Union Budget 2020 Sheetkraft

Sheetkraft Supports Business Processes In The BFSI Sector In the Light of Union Budget 2020 Amendments:
The Union Budget for 2020 was presented by the Finance Minister Nirmala Sitharaman on February 1. Many announcements related to capital markets, investments and mutual funds were made which led to changes in business processes of organizations in the Banking and Financial Services & Insurance (BSFI) space such as Mutual Fund Houses. It is not practical for businesses to take a break, implement changes and resume business! The entities in the BFSI sector must stay on top of changing rules and regulations so that:

• They do not incur penalties
• They are not entangled in legal issues
• They maintain a competitive edge

The budget is just one factor. Sudden upheavals in the market, guideline changes by regulatory bodies (such as SEBI), etc. also require changes in processes and workflows. So how does one seamlessly transition to new processes and while amending the old ones? The right technology solution should be flexible enough to manage change. Sheetkraft can help tweak the business logic for minor changes and be prepared for the major changes by leaving options. So, every business can use our innovative platform to set up department-specific workflows, generate custom reports and implement applicable calculation logic to avoid spending time, effort and money on rework.

For example, two key announcements for Mutual Funds in Budget 2020 were -

1. Withhold Tax on Income Distribution
From 1st April 2020, income distributed by an Indian mutual fund will be taxable in the hands of its unitholders. But Indian mutual funds must withhold tax on income distributed to their unit holders at prescribed tax rates -

| Particulars                                                    | Tax rate* |
| -------------------------------------------------------------- | --------- |    
| Income distributed to resident unitholders, exceeds INR 5,000  |    10%    |
| Income distributed to non-resident unitholders, including NRIs |    20%    |
| Income distributed to FPIs that are unitholders                |    20%    |

_{*Tax rate excludes surcharge, and health and education cess}

- Impact on Business Process
Until now, mutual funds have been paying tax on income to be distributed and then apportioned it to investors. This announcement will lead to changes in -

• Calculation of the amount of income to be distributed.
• Calculation of Tax to be withheld.
• Reports on NAV, dividend distribution, etc.
• Managing historical dividend distribution and present and future distribution workflows.

2. Streamlining tax treatment for segregated portfolios
In December 2018, SEBI permitted mutual fund schemes to create segregated portfolios of debt and money market instruments. Budget 2020 contains proposals that streamline the tax treatment for unit holders where such side-pocketing occurs.

- Impact on Business Process

• Allow unitholders to add period of holding units to the segregated portfolio as per holding of the same units in the main portfolio before segregation.
• Bifurcate cost of investment of unit holders between the main portfolio and the segregated portfolio in the proportion of NAV of the assets in both portfolios.
• The changes will come to effect from the assessment year 2020- 21. Manage portfolios such that the investments maintain status quo before the change date and are updated after the date of change.

- How to leverage Sheetkraft to manage such changes

• With Sheetkraft’s smart solution, you can build multiple taxation workflows for diverse entities such as retail investors, Indian organizations and FPI holders. You will be able to configure variables for taxation rates and set up the logic for complex formulae for tax calculation and total amount to be distributed as income. The workflow will procure inputs on parameters such as date so that dividend calculations are appropriate for all financial years based on rules specific to each of those years. We have building blocks for generating automated UIs. Users can set up custom reports on NAV, dividend distribution, profits, etc. Our automated platform will allow you to do away with heavy spreadsheets and macro-based functions and reduce errors in processes despite incorporating complex changes.
• Sheetkraft’s patented platform facilitates a smooth investment management process by automating portfolio management and related tax matters. Numerous retail investors can use the UI to view their holdings data in the main portfolio and manage their holdings between main and segregated portfolios. A comparison of risk metrics can be displayed for main and segregated portfolios. Users will be able to act on their portfolios using the functions enabled in Sheetkraft. The MF company can generate custom reports on holdings, NAV information, and risk metrics. The company personnel need not manually manage the bifurcation of information when segregated portfolios are made but the data will be automatically managed on the creation of new portfolios. At the same time, the veracity of data and security of data against unauthorized access and modification will be maintained through audit trails and data flow checklists.