Mar 022015
 

Highlights: Budget 2015

FISCAL DEFICIT
  • Fiscal deficit seen at 3.9 percent of GDP in 2015/16
  • Will meet the challenging fiscal target of 4.1 percent of GDP
  • Remain committed to meeting medium term fiscal deficit target of 3 percent of GDP
  • Current account deficit below 1.3 percent of GDP
  • Jaitley says have to keep fiscal discipline in mind despite need for higher investment
GROWTH
  • GDP growth seen at between 8 percent and 8.5 percent y/y
  • Nominal economic growth seen between 11 and 12 percent
  • Aiming double digit growth rate, achievable soon
INFLATION
  • Expects consumer inflation to remain close to 5 percent by March, opening room for more monetary policy easing
  • Monetary policy framework agreement with the RBI clearly states objective of keeping inflation below 6 percent
  • “One of the achievements of my government has been to conquer inflation. This decline in my view represents a structural shift.”
REVENUES
  • Revenue deficit seen at 2.8 percent of GDP
  • Non tax revenue seen at 2.21 trillion rupees
  • Agricultural incomes are under stress
  • Net receipts under market stabilisation scheme estimated at 200 billion rupees
DISINVESTMENT
  • Government targets 410 billion rupees ($6.7 billion) from stake sales in companies in 2015/16
  • Total stake sale in 2015/16 seen at 695 billion rupees
  • Sets stake sale target for 2016/17 at 550 billion rupees
  • Revises down stake sale target for 2014/15 to 313.5 billion rupees
MARKET REFORMS
  • Propose to merge commodities regulator with SEBI
  • To bring a new bankruptcy code
  • Jaitley says will move to amend the RBI act this year, and provide for a monetary policy committee
  • To set up public debt management agency
  • Proposes to introduce a public contract resolution of disputes bill
  • To establish an autonomous bank board bureau to improve management of public sector banks
POLICY REFORMS
  • To enact a comprehensive new law on black money
  • Propose to create a universal social security system for all Indians
  • To launch a national skills mission soon to enhance employability of rural youth
  • To raise visa-on-arrival facility to 150 countries from 43
  • Allocates 346.99 billion rupees for rural employment guarantee scheme
  • Raises threshold for application of transfer pricing rules to 200 million rupees from current 50 million rupees
BORROWING
  • Gross market borrowing seen at 6 trillion rupees
  • Net market borrowing seen at 4.56 trillion rupees
  • GENERAL ANTI-AVOIDANCE RULES (GAAR)
  • Government defers rollout of anti-tax avoidance rules GAAR by two years
  • GAAR to apply prospectively from April 1, 2017
  • Retrospective tax provisions will be avoided
TAXATION
  • To abolish wealth tax
  • Replaces wealth tax with additional 2 pct surcharge on super rich
  • Proposes to cut to 25 percent corporate tax over next four years
  • Corporate tax of 30 percent is uncompetitive
  • Net gain from tax proposals seen at 150.68 billion rupees
  • Jaitley proposes modification of permanent establishment norms so that the mere presence of a fund manager in India would not constitute a permanent establishment of the offshore fund, resulting in adverse tax consequences.
  • Proposes to rationalise capital gains tax regime for real estate investment trusts
  • Extends withholding tax concession on foreign debt purchases by two years
  • Expects to implement goods and services tax by April 2016
  • To reduce custom duty on 22 items
  • Basic custom duty on commercial vehicle doubled to 20 percent
  • Proposes to increase service tax rate and education cess to 14 percent from 12.36 percent
  • Plans to introduce direct tax regime that is internationally competitive on rates without exemptions
  • Exemptions for individual tax payers to continue
  • To enact tough penalties for tax evasion in new bill
  • Tax dept to clarify indirect transfer of assets and dividend paid by foreign firms
PERSONAL INCOME TAX
  • No revision of income tax brackets
  • Limit of deduction of health insurance premium increased to 25,000 rupees from 15,000 rupees; limit increased to 30,000 rupees from 20,000 rupees for the elderly
  • People aged above 80 and not covered by health insurance to be allowed deduction of 30,000 rupees for medical expenses
  • Additional deduction of 25,000 rupees for the disabled
  • Limit on deduction for contributions to pension fund and new pension scheme increased to 150,000 rupees from 100,000 rupees
  • Additional deduction of 50,000 rupees for contribution to new pension scheme under section 80CCD
  • Monthly transport allowance exemption doubled to 1,600 rupees
IMPORT TAX
  • Import tax on iron and steel increased to 15 percent from 10 percent
  • Import tax on metallurgical coke increased to 5 percent from 2.5 percent
INFRASTRUCTURE
  • Investment in infrastructure will go up by 700 bln rupees in 2015/16 over last year
  • Plans to set up national investment infrastructure fund
  • Proposes tax-free infrastructure bonds for projects in roads, rail and irrigation projects
  • Proposes 5 “ultra mega” power projects for 4,000 MW each
  • Second unit of Kudankulam nuclear power station to be commissioned
  • Will need to build additional 100,000 km of road
  • Ports in public sector will be encouraged to corporatise under Companies Act
EXPENDITURE
  • Plan expenditure estimated at about 4.65 trillion rupees
  • Non-plan expenditure seen at about 13.12 trillion rupees
  • Allocates 2.46 trillion rupees for defence spending
  • Allocates 331.5 billion rupees for health sector
  • If revenue improves, hope to raise budgeted allocations for rural job scheme by 50 billion rupees
INVESTMENT
  • Government to provide 79.4 billion rupees capital infusion to state-run banks
  • Propose to do away with different types of foreign investment caps and replace them with composite caps
  • To allow foreign investment in alternative investment funds
  • Public investment needed to catalyse investment
GOLD
  • To launch gold deposit accounts and sovereign bond
  • Import duty stays at 10 percent; disappoints jewellers
  • To work on Indian-made gold coin to cut imports
CIGARETTES
  • Raises excise duty on cigarettes by 25 percent for cigarettes of length not exceeding 65 mm
  • Raises excise duty by 15 percent for cigarettes of other lengths
SUBSIDIES
  • Food subsidy seen at 1.24 trillion rupees
  • Fertilizer subsidy seen at 729.69 billion rupees
  • Fuel subsidy seen at 300 billion rupees
  • Major subsidies estimated at 2.27 trillion rupees
  • We are committed to subsidy rationalization based on cutting leakages
Jul 172014
 

TOP 5 BUDGET DIRECT TAX PROPOSALS FOR INDIVIDUAL AND CORPORATES

(A) PERSONAL TAX

1. Increase in Exemption Limit

a. No Change in Tax Rates: There is no change in Tax Rates, Surcharge, Education Cess, hence existing education cess of 3% and surcharge of 10% for annual income of Rs. 1 crore and more continue.

b. The basic exemption limit is increased by Rs. 50,000 for all taxpayers below 80 years of age as per the table specified below. The change in exemption limit means that irrespective of whether you are in 10%, 20% or 30% income tax slab, you save Rs. 5,150 in taxes. For those aged 80 or more, the change in the exemption limit is irrelevant, since they are anyway eligible for a limit of Rs. 5 lakh.

 

Person Old Exemption Limit Proposed Exemption Limit
Male/ Female(below 60 years) 2,00,000 2,50,000
Senior Citizen (60 years to
79 year)
2,50,000 3,00,000
Super Senior Citizen (80 years
and above)
5,00,000 5,00,000 (No Change)

2. Section 80 C : Increase in Investment Limit from Rs. 1 lakh to 1.5 lakh:

a. The maximum deduction under section 80 C, which covers investment options like provident fund, public provident fund (PPF), insurance policies and equity linked saving schemes, is to increase from Rs. 1 lakh to Rs. 1.5 lakh. This means it can result into extra saving as high as Rs. 16,995 depending upon your tax slab.

3. The maximum deduction for payment of Interest on Loan in respect of Self Occupied House Property is increased from Rs. 1.5 lakhs to Rs. 2 lakhs.

4. Unlisted Securities and Units of Mutual fund than equity oriented funds

a. Unlisted securities and mutual funds (other than equity oriented) shall qualify as long term capital asset if held for more than 36 months (increased from earlier period of 12 months).

b. Long term capital on sale of listed mutual funds (other than equity oriented funds) will be taxed at the rate of 20% with indexation. Earlier such gains were taxable at the rate of 10% without indexation or 20% with indexation, whichever is lower.

5. Exemption from tax on Long term capital gain on sale of residential property or any other asset is proposed on re-investment in only one residential house in India.

(B) CORPORATE TAX

1. Income and Dividend Distribution Tax is to be levied on gross amount instead of amount paid net of taxes
[Sec. 115 O].

Tax on Foreign Dividend @ 15% [Section 115BBD]

The section continues to apply to foreign dividends received during the financial year 2014-15 and subsequent years

2. Disallowance of expenditure on non-deduction of appropriate taxes now extended to cover salary payments and directors fees

In case of Non deduction or Non payment of TDS, 30% of such payment is disallowed instead of existing 100% [Sec. 40(a)(1a)]

3. Expenditure incurred on Corporate Social Responsibility (CSR) is proposed as not an allowable business expenditure. However specific expenditure covered under section 30 to 36 of the Act will be allowed. Such specific expenses include repairs, depreciation or expenditure towards specific notified projects. Disallowing as a business expenditure could result into additional burden of tax for corporates.

4. a. Investment Allowance @ 15% [Sec. 32 AC]:
Benefit extended to manufacturing company that investsmore than Rs. 25 crorein any year in new plant and machinery. The Benefit is available upto 3 years i.e. for investment upto 31.03.2017.

b. Tax Holiday of 10 Years to Power sector(undertaking which begin generation, distribution and transmission of power by 31.03.17).

5. Advance Ruling and Transfer Pricing:

a. Earlier, an advance ruling could be availed by a resident only in respect of transactions with non-residents. Now resident taxpayers can seek clarity on taxability with regard to domestic transactions as well.

b. Keeping in line with international tax practice, effective from October 1, 2014, roll Back provisions are being proposed in advance pricing agreement (APA), wherein APA could also cover the four previous years immediately preceding the first year covered under the APA.

c. Determination of arm’s length price in transfer pricing

- Introduction of range pricing concept

- To allow use of multiple year data for comparability analysis instead of only single year data.

Courtesy: CA Chintan Patel
Email: chintan@nareshco.com Website: www.nareshco.com