UNION BUDGET 2015-16 – THOUGHTS AND HIGHLIGHTS

[Dr. Sanjiv Agarwal]

Economy

If Economic Survey for the year 2014-15 is to be believed, India has overturned its economic growth pattern to positive and its Gross Domestic Product (GDP) is expected to grow at 7.4 percent in current fiscal. Based on normal monsoon; economic, fiscal and industrial reforms and lower oil prices, it is expected that our economy will grow in the range of 8.1 - 8.5 percent in 2015-16.

The economic analysis about Indian economy is on a optimistic note and, rightly so, as we move towards a growth trajectory, albeit slowly. It appears that we have come out of the negative growth regime of past three years. The reasons include controlled inflation, present GDP growth rate of 7 percent or above, stable Indian currency, fiscal deficit through fiscal discipline reasonably under tolerable levels(with all intentions to mange it better in future), upbeat stock markets, make in India drive, focus on curbing corruption / black money and host of socio-economic measures taken recently and those under way.

The industrial growth which is (-) 0.1 percent in 2014-15 (10 months) is likely to grow @ 2.1% in 2015-16. While the inflation is presently contained and under control at below 6 percent, it may go up soon, one the tax proposals in Budget are implemented as many of those would lead to price rise.

Budget

The Union Budget for 2015-16 as announced in Parliament on 28^th February 2016 claims to be aimed at accelerating growth, enhancing investment and improving quality of life. It also focuses on industrial growth, social security measures and long term reforms in the areas of infrastructure, banking and creating an environment of doing business in and India with ease.

It also aims at tax buoyancy, observance of fiscal discipline and double digit economic growth in mid-term. Jobs creation and nurturing young Indians with encouragement to entrepreneurs and start ups is also commendable.

GST and Service Tax

On a optimistic note, introduction of common Goods and Services Tax (GST) could be a game changer. The economic situation is therefore upbeat, on a rise and forward looking so far as growth and reforms are concerned.

So far as goods and services are concerned, there are many items on which excise duty has been increased from 6% to 12% including mobile handsets. On certain input and raw materials, duties have been rationalized or hiked.

On Service Tax front, Government has been too harsh and aggressive as it appears from the target of Service Tax collection itself. From a revised tax target of ₹ 168000 crore in current fiscal, it is aimed to collect Service Tax of ₹ 210000 crore in financial year 2015-16. To achieve this, the budget proposes to mercilessly increase the rate of Service Tax by 2 percent from 12% to 14% a hike of about 17 percent from earlier rate. As if this was not enough, a new cess in the name of Swachh Bharat Cess is proposed @ 2 percent and that too on value of service, not on tax. So, the effective Service Tax rate would be 16 percent which is 133 percent of earlier tax rate of 12%. This is just not expected from a Government that claims to be concerned about its people. This will surely lead to inflationary trend. Value of services will also go up as all reimbursements shall be part of value which will be subjected to tax.

To expand scope of Service Tax levy, negative list of services has been pruned and many exemptions curtailed. Service Tax shall now be payable on job works for manufacture of alcoholic beverages, support services provided by Government, taxi aggregators, mutual funds agents and lottery distributors, certain construction activities etc. However, some small exemptions have also been provided here and there such as for common effluent treatment plants, senior citizen insurance etc.

However, indirect tax proposals and levy of surcharge and new cess in the name of Swachh Bharat Cess would fuel inflation.

Budget Highlights

Here are the highlights of Union Budget 2015-16 touching upon economy and various tax proposals -

Economy

• Indian economy (GDP) grew @ 7.5% in 2014-15
• Expected to grow at 8.1- 8.5 in f.y. 2015-16
• Current inflation rate at 5.1%
• Inflation to be contained below 6%
• Net tax revenue grew @ 16.9% in 2014-15
• Stable Indian rupee
• Direct Tax revenue as % of GDP at 5.8%
• Indirect tax revenue as % of GDP at 4.9%
• Road map to target fiscal deficit of 3% of GDP in next three years (by 2018)
• Banking sector reforms include a new Bankruptcy code and a separate Board for banks' top management
• Large NBFC's (over ₹ 500 crore) to be at par with banks for SERFASI Act

Goods and Services Tax (GST)

• State of the art GST regime to be introduced
• GST likely to be introduced from 1^st April, 2016
• GST will enable leakage proof tax regime
• No clear cut road map on GST as to how GST will be introduced from 1^st April 2016 and preparedness there for.

Direct Taxes

• No change in Income Tax slabs or exemption limit
• Separate law for black money
• Direct tax proposals to yield net loss of ₹ 8315 crore.
• Corporate Tax rate to be reduced from 30% to 25% over four year period
• Transport allowance deduction up from ₹ 800 pm to ₹ 1600 pm
• Additional deduction under National Pension Scheme (NPS) of ₹ 50,000.
• Tax payers can achieve upto ₹ 4,44,200 tax exemptions under various schemes (based on investments)
• Health insurance and other benefits under section 80D and 80 DDB hiked
• Wealth tax abolished but a new levy in form of surcharge levied (only ₹ 1008 crore collections as wealth tax)
• Additional surcharge @ 2% of tax on super rich assessees (with over ₹ 1 crore income) yield over ₹ 9000 crore.
• Mention of PAN number to be made mandatory for transactions of over ₹ 1 lakh
• Encouragement to cash-less transactions via debit / credit cards, online payments
• Penalties and punishments made rigorous including imprisonments
• GAAR to be deferred by two years
• 100% tax exemption for contribution to Swachh Bharat initiative

Service Tax

• Service Tax target for financial year 2015-16 fixed at ₹ 2,09,774 crores
• Net indirect tax proposes to yield ₹ 23383 crore
• Rate of Service Tax up from 12 percent to 14 percent
• Education cess and secondary and higher education cess subsumed in GST
• A new levy called Swachh Bharat cess levied @ 2 percent of tax value (in nature of Service Tax)
• Effective rate of Service Tax including Swachh Bharat cess will be 16%- a rise of 33.33 percent over 12 percent presently levied.
• Online registration for excise and Service Tax in 2 days.
• Definition of 'Government' provided
• Definition of 'service' amended to include conducting of chit and lottery distribution activities
• Negative list pruned to tax services of access to amusement facilities, admission to entertainment events (with fee of over ₹ 500), job works for manufacture of alcoholic beverages, expanding the scope of support services to cover all services
• Exemption have been curtailed on certain construction activities, performance by artists, transportation of specified articles, mutual funds agents, selling of lottery tickets etc.
• New exemptions for exhibition of films, specified services for fruits and vegetables, life insurance for senior citizen, ambulance services, admission to zoo / national park, goods transport for export etc.
• No Service Tax on yoga classes
• Value of services to include reimbursement of expenses / costs
• Abatements rationalized for transport services, air travel etc; withdrawn for chit fund services
• Taxation on aggregator services (taxi operations using technology)
• Changes in reverse charge-to cover mutual fund agents / lottery agents
• Manpower supply brought under full reverse charge.

Excise / Customs

• Customs duty to be reduced on 22 items
• Reduction in duty on inputs to address problem of duty inversion
• Reduction in basic customs duty to reduce cost of raw materials
• Reduction in SAD to address issue of cenvat credit accumulation
• Excise duty on mobile handsets with Cenvat option doubled from 6% 12.5%
• Excise duty on select goods restructured (on wafers used in integrates circuits; increased on mobile handsets, tablet computes; solar water heaters) etc.
• Time limit for taking Cenvat credit increased from 6 months to one year from invoice date
• Excise duty on rails for track exempted from 17.3.2012 if no Cenvat credit availed
• Reduction in number of excise levies
• Compliance facilitation measures put in place