union budget 2017 18
TRANSCRIPT
Union Budget 2017-18
Reinforcing the intent
Wednesday, 01 February 2017 OPINION
This report is not intended to provide personal investment advice and it does not take into account the specific investment objectives, financial situation and the particular needs of any specific person. Readers should seek financial advice regarding the appropriateness of investing in financial instruments and implementing investment strategies discussed or recommended in this report and should understand that statements regarding future prospects may not be realized. InvesTrekk Global Research (P) Limited does not provide portfolio management, stock broking or any other fund based service. The model portfolios mentioned in this report are merely to illustrate the investment style and strategy recommended in the present times. Please refer to the important disclosures at the end of this report. © Copyright 2012 InvesTrekk Global Research (P) Limited. All rights reserved. InvesTrekk – Trekking the path less travelled and InvesTrekk are trademarks of InvesTrekk Global Research (P) Limited.
Brave and defiant The finance minister has sustained the forces of change catalyzed by the move to replace high denomination notes. Given, the political environment in the country, and pressures from the external environment, continuing with the effort to cleanse the system of black money, the effort can only be termed as defiant.
Restrictions on cash transactions of large values and political funding are noteworthy. Abolition of FIPB, after doing away with Planning commission, is also a brave move. Law on contract forming could be transformational.
Raising excise duty on Bidi by from 30% (handmade) to over 200% (machine made) while elections in UP are on, is a brave thing to do.
Focus on quality of growth
The budget speech makes it clear that the focus of government is to improve the quality of growth, rather than just the statistics. In words of the finance minister the basic idea is to:
• Transform the quality of governance and quality of life of our people;
• Energise various sections of society, especially the youth and the vulnerable, and enable them to unleash their true potential; and
• Clean the country from the evils of corruption, black money and non-transparent political funding.
Predictability, transparency and conciliation in tax regime
The effort to bring predictability, transparency and conciliation in the tax regime of the country that started with last year's budget, has been reinforced further.
Clarifications provided for many areas with potential for different interpretations and disputes.
Prevention of abuse of tax provisions
Provisions have been made to plug loop holes that allowed misuse of provisions relating to LTCG, HRA etc.
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Union Budget 2017-18
Brave. Strong focus on quality of life and probity in the given climate is brave.
Pragmatic. Avoiding undue populism and conceding ground where it is due.
Routine. The budget is made and presented in a routine businesslike manner, without trying to create any euphoria or tall claims.
Execution still remains the key.
Team InvesTrekk
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FM toes the Modi line, stays defiant No apologies or regret on demonetization The finance minister stayed defiant on the move to replace 86% of the country's currency in one stroke. Contrary to popular expectations, he refused to be apologetic or remorseful about it. He rather pledged to reinforce the effort by making further provisions to minimize cash transactions in the economy, and plug the loopholes used for generating black money.
Provisions to prevent misuse of LTCG in listed securities, limit the amount of political funding in cash, restricting large value cash transaction, providing tax incentives to import/production of equipment needed for digital payment networks etc. are some notable steps.
No Robinhood like approach FM resisted the temptation to don the hat of Robinhood. though there are few provisions based on the size of the assesses, these do not appear to be aimed at redistribution of wealth.
Cess of 10% on the individuals with taxable income in the range of Rs50-100lacs, tax on dividend in excess of rs10lacs received by corporate assesses are two instances of higher taxability of larger assesses.
But, no change in excise for automobiles, liquor etc. would have relieved the richer people.
Lower tax rate (25%) for smaller companies (turnover less than Rs50cr) covers more than 95% of companies in the country.
Letting go There are number of indications in the budget speech that the government is willing to let go many of its controls, in the interest of professionalization, transparency and ease of doing business. For example,
• Abolition of FIPB.
• Listing of most CPSEs to make them professional, accountable and transparent.
• Sharing the GST administration with States.
• Greater autonomy to educational institutions and centers of higher learning.
Commitment of fiscal discipline One of the key feature of policy framework of this government has been the sensitivity to the statistical vanity. Even the Economic Survey went to a great length to make a case for rating upgrade.
• Staying with the fiscal deficit target, improving revenue deficit and limiting the borrowings with a commitment to bringing Debt/GDP to 60% in five years clearly points to that.
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Key highlights - Union Budget FY18
Ten key themes of the budget
Farmers : committed to double the income in 5 years
Rural Population : providing employment¬ & basic infrastructure;
Youth : energising them through education, skills and jobs;
The Poor and the Underprivileged: strengthening the systems of social security, health care and affordable housing;
Infrastructure: for efficiency, productivity and quality of life¬
Financial Sector: growth¬ & stability by stronger institutions;
Digital Economy: for speed, accountability and transparency;
Public Service: effective governance and efficient service delivery through people’s participation;
Prudent Fiscal Management: to ensure optimal deployment of¬ resources and preserve fiscal stability;
Tax Administration: honouring the honest
1. Farmers
Farm credit for FY18 set at record rs10lakh crores.
Coverage under Fasal Bima Yojana scheme to be increased from 30% of cropped area in 2016-17 to 40% in 2017-18 and 50% in 2018-19.
The Long Term Irrigation Fund already set up in NABARD to be augmented by 100% to take the total corpus of this Fund to ` 40,000 crores.
Dedicated Micro Irrigation Fund in NABARD to achieve ‘per drop more crop’ with an initial corpus of ` 5,000 crores.
Coverage of National Agricultural Market (e-NAM) to be expanded from 250 markets to 585 APMCs.
A model law on contract farming to be prepared and circulated among the States for adoption
Dairy Processing and Infrastructure Development Fund to be set up in♣ NABARD with a corpus of ` 2000 crores and will be increased to ` 8000 crores over 3 years.
To support NABARD for computerisation and integration of all 63,000 functional Primary Agriculture Credit Societies with the Core Banking System of District Central Cooperative Banks.
New mini labs in Krishi Vigyan Kendras (KVKs) and ensure 100% coverage of all 648 KVKs in the country for soil sample testing
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2. Rural Population
Aim to bring one crore households out of poverty and to make 50,000 Gram Panchayats poverty free by 2019
10 lakh farm ponds to be completed by March 2017. During 2017-18, another 5 lakh farm ponds will be taken up.
MGNREGA allocation to be the highest ever at ` 48,000 crores in 2017-18.
Allocation for Pradhan Mantri Gramin Awaas Yojana increased to Rs23,000 crores in 2017-18 with a target to complete 1 crore houses by 2019 for the houseless and those living in kutcha houses.
100% village electrification by 1st May 2018.
Open Defecation Free villages to get priority for piped water supply.
Provide safe drinking water to over 28,000 arsenic and fluoride affected habitations in the next four years.
For imparting new skills to people in rural areas, mason training will be provided to 5 lakh persons by 2022.
3. Youth
To introduce a system of measuring annual learning outcomes in our schools.
Innovation Fund for Secondary Education proposed to encourage local innovation for ensuring universal access, gender parity and quality improvement to be introduced in 3479 educationally backward districts.
Good quality higher education institutions to have greater administrative and academic autonomy.
SWAYAM platform, leveraging IT, to be launched with at least 350 online courses. This would enable students to virtually attend courses taught by the best faculty.
National Testing Agency to be set-up as an autonomous and self-sustained premier testing organisation to conduct all entrance examinations for higher education institutions.
Skill Acquisition and Knowledge Awareness for Livelihood Promotion programme (SANKALP) to be launched at a cost of ` 4000 crores. SANKALP will provide market relevant training to 3.5 crore youth
Next phase of Skill Strengthening for Industrial Value Enhancement (STRIVE) will also be launched in 2017-18 at a cost of ` 2,200 crores.
A scheme for creating employment in the leather and footwear industries along the lines in Textiles Sector to be launched.
Incredible India 2.0 Campaign will be launched across the world to♣ promote tourism and employment. Five special tourism zones to be promoted.
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4. The Poor and Underprivileged
Mahila Shakti Kendra will be set up with an allocation of ` 500 crores in 14 lakh ICDS Anganwadi Centres. This will provide one stop convergent support services for empowering rural women with opportunities for skill development, employment, digital literacy, health and nutrition
Under Maternity Benefit Scheme ` 6,000 each will be transferred directly to the bank accounts of pregnant women who undergo institutional delivery and vaccinate their children.
Affordable housing to be given infrastructure status.National Housing Bank will refinance individual housing loans of about ` 20,000 crore in 2017-18.
To create additional 5,000 Post Graduate seats per annum to ensure adequate availability of specialist doctors to strengthen Secondary and Tertiary levels of health care. Two new All India Institutes of Medical Sciences to be set up in Jharkhand and Gujarat.
To foster a conducive labour environment, legislative reforms will be undertaken to simplify, rationalise and amalgamate the existing labour laws into 4 Codes on (i) wages; (ii) industrial relations; (iii) social security and welfare; and (iv) safety and working conditions.
Propose to amend the Drugs and Cosmetics Rules to ensure availability of drugs at reasonable prices and promote use of generic medicines.
For senior citizens, Aadhar based Smart Cards containing their health details will be introduced.
5. Infrastructure
Railway lines of 3,500 kms will be commissioned in 2017-18. During 2017-18, at least 25 stations are expected to be awarded for station redevelopment.
A new Metro Rail Policy will be announced with focus on innovative models of implementation and financing, as well as standardisation and indigenisation of hardware and software.
In the road sector, Budget allocation for highways increased from ` 57,976 crores in BE 2016-17 to ` 64,900 crores in 2017-18.
Select airports in Tier 2 cities will be taken up for operation and maintenance in the PPP mode.
By the end of 2017-18, high speed broadband connectivity on optical fibre will be available in more than 1,50,000 gram panchayats, under BharatNet. A DigiGaon initiative will be launched to provide tele-medicine, education and skills through digital technology
Proposed to set up strategic crude oil reserves at 2 more locations, namely, Chandikhole in Odisha and Bikaner in Rajasthan. This will take our strategic reserve capacity to 15.33 MMT
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6. Financial Sector
Foreign Investment Promotion Board to be abolished in 2017-18 and further liberalisation of FDI policy is under consideration.
An expert committee will be constituted to study and promote creation of an operational and legal framework to integrate spot market and derivatives market in the agricultural sector, for commodities trading. e- NAM to be an integral part of the framework.
Bill relating to curtail the menace of illicit deposit schemes will be introduced. A bill relating to resolution of financial firms will be introduced in the current Budget Session of Parliament. This will contribute to stability and resilience of our financial system.
A mechanism to streamline institutional arrangements for resolution of disputes in infrastructure related construction contracts, PPP and public utility contracts will be introduced as an amendment to the Arbitration and Conciliation Act 1996.
Government will put in place a revised mechanism and procedure to ensure time bound listing of identified CPSEs on stock exchanges. The shares of Railway PSEs like IRCTC, IRFC and IRCON will be listed in stock exchanges.
Propose to create an integrated public sector ‘oil major’ which will be able to match the performance of international and domestic private sector oil and gas companies
A new ETF with diversified CPSE stocks and other Government holdings will be launched in 2017-18.
In line with the ‘Indradhanush’ roadmap, ` 10,000 crores for recapitalisation of Banks provided in 2017-18.
Lending target under Pradhan Mantri Mudra Yojana to be set at ` 2.44 lakh crores. Priority will be given to Dalits, Tribals, Backward Classes and Women.
7. Digital Economy
Aadhar Pay, a merchant version of Aadhar Enabled Payment System, will be launched shortly A Mission will be set up with a target of 2,500 crore digital transactions for 2017-18 through UPI, USSD, Aadhar Pay, IMPS and debit cards
A proposal to mandate all Government receipts through digital means, beyond a prescribed limit, is under consideration.
Banks have targeted to introduce additional 10 lakh new POS terminals by March 2017. They will be encouraged to introduce 20 lakh Aadhar based POS by September 2017.
Proposed to create a Payments Regulatory Board in the Reserve Bank of India by replacing the existing Board for Regulation and Supervision of Payment and Settlement Systems
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8. Public Service
The Government e-market place which is now functional for procurement of goods and services.
To utilise the Head Post Offices as front offices for rendering passport services.
To rationalise the number of tribunals and merge tribunals wherever appropriate.
9. Prudent Fiscal Management
Stepped up allocation for Capital expenditure by 25.4% over the previous year.
Fiscal deficit for 2017-18 is targeted at 3.2% of GDP and Government remains committed to achieve 3% in the following year.
Net market borrowing of Government restricted to ` 3.48 lakh crores after buyback in 2017-18, much lower than ` 4.25 lakh crores of the previous year.
Revenue Deficit of 2.3% in BE 2016-17 stands reduced to 2.1% in the Revised Estimates. The Revenue Deficit for next year is pegged at 1.9% , against 2% mandated by the FRBM Act.
10. Tax Administration
Maximise efforts for e-assessment in the coming year.
Enforcing greater accountability of officers of Tax Department for specific act of commission and omission.
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Promoting Affordable Housing and Real estate Sector Under the scheme for profit-linked income tax deduction for promotion of
affordable housing, carpet area instead of built up area of 30 and 60 Sq.mtr. will be counted.
The 30 Sq.mtr. limit will apply only in case of municipal limits of 4 metropolitan cities while for the rest of the country including in the peripheral areas of metros, limit of 60 Sq.mtr. will apply
For builders for whom constructed buildings are stock-in-trade, tax on notional rental income will only apply after one year of the end of the year in which completion certificate is received
Reduction in the holding period for computing long term capital gains from transfer of immovable property from 3 years to 2 years. Also, the base year for indexation is proposed to be shifted from 1.4.1981 to 1.4.2001 for all classes of assets including immovable property
For Joint Development Agreement signed for development of property, the liability to pay capital gain tax will arise in the year the project is completed.
Exemption from capital gain tax for persons holding land on 2.6.2014, the date on which the State of Andhra Pradesh was reorganised, and whose land is being pooled for creation of capital city of Andhra Pradesh under the Government scheme.
Transparency in Electoral Funding Maximum amount of cash donation, a political party can receive, will be
` 2000/- from one person.
Political parties will be entitled to receive donations by cheque or digital mode from their donors.
Amendment to the Reserve Bank of India Act to enable the issuance of electoral bonds in accordance with a scheme that the Government of India would frame in this regard.
Every political party would have to file its return within the time prescribed in accordance with the provision of the Income-tax Act
Existing exemption to the political parties from payment of income-tax would be available only subject to the fulfilment of these conditions
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Key tax proposals Businesses For companies whose total turnover or gross receipts did not exceed
Rs50cr in FY16, the rate income tax reduced to 25%.
Section 115BBDA amended to provide for dividend in excess of rs10lakhs to be taxable for all assesses, except domestic companies and certain funds and institutions.
Threshold limit for audit of business entities who opt for presumptive income scheme increased from ` 1 crore to ` 2 crores.
The threshold for maintenance of books for individuals and HUF increased from turnover of 10 lakhs to 25 lakhs or income from 1.2 lakhs to 2.5 lakhs.
Under scheme for presumptive taxation for professionals with receipt upto ` 50 lakhs p.a. advance tax can be paid in one instalment instead of four.
The tax breaks for Start ups u/s 80IAC liberalized to 3/7 yrs from exisitng 3/5 years.
MAT credit can now be availed for upto 15yrs instead of present 10yrs.
Deduction u/s80G for cash donation eligible only upto Rs2000.
Concessional TDS @5% u/s194LC and 194LD on interest payment in respect of foreign borrowing, including Masala Bonds, extended to July 2020.
No depreciation or 35AD benefits if asset costing more than Rs10,000 acquired in cash.
No deduction for payments exceeding rs10,000 in cash u/s 40A.
Limit for presumptive taxation u/s44AD enhanced to Rs2cr.
Cash payments of more than Rs3,00,000 in a day or in relation to a single transaction prohibited.
Tax collection at Source in respect of cash sale of jewellery in excess of Rs5,00,000 abolished.
TDS u/s 194J in respect of technical services reduced to 2% from 10%.
Conversion of preference shares into equity shares not to be regarded as "transfer" for taxation purposes.
Carbon credits to be taxed at a flat rate of 10%.
Foreign Portfolio Investor (FPI) Category I & II exempted from indirect transfer provision. Indirect transfer provision shall not apply in case of redemption of shares or interests outside India as a result of or arising out of redemption or sale of investment in India which is chargeable to tax in India.
Section 115JB amended to include certain items for calculating MAT on the accounting reclassification under Ind-AS.
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Personal income-tax
Tax rate for income between Rs2.5-5.00 lacs reduced to 5% from the existing 10%.
Surcharge of 10% of tax payable on categories of individuals whose annual taxable income is between `50 lakhs and ` 1 crore.
Individuals and HUF assesses, not liable for tax audit u/s44AB, to deduct TDS @5% on payment of rent in excess of Rs50,000/month.
Reduction in the holding period for computing long term capital gains from transfer of immovable property from 3 years to 2 years. Also, the base year for indexation is proposed to be shifted from 1.4.1981 to 1.4.2001 for all classes of assets including immovable property.
In case of joint development of property, the capital gain to arise in the hands of the owner of the property in the year when the completion certificate in respect of the redeveloped property is issued.
More bonds to be added in the list of bonds qualifying for 54EC exemption.
No exemption u/s 10(38) in respect of LTCG on sale of listed equity shares or units of eligible mutual funds shall be available if the security was acquired after 1 October 2004 and no STT was paid at the time of acquisition. However, to protect the exemption for genuine cases where the Securities Transactions Tax could not have been paid like acquisition of share in IPO, FPO, bonus or right issue by a listed company acquisition by non-resident in accordance with FDI policy of the Government etc., it is also proposed to notify transfers for which the condition of chargeability to Securities Transactions Tax on acquisition shall not be applicable.
In case of transfer of unlisted equity shares, for computation of capital gains, the higher of fair value or net consideration received to be considered.
Simple one-page form to be filed as Income Tax Return for the category of individuals having taxable income upto ` 5 lakhs other than business income.
Rebate u/s87A reduced to Rs2500 and will now be available only to assesses with taxable income upto Rs3,50,000.
Deduction u/s80CCG abolished wef FY18.
Loss under head 'Income from house Property" could be set off against income from other heads only to the extent of Rs2,00,000. Any excess loss could be carried forward to subsequent years.
Withdrawal upto 25% of the contribution made to NPS expempted from tax.
For self employed individuals, the contribution limit to NPS u/s 80CCD increased to 20% of gross total income.
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Budget Estimates
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Deficit and Debt statistics
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Major Expenditure Items
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Receipt Budget
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