India Budet 2015 - Analysis in a nutshell

India Budget 2015 - In A Nutshell

Budget 2015 - Analysis Session on Monday 2 March 2015 at RSM-Lemon House, Icchapore

RSM Astute Consulting - Lemon Group is pleased to invite you to attend our session on

Analysis of Union Budget 2015

on Monday, 2nd March 2015

between 4 pm to 6 pm

at RSM-Lemon House, DTA-1, G/2~5, Gujarat Hira Bourse, Pal-Icchapore Road, Surat

Budget 2015 - First Thoughts

The budget seems to be very positive for the economy in the long run with special emphasis on social schemes, healthcare, education, infrastructure and credit. The major sector to benefit directly would be the real estate sector with the ironing of REITs related tax confusion and the target to provide a home to each citizen by 2022. Similarly, infrastructure sector would get a huge boost due to tax free bonds, special new financial institution, higher plan expenditure, PPP model etc. Other sectors to benefit should be pharmaceuticals, power, BFIS (banking insurance & finance sector) and hospitality. Manufacturing companies would get a huge boost with rationalization of duties on intermediate and components.

On the taxation side, there are no major changes in the tax rates except for the reduction in corporate tax over 4 years. However, there is a huge emphasis on black money. Since black money is a very prevalent in our system, the draconian provisions in this regards are going to affect a lot of people and not necessarily the super rich or the politicians. This can dent the overall sentiments going forward if the authorities really target individuals on the money laundering front.

Overall the budget looks good. But there may be many missed opportunities also, especially on MAT, SEZ, Dividend distribution tax, retrospective amendments, clarification on applicability of service tax or customs/excise on softwares, litigation settlement schemes etc. The increase in rate of service tax is going to be very negative for the services sector.

There is not much in particular for the Gems & Jewellery sector except the new gold scheme. However, a lot of generic amendments as discussed in earlier post would definitely affect and impact the G&J companies.

Budget 2015 - At First Glance

Key Points of Budget 2015:

General :

• GDP growth for FY 2014-15 expected to be 7.4% and for FY 2015-16 – 8~8.5%
• For FY 2014-15, Current account deficit – 1.3% and fiscal deficit 4.1%
• Devolvement to states increased substantially to almost 62% (including grants)
• Public investment would be 1.25 lakh crores including 70,000 budgetary allocation for capital expenditure
• Fiscal deficit target to reach 3% in 2 years extended to 3 years. Hence, target for 15-16 shall be 3.9%, 16-17 3.5% and 17-18 – 3%
• Allocation increased substantially to agriculture sector and farm credit through NABARD
• Mudra bank with corpus of Rs. 20,000 crores set up for promotion of SME credit
• New bankruptcy law on the anvil
• NBFC’s with more than Rs. 500 crores would be considered as Financial Institutions for SARFASI Act
• Many new social security, medical and pension schemes launched which will be linked to Jan Dhan yogna & accounts
• A new National Investment & Infrastructure Fund set up to promote infrastructure finance with Rs. 20,000 corpus
• Tax free bonds can be issued now for roads, railways and irrigation projects
• 5 new mega power plants of 4,000 MW each to be auctioned in a plug & play mode i.e. after all clearances are in place
• Other infrastructure projects to be built in PPP mode using the same concept as above
• SEBI and FMC (Forward Markets Commission) to be merged and also a new Indian Financial Code shall be created
• A new Gold Monetization Scheme by the name of Sovereign Gold Bond to be launched in place of existing gold loan schemes
• Higher Educational Institutes like IIMs, IITs, AIMS etc. to be set up in each state
• Distinctions in regulations for FDI, FPI, FII to go

Labour Laws & Social Security:

• Employees to be given option to opt for ESIC or any other IRDA approved health insurance scheme
• Similarly, EPF shall become optional against contribution to pension schemes
• A universal social security system to be created for all people through the Jan Dhan Yogna
• Universal pension scheme with contribution of 50% from govt for contribution made by individuals

Direct Taxes:

• Wealth tax abolished
• Tax on super rich i.e. those earning more than Rs. 1 crores of income increased by 2%
• Tax on companies to be reduced from 30% to 25% over 4 years
• Disclosure of foreign assets must even if no income is received
• Non disclosure of foreign assets to be a non compoundable offense attracting penalty of 300% and imprisonment of 10 years
• Further, all such non disclosures to fall under Money Laundering laws and assets abroad or equivalent assets in India can be seized and confiscated
• For domestic black money, the Benami Properties Act to be amended to provide for confiscation, seizure etc.
• PAN to be quoted on all transactions over Rs. 1 lakh
• REITs and Infrastructure Investment Trusts to get pass through status for rentals and benefits under capital gains
• Offshore fund managers operating from India would not be considered now as permanent establishments for purpose of taxation which will facilitate a lot of India focused fund managers to move from Singapore and such places to India
• Eligibility for deduction for employment of new workmen changed from 100 employees to 50 employees
• GAAR deferred for 2 years and when it will be applied, it will be applied prospectively
• TDS/Witholding tax reduced on Royalty & Fees for Technical Services in some cases from 25% to 10%
• The threshold limit for applicability of domestic transfer pricing regulations increased from Rs. 5 crores to Rs. 20 crores
• For charitable trusts, the limit of Rs. 25 lakhs for income from commercial activities replaced by a 20% limit for tax purposes
• Proposed Direct tax code scrapped
• For Individuals, additional deduction of Rs. 50,000 for contribution to new pension scheme
• Mediclaim deduction increased from Rs. 15,000 to Rs. 25,000 p.a.
• Transport allowance for salaried individuals raised from Rs. 800 pm to Rs. 1600 pm
• Deductions increased for very senior citizens and people with disabilities

Excise & Customs:

• GST to be introduced from 1^st April 2016
• Excise rate rounded off to 12.5% from present 12.36%
• Service tax rate increased from 12.36% to 14%
• Basic customs duty reduced on a host of intermediate products & components to promote domestic manufacturing
• No major changes in other rates or incentives
• Registration, cenvat credit and other processes made online
• Negative list for service tax applicability reduced

Budget 2014 At First Glance

Economy & Key Policy Announcements :

• Fiscal deficit target for FY 15 = Rs. 5 lakh crores i.e 4.5% of GDP and for FY 16, estimated at 3.6%
• Revenue Deficit 2.9% of GDP
• Budget estimates of Revenues : Tax 13 lakh crores, Non-Tax 2.12 lakh crores, Capital Receipts 73k crores
• Budget estimates of Expenditure : Plan 5.75 lakh crores, Non-Plan 12.20 lakh crores
• Increase in taxes estimated at 21%
• Thrust on infrastructure viz. creations of smart cities, transport infrastructure, tourism and also on social sector 
• A 10,000 crore fund set up to support and promote start up companies
• Lot of thrust on transportation viz. highways, ports, airports, waterways etc.
• Ceiling for MSME definition to be enhanced
• Financial sector reforms by way of single demat accounts, common KYC forms
• New accounting standards converged with IFRS to become mandatory from FY 2016-17 and separate tax computation standards to be announced
• No CRR/SLR etc. for banks when they invest in infrastructure bonds

Foreign Investment :

• Cap on FDI in defense increased to 49% from 24% subject to FIPB approval
• Cap in Insurance also increased to 49%
• Conditions on FDI In housing construction relaxed
• Manufacturing companies with FDI can sell online or through retail chains
• Concessional Withholding tax of 5% on overseas bonds
• Portfolio investment gains shall be treated as capital gains and not business income

Direct Tax :

• Limit for individual taxpayers increased from Rs. 2 lakhs to Rs. 2.5 lakhs
• Limit for senior citizens increased from Rs. 2.50 lakhs to Rs. 3 lakhs
• No other change in slab rates or surcharge
• Limit of exemption u/s. 80C increased from Rs. 1 lakh to Rs. 1.50 lakhs
• Interest on housing loans for self occupied properties to be deductible upto Rs. 2 lakhs now instead of Rs. 1.50 lakhs
• Investment allowance of 15% on capital investment in new P&L of Rs. 25 crores and above. Earlier scheme of Rs. 100 crore capex to continue
• Tax holiday to power plants extended
• Concessional tax of 15% on dividends from foreign subsidiaries to continue without any sunset clause
• Dividend to be taxed in the hands of recipients instead of companies (not very clearly mentioned and one needs to see the fine print)
• APA system to apply even for past 4 years
• Range concept introduced for arms length price in Transfer pricing with multiple year comparable
• LTCG on mutual fund units to be taxed at 20% and period for calculating LTCG increased from 12 months to 36 months
• Dis-allowance due to non deduction of TDS on any expense reduced to 30% instead of 100%
• Advance ruling concept introduced for residents also

Indirect Tax :

• Customs duty reduced on a lot of raw materials and intermediates to boost manufacturing
• Customs duty reduced on capital equipment and consumables for solar, wind, bio gas and other renewable energy sectors
• All types of cut, polished, broker, semi cut etc. diamonds and colour gems stones to be now liable to customs duty at 2.5%
• Free baggage allowance increased from Rs. 35,000 to Rs. 45,000
• Excise duty reduced on footware, food processing, renewable energy inputs/capital goods etc while duty on cigarettes, tobacco, carbonated soft drinks etc. increased
• No major change in service tax regulations except for a few items shifted in or out of negative list or exempted list
• Advance ruling concept introduced for residents

G&J Industry :

• Increase in ceiling for MSME definition shall enable more G&J companies to be eligible for 2% interest subvention scheme
• Customs duty increased on polished diamonds from 2 to 2.5% and even broken or semi cut diamonds to be now leviable to duty
• PF limit increased from Rs. 6500 to Rs. 15000 and EPS (Pension) limit shall be now a minimum of Rs. 1,000

Investments & Stock Markets :

• Real Estate Investment Trusts (REITS) and Infrastructure Trusts to become permissible
• Small saving schemes like NSC, KVP etc. to be boosted
• Investment limit in PPF increased from Rs. 1 lakh to Rs. 1.5 lakhs

Budget 2013 Key Points

Service tax amnesty scheme is an innovative scheme. One needs to understand the fine print to give a final judgement on the same.

Service tax on Construction of Residential Units

Construction of individual residential units isn't chargeable to service tax [CESTAT-Del.]