LS clears decks for MPC

The Lok Sabha approved the Finance Bill 2016 which included an amendment to the RBI Act clipping the central bank governor’s powers to set monetary policy.

The amendment made to the RBI Act through the Finance Bill removed the governor’s powers to singularly set monetary policy vesting them in a six-member Monetary Policy Committee.

Of the six members, the government will nominate three. The RBI Governor will chair the committee and have a second or casting vote in case of a tie.

Committee members

The Deputy Governor in-charge of monetary policy and another officer to be nominated by the central bank’s board will also be members. Decisions will be taken by majority vote with each member having a vote.

The passage of the finance bill marks the completion of the three-stage process in the passage of the General Budget in the lower house.

Union Finance Minister Arun Jaitley moved 55 amendments to the Bill he had introduced on February 28, including for extending tax holiday for start-ups to Limited Liability Partnerships and to drop the proposal to tax employer contributions to recognised provident funds in excess of Rs.1.50 lakh.

Dividend tax

In respect of additional dividend tax to be levied at the rate of 10 per cent in case of the specified tax payers, it has been clarified that it will be levied if the aggregate amount of dividends received by such tax payer from a domestic company or companies exceeds Rs.10 lakh.

With the passage of the Bill, the government has also succeeded in amending retrospectively the definition of foreign companies in the Foreign Contribution (Regulation) Act 2010, paving the way for political parties to receive funds from Indian registered foreign companies, where Foreign Direct Investment (FDI) is allowed.

The amendment is likely to benefit the BJP and the Congress, both accused of receiving foreign funds for political activities by U.K. based Vedanta Group from 2004 to 2012. Both the parties challenged a Delhi High Court order, which had termed the donations illegal in 2014.

Agricultural income

Replying to the debate on the Finance Bill 2016, Mr. Jaitley said the government had no intent to impose Income-Tax on agriculture income as under the Constitution, the Centre had no powers to levy tax on agriculture income. He rejected demands, including from ally Shiv Sena, for roll back of one per cent excise duty on non-silver jewellery.