The Finance Minister said:

Kucch Toh Phool Khilaaye Hai Humne.. Kucch Aur Khilane Hai

Dikkat Yah hai ki Raho mei Kae Kaante Purane hai

On the other hand:

2015 Budget will further reignite our growth engine, signalling the dawn of a prosperous future.

–           Narendra Modi

Prime Minister Narendra Modi lauded and applauded the Budget, calling it a ‘progressive, positive, practical, pragmatic and prudent’ one. The Budget 2015 had a distinct focus on farmers, youth, poor, neo-middle class and the ‘Aam Nagrik’. “It delivers on growth, equity & job creation, Bankruptcy law, Accidental insurance, Wealth Tax Abolishment, Moving towards GST, FMC merging with SEBI. It is one which will take our economy closer to Development, Magnanimous Development!

However, an adequate roadmap and framework is required to turn the same into reality. Intention alone stands nowhere, it requires action.

To some extent, it seems more as a “pro-corporate budget”. It seems more as a bundle of promises.

There are several hopeful things about the budget. But it would have been better if the service tax hike had been avoided.

This is an extra Long Term budget and it significantly favors the Aged. In Management theory, we all know that extra long term has no meaning and guarantee unless it is properly supported by short term benefits and growth. In a way, it can also be termed as the Growth Strategy of this government.

DRAMATIC AMENDMENTS AND CERTAIN ANOMALIES in the FINANCE BILL, 2015

1. Assessees who Love cash transactions shall have to face tough tax proceedings.

2. Property related transactions are to be routed through the BANKING CHANNEL only. Previously, the Rokda deal was the concept.

3. BLACK MONEY HOLDERS may “resort” to “SLEEPLESS” NIGHTS. Black money shall be curbed now by means of establishment of a bill. But, was the current regime not good enough or was it facilitating pooling out of money from the nation or into it?

4. If you don’t maintain your books, papers, documents and records properly, the Department shall now record the same, without your knowledge.

5 . Instead of providing relief and reducing corporate tax by 5%, they should have encouraged CSR policy and swachh bharat abhiyaan and these must have been provided 100% deduction of expenditure.

Certain other points of discussion in the budget were:

Budget disappoints on energy factor

The expectation were really high on this front, however, the delivery was pretty much moderate. Increase in Clean Energy Cess, setting up of five new ultra mega power projects,

–           Coal-based power generation plants will see costs increase across the board due to higher cess.

–           Companies that have merchant power capacities and no power-purchasing agreements (PPAs) will be affected the most.

–           Push for large power projects may see cautious response from existing companies, as many of their power projects are suffering from non-remunerative PPAs and low interest from electricity boards.

–           The allocated petroleum subsidy may fall short if international crude oil prices rise sharply and lead to higher losses on selling fuel below cost (or under-recoveries).

Tax Free Bonds are back?

As expected one of the key areas of focus this year was infrastructure spending. Along with an incremental expenditure of Rs.70,000 crore by the government in infrastructure projects for 2015-16, the finance minister proposed establishing National Investment and Infrastructure Fund with an annual flow of Rs.20,000 crore. In another attempt to boost the infrastructure sector, finance minister has proposed to bring back the tax-free bond.

Tax-free bonds are secured, redeemable, non-convertible debentures issued by government entities to individuals and institutional investors to mobilize funds needed for projects in the infrastructure development sector. These are long-term in nature with maturity periods ranging from 10 to 20 years and the interest earned on these bonds is tax free for the holder.

The interim budget of 2014, the last one for the Congress-led government, was silent on these bonds. We haven’t seen fresh money being raised through these bonds so far in FY15. The proposed issue of such bonds in Budget 2015 can restart this product. Investors looking for regular income will find use for these bonds. Foreign investors can bring in large funds for these bonds but since they may have to pay tax on these bonds in their own countries, the interest from them isn’t high.

Infrastructure Hogs the Limelight:

Clear direction to improve ease of doing business and develop infrastructure. Sustained commitment to housing will boost demand for dwelling units, and rationalization of REIT operations will help ailing real estate companies improve cash flows. New projects in roads, ports, railways with new public-private partnership models and with clearances in place, will revive interest and widen base of construction firms. It will also improve demand for capital goods, cement and steel.

What do the markets want ?

It’s not that the budget did not have anything creditworthy; it’s just that there’s a big difference between pre-budget expectations of the market and what was actually delivered. Thankfully, the finance minister has been far more reasonable with estimates on revenue receipts. The positives are:

–           The growth estimated for both direct and indirect taxes are far lower compared to the overly optimistic estimates in the previous budget. Ease of doing business

–           The deferment of GAAR (General Anti-Avoidance Rules),

–           The clarity on non-applicability of minimum alternate tax (MAT) on foreign institutional investors

–           Pass-through status for alternative investment funds (AIFs)

–           A proposed new bankruptcy law

–           The proposed reduction in taxation of companies

–           Policy stance favouring investments in productive assets such as equities (by encouraging pension savings), and away from assets such as gold.

–           Measures to curb the use of cash in real estate transactions and the general effort to stamp out the use of black money

The 4,44, 200 announced by FM.

Tax Benefits that can be claimed by an individual in addition to the tax exemption:

Deductions under 80C Rs.1,50,000
Deductions under 80CCD for contribution to NPS Rs. 50,000
Interest on house property loan Rs. 2,00,000
Exemption with new transportation allowance of Rs. 1,600 per month Rs. 19,200
New deductible health insurance premium: Rs. 25,000
Total   Rs. 4,44,200

Benami Property Transaction Bill

A “comprehensive new law to track black money” would be framed. There will be rigorous imprisonment of 10 years under black money law. A new structure including e-filing and tracking down is the abiding commitment of Mr. Finance Minister.

Clean Ganga Fund and Swachh Bharat Kosh

100 percent tax exemption in Corporate Social Responsibility activities for Clean Ganga Fund and Swachh Bharat Kosh has been announced. However, the wish-list was of CSR spending be allowed as deduction or weighted deduction for the purpose of computing tax liability.

Increase of Service Tax

Service Tax Rate has been increased from 12.36 to 14%. Where exemptions or abatements were expected, what has come in this mixed bag is taxation of basic amenities, treating even the basic amenities as luxury. A cup of coffee at the nearby shop, a beauty service or a movie at the nearby multiplex, may become a dream for many, for whom it was first a source of relaxation or entertainment. This would also heavily affect the pockets of college-goers for whom such activity was fun.

Amusement and entertainment events, construction contracts for ports/ airports and services of mutual fund agents are proposed to be exempted in service tax law. Also service tax exemption has been extended to Cold Storage Housing and Varishtha Bima Yojana. This will impact in reducing agricultural prices a bit and senior citizens to get insurance done in a cheap way. The implications of applying tax on all services provided by Government to business entities needs to be analysed in the context of rights and license fee arrangements.

Excise Duty

Excise duty has also undergone a round off in rate from existing 12.36% to 12.5% including cess. Government plans to reduce Manufacturing cost across all sectors. However, rates have been reduced to promote manufacturing in sectors such as electronics, renewable energy, electronic and footwear. In fact tax on footwear of more than Rs. 1000 will be reduced to 6% to boost leather industry. While the petroleum duty rates have been restructured (Rs. 2/liter to Rs.8/liter), there is no change in the net incidence. Tobacco Products got costlier as tax on them increased as Excise duty on tobacco increased to Rs70/Kg from Rs60/Kg. Clear energy Cess increased from 100% to 200% per metric ton of coal to finance GREEN ENERGY FUND.

Customs Duty

The median rate of customs duty has been increased from 28.85% to 29.44%. Proposals have been made for rationalization of duty inversion with intent to promote manufacturing in India which had been on a decline in the recent past. Custom duty on commercial vehicles increased to 40% from 10%. Tax on Domestic Manufacturing and import reduced to support Made in India and in these cases its 100% exemption. Removal of SAD on IT Products is to boost IT Products.

CENVAT

This budget gives increase in the duration of time-limit for availing Input Tax Credits from 6 months to 1 year is a great change. This should provide industry, a much required flexibility and time, to ensure that there are no credit leakages on account of timelines. As much as Rs.4 Lakh Crores is in litigation. Multiple options have been provided to foreclose matters in dispute by payment of reduced penalties, a good proposition to help taxpayers reduce litigation.

Ease of Doing Business

A key proposal for quick registration process and digital maintenance of electronic records by assessee which reflects the Government’s commitment to provide ease of doing business in India. Approvals for 14 regulatory bodies shall stand subsumed at one portal – Ebiz Portal.

GST

It shall finally be implemented from 01.04.2016.

It seems overall as a Straight and a blunt budget which can indeed be a game-changer if implemented on a strict note. Budget 2015 has laid a strong message, that of setting a growth agenda as well as that of simplification and rationalization. The expectation now from the Government is to work single-mindedly on this target, paving way for the much awaited transformation in the tax regime.

( Compiled by CS (Ms.) Reema Jain, Mr. Tushar Gupta, Ms. Tripti Lamba and Mr. Akshay Bansal of Reema Jain & Associates,  New Delhi. They may be contacted at updates@reemajainassociates.com)

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0 responses to “Union Budget 2015-16 and its impact”

  1. kanika garg says:

    Very helpful article thanks for sharing

  2. CS Alok Dixit says:

    Great work done by team CS Reema Jain to simplyfy complicated budget for all from professional to Lehman.

  3. Arsh says:

    Thanks Mr. Arsh and Mr. Ravishankar

  4. Ravishankar says:

    Thanks for Sharing this important information in precise manner. Congrats to your team.

  5. Arsh says:

    Good one ! Interesting and Simplified !
    Kudos to the team !

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