The King’s Speech

Hinting towards global economic slowdown of growth rate of 3.2%; the FM cited towards a tough Budget. On the contrary he also mentioned that currently India is the only country behind China and Indonesia when it comes to growth rate throughout the world. And if continued to grow at projected rate, only China will grow faster than India.

The FM brought up his biggest concern of Current Account Deficit i.e. the difference between the income and expenditure of the country. This is mainly because of heavy imports of oil, coal and love for gold. And the only way to counter this deficit is to attract foreign investment via FII, FDI or ECB (External Commercial Borrowings).  Thus he highlighted on the aspect of good governance stating that “Doing business in India must be seen as easy, friendly and mutually beneficial.” Investment is done only when there is lack of doubt and ambiguity. Thus, the FM maintained and repetitively insisted on stable tax rates, clear communication of policies and laws and avoiding hurdles of regulatory and administrative burdens.

FM during the allocation of budgets touched on 3 main areas which in his opinion require very high attention, and thus touching the hearts of many viz. Woman empowerment, Youth empowerment and Poor empowerment.

Direct Taxes

  • Currently the tax to GDP ratio is 5.5% which was once 11.9% in 2007-08. Thus tax collection needs to be increased.

Corporate Taxes

Basic tax rate and education cess rate remain unchanged.

  • Surcharge
    • Domestic Companies : Surcharge at the rate of 5% whose income is more than Rs.  1 crore (Rs.  10 million)

–          Surcharge at the rate of 10% whose income is more than Rs.  10 crore

  • Foreign Companies : Surcharge increased from 2% to 5%
  • Increase in surcharge from 5% to 10% on Dividend Distribution Tax
  • Investment Allowance
  • Manufacturers are encouraged to invest in Plant and Machinery. Additional 15% depreciation to company which invests more than 100 crore in P&M between 01.04.2013 to 31.03.2015.

    • Loophole of avoiding dividend distribution tax by way of buy back of share blocked. TDS proposed at the rate of 20% for buy back of shares by unlisted companies
    • TDS rate on payments by way of Royalty and fees for technical services to non-residents increased from 10% to 25%.
    • The ‘eligible date’ for power sector projects increased from 31.3.13 to  31.3.14
    • Securitisation Trust exempted from tax. Tax to be levied only at the time of distribution of income. Tax @30% for companies and @25% for Individuals/HUF

    Personal Taxes

    • No changes in personal tax slabs; because even small increase in basic exemption limit will result in escape of lakhs of taxpayers from the tax net
    • Still, bare benefit is given to taxpayers who are within the tax bracket of Rs. 2 lacs to Rs. 5 lacs. These taxpayers will get a ‘tax credit’ i.e. direct reduction in tax of Rs. 2,000. The tax credit is estimated to benefit 1.8 crore taxpayers
    • Home Loan benefit :

    –          First home buyers who avail home loan in FY 2013-14 up to Rs. 25 lacs will get an additional deduction of interest of Rs. 1,00,000

    –          This is over and above the existing limit of Rs. 1.5 lacs

    –          If the limit is not fully utilized, the balance may be carried forward in FY 2014-15

    • Surcharge is back for super rich:

    Citing only 42,800 persons have reported per year income more than Rs. 1 crore recently, Surcharge to be levied at the rate of 10% on income above Rs. 1 crore.

    Indirect Taxes

    • The indirect tax to GDP ratio has fallen down to 4.4% which is reason for concern for the FM. In none of the large developing countries the ratio is so low
    • Basic rates remain the same, i.e. Excise duty at 12%, Service tax at 12% and Customs duty at 10%

    Custom Duty

    • Period of concession to specified parts of electric and hybrid vehicles extended to 31.3.15 to boost environment friendly vehicle manufacturing
    • Duty reduced from 7.5% to 5% on machinery used in manufacture of leather and leather goods
    • Reduced from 10% to 2% on pre-forms of precious and semi-precious stones
    • Duty on de-oiled rice bran oil cake totally withdrawn
    • Duty on set top boxes increased from 5% to 10% to boost domestic production
    • On raw silk imports, increased from 5% to 15%
    • Motor Vehicles from 75% to 100%, Motor cycles of engine capacity of 800cc or more from 60% to 75% and Yachts and similar vessels from 10% to 25%
    • Duty-free limit of import of jewellery like Gold increased to Rs. 50,000 for male passenger and Rs. 100,000 in case of female passenger

    Excise Duty

    • Ships and vessels, handmade carpets, cotton fabric exempted from excise duty
    • Duty increased by 18% on cigarettes, cigars, cheroots and cigarillos
    • SUVs other than registered as taxis will now bear excise duty of 30% instead of 27%
    • Duty on Marble doubled from Rs. 30/ to Rs. 60/
    • Mobile phones pricing more than 2,000/- will now bear 6% duty

    Service Tax

    • Like stated earlier in his speech the importance of stable tax regime the negative list introduced last year has not been tampered much. Only 2 services are added to the negative list viz. Vocational courses offered by institutes affiliated to State Council of Vocational Training and Testing activities relating to agri produce.
    • Service tax to be levied on all  Air conditioned restaurants unlike before
    • FM mentioned that around 17 lacs Service tax payers are registered with the Government, but only 7 lacs of them file their Returns and thus it is important to motivate such service tax payers as it is administratively not feasible to identify and collect taxes from such defaulters. Thus, the Service tax Voluntary Compliance Encouragement Scheme has been introduced where from 01.10.2007 defaulters can file their returns and pay due taxes. Interest, penalty and other consequences will be waived
    • Abatement reduced from 75% to 70% for homes/flats having carpet area of more than 2,000sqft

    Other Highlights of the Budget

    • TDS at the rate of 1% on sale of immovable property above 50 lacs. Agricultural land excluded.
    • India’s first of women, by women, for women Public Sector Bank to be opened
    • Nirbhaya Fund to be setup for women safety and empowerment
    • Small and Micro Enterprises (SMEs) to get extended benefit for 3 years even after reaching at higher category
    • Commodity Transaction Tax (CTT) introduced on non-agri products at the rate of 0.01%
    • Transfer Pricing safe harbor rules to be declared in near future
    • General Anti Avoidance Rule (GAAR) postponed to April 2016 in modified version assured of preserving its basic purpose
    • Direct Tax Code (DTC) based on Best International Practice to be introduced soon
    • Goods and Service Tax (GST) to be implemented soon hoping for unanimous consent of State Governments

    Quotable Quotes

    • “Hope inspires courage.”  In light of convergence to GST with support of State Finance Ministers
    • Any economist will tell us what India can become. We are the tenth largest economy in the world. We can become the eighth, or perhaps the seventh largest by 2017. By 2025, we could become a $ 5 trillion economy, and among the top five in the world. What we will become depends on us and on the choices that we make. Swami Vivekananda, whose 150th birth anniversary we celebrate this year, told the people: “All the strength and succour you want is within yourself. Therefore, make your own future.”
    • What clearly eye discerns as right, with steadfast will And mind unslumbering, that should man fulfill

    Compiled by- CA Niraj Mahajan , Email: [email protected]

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