pharmaceuticals Ltd. v. Rohit Prajapati & Ors., 2020 SCC OnLine SC 347

13 Common Cause v. Union of India, (2017) 9 SCC 499.


14 Puducherry Environment Protection Association v. The Union of India, (2017) 8 MLJ 513.


15 S.P. Muthuraman v. Union of India, 2018 (8) FLT 498.


16 Vikrant Tongad v. Union of India, W.P. (C) 3747/2020 & CM APPL. 13426/2020.


17 https://www.newindianexpress.com/nation/2021/mar/26/giving-thoughtful-considerationto-hc-view-totranslate-draft-eia-in-22-languages-centre-2281924.html

18 United Conservation Movement Charitable and Welfare Trust v. Union of India, W.P. No. 8632/2020.


19 Samarth Trust and Anr. v. Union of India and Ors., Writ Petition (Civil) No 9317 of 2009

 

 

Image Credits: Photo by Alan Rodriguez on Unsplash

The present EIA draft notification appears to be an attempt to promote the growth of industries and corporate community at the cost of biodiversity, human rights and environment. The draft is bound to suffer implementational challenges and demands thorough revision to meet the environmental, developmental and sustainability parameters. However, the final notification is not out yet and the judicial bent towards scrapping the post commencement sanctions and increasing the period for public consultation period would most likely lead to revision of those aspects

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Toy Manufacturing - BIS Compliances, Schemes, and Incentives

One of the key flourishing industries in the world, India’s toy market is currently valued at $500 million out of a booming $90 billion global market. Statistics reveal that 80% of Indian toys are Chinese imports, while non-branded Chinese toys account for 90% of India’s market. Even though exports by the toy manufacturing industry from India amounted to $130 million during 2019-2020 with the USA and UK [1]being the lead exporters, the disparity and unutilized potential do not escape one’s attention.

As the second-most populated country in the world with almost 26% of its population below 15 years old, India has one of the largest consumer bases in the world. In fact, when the global average for demand growth is 4.6% [2]it is forecasted to have a growth of 13.3% CAGR [3]within 2026 i.e. almost thrice the global average. Adding on to this the toy industry of the country is also expected to reach $3.3 billion dollars by 2024!

India’s economic growth has also increased the disposable income of its citizens, thus driving up demand in a market with a whopping consumer base of roughly 338 million. Moreover, there has been a major shift from traditional, medium- to low-end battery-operated toys, towards innovative electronic toys, intelligent toys as well as upmarket plush toys.[4] The boom of e-commerce in India has also had a role to play, with customers turning to shop for toys within the comfort of their own homes.

Associations and Committees Representing the Toy Industries in India:

 

1.Toy Association of India

  • Headquartered in New Delhi, the toy Association of India was established in 1995 with a view to bringing together toy manufacturers, traders and end-users to promote higher business relations.
  • It has a presence all over the country and has 600 registered members, out of which 275 are toy manufacturers.
  • Assists the toy industry in up-gradation of the industry’s units with modern machinery to maintain quality standards.
  • Attempts at creating a more conducive relationship between the government and the industry by offering policy recommendations, communicating the industry’s problems in the interest and growth of the toy industry.

2.The All-India Toy Manufacturer’s Association

  • Headquartered in Mumbai, All India Toy Manufacturer’s Association has nearly 150 registered members, out of which 100 are toy manufacturers.
  • It seeks financial assistance and subsidies from the government for the growth of the toy industry, educates and encourages suppliers to conform to the BIS regulations. 
  • Encourages the organization of toy fairs and exhibitions for the promotion of the toy industry.

 

Compliances Requirements for Toy Manufacturing Industry under the Bureau of Indian Standards (BIS) 

Apart from the general compliances which amount to over 700 ranging from the Companies Act, SEBI Act, FEMA Act to Income Tax and Foreign Trade Act for factories and MSME’s, regulations were required to be specifically made to ensure that the toy industries are safeguarded from unfair and excessive exploitation as well as products meet the international quality requirements.

According to a study, about 67% of toys sold in India had failed all safety and standard tests, while about 30 per cent of plastic toys failed to meet the safety standards of admissible levels of heavy metals and phthalates. Phthalates are a group of chemicals.

A lack of regulation in the past had resulted in degradation of the quality of our products and failed endeavours to keep up with the international standards. However, this is no longer the case as the government has not only strengthened the existing key factors but has also set up new compliances to steer clear of the past policy miscalculations and lapses. The said compliances are as follows:

The Toys (Quality Control) Order, 2020[5]

Issued by the DPIIT, Ministry of Commerce and Industry, vide order 25 February 2020, the safety of toys has been brought under compulsory BIS certification, which is granted after the successful assessment of the manufacturing infrastructure, production process, quality control, and testing capabilities. The toys shall bear the standard mark under a licence from BIS as per Scheme-I of Schedule II, of BIS (Conformity Assessment Regulations), 2018. The said QCO was initially slated to come into effect from 1st September 2020 but was later extended to 1 January 2021[6].

Exceptions:

  • The order is not applicable to goods and articles manufactured and sold by artisans registered with the Office of Development Commissioner (Handicrafts), under the Ministry of Textiles.
  • The order is not applicable to goods and articles manufactured and sold by registered proprietor and authorized user of geographical indication, by the registrar of geographical indications, Ministry of Commerce and Industry.[7]
  •  Goods or articles manufactured/meant for export purposes.

BIS Licence and Certification

For the purpose of BIS certification, toys have been classified into the following two categories. While applying for a licence, the manufacturer can apply under any one of the classifications:

 

If a licence is required for more than one type of toy (i.e., non-electric and electric), separate applications shall be made for each type. (However, samples shall be tested by BIS for conformity to the primary standard and the secondary standards which are applicable i.e., IS 9873 parts 1,2,3,4,7, and 9 etc.)[1]

While applying for a license the manufacturers must also specify the type of toy in order to choose the applicable standard it would be subjected to. The specifications of toys and their corresponding standards are as follows:

 

For Entities Manufacturing hundreds of toy models/SKU’s
  • Since testing hundreds of toy samples individually shall prove to be practically difficult for the purpose of BIS certification. The issue has been addressed in the Product Manual for the safety of toys[1].
  • The product manual is a guidance document containing product-specific guidelines for certification. It incorporates “Grouping Guidelines” which allows certification to be granted for a group of toy models based on the testing of certain representative models.
  • These grouping guidelines have been framed based on the Indian Standard IS 9873 (Part 8):2019 which is identical with the International Standard ISO/TR 8124-8:2016 (Safety of Toys Part 8 Age Determination Guidelines) which classifies toys into 7 Categories and 146 Sub-Categories based on the appropriate starting age and the specific purpose or function of the toy.
  • For the purpose of certification, all the models of toys of similar design, made from the same materials and covered under a single sub-category, shall be considered as a series. A sample of any one model from each series shall be drawn and tested to cover all the models in that particular series.

Schemes Floated for the Toy Manufacturing Industry in India

Along with the set of existing and new compliances, the government has also introduced various schemes and incentives with the aim of promoting the industry.

Micro, Small, Medium Enterprises (MSME)

Approximately four thousand[2] enterprises in India, engaged in toy manufacturing fall under the category of micro and small-scale sectors. The MSMEs in the toy manufacturing sector is an unorganized sector, accounting for a whopping 60% of the national market share. These MSME’s are spread all across the country with a large chunk operating in the Northern and Western regions.

The Indian toy market is 70% larger thanks to the existence of MSMEs and the support they received from our government. In pursuance of the same, the government has amended the classification of MSMEs in the Aatmanirbhar Bharat Abhiyan to ensure that they receive the aid and recognition required to keep up with the changing times. The amended classification is as follows:

 

With the advent of Aatmanirbhar Bharat Abhiyan various schemes have been introduced to promote MSMEs:

•       Technology and Quality Upgradation Scheme

Enrolling in this scheme will help the micro, small and medium enterprises to use energy-efficient technologies (EETs) in manufacturing units to diminish the expense of production and adopt a clean development mechanism. The scheme guarantees to cover up to 75% of the expenditure.[1]

•       Grievance Monitoring System:

Enrolling in this scheme is advantageous when it comes to addressing complaints of business owners. Additionally, the owners may also check the status of their complaints and file an appeal if they are not satisfied with the result.

•       Incubation: 

It assists innovators in implementing their new design or product ideas. It provides financial assistance for “Business Incubators”. Financial assistance of 75 % to 85 % of the project cost, up to a maximum of 8.00 Lakh is extended to the innovators.[2]

•       Credit Linked Capital Subsidy Scheme:

Under this scheme, new technology is provided to the business owners to replace their old and obsolete technology. A capital subsidy is given to the business to upgrade and have better means to do their business. These small, micro and medium enterprises can directly approach the banks for these subsidies. The ceiling on subsidy would be Rs. 15 lakh or 15 per cent of the investment in eligible plant and machinery, whichever is lower[3]

•       Scheme of Fund for Regeneration of Traditional Industries: 

The government aims at establishing a total of 35 toy clusters in various states under this scheme. Once set up, these will boost the manufacturing of toys made of wood, lilac, palm leaves, bamboo and fabric. This scheme offers incentives such as skill development, capacity building, e-commerce assistance to local industries.

•       Product Specific Industrial Cluster Development Programme: 

The programme aims to establish dedicated SEZ’s and customize them into self-sustaining ecosystems catering to export markets.

 

Incentives Provided to the Toy Manufacturing Industry in India

The Centre and State governments have implemented various incentives to promote the toy industry.

A. For Toy Manufacturing Entities

 

1.Hiked import duty:

The import duty on toys was raised from 20% to 60% [4]making it difficult for foreign companies to compete in our market as well as making Indian companies’ entry into the market easier.

2.Handicraft and GI Toys exempted from Quality Control Order[5]:

This allows any traditionally made toys by artisans registered with Development Commissioner (Handicrafts) to be exempted from the quality compliances newly introduced.

3.Custom Bonded Warehouse Scheme:

Central Board of Indirect Taxes and Customs (CBIC) has launched a new scheme expected to play a critical role in promoting investments in India and in enhancing the ease of doing business. According to this, the unit can import goods (both inputs and capital goods) under a customs duty deferment program.[6]

4.Export Promotion Capital Goods (EPCG) Scheme: 

Enables the import of capital goods (toys/ spare parts thereof) in the pre-production, production and post-production stage without the payment of customs duty.

5.Increase in BCD for Electronic Toys (under HSN 9503) from 5% to 15%[7]:

This will increase the expenditure incurred for foreign companies to sell products in India and thus help relax the competition for Indian manufacturers. An example of how these steps have been implemented and made into a reality is the Product-Specific Industrial Cluster Development Program. An initiative taken up by the Karnataka government in partnership with Aequs Infra, is a first-of-its-kind project aimed at promoting toy industries by dedicating 400 acres of self-sustained ecosystem including an SEZ to serve export markets and Domestic Tariff Area (DTA) through state-of-the-art industrial infrastructure and facilities. It has the potential to create 40,000 jobs in five years and attract over INR 5,000 crore in investments. [8]The toy cluster aims to capitalize on the presence of key elements essential for the sector’s growth like manpower, R&D and raw material.  It is also in a strategic position to cater to 50% of the domestic toy market needs, and has an efficient connectivity network with access to highways, ports, airports, and major cities.[9] This program was touted as a one-stop-shop solution catering to the needs of both large MNCs and small and medium enterprises.

6. Duty Drawback Scheme: 

The scheme was introduced to rebate duty chargeable on any imported materials or excisable materials used in the manufacture or processing of goods, manufactured in India and exported.

B. For MSME’s

Apart from extending financial aid as discussed above, the government initiatives for MSME’s are largely based on undertaking initiatives to promote homegrown toy manufacturers and boost domestic demand for indigenous and locally produced toys. Some of these initiatives are:

Phased Manufacturing Programme (PMP): 

The programme will make the assembly of toys cheaper than imports, offering benefits similar to the PMP for mobile phones introduced back in 2015. The government has offered tax reliefs and differential tariffs among other incentives for components and accessories to push local manufacturing.

Toy Labs: 

In a bid to promote traditional toys, the government has chalked out a plan to create toy labs – a national toy fair for innovative Indian themed toys. The Atal Tinkering Lab is one such toy lab to provide support for physical toys promoting learning and innovation. Additionally, due to literacy programmes like Sarv Siksha Abhiyan and the new education policy, toys nurturing innovation and creativity are in focus.

Involving various sectors:

The education ministry has been asked to include indigenous toys as a part of learning resource, under the new education policy. The IIT’s are set to be roped in to look into the technological aspect of toys, while the NIFT’s shall study the concept of toys and national values, by using non-hazardous materials. The Ministry of Science and Technology has been directed to explore how India’s indigenous games can be featured in the digital space. While the Ministry of culture will work on ‘Indian Toy Museum’.

Labour law reforms:

The Indian toy industry is labour intensive, the new labour law reforms have a significant impact on the ease of doing business, thereby providing a competitive advantage to the Indian toy industries.

The toy industry is one sector that contains a lot of untapped potentials. The compulsory BIS certification as per the Toys (Quality Control) Order, 2020, will ensure that the quality of toys is at par with international standards along with the strengthening of existing conditions of the market. These are significant steps in the right direction to ensure that the domestic markets pick up once the pandemic wanes. The domestic production and sales could catch up with exports and thus make sure that the future of this sector will not be as grim as in the past and will light up, once again.

References 

1 https://www.investindia.gov.in/sector/consumer-goods/toys-manufacturing

2 Koppal Toy Manufacturing Cluster; https://static.investindia.gov.in/s3fs-public/2021- 01/Koppal%20Toy%20Manufacturing%20Cluster%20-%20For%20International%20Investors.pdf

3 Ibid

4 Indian Toys Market: Industry Trends, Share, Size, Growth, Opportunity and Forecast 2021-2026, https://www.imarcgroup.com/indian-toys-market

5 https://bis.gov.in/wp-content/uploads/2020/03/Toy_QC_order.pdf

6 https://dipp.gov.in/sites/default/files/orderToy-26February2021_0.pdf

7 https://dipp.gov.in/sites/default/files/QC-AmendmentOrder-Toys-21December2020.pdf

8 https://bis.gov.in/wp-content/uploads/2020/09/toys-faqs-bilingual.pdf

9 https://bis.gov.in/wp-content/uploads/2020/08/safety-of-toy.pdf

10 Toy industries in India; https://www.ibef.org/indian-toys

11 Impact of Aatmanirbhar Bharat Abhiyan on MSMEs; https://cleartax.in/s/impact-aatmanirbhar-bharat- abhiyan-msmes/

12 https://msme.gov.in/3-technology-upgradation-and-quality- certification#:~:text=Technology%20and%20Quality%20Upgradation%20Support%20to%20MSMEs&text=50%

13 https://msme.gov.in/incubation25%20of%20actual%20expenditure%20subject,licenses%20from%20National%20%2F%20International%20bodies.

14 http://laghu-udyog.gov.in/schemes/sccredit.htm

15 Budget 2020: Govt hikes customs duty on toys, furniture, footwear products; https://www.financialexpress.com/budget/budget-2020-govt-hikes-customs-duty-on-toys-furniture-footwear- products/1848123/

16 Handicraft and GI Toys exempted from Quality Control Order; https://pib.gov.in/Pressreleaseshare.aspx?PRID=1680181

17CBIC and Customs launch scheme to attract investment and support Make in India programme; https://knnindia.co.in/news/newsdetails/sectors/cbic-and-customs-launch-scheme-to-attract-investment-and- support-make-in-india-programme

18 Union budget 2021; https://www.indiabudget.gov.in/doc/budget_speech.pdf

19 https://www.investindia.gov.in/sector/consumer-goods/toys-manufacturing

20 Koppal Toy Manufacturing Cluster; https://static.investindia.gov.in/s3fs-public/2021- 01/Koppal%20Toy%20Manufacturing%20Cluster%20-%20For%20International%20Investors.pdf

 

 

Image Credits: Photo by Nguyen Bui on Unsplash

The toy manufacturing industry is one sector that contains a lot of untapped potentials. The compulsory BIS certification as per the Toys (Quality Control) Order, 2020, will ensure that the quality of toys is at par with international standards along with the strengthening of existing conditions of the market.

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Income Tax Returns for AY 2020-21: Ready Referencer

With the extended time limit for filing of Income Tax Return (for AY 2020-21), u/s. 139(1), without late fees, for Non-Audit cases and for Non-Corporate assessees of 31st December 2020 fast approaching, given below is a quick guide for ready reference of some key changes that have been made in the respective Income tax return forms for this year.

Further, the conditions and features for eligibility of forms that are applicable for filing the correct income tax returns are also specified as follows:

Key Procedural Changes:

  • ITR 1 to ITR 4 can be filed using PAN or Aadhar by Individuals.
  • The submitted ITR forms display the ITR-V with a watermark ‘Not Verified’ until the same is verified either electronically by EVC or by sending the same via post after manual signing.
  • The unverified form ITR-V will not contain any income, deduction and tax details. The unverified form will only contain basic information, E-filing Acknowledgement Number and Verification part.
  • The unverified acknowledgement is titled as ‘INDIAN INCOME TAX RETURN VERIFICATION FORM’ & final ITR-V is titled as ‘INDIAN INCOME TAX RETURN ACKNOWLEDGEMENT’.
  • Return filed in response to notice u/s. 139(9), 142(1), 148, 153A, and 153C must have DIN.
  • There is a separate disclosure for Bank accounts in case of Non-Residents who are claiming income tax refund and not having a bank account in India.

COVID related Changes:

  • The Government had extended the time limit for claiming tax deduction u/CH VIA to 31st July 2020, and the details of the same need to be reported in Schedule DI (details of Investment).
  • The time limit for investing the proceeds or capital gains in other eligible assets, so as to claim exemptions u/s 54/ 54B/ 54F/ 54EC, had been extended to 30th September 2020.
  • Penal interest u/s. 234A @ 1% p.m., where the payments were due between 20-03-20 to 29-06-20 and such amounts were paid on or before 30-06-20, had been reduced to 75%, vide ordinance dated 31-03-20.
  • Period of forceful stay in India, beginning from quarantine date or 22-03-20 in any other case up to 31-03-20, is to be excluded, for the purpose of determining residential status in India.[1]

Consequences of Late filing of Return of Income:

  • Late Fees u/s. 234F of INR. 5,000 up to 31.12.20 and INR. 10,000 up to 31.03.21. In case of total income up to 5 Lacs, the penalty is INR. 1,000.
  • Penal Interest u/s. 234A @ 1% per month
  • Reduced to 75%. vide Ordinance dated 31.03.20, where the payments were due between 20.03.20 to 29.06.20, and such amounts were paid on or before 30.06.20.
  • Vide CBDT Notification dt 24.06.2020, no interest u/s 234A if Self-Assessment tax liability is less than 1 Lac and the same has been paid before the original due date.
  • In case of a belated return, loss under any head of Income (except unabsorbed depreciation) cannot be carried forwarded.
  • Deduction claims u/s. 10A, 10B, 80-IA, 80-IB, etc would not be allowed.

Consequences of Late filing of Return of Income:

  • Late Fees u/s. 234F of INR. 5,000 up to 31.12.20 and INR. 10,000 up to 31.03.21. In case of total income up to 5 Lacs, the penalty is INR. 1,000.
  • Penal Interest u/s. 234A @ 1% per month
  • Reduced to 75%. vide Ordinance dated 31.03.20, where the payments were due between 20.03.20 to 29.06.20, and such amounts were paid on or before 30.06.20.
  • Vide CBDT Notification dt 24.06.2020, no interest u/s 234A if Self-Assessment tax liability is less than 1 Lac and the same has been paid before the original due date.
  • In case of a belated return, loss under any head of Income (except unabsorbed depreciation) cannot be carried forwarded.
  • Deduction claims u/s. 10A, 10B, 80-IA, 80-IB, etc would not be allowed.

Vide CBDT Notification dt 24.06.2020, no interest u/s 234A if Self-Assessment tax liability is less than 1 Lac and the same has been paid before the original due date.

  1. Section 5A: Apportionment of income between spouses governed by the Portuguese Civil Code.
  2.  115BBDA: Tax on dividend from companies exceeding Rs. 10 Lakhs; 115BBE: Tax on unexplained credits, investment, money, etc. u/s. 68 or 69 or 69A or 69B or 69C or 69D.
  3. Inserted in sec 139(1) by Act No. 23 of 2019, w.e.f. 1-4-2020:

Provided also that a person referred to in clause (b), who is not required to furnish a return under this sub-section, and who during the previous year:

  • has deposited an amount or aggregate of the amounts exceeding one crore rupees in one or more current accounts maintained with a banking company or a co-operative bank; or
  • has incurred expenditure of an amount or aggregate of the amounts exceeding two lakh rupees for himself or any other person for travel to a foreign country; or
  • has incurred expenditure of an amount or aggregate of the amounts exceeding one lakh rupees towards consumption of electricity; or
  • fulfils such other conditions as may be prescribed,

Shall furnish a return of his income on or before the due date in such form and verified in such manner and setting forth such other particulars, as may be prescribed.

4. Section 57: Deduction against income chargeable under the head “Income from other sources”.

5. Schedule DI: Investment eligible for deduction against income (Ch VIA deductions) to be bifurcated between paid in F.Y.19-20 and during the period 01-04-20 to 31-07-20.

6.High-value Transaction: Annual Cash deposit exceeding Rs. 1 crore or Foreign travel expenditure exceeding Rs. 2 Lakhs, Annual electricity expenditure exceeding Rs. 1 Lakh.
7.Schedule 112A: From the sale of equity share in a company or unit of equity- oriented fund or unit of a business trust on which STT is paid under Section 112A.

8. 115AD(1)(iii) proviso: for Non-Residents – from the sale of equity share in a company or unit of equity-oriented fund or unit of a business trust on which STT is paid under Section 112A.
9. Section 40(ba): any payment of interest, salary, bonus, commission or remuneration paid to a member in case of Association of Person (AOP) or Body of Individual (BOI).

10. Section 90 & 90A: Foreign tax credit in cases where there is a bilateral agreement; Section 91: Foreign tax credit in cases of no agreement between the countries.

[1] Circular No 11 of 2020 dated 08th May 2020.

References

Image Credits: Photo by Markus Winkler from Pexels

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2021 Budget Impact on the Real Estate Sector

The Real Estate Sector has received an undeniable boost with the recommendations of the Union Budget of 2021. Projects like ‘Housing for All’ and ‘Pradhan Mantri Awas Yojana’ (PMAY) have always received emphasis under the Modi regime. Through the changes proposed to be implemented by the Union Budget of 2021, it is clear that measures like the granting of tax holidays for affordable housing and tax exemptions in the interest of migrant workers with regard to rental housing projects point towards the priority that the housing and Real Estate Sector enjoy in the current Union Government’s policy and execution scheme.  

Considering the unavoidable and unforeseeable fiscal deficit that struck the economy with the onset of the pandemic in 2020; the Finance Ministry had to tread judiciously with limited room for any big announcements under the Union Budget of 2021.  

 

The main standpoint with regard to the Real Estate sector that was observed was the policy of the government to promote and facilitate ‘Housing for All’ which entailed prioritizing and increasing access to and affordability of housing.  

The Budget of 2021 allotted Rs. 54,581 crores to the Ministry of Housing and Urban Affairs. 

  
Here is what the Real Estate gained in the Union Budget of 2021 

 

Increase in safe harbour limit for primary sale of residential units 

  • The safe harbour limit for the primary sale of residential units has been increased from 10% to 20% in order to increase the incentivisation of Real Estate developers and home buyers. 

Incentivising Affordable Housing 

  • In an instance of taking up a loan to purchase a house; the government had already allowed, in its 2019 Budget; a deduction of interest rate that amounted to a monetary sum of around Rs. 1.5 lakh to increase affordability and purchasing power. 
  •  This deduction in interest rates for housing loans is proposed to be extended further for another year- till March 31, 2022 in the current Budget policy. This would mean that the deduction of Rs. 1.5 lakh will continue to be available for loans that are taken up in order to purchase houses at affordable rates till March 31, 2022.  
  • To further advance the procurement and supply of affordable housing, the current Budget also proposed a year-long tax holiday for affordable housing projects till March 31, 2022.  
  • With an unprecedented rise in the number of migrants all across the country due to the pandemic; Nirmala Sitharaman has also advanced the action of allowing for a tax exemption for notified “Affordable Rental Housing Projects” in order to facilitate and encourage the supply of Affordable Renting Housing to these migrant workers.  

REITs 

  • Further, the Budget has also encouraged debt financing of InVITs and REITs by Foreign Portfolio Investors by according relevant amendments to legislations. These amendments would facilitate ease of financing to InVITs and REITs, consequently promoting greater funds for the real estate and infrastructure sectors.  
  • The Finance Ministry also went a step further and suggested the provision of advance tax liability to arise only after the payment or declaration of dividend. This move is aimed to eliminate the uncertainty that arose with an estimation of dividend income by shareholders for paying tax in advance. Further, the Finance Ministry has also proposed that tax on dividend income may be deducted at the more beneficial treaty rate, for Foreign Portfolio Investors.   

Infrastructure Development 

  • The Budget has also allotted revenue towards the development of infrastructure around the country. 702 kms of conventional metro is already operational, added to another 1,016 kms of metros and RRTS that is under construction in 27 cities across the country. 
  • Metro rail systems and access will now be provided at affordable and decreased prices, to increase access through the development of two new technologies- ‘MetroNeo’ and ‘MetroLite’ in Tier-2 cities and certain areas of Tier-1 cities. This is expected to increase efficiency and safety. 

Construction workers 
 

  • With an increase in the importance accorded towards the unorganised labour sector, the Finance Ministry has further proposed to initiate and introduce a portal to collect information on construction-workers, buildings and gigs, particularly for migrant labourers. This will promote insurance, housing, health and food policies for these migrant workers. 

 

Analysis  

 

A close analysis of the afore-mentioned changes proposed by the Union Budget undeniably brings out the Government’s intention to assist, promote and facilitate development and growth in the real estate sector.  The focus laid by the Government on Affordable Housing and its policies will undeniably cause growth in this sector. Additionally, the infrastructure initiatives in the Budget are also extremely beneficial and will provide a huge boost to the sector, allowing its growth and subsequent development.  

However, the current Budget policies revolving around the real estate sector have failed to accord with the additional demand levels that were anticipated by the stakeholders of the industry in order to sustain the growing demand for housing. To facilitate growth, efficient execution and time-bound implementation are crucial. Persistent focus and attention according to the policy of ‘Minimum Government, Maximum Governance’ would promote the ease of doing business. The proposed level of expenditure on infrastructure by the Government on metro lines, roads, warehousing, ports, etc. is a move that is expected to give a boost to the economic GDP and hence, is commendable.  

Conclusion 

 

While the various measures proposed to be implemented in the real estate sector through the current Budget will positively impact an economy that is still grappling with the hit delivered by the COVID 19 pandemic, these changes and proposals also act as a mark of the industry’s transition from mere existence to actual growth. 

References 

1 Budget Speech | Union Budget. (indiabudget.gov.in) 

2 Budget 2021: Analysis. (freepressjournal.in) 

 

Photo by Fabian Blank on Unsplash

close analysis of the aforementioned changes proposed by the Union Budget undeniably brings out the Government’s intention to assist, promote and facilitate development and growth in the real estate sector.  The focus laid by the Government on Affordable Housing and its policies will undeniably cause growth in this sector. Additionally, the infrastructure initiatives in the Budget are also extremely beneficial and will provide a huge boost to the sector, allowing its growth and subsequent development.  

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Atmanirbhar Bharat needs to harness the right strengths through a New Governance Architecture

Achieving the goal of an Atmanirbhar Bharat depends on two other factors in addition to the need for changes to various laws and a mindset change in our people (which I have written about in my two previous blogs). The first is harnessing India’s diversity in terms of natural and human resources and our rich civilizational traditions that, in many ways, are becoming relevant again. The second is to strengthen India’s federal governance structures in order to enable the first. 

India as a nation has abundant mineral wealth, that, if tapped sensibly, will secure critical supplies to vital industries. Developing our own local sources reduces the dependence on imports, thereby partially insulating our economy from a range of geopolitical and other risks. India’s wide variety of soil types and climatic conditions are capable of supporting a range of food crops as well as cash crops. Our country’s rich biodiversity endows us with a number of indigenous plant and animal species. Many plants that are native to India have proven medicinal value. Plant extracts like saffron are in great demand worldwide, and through proper scientific cultivation, can be grown in more areas.  

Almost every state is home to some traditional art or craft, whether textiles, dyes, toys etc. As the world becomes more conscious of the need to act against climate change and protect the planet, there will be a demand for green, sustainable products. Bamboo toothbrushes and bottles are a good example. Several north-eastern states can grow enough bamboo to make such products- not just for India but also for exports. A similar opportunity exists with Indian fabrics made of say tussar silk or fine cotton or pashmina yarn.  

The concept of Atmanirbhar Bharat is not about becoming an insulated island in a global economy; it is about optimizing self-reliance. Even in the future, we as a nation will continue to import a wide range of products and services simply because we do not have the comparative advantage to make them: it is cheaper to import them. But in the years ahead, we must minimize this list of imports so that there is minimum strategic dependence on key materials, whether natural resources or other components and intermediates.  

India has a strong base of human resources skilled in STEM disciplines. But many of our graduates who are keen on the research end up doing cutting-edge work in overseas labs. Why can we not create a domestic ecosystem that enables our scientists, engineers, and technologists to conduct similar levels of advanced research in India and allow domestic companies to commercialize the research to create products and services for the world? The new education policy is a step in the right direction, but more needs to be done to unshackle higher education and encourage private R&D and innovation in key fields. In fact, public-private partnerships in R&D can be quite fruitful.  

In my view, it is possible to do all this, but to do so with impact and in a sustainable manner, we need to rejuvenate our governance structures. The founding fathers of India envisioned a strong federal structure where central and state governments will work symbiotically and in complementary ways towards the overall purpose of India’s progress. For a number of reasons, this intent of our federal government system has weakened over time. The tendency of central and state governments to often lock horns (unless the same political dispensation is in power) needlessly wastes valuable time and other scarce resources. In most states, continuity of policies does not depend on their merit or impact; very often, policies introduced by one party’s government are decried and rolled back or tweaked when another party comes to power. This is not right, because every government implements some good policies for sure. Irrespective of which political party is in power, the central government and state governments should work in harmony.  

While the central government policies must aim to create a national-level competitive advantage for various sectors (through the right policies), state governments should work towards giving a thrust to industries that are important to India and can thrive locally within their jurisdictions. individual states must learn to utilize the legislative flexibility given to them under our constitution to make themselves most attractive to investors. This will necessarily mean that states will need to compete with one another, but that’s the only way they can accelerate social and economic development. Pegatron, one of Apple’s key OEM manufacturers, recently announced its intent to set up a production facility in India. I read a recent news report that both Karnataka and Tamil Nadu are offering incentives to get Pegatron to choose a location in their state. Similarly, UP has announced a policy to attract new data centres that come up.  

It is not that states are not doing this. But I do not think they are doing it well enough. Often, states compete on the basis of tax breaks or land at lower prices or single-window clearances, etc. But the business case of investing companies typically considers many more factors beyond just the ease of setting up a factory. While this criterion is undoubtedly important, depending on the nature of business, natural resource availability, availability of skilled human resources and infrastructure (power, water, multimodal transport options etc.) are also important considerations. The quality of housing, school/college education facilities, entertainment avenues, lung space, pollution levels, overall law and order situation etc. are also critical elements of the business case because these factors collectively go a long way in determining whether companies can attract top-quality talent, the levels of compensation needed and how easy it will be to retain staff.  

Also, some of these incentives can easily become a slippery slope because smart investors will start playing one state against another. For states to develop a stronger and more comprehensive “pull” factor, the quality of their policies and the degree of innovativeness they show will be key. This means that officers who understand the big picture will inherently be more flexible and responsive to the needs of investors, provided they are not impeded by political pressures of various kinds. States whose leadership consciously works towards quickly creating such a development-oriented culture within government will undoubtedly benefit much more than those states that continue to operate in the old way.  

In the context of the preceding analysis, I see three distinct clusters of sectors where we as a nation should focus in the next five years to create a global scale: 

  • those in which we have become strong global players in the past 20 years (pharmaceuticals, chemicals, steel, IT, automotive, textiles etc.)- we can build on our advantages. 
  • those that are part of our ancient tradition, but are finding new takers worldwide (Ayurveda and other ancient systems of medicine, yoga, environmentally-friendly dyes, weaving etc.)- we can leverage our rich tradition and present them in a modern context using better manufacturing, packaging and branding.   
  • those that are emerging as the new arenas of global competition (space and satellite technologies, remote sensing, AI-ML, robotics, 5G, IoT, cognitive computing, genomics, biotechnology etc.)- this is where we can harness the diversity in our human resources to emerge as leaders in what will essentially be the key fields of the future.  

Higher Education, in my view, is another large opportunity that India can benefit from. The pandemic has proved that with the right technology, virtual teaching and learning are possible. Naturally, the right teacher, training and content, along with further advances in technology, will help raise effectiveness further. With this in mind, allowing virtual universities to be established in various disciplines will help students from India and outside get access to a top-notch education. Of course, this will need a radical change in the laws that govern education.  

A sustainable Atmanirbhar Bharat depends not just on a large and growing vibrant domestic market, but also on our ability to become an export hub that caters to global demand by producing top quality products and delivering cutting-edge services (including education). This is the only way we can build a robust economy that not only delivers the levels of employment and GDP growth but is also better prepared to cope with shocks and slowdowns that may occur in the future. After all, there’s a good reason why twin-engine aircraft is preferred, why world-class batsmen can play both on the front- and back foot, why archers have a second string to their bows or indeed, why it is recommended that we should not put all our eggs in one basket. 

Image Credits: Photo by Balaji Malliswamy on Unsplash 

A sustainable Atmanirbhar Bharat depends not just on a large and growing vibrant domestic market, but also on our ability to become an export hub that caters to global demand by producing top quality products and delivering cutting-edge services (including education). This is the only way we can build a robust economy that not only delivers the levels of employment and GDP growth but is also better prepared to cope with shocks and slowdowns that may occur in the future.

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Income Tax Relief for Developers and Residential Home Buyers To Boost Real Estate Sector

In a bid to provide an additional boost to the economy, as well as the home buyers, the Union Finance Minister – Nirmala Sitharaman, has announced a new stimulus package under Atma Nirbhar Bharat 3.0, on November 12, 2020.  As per the announcement, the acceptable difference between the ‘circle rate’ and the ‘agreement value’ for residential properties has been hiked from the existing 10% to 20%. The tax sop announced is expected to provide relief both to Developers as well as to Buyers, on the notional gains on which income tax is paid by them. The relief, which has been made effective from November 12, 2020, and will be applicable until June 30, 2021, is applicable only on the primary purchase of residential unit of value up to Rs. 2 crores.

What is Circle Rate?

 

Circle rate is the minimum rate per square foot for land or property fixed by the Government. State governments publish area-wise rates of properties, on a yearly basis, known as ‘Circle Rates’ or ‘Ready Reckoner’ rates or ‘Guideline Values’. Any difference between the Circle rate and the Agreement value beyond the acceptable rate [i.e. 10%, now increased to 20%], is taxed as “income from other sources” u/s. 56(2)(x) of the Income-tax Act 1961 (“the Act”). Accordingly, a Buyer of such property would be required to pay tax on the difference, at the applicable slab rates. Further, in the case of a Developer, under the provisions of section 43CA of the Act, the ‘sale consideration’ of such a property is deemed to be the Circle rate for the purposes of computing profits & gains.

 

 

How this will benefit?

Assume that a Buyer is buying a residential property from a Developer for a sum of Rs. 1 crore. The Circle rate value of the property is Rs. 1.2 crore. Prior to the relaxation, as the difference between the Circle rate value and Agreement value exceeded 10%, the Developer was required to consider Rs. 1.2 crore as his Sale consideration u/s. 43CA of the Act for the purpose of calculating his Profit & Gains from Business & Profession.

 

Similarly, since the difference between the Circle rate value and Agreement value exceeded 10%, the Buyer was required to show the difference between the Circle rate value and Sale consideration of Rs. 20 lacs (1.2 crore Less 1 crore) as deemed income under the head “Income from other sources” u/s. 56(2)(x) of the Act and pay tax on the same at the applicable rate.

 

The stimulus package announced provides relief by increasing the acceptable difference between the Circle rate and Agreement value from 10 % to 20 %, providing much-needed relief, both to the Buyer as well as to the Developer, during the current pandemic times.

 

The above tax sop is available only on purchase of new residential property from the Developer of value up to Rs. 2 crores and is not applicable on the resale of property. Also, the said benefit is not extended to the sale of commercial property. Nevertheless, the stimulus is expected to help Developers to clear unsold stock and generate liquidity for their other projects.

Image Credits: Nataliya Vaitkevich from Pexels

The stimulus package announced provides relief by increasing the acceptable difference between the Circle rate and Agreement value from 10 % to 20 %, providing much-needed relief, both to the Buyer as well as to the Developer, during the current pandemic times.

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“Atmanirbhar Bharat” Needs More Than Just New Laws

My previous blog – Realization of the True Vision of “Atmanirbhar Bharat” Requires Modernization of Laws – outlined my views on the need for India to modernize many of its laws in order to make faster and more tangible progress towards “Atmanirbhar Bharat”. I had also pointed out that sectors such as education need to be transformed so that future generation is equipped with skills that are relevant for the future. But as I pondered over our country’s transformation, it struck me that while making new laws and updating outdated ones to make them relevant to the current realities and emerging possibilities of the world is important, we need much more. After all, a lot of negatives such as bribery, workplace harassment, rape etc. exist in our society despite there being enough laws against them (although it can be argued that implementing them consistently or ensuring that justice is always delivered are another matter altogether).

In the context of nations transforming themselves, I remember reading about how Japan and Germany rebuilt themselves after being all but destroyed in the mid-1940s. In the early days, Japanese products were not known for the quality that they have been known for since the 1980s. But the Japanese people would buy locally-made products to support a nascent domestic industry. A couple of decades later, we saw the emergence of South Korea, Singapore, and Taiwan as other notable examples. Perhaps the most recent success story is that of China. As may be seen from the chart below, till the mid-1980s, India and China were at approximately similar levels of GDP. It is only in the last two decades that China has grown so much faster than we have, making its economy five times as large as ours.

                                                

                                      [1] Figure: Graphical representation of GDP of India and China

What is the common thread that runs through the transformation of all these countries? In my view, it is national pride and the resulting sense of collective purpose that created a virtuous cycle of sustained innovation and excellence. Japan and Germany found their mojos in the automotive, consumer electronics and heavy engineering and chemical sectors. Over time, South Korea took over the mantle of the world’s electronics hub, while China has become the “world’s factory”. Even a relatively small country like Taiwan has demonstrated its prowess in high-tech manufacturing.

The rise of India’s own IT services industry in this century is another good example of the fact that the right leadership can harness determination and pride to great effect. In this case, private enterprises took the lead in the mid-1990s. There were few regulatory restrictions to begin with and soon, with enablers such as SEZs, companies in this space thrived. TCS, Infosys and Wipro were the initial home-grown leaders, but thereafter, others, such as HCL and TechMahindra emerged. Today, foreign companies have a significant presence in India- a tribute to the strength of our talent.

But this blog is not about the success of Indian IT companies. The mantra behind the success of India’s software industry is pride. A sense of belonging (and aspirations) powered every individual associated with the industry to refine delivery models, introduce automation, etc. All this allowed companies to constantly reinvent themselves in line with what their customers expected and needed. A similar sense of pride needs to be instilled in all our citizens so that no matter what they do, they aspire to be the best.

I recall watching a video circulated on Whatsapp some years ago, that showed a young Indian boy who had picked up a smattering of several foreign languages. This helped him to converse with foreign tourists and he was able to sell his wares to more people. Imagine if tourist guides across India picked up multiple foreign languages and were able to explain the local sights and sounds better. Of course, it can be argued that technology allows tourists to buy a headphone and listen to a commentary in a language of his/her choice- but that would be a one-way communication and inherently limited to what the recording offered.

It is said that one can confidently set one’s watch to the time Japanese trains arrive/depart from their train stations. That is a mark of pride in being punctual and also people taking pride in their work. Sadly, these are not yet virtues that have been embraced by a majority of us. Mumbai’s famous “dabbawalas” are a stand-out example of a group of people taking pride in their work, and thus maintaining consistently superior levels of six sigma performance.

For years, India’s DRDO (Defence Research & Development Organization) has been accused of not delivering the kind of indigenous products that our defence forces needed. But in recent years, several products and systems have emerged from DRDO’s various labs that are likely to be inducted into the armed forces in the next couple of years. In fact, the past two months alone have seen at least half a dozen tests of tanks, missiles, radars and so on. Pride in one’s work will lead to better output and outcomes. These will raise the confidence that stakeholders have in the organization, and open the doors for more budgetary allocation to drive even more R&D.

The ISRO (Indian Space Research Organisation) is perhaps one of the best examples of this virtuous cycle. Over the decades, many of India’s space scientists and engineers chose to work for ISRO out of a sense of passion and pride, and not because they could not find jobs elsewhere. It is not as if ISRO has not had setbacks- but they have had many more successes than failures. As space becomes the next arena sought to be dominated by various countries, this sector will become even more strategic for India, given its implications for national security, communication and disaster management.

Now that space as a sector has been opened up to India’s private sector, there will inevitably be pressure on ISRO to maintain its trajectory of performance. But I believe that the sense of nation-building and pride in India that Dr. Sarabhai and his successors have instilled in ISRO will enable India’s space agency to retain its edge. ISRO may well team up with private-sector startups to take India’s space tech capabilities to a higher orbit- a win-win for ISRO, the private sector and India as a whole.

Cleanliness is another attribute of a city or country that evokes pride. Over the past five years, the residents of Indore have been taking pride in their city being declared the country’s cleanest- and this has rung in attitudinal and behavioural changes. I am not denying the role of the civic authorities in maintaining cities clean, but unless residents cooperate, no civic authority can succeed. I was born and raised in Calcutta (as the city was called before 2001). Even the most diehard Calcuttans will agree when I say that until a few years ago, Kolkata was not a very clean city (it has become much cleaner now). But right from when the city’s first metro service (also India’s first) began in the mid-1980s, metro stations and trains were remarkably clean and well-maintained. This was because the city’s residents took pride in their metro system.

This sense of pride must extend to all categories of Indian products and services- from public transport to private cabs; from real estate agents to sub-registrar offices; from small clinics to multi-specialty hospitals and so on. Only then can we as a country develop in an inclusive manner and not in a lop-sided way that constantly widens the gap between the rich and the poor or between urban and rural residents. As states compete to attract investment, infrastructure, tax breaks, labour laws and availability of talent locally are important determinants of how successful they will be. But imagine the attractiveness of states that have cities that are clean, or whose people take pride in punctuality, not striking work, etc. These factors will, in my view, play a vital role in delivering the true promise of “Atmanirbhar Bharat”.

As US-based Nigerian author, Idowu Koyenikan has said: “Your pride for your country should not come after your country becomes great; your country becomes great because of your pride in it.”

This sense of pride must extend to all categories of Indian products and services- from public transport to private cabs; from real estate agents to sub-registrar offices; from small clinics to multi-specialty hospitals and so on. Only then can we as a country develop in an inclusive manner and not in a lop-sided way that constantly widens the gap between the rich and the poor or between urban and rural residents. As states compete to attract investment, infrastructure, tax breaks, labour laws and availability of talent locally are important determinants of how successful they will be

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