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CA Vinod Kaushik

CA Vinod Kaushik

Impact Of Budget Proposals On Delhi Value Added Tax Presented On 28-03-2016


The Annual Budget of Delhi Govt. was presented on 28th day of March 2016 by Finance Minister Manish Sisodia. The budgeted expenditure for the FY 2016-17 is estimated to be 46600 crore and receipts would be 41772 crore. This budget for GNCTD is a statement of tax collected from hard earned money of the people of Delhi and its honest utilization. In this article our discussion is limited to tax proposals only which include VAT. The proposals discussed in this article were announced in the budget speech of Finance minister and will become applicable once the notification in this regard is issued. An attempt has been made to decode the proposal in a detailed and systematic manner.

Summary of Tax Proposals:

VAT rates proposed to be reduced from 12.50% to 5%:-

  1. E-rickshaw, Battery driven vehicles and hybrid vehicles (Battery driven with other fuel options).
  2. Sweets and namkeens.
  3. Readymade garments costing above 5000 (Now all types of garments would be taxable @ 5%).
  4. Footwear MRP above 500 (All kinds of footwear now taxable @ 5%).
  5. School Bags of any value (Earlier bags of value more than 300 were taxable @ 12.50%).

VAT rates proposed to be reduced from 20% to 12.5%:-

  1. All types of watches now taxable @ 12.50 (Irrespective of its price of 5000).

VAT rates proposed to be enhanced from 0% to 5%:-

  1. Textile and fabric including sarees except khadi and handloom fabric.
  2. Plastic waste.
  3. Footwear’s MRP up to 500.

Modification of existing entries in various schedules:-

  1. “Ferrous and non-ferrous metals and alloys thereof including their sheets, foils and extrusions. A non-ferrous metal includes aluminum, copper, zinc etc.” ( Entry No. 28 of IIIrd schedule)
  2. “Un-manufactured tobacco, tobacco and tobacco products in all forms such as cigarettes (irrespective of form and length), chewing tobacco, gutkha, cigars, hookah tobacco, khaini, zarda, surti, bidis etc.” ( Entry No. 10 of IVth schedule)

Detailed analysis of tax proposals:-

  • To check rising pollution due to automobiles and to promote use of environment friendly vehicles, VAT rate on battery operated transport means i.e. e-rickshaws, battery operated vehicles and Hybrid Automobiles (i.e. Battery driven with other fuel option), is proposed to be brought down from 12.5% to 5%. This move will help to promote these classes of vehicles and also effective control on pollution can be made.
  • Sweets and namkeens are presently taxable @ 12.5% in Delhi, while the tax rate in Haryana and Uttar Pradesh is 5%. With a view to avoid geographical tax arbitrage, it is proposed to reduce the VAT on Sweets and namkeens to 5%. The exact items in this class will be known to us once the schedule III is altered by Govt. and this entry is adjusted in the schedule. As per the budget speech of Finance Minister all types of sweets are covered in this clause but the namkeens will cover all type of snacks is still an important concern.
  • At present, readymade garments costing up to Rs. 5000/- are taxed at 5%, those above Rs. 5000/- are taxed at 12.5%. Again in neighbouring States (U.P. and Haryana) all readymade garments are taxed at 5%. I propose to rationalize the tax rate by taxing all readymade garments @5%.
  • Marble in Delhi is currently taxable at 12.5% being an unspecified item. Marble Trade Association of Delhi has been requesting for lower tax rate to encourage people to buy marble from Delhi Traders only. In Uttar Pradesh marble is taxable @ 4% under schedule II and certain marble and granites are exempt from tax in Rajasthan. The tax rate is proposed to be reduced to encourage purchase of marble from Delhi traders also.
  • Watches in Delhi are taxed differentially at 12.5% (watches upto Rs. 5000/-) and (20% watches above Rs. 5000/-), while they are taxed uniformly at 12.5% in neighbouring states. The costly watches are being purchased from neighbouring states which causes loss of revenue for the states and problem of tax evasion.
  • Plastic waste continues to be exempted whereas plastic raw materials i.e. plastic granules, plastic power and master batches are taxable @5%. Since, plastic waste can also be recycled and used as raw material to make plastic articles, it is proposed to tax plastic waste also @5%.
  • Textile and fabric are presently covered under several entries in the tax rate schedules. Some under the exempted list, while others in the taxable category of 5%. I propose to simplify this system by levying a uniform tax rate of 5% on all variety of textiles and fabrics (including sarees) except khadi and handloom fabrics. During the discussion on budget proposals in Assembly the Finance Minister has announced to roll back VAT on Textile and fabric.

Roll back of VAT proposals on Textile and Fabric, Footwear:-

During the discussion on budget proposals in the Assembly the Finance Minister has announced to roll back the proposed hike of VAT rates on Textile, Fabric and Footwear. The ruling legislators and opposition opposed the decision of Govt. citing the shifting of business from Delhi to nearby states which will disturb the distributive character of Delhi State. In nutshell the proposal to increase rate of VAT on Footwear, Textile and fabric are taken back by Govt. and will not become applicable.

Concluding remarks:-

Now I will conclude with the words of Hon’ble Finance Minister “The first and foremost principle of our taxation policy is to maintain the distributive character of Delhi’s trade. Last and most important principle which is the motive force behind our taxation policy is to encourage voluntary compliance, and forge a strong partnership with the trade and the public”. Other than above said changes no policy changes have been proposed in the Annual Budget of Delhi Govt. The effective date of implementation of above changes shall be announced through gazette notification.

GST Rate Schedule for Goods 2017

(Author can be reached  at cavinodkumar67@gmail.com, +91-9953236278)

Disclaimer: Views expressed are strictly personal. The content of this document are solely for informational purpose. It doesn’t constitute professional advice or recommendation. The Author does not accept any liabilities for any loss or damage of any kind arising out of information in this article and for any actions taken in reliance thereon.


Author Bio

I am a practicing Chartered Accountant specially in area of Indirect Taxation (GST). I have deep interest in understanding the subject and a quick learner. I have been handling litigation, opinion and departmental issues of indirect taxation. I am also pursuing Law from a prestigious institution o View Full Profile

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