Union Budget 2016

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Transcript of Union Budget 2016

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The budget is building an 11.7% growth in the gross tax revenues which seems realistic, given the assumption of a nominal growth of 10% in the gross domestic product (GDP) during FY2016-17. However, the budget pegs close to a 25% growth in the non-tax revenues, therebyresulting in a growth of 15.5% in the total net receipts for the year


Fiscal deficit targets retained: The fiscal deficit target for FY2017 has been maintained at 3.5% which itself is a tall order in the current environment but will be taken positively by the ratingagencies and foreign investors.Revenue deficit improved in FY 2016: The government has been able to reduce the revenue deficit to 2.5% of the GDP in FY2016 (vs 2.8% budgeted) aided by a strong growth in the indirect taxes (up 28.6% YoY)Capital spending to sustain, rural/social schemes gain prominence: On the expenditure front, the government seems to be throwing weight behind capital spending even being mindful of the social sector objectives. It plans about a 15% increase in the planned expenditure with focus on agriculture, irrigation, employment and health aspects (plan, non-plan bifurcation will be done away from FY 2018).

BUDGET MATH Hits and misses (macros)

POSITIVESFiscal prudence with significant capital spending and rural development allocation: The budget proposes to continue on path of fiscal prudence with a revised fiscal deficit estimate of 3.9% for FY2015-16 and that of 3.5% for FY2016-17. Thus, it has maintained macro stability in the face of global uncertainties and higher expenditure on the rural side along with the burden of the proposed pay hikes to government employees. Net government borrowings of Rs4.25 trillion lower than expected: The gross government borrowing figure of Rs6 trillion and the net borrowing figure of Rs4.25 trillion are lower than the markets expectations. In addition to adhering to fiscal prudence and lowering the governments market borrowings, it leaves enough room for the RBI to take ahead its accommodative monetary policy and the bond market has reacted positively.No change in capital gains tax on equity and stress on allaying fears on retro tax: Again the finance minister has avoided changing the capital gains tax regime on listed equity investments as was speculated by a section of the media and market participants. This is a big positive for equity investors.NEGATIVESAdditional tax of 10% on dividend earnings of over Rs10 lakh and hike in STT on options: The budget proposes to generate additional revenues by putting extra tax burden of 10% on dividend earnings of over Rs10 lakh per annum which is double taxation in the hands of equity investors. Also, there is a proposal to increase the STT from 0.017% to 0.05% now.Continued uncertainty on implementation of GST: Unlike the past two budgets, the finance minister has avoided highlighting the implementation of the GST in this years budget speech. Clearly, there still lacks a political consensus on the implementation of the key indirect tax reform. Allocation of PSU recap limited to Rs. 25,000 Crore initially: The market was expecting the finance minister to allocate greater resources to recap the public sector banks (PSBs) to deal with asset quality issues and strengthen the backbone of the economy.


PERSONAL TAX The tax slabs, surcharge and education cess remain unchanged. For larger individual tax payers, the income tax surcharge has been increased from 12% to 15% where the income exceeds Rs. 1 Crore per annum.

Relief to small tax payers: With a view to giving relief to small tax payers, the budget has announced a rebate under section 87A from Rs2,000 to Rs5,000 to lessen the tax burden of individuals with income of up to Rs5 lakh and The limit of deduction of rent paid under section 80GG has been increased from Rs24,000 per annum to Rs 60,000 per annum to provide relief to those who live in rented houses and do not have House Rent Allowance as a component of their salary.

First home buyers: An additional deduction of Rs50,000 per annum has been given on interest for loans of up to Rs35 lakh sanctioned between April 1, 2016 to March 31, 2017, provided the value of the house does not exceed Rs50 lakh. The existing provision under section 80EE provides a deduction of Rs1 lakh.

Dividend tax on persons with higher income: It is proposed that in addition to the dividend distribution tax paid by the companies, tax at the rate of 10% of the gross amount of dividend will be payable by the recipients, i.e. individuals, HUFs and firms receiving dividend in excess of Rs10 lakh per annum.

CORPORATE TAX PRESUMPTIVE TAXATION:Turnover for presumptive taxation increased to Rs. 2 Crores.Presumptive taxation schemes introduced for all Professionals with receipts up to Rs 50 lakhs.Assessee opting for computation on presumptive basis shall be required to pay Advance Tax in one installment on or before 15th March.NEW MANUFACTURING COMPANIES:New manufacturing companies established or/post 1st March 2016 proposed to be given an option to be taxed @ 25% plus surcharge and cess provided they do not claim any profit linked deductions and not claiming accelerated depreciation.For small business with turnover less than Rs 5 Crore corporate tax reduced to 29% plus surcharge and cess.Start ups to get 100% tax exemption for 3 years. However MAT will be applicable for startups that qualify for 100 per cent tax exemption.Capital gains exemption proposed for investments in start ups.3. TAX AUDIT U/S 44AB FOR PROFESSIONALS:It is proposed to increase the threshold limit of total gross receipts, specified under section 44AB for getting accounts audited, from Rs. 25 Lacs to Rs. 50 Lacs in the case of persons carrying on profession4. SECURITIES TRANSACTION TAX (STT):It is proposed to increase the rate of STT where option is not exercised from 0.017% to 0.05%.5. ADVANCE TAX & INTEREST U/S 234C:It is proposed that the date of advance payment by all assessees shall be uniform. Now non corporate assessees shall also be required to deposit advance tax in four installments.Assessee in respect of eligible business referred to in section 44AD opting for computation of profits or gains of business on presumptive basis, shall be required to pay advance tax of the whole amount in one installment on or before the 15th March of the financial year.

CORPORATE TAX 7. BLACK MONEY:Committed to providing a stable and predictable taxation regime and reduce black money.Domestic taxpayers can declare undisclosed income or such income represented in the form of any asset by paying tax at 30%, and surcharge at 7.5% and penalty at 7.5%, which is a total of 45% of the undisclosed income. Declarants will have immunity from prosecution.Surcharge levied at 7.5% of undisclosed income will be called Krishi Kalyan surcharge to be used for agriculture and rural economy8. NEW DISPUTE RESOLUTION SCHEME TO BE INTRODUCED:No penalty in respect of cases with disputed tax up to Rs. 10 lakh. Cases with disputed tax exceeding Rs 10 lakh to be subjected to 25% of the minimum of the imposable penalty. Any pending appeal against a penalty order can also be settled by paying 25% of the minimum of the imposable penalty and tax interest on quantum addition.Mandatory for the assessing officer to grant stay of demand once the assesse pays 15% of the disputed demand, while the appeal is pending before Commissioner of Income-tax (Appeals).Monetary limit for deciding an appeal by a single member Bench of ITAT enhanced from Rs. 15 lakhs to Rs. 50 lakhs.Time limit of one year for disposing petitions of the tax payers seeking waiver of interest and penalty9. OTHER PROVISIONS:Disallowance will be limited to 1% of the average monthly value of investments yielding exempt income, but not exceeding the actual expenditure claimed under rule 8D of Section 14A of Income Tax Act.High Level Committee chaired by Revenue Secretary to oversee fresh cases where assessing officer applies the retrospective amendment.One-time scheme of Dispute Resolution for ongoing cases under retrospective amendment.Penalty rates to be 50% of tax in case of underreporting of income and 200% of tax where there is misreporting of facts.




DIRECT TAX Hits and misses (macros)

POSITIVESInfrastructure/Roadways: Investments of Rs97,000 Crore in roads and Rs2,21,000 Crore in the overall infrastructure. The government has a target to approve nearly 10,000km of national highways in the year 2016-17. No dividend distribution tax if special purpose vehicles (SPVs) give dividends to real estate investment trusts (REITS). Companies in focus: IRB Infrastructure, ITNL, L&T, Ashoka Buildcon, Gayatri Projects, Sadbhav Engineering and DLF.Rural consumptions: With focus on improving rural areas, the government has increased allocation on various schemes, such a Mahatma Gandhi National Rural Employment guarantee Act (MNREGA), irrigation funds and other schemes. Further, 100% electrification of villages by 2018 is a significant step forward. Accelerated rural investments and job creation will result in a higher consumption power and thereby benefit rural demand focused companies. Companies in focus: Hindustan Unilever Ltd (HUL), Dabur, Emami, Godrej Consumer Products, Jyothy Laboratories and Britannia Industries, and to certain extend two-wheeler companies (Hero MotoCorp and Bajaj Auto) and Mahindra & Mahindra (M&M).Irrigation: Emphasise on irrigation throu