India's Finance Bill of 2017: An Overview of Amendments

As part of the regular Budget process, the Bharatiya Janata Party passed the Finance Bill of 2017 through the Lok Sabha on March 22. Finance Bills are introduced by the ruling government every year as part of the budget process and are a requirement that are stated in the Constitution. However, this year’s Finance Bill had a number of amendments that have caused debates and discussion in the media and the public.

The Finance Bill is usually what is known as a Money Bill, and a Money Bill is explained in the Constitution as one which deals with matters such as regulations on taxes, government borrowings and the government’s Consolidated and Contingency funds.

While 2017’s Finance Bill does cover those matters, ire has been raised over the inclusion of amendments relating to tribunals, political donations, income tax raids, Aadhaar and transaction limits, as they do not fit the scope of a Money Bill as suggested in the Constitution of India itself. Issues have also been raised with the purpose and logic behind the amendments. However, the Constitution also grants the Speaker the ultimate authority to determine whether or not a bill is a Money Bill, which was the case with this year’s Finance Bill. Here’s a closer look at the purpose and logic behind the amendments and the opposition to them.

Amendments to Political Donations

The first amendment related to political donations is the capping of the amount of cash a political party can receive as a donation without documenting the transaction. The earlier limit of Rs.20,000 has been reduced to a cap of Rs.2,000 (Clause 11, pictured below). This is a good move, as with the earlier limit of Rs.20,000, the loophole would be to take in cash donations of Rs.19,000 in order to avoid reporting the donation.

At the same time, the amendment does still allow for donations larger than Rs.2,000 via cheques or digital payment and also introduces something called ‘electoral bonds’. These various amendments do not exactly specify what an electoral bond will mean in the law, leaving this open to exploitation (Clause 134).

Furthermore, these set of amendments also include doing away with political parties requiring to report funding received through these electoral bonds making that process anonymous for both sides involved (pg 63).

So while the government does increase the transparency of money in politics with one amendment, it makes it opaque again with another amendment.

Income Tax Searches

Amendments to the Income Tax of 1961 change Section 132 of the aforementioned act. Specifically, Section 132 concerns the procedure of summons issued to people that the income tax department suspects. The amendments now add language that would now make it possible for income tax officers to not disclose the reason behind the execution of the summons. Not even to “any authority or the Appellate Tribunal”. This has also been included for retroactive summons too, starting from the year 1962 and 1975. (Clause 50).

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Retrospective taxation has already been an issue for foreign businesses while investing in India, and Finance Minister Arun Jaitley, who introduced this bill, has spoken against retrospective taxation previously, making this amendment more baffling.

This sacrifice of important legal checks and balances in the name of battling corruption, ironically only opens up another avenue of corruption. With no oversight, there is nothing to stop any potential exploitation due to income tax raids, given that they would not need to cite any reason to “any authority or the Appellate Tribunal”. Such an environment would drive away entrepreneurs and investment and potentially pollute it for businesses, both small and big and Indian and foreign alike.

Amendments to Tribunals

The amendments introduced in the Bill pave the way for the merging of some existing tribunals with other already existing tribunals (page 29). This step has been taken out to ensure better ease of doing business, as it would allow tribunals to centralize their resources and hence carry out faster trials. This is a positive step with ease of doing business in mind and some tribunal mergers do make sense such as merging the Railways Rates Tribunal with the Railway Claims Tribunal.

However, some mergers do not make sense. Take for instance the merging of the Airports Economic Regulatory Authority Appellate Tribunal with the Telecom Disputes Settlement and Appellate Tribunal. It is hard to see the overlap that a tribunal that deals with the telecom sector will have with the matter of regulating airport economics. Or take the merger of the Competition Appellate Tribunal with the National Company Law Appellate Tribunal, which has come under criticism by Dhanendra Kumar, Former Chairman, Competition Commission of India.  Kumar stated that

“My little problem with the merger is that while they would like to economise and prevent proliferation of the tribunals, the focus of the two tribunals are different. COMPAT has to hear appeals and decide on compensation cases from the people who had grievances. NCLAT is under Company Law, it’s a financial regulator, not an economic regulator.”

A former Supreme Court advocate said on the matter that

“It is important to examine whether entities merged are relevant and whether the merged entity will be competent to adjudicate the issue. It cannot be passed in a hurry.”

Hence, it will be imperative for the government to carry out the changes in staffing of these tribunals adroitly. A failure to do so would only weaken the tribunal system and place an even larger load on the new tribunals, which would all go completely against what the amendment aims to do.

Finally, there is also the issue that there is also one amendment included in the Bill that makes it possible for the government to make rules for, among other things, removal, resignation and other terms and conditions of services of high ranking tribunal members. This wording opens up the possibility of a conflict of interest in a case involving the government that reached these tribunals, which will not help the confidence of businesses (Clause 179).

Mandatory Aadhaar Usage for Filing Income Tax and PAN Card

Amendments introduced in the Finance Bill also make using one’s Aadhaar number mandatory while filing income tax as well as for obtaining and keeping one’s existing PAN card. While having one identification means when it comes to income tax collection makes sense, especially in a country with India’s population and rates of people who pay income tax, the PAN card serves that purpose. Any solution to India’s tax problem should focus on the PAN card and not on Aadhaar, which was created to make benefits distribution easier. By binding Aadhaar with filing income tax, the security risks related to Aadhaar are multiplied, making Indian citizens even more vulnerable.

Conclusion

Ultimately, due to the rapid forcing through of these amendments in the Finance Bill, some moves that could be positive could turn out to be counterintuitive because of the lack of debate on them leading to ideas that are not completely fleshed out.

But the overarching problem with these amendments is that they are being forced through the Finance Bill, something which was never intended to have such amendments. These amendments simply do not fit what the Constitution of India suggests a Money Bill should be. This is government overreach that sets a bad precedent for the future and will weaken healthy political discourse.


The parts of the Finance Bill that do fit what a Money Bill actually does have potential. For instance, part of the amendments include one that amends taxes related to foreign portfolio investors to clear confusion over taxation. The amendment in question further clarifies the tax code for foreign investors and eliminates wording that led to confusion over multiple taxation, which would have driven foreign investment away (Clause 4).

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Amendments such as those show that there is ample scope for the government to stick to what a Finance Bill should do as a Money Bill and make positive changes instead of creating an environment that makes it easy for negativity within both politics and the markets alike to exist.