Finance Minister Arun Jaitley presents his third Union Budget on Monday 29th of February, 2016. With an eye on supporting the small tax-payer and the small investor, the Minister announced a slew of schemes, and income tax exemptions.Finance Minister Arun Jaitley in his Budget 2016 speech outlined the nine pillars on the basis of which he hopes to enhance India’s economic growth. He focused on agriculture to tax and financial sector reforms. Budget 2016 stressed on Indian economy’s resilience amidst the current global economic turmoil. “Global economy is in a serious crisis. Financial markets have been battered but Indian economy has held its ground firmly.” said Finance Minister Arun Jaitley. We take a look at important highlights from his speech:
Economy & Welfare Road map
Growth of Economy accelerated to 7.6 per cent in 2015-16.
Despite increased devolution to States by 55 per cent as a result of the 14th Finance Commission award, plan expenditure increased at RE stage in 2015-16 – in contrast to earlier years.
‘Transform India’ to have a significant impact on economy and lives of people.
Government to focus on ensuring macro-economic stability and prudent fiscal management.
Boosting on domestic demand
Focus on enhancing expenditure in priority areas of – farm and rural sector, social sector, infrastructure sector employment generation and recapitalisation of the banks.
Continue with the ongoing reform programme and ensure passage of the Goods and Service Tax bill and Insolvency and Bankruptcy law
Challenges in 2016-17
Risks of further global slowdown and turbulence
Additional fiscal burden due to 7th Central Pay Commission recommendations and OROP.
Allocation for Agriculture and Farmers’ welfare is Rs 35,984 crore
A dedicated Long Term Irrigation Fund will be created in NABARD with an initial corpus of about Rs 20,000 crore
Programme for sustainable management of ground water resources with an estimated cost of Rs 6,000 crore will be implemented through multilateral funding
5 lakh farm ponds and dug wells in rain fed areas and 10 lakh compost pits for production of organic manure will be taken up under MGNREGA
Soil Health Card scheme will cover all 14 crore farm holdings by March 2017.
2,000 model retail outlets of Fertilizer companies will be provided with soil and seed testing facilities during the next three years
Allocation under Pradhan Mantri Gram Sadak Yojana increased to Rs 19,000 crore. Will connect remaining 65,000 eligible habitations by 2019.
Financial sector & Fiscal reforms
Statutory basis for a Monetary Policy framework and a Monetary Policy Committee through the Finance Bill 2016.
A Financial Data Management Centre to be set up.
RBI to facilitate retail participation in Government securities.
New derivative products will be developed by SEBI in the Commodity Derivatives market.
Allocation of Rs 25,000 crore towards recapitalisation of Public Sector Banks.
Target of amount sanctioned under Pradhan Mantri Mudra Yojana increased to Rs 1,80,000 crore.
General Insurance Companies owned by the Government to be listed in the stock exchanges
Fiscal deficit in RE 2015-16 and BE 2016-17 retained at 3.9 per cent and 3.5 per cent. > Revenue Deficit target from 2.8 per cent to 2.5 per cent in RE 2015-16
Total expenditure projected at Rs 19.78 lakh crore
Plan expenditure pegged at Rs 5.50 lakh crore under Plan, increase of 15.3 per cent
Non-Plan expenditure kept at Rs 14.28 lakh crores
Special emphasis to sectors such as agriculture, irrgation, social sector including health, women and child development, welfare of Scheduled Castes and Scheduled Tribes, minorities, infrastructure.
Every new scheme sanctioned will have a sunset date and outcome review.
Rationalised and restructured more than 1500 Central Plan Schemes into about 300 Central Sector and 30 Centrally Sponsored Schemes.
Committee to review the implementation of the FRBM Act.
Rationalization of taxation
Raise the ceiling of tax rebate under section 87A from Rs 2000 to Rs 5000 to lessen tax burden on individuals with income upto Rs5 lakhs.
Increase the limit of deduction of rent paid under section 80GG from Rs 24000 per annum to Rs 60000, to provide relief to those who live in rented houses.
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 per cent, and surcharge at 7.5 per cent and penalty at 7.5 per cent, which is a total of 45 per cent of the undisclosed income. Declarants will have immunity from prosecution.
Surcharge levied at 7.5 per cent of undisclosed income will be called Krishi Kalyan surcharge to be used for agriculture and rural economy.
Service tax exempted for housing construction of houses less than 60 sq.m
Levy of excise duty on readymade garments above Rs 1000 @ 6% without input tax credit
Cenvat Credit Rules, 2004 is being amended to effect better input tax credit flow including apportionment of credit .
Krishi Kalyan Cess 0.5%to be levied on all taxable services
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 per cent of the minimum of the imposable penalty.
Any pending appeal against a penalty order can also be settled by paying 25 per cent of the minimum of the imposable penalty and tax interest on quantum addition.
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 per cent of tax in case of underreporting of income and 200 per cent of tax where there is misreporting of facts.
Disallowance will be limited to 1 per cent 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.
Time limit of one year for disposing petitions of the tax payers seeking waiver of interest and penalty.
Mandatory for the assessing officer to grant stay of demand once the assesse pays 15 per cent 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.
11 new benches of Customs, Excise and Service Tax Appellate Tribunal (CESTAT).
13 cesses, levied by various Ministries in which revenue collection is less than Rs 50 crore in a year to be abolished.
For non-residents providing alternative documents to PAN card, higher TDS not to apply.
Revision of return extended to Central Excise assesses.
Additional options to banking companies and financial institutions, including NBFCs, for reversal of input tax credits with respect to non- taxable services.
Customs Act to provide for deferred payment of customs duties for importers and exporters with proven track record.
Customs Single Window Project to be implemented at major ports and airports starting from beginning of next financial year.
Increase in free baggage allowance for international passengers. Filing of baggage only for those carrying dutiable goods.
Technology for accountability
Expansion in the scope of e-assessments to all assessees in 7 mega cities in the coming years.
Interest at the rate of 9 per cent p.a against normal rate of 6 per cent p.a for delay in giving effect to Appellate order beyond ninety days. > ‘e-Sahyog’ to be expanded to reduce compliance cost, especially for small taxpayers.
Employment & Growth prospects
Increase the turnover limit under Presumptive taxation scheme under section 44AD of the Income Tax Act to Rs 2 crores to bring big relief to a large number of assessees in the MSME category.
Extend the presumptive taxation scheme with profit deemed to be 50 per cent, to professionals with gross receipts up to Rs 50 lakh.
Phasing out deduction under Income Tax:
Accelerated depreciation wherever provided in IT Act will be limited to maximum 40 per cent from 1.4.2017
Benefit of deductions for Research would be limited to 150 per cent from 1.4.2017 and 100 per cent from 1.4.2020
Benefit of section 10AA to new SEZ units will be available to those units which commence activity before 31.3.2020.
The weighted deduction under section 35CCD for skill development will continue up to 1.4.2020
Corporate Tax rate proposals:
New manufacturing companies incorporated on or after 1.3.2016 to be given an option to be taxed at 25 per cent + surcharge and cess provided they do not claim profit linked or investment linked deductions and do not avail of investment allowance and accelerated depreciation.
Lower the corporate tax rate for the next financial year for relatively small enterprises i.e companies with turnover not exceeding Rs 5 crore (in the financial year ending March 2015), to 29 per cent plus surcharge and cess
10 per cent rate of tax on income from worldwide exploitation of patents developed and registered in India by a resident.
Complete pass through of income-tax to securitization trusts including trusts of ARCs. Securitization trusts required to deduct tax at source.
Period for getting benefit of long term capital gain regime in case of unlisted companies is proposed to be reduced from three to two years.
Non-banking financial companies shall be eligible for deduction to the extent of 5 per cent of its income in respect of provision for bad and doubtful debts.
Determination of residency of foreign company on the basis of Place of Effective Management (POEM) is proposed to be deferred by one year
Commitment to implement General Anti Avoidance Rules (GAAR) from 1.4.2017
Exemption of service tax on services provided under Deen Dayal Upadhyay Grameen Kaushalya Yojana and services provided by Assessing Bodies empanelled by Ministry of Skill Development & Entrepreneurship.
Exemption of Service tax on general insurance services provided under ‘Niramaya’ Health Insurance Scheme launched by National Trust for the Welfare of Persons with Autism, Cerebral Palsy, Mental Retardation and Multiple Disability.
Basic custom and excise duty on refrigerated containers reduced to 5 per cent and 6 per cent.
Allocation for rural sector – Rs 87,765 crore.
Rs 2.87 lakh crore will be given as Grant in Aid to Gram Panchayats and Municipalities as per the recommendations of the 14th Finance Commission
Every block under drought and rural distress will be taken up as an intensive Block under the Deen Dayal Antyodaya Mission
A sum of Rs 38,500 crore allocated for MGNREGS
300 urban Clusters will be developed under Chairmanship of senior most Lok Sabha MP from the district for monitoring and implementation of designated Central Sector and Centrally Sponsored Schemes.
Priority allocation from Centrally Sponsored Schemes to be made to reward villages that have become free from open defecation.
A new Digital Literacy Mission Scheme for rural India to cover around 6 crore additional household within the next 3 years.
National Land Record Modernization Programme has been revamped. > New scheme Rashtriya Gram Swaraj Abhiyan proposed with allocation of Rs 655 crore.