cajobportal.com – Analysis -Union Budget 2016

Table of Contents

Disclaimer.

Executive Summary.

Direct Taxation – Individuals.

Direct Taxation – Corporates.

Other taxation proposals.

Indirect Taxes.

Small businesses & Entrepreneurship.

Youth & Jobs Creation.

Rural India.

Financial Services.

Fiscal Discipline.

About Us.

 

Executive Summary

As we gear ourselves to dissect the anatomy of Mr Jaitley’s budget speech, we must take into cognisance the negative headwinds in the background, be it the global economy (global trade shrank 4.4% last year), Indian politics (stalemate on the GST and Insolvency Act) as well as the drought like weather conditions

The world is predicting that it is India’s chance to fly; that our nation is one of few bright spots on the stuttering global economic landscape

In the classical political rhetoric, he attributed a lot of sourness in the current economy, be it Banking NPAs or tax adventurism to his predecessors.

Income tax slabs remained unchanged, corporate tax rates were slightly lowered for specific classes, and cigarettes, SUVs, branded jewellery just turned costlier.

Mr Jaitley’s Budget was structured along 9 pillars — Agriculture and farmers\’ welfare, rural sector, social sector including healthcare, education, skills and job creation, infrastructure, financial sector reforms, ease of doing business, fiscal discipline, tax reforms to reduce compliance burden.

As analysts in Team cajobportal.com witnessed the 105 minute budget speech in motion, we noticed a conscious effort to make structural changes in the contours of the national economy, be it fast tracking of infrastructure projects, be it irrigation, highway or deep sea exploration, empowering the rural panchayats with Rs. 287,000 crores, aiming to double farmer income by 2020, promoting new manufacturing companies & entrepreneurial ventures. The government has expressed its commitment to a lower tax regime with non-litigious framework

Hope you find our compilation useful

Warm Regards

Sonia Singal

Co-founder: cajobportal.com™

HMP House, 4, Fairlie Place, Kolkata-1

 

Direct Taxation – Individuals

  1. People with income less than Rs. 5 lakh to get deduction of Rs 5,000, up from Rs 2,000 last year.
  2. HRA deduction u/s 80 GG (for those who do not have a house of their own and also do not get HRA from employers) up from Rs. 24,000 to Rs. 60,000 p.a.
  3. 40% of withdrawal at the time of retirement under National Pension Scheme to be tax exempt. This was quite awaited and will provide a thrust to the NPS scheme. Similarly 40% of withdrawal from Superannuation and PF will also be tax-free
  4. For first home buyers, additional exemption of interest on housing loan of Rs. 50,000. Qualifying Criteria is that the loan value should be max Rs. 35 lakh on cost of house not exceeding Rs. 50 lakh.
  5. Tax-free superannuation limit increased to Rs 1.5 lacs
  6. Dividend income of Individuals and HUF exceeding Rs 10 lac p.a. will now be taxable @ 10%

 

Direct Taxation – Corporates

  1. New cos will not be allowed to seek any exemption, say new SEZ units will get income tax exemption only up to 31st march 2020. This essentially signals phasing of exemptions to corporates and reducing overall Effective Tax Rate (currently at 24.67%)
  2. New manufacturing companies ( set up after 1/4/16) to be taxed at 25% plus surcharge
  3. From FY 18, companies with turnover not exceeding Rs. 5 crore to be taxed at 29% plus surcharge. (
  4. Tax holiday for start-ups set up after 1/4/16 for three of the first five years of setting up the company
  5. LTCG period for unlisted companied reduced to 2 years
  6. Presumptive taxation scheme limit enhanced to Rs 2 crores. Thus small and medium businesses can opt for 8% presumed income and will not have to maintain accounts or get them audited
  7. Presumptive taxation scheme for professionals with receipt up to Rs 50 lacs p.a. They can opt for 50% presumed income and will not have to maintain accounts or get them audited
  8. 100% deduction to undertakings for construction of affordable housing. Positive for companies like DLF, DB Realty, NBCC

Other taxation proposals

  1. Limited period compliance window for undisclosed income from 1st June’16 to 30th Sep’16. Tax payable is 30%+7.5% Surcharge+7.5% Penalty
  2. One-time Scheme w.r.t Dispute Resolution provided the case withdrawn. The waiver of interest and penalty should incentivise companies like Vodafone to finally breathe easy
  3. New dispute resolution rules for expediting disposal of the ~ 300,000 pending cases
  4. E-assessment of scrutiny cases, making life easier for the tax payer
  5. TDS Rules to be simplified
  6. The government re-affirmed its plans to implement General Anti Avoidance Rule( GAAR) from April 1, 2017, a major negative for FIIs and the stock market
  7. 1-4% infra cess on cars, SUVs, higher engine capacity vehicles.
  8. 1% Tax Collected at Source on any in-cash purchase of goods and services over Rs. 2 lakh. So using black money became all the more tougher
  9. High-level Committee Chaired By Revenue Secretary To Allay Fears Of Retro Tax
  10. 13 different cesses levied by various ministries with collections less than Rs.50 crore a year to be done away with.
  11. 6% withholding tax on B2B transactions by e-commerce companies to holding companies abroad

Indirect Taxes

  1. Krishi Kalyan Cess of 0.5% on Service Tax. However the same is cenvatable
  2. Cenvat Credit Rules to be simplified
  3. Custom baggage rules simplified and limits increased
  4. No Service Tax for houses built under 60 square metres.
  5. Clean energy cess for coal doubled to Rs 400/ tonne: negative for coal consumers as well as Coal India
  6. Excise on tobacco increased by 10% to 15%
  7. 5% tax on diesel vehicle. Negative for companies like M&M, Ashok Leyland, Eicher Motors
  8. Cess on crude reduced from Rs 4500/MT to 20% ad valorem. Positive for companies like ONGC
  9. Customs duty on aluminium raised to 7.5% from 5%. Positive for companies like Hindalco, Nalco
  10. Excise duty on aviation fuel increased to 14% from 8%. Negative for companies like SpiceJet, Jet, InterGlobe
  11. 11 new benches of Indirect Tax tribunal- CESTAT-expediting disposal of tax cases

Small businesses & Entrepreneurship

  1. To maintain competitive parity with shopping malls, Small and medium sized shops also would be allowed to be open for 7 days a week under the proposed amendment of Shops and Establishment Act
  2. Stand Up India Scheme for SC/ST entrepreneurs. Budgetary allocation plus preference in government procurement. . SC/ST Hub to be set up in MSME Ministry.
  3. Entrepreneurship education and training (online courses, mentoring) will be provided in 2200 colleges, 300 schools, 500 govt. it is and 50 vocational training centres through open online courses.
  4. Companies Act to be amended to ensure ease of doing business

 

Youth & Jobs Creation

  1. Government will pay employers\’ share of 8.33 per cent in the Employee Provident Fund (EPF) for all new employees for first three years. The decision has been taken to \”incentivize employers to recruit non-employed persons\”. The scheme will be applicable for persons with a monthly salary of Rs. 15,000.
  2. Section 80 JJAA of Income Tax Act being amended to broaden the scope of employment generation incentives. Government will pay 30% of emoluments for minimum 240 days of employment generated for salary upto Rs 25,000 p.m.
  3. 100 National Career Centres to be set up and also linked to state employment exchanges
  4. Digital Depository will be set up for educational certificates, mark-sheets, awards

Rural India

  1. Rs 2.87 lakh crore will be given as Grant in Aid to Gram Panchayats and Municpalities as per the recommendations of the 14th FC. This translates to – Rs. 81 lakh per gram panchayat and over Rs. 21 crore per Municipality
  2. Aadhar to be given statutory backing. Pilot rollout of Aadhar in fertilizer subsidy
  3. 100% FDI in food processing
  4. W-e-f 14th April, 2016, unified e-market platform to enhance farmer access to markets; Agricultural Produce Market Committee (APMC) has already been amended in 12 states and more to follow
  5. FCI will undertake online procurement of food grains. This will bring transparency and convenience to farmers through prior registration and monitoring of procurement.
  6. Rs 27,000 crores for irrigation in this year and Rs 86,500 cr on irrigation projects in next 5 years and Dedicated Long Term Irrigation Fund will be created in NABARD with initial corpus of Rs. 20,000 crore.
  7. Crop insurance scheme to be introduced. Soil Health Cards will be given to 14 crore farm holdings by March, 2017.
  8. Scheme geared towards digitising 12 crores of the 16.8 cr rural households
  9. LPG gas connection to 5 crores BPL women household members
  10. Health care insurance scheme with Rs 1 lakh as cover per family and Rs 1.3 lacs for senior citizens

Infrastructure

  1. 85% of highway schemes have been revived and put on track. The budget provides for allocation of Rs 55,000 cr for roads & highways plus Rs 15,000 cr NHAI bonds. If we include rural roads, the outlay would be Rs 97,000 cr. Including railway budget, Rs 217,000 cr has been provided for rails and roads in FY 17
  2. Motors Vehicles Act to be amended to provide for an ecosystem to promote passenger travel by road and also start-ups in this space
  3. To issue guidelines for renegotiation of PPP contracts –Public Utility Resolution of Disputes
  4. Credit Rating for infra projects to be streamlined to provide for more streamlined pricing of risk in the loans
  5. The government to incentivise gas production from deep sea & ultra-deep waters; under calibrated market freedom, the pricing regime to be more transparent and linked to landed price of alternate fuel. This would avoid a Reliance Industries like controversy
  6. Greenfield ports in Eastern and Western India, promotion of unused airstrips,
  7. Got committed to achieve 100% village electrification by May 1, 2018
  8. Modernisation of Land Records through revamped National Land Records Programme.

Financial Services

  1. Rs 25,000 cr for PSU banks recapitalisation in this year
  2. A comprehensive Code on Resolution of Financial Firms will be enacted. Together will the Bankruptcy and Insolvency Law, this will fill a major systemic vacuum. This is a big reform measure.
  3. SARFAESI Act to be amended to strengthen Asset Reconstruction Companies. This will help in dealing with stressed assets of Banks.
  4. Considering reduction of Government equity in IDBI Bank to less than 49%
  5. DRTs to be strengthened with computerized processing of court cases.
  6. General Insurance Companies will be listed in stock exchanges for improving transparency, accountability and efficiency.
  7. Comprehensive Central legislation to deal with Illicit Deposit Taking schemes will be enacted.

Fiscal Discipline

  1. Fiscal deficit target of 3.5% of GDP in 2016-17
  2. Committee for review of FRBM Act.
  3. Removal of Plan/Non Plan classification from 2017-18
  4. Rationalisation of Central Plan Schemes. More than 1500 Central Plan schemes have been restructured to about 300 Central sector and 30 centrally sponsored Schemes.

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Disclaimer

The objective of this report is merely to highlight the key takeaways from the Union Budget 2016. It should not be construed to be, in any manner, as expressing any opinion on the performance of the Central Government

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