Table of Contents
•Economy Overview
•Fiscal Overview
•Balance of Payments
•International Trade
•Inflation
India Economic H...
3
India Economic Highlights
Economic Indicators
Performance
FY 2013-14
Targets
FY 2014-15
% %
GDP Growth 4.70 5.40- 5.90
Fiscal Deficit to GDP 4.50 4....
Fiscal policies to be designed to aid growth and to reach the targeted fiscal deficit.
The fiscal consolidation target in ...
Balance of Payments
Overview
The stress on India’s BoP was felt during FY 2011-12 as a fallout of the Euro Zone crisis and...
Balance of Payments
306.6
502.2
195.6
318.6
466.2
147.6
0
100
200
300
400
500
600
Exports Imports Trade deficit
2012-13 20...
International Trade
Export Composition & Sectoral Performance
Noticeable compositional changes have taken place in India’s...
Inflation
Along with slow growth, inflation continued to be an impediment. Although average WPI
inflation declined in FY 2...
Key Initiatives
10
Key Initiatives
Administrative &
Economic Initiatives
Regulatory Initiatives:
 Sovereign right of the Government to undertake retrospecti...
Sectoral Impact
12
Sectoral impact
Agriculture
 Agricultural sector has performed remarkably well in FY 2013-14. The agriculture GDP
growth for FY 2013-14 i...
Real Estate & Housing
 Smart Cities: A sum of Rs. 7,060 crore is provided in the current fiscal for the project of
develo...
Infrastructure
 The 12th Five year plan has laid special emphasis on infrastructure development as
quality infrastructure...
Mining and Metals
 Changes, if necessary, in the MMDR Act, 1957 to be introduced to encourage investment
in mining sector...
Energy
Conventional Energy:
 With 78 per cent of total demand of crude met through imports, India needs to resort to
impo...
BFSI
 Time bound program as Financial Inclusion Mission to be launched on 15 August 2014
with focus on the weaker section...
Telecommunication & IT
 A series of reform measures by the Government, innovation in wireless technology and
active parti...
Service Sector
 Growth of Service sector closely linked to FDI inflows and the role of transnational
firms.
 India’s sha...
Other Sectors
Rural Development:
 Initial sum of Rs. 100 crore for ‘Start Up Village Entrepreneurship Program’ for encour...
Taxation Proposals
22
Direct Tax proposals
Individual Income- tax below 60 years
Total income Tax rates
< 250,000 Nil
> 250,000 < 500,000 10%
> ...
Direct Tax proposals
Corporate Income- tax
Grossing up of Dividend Distribution Tax (DDT) ( w.e.f. 1 October 2014)
The com...
Direct Tax proposals
Transfer Pricing and International taxation
Roll Back of Advance Pricing Agreement (APA) [w.e.f. 1 Oc...
Indirect Tax proposals
Service Tax
 Scope of ‘Custom and Central Excise Settlement Commission’ to extend to Service
tax.
...
Glossary
27
CAD – Current Account Deficit NHAI – National Highway Authority of
India
GDP – Gross Domestic Product NH – Nat...
India budget synthesis - 2014 - An Impact on Your Pocket
India budget synthesis - 2014 - An Impact on Your Pocket
India budget synthesis - 2014 - An Impact on Your Pocket
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India budget synthesis - 2014 - An Impact on Your Pocket

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Dear Friends,

It gives us a pleasure to present the summary of India Budget Synthesis 2014.

While you may already have the snapshot, here is a document which will not only give you crisp highlights, but would also decode the impact of Budget 2014 on You, Your Company and Your Sector.

Hope you find this analysis useful in taking clearer business decisions and align your company's strategy with the overall economic climate in the balance part of financial year 2014-15.

Would love to hear your feedback on the usefulness of the same."
Regards,

Vishal Thakkar | Group Head - Corporate Relations | Synthesis Group

Hand Phone: 91 9320007891 | Boardline: 91 22 24093737 | Fax: 91 22 24093737

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India budget synthesis - 2014 - An Impact on Your Pocket

  1. 1. Table of Contents •Economy Overview •Fiscal Overview •Balance of Payments •International Trade •Inflation India Economic Highlights •Administrative & Economic Initiatives Key Initiatives •Agriculture •Real Estate & Housing •Infrastructure •Mining & Metals •Energy •Banking, Financial Services & Insurance •Telecommunications & IT •Services •Other Sectors Sectoral Impact •Direct Tax •Indirect Tax Taxation Proposals 3 2 22 12 10
  2. 2. 3 India Economic Highlights
  3. 3. Economic Indicators Performance FY 2013-14 Targets FY 2014-15 % % GDP Growth 4.70 5.40- 5.90 Fiscal Deficit to GDP 4.50 4.10 Inflation CPI terms 9.49 8.00 0 2 4 6 8 10 12 14 2006-07 2007-08 2008-09 2009-10 2010-11 2011-12 2012-13 2013-14 2014-15 BE Growth rate Inflation (CPI) Fiscal Deficit Interplay - Economic Indicators Economy Overview As the new government takes its first step to steer the economy which has seen steep decline in broad indicators, found its way through roller coaster rupee fluctuations and have come to terms with current account deficit, a few observations merit value for Union Budget FY 2014-15. In FY 2014-15, the Indian economy is all set to grow at 5+ per cent, which it could not make it to, in the last two years. The reduced speed of growth was felt everywhere, but more so in industrial sector. Inflation did pace down, but not much. However, CAD did give some relief. The bull wave of financial markets started, taking a cue from 2nd consecutive decline in fiscal deficit to GDP ratio. A further fall of inflation can help ease the stance of monetary policy and boost investor confidence. Performance based moderate recovery of developed global economies, can help look forward to better growth days in the coming year and beyond. Lower monsoon, unstable rupee and geo-political situation in oil-rich areas may pose significant challenges for the planned growth. The following economic highlights sets one more milestone in the India growth story. 4
  4. 4. Fiscal policies to be designed to aid growth and to reach the targeted fiscal deficit. The fiscal consolidation target in FY 2013-14 was achieved by cut in expenditure which may impact the overall growth status. There is a need to re-look at various tax incentives and exemption to improve tax buoyancy. Subsidies lead to wastage of scares resources and hence identification of needy beneficiary and phasing out of subsidies is a need of the hour. Disinvestment program meets limited success due to conditions in financial markets. Fiscal Overview Fiscal Consolidation roadmap Fiscal Deficit of 3% in FY 2016-17 Focus on rationalizing expenditure but without diluting the quality of expenditure 0 2 4 6 8 10 12 14 2006-07 2007-08 2008-09 2009-10 2010-11 2011-12 2012-13 2013-14 Direct Tax Indirect Tax Total Tax Tax to GDP Ratio Revenue Augmentation Measures Reasons for fall in collection 1. Simplification of tax laws 2. Rationalization of tax holidays 3. Widening of tax base 4. Recovery of arrears 5. Speedy disposal of cases 1. Economic slowdown 2. Reduction in duty rates 3. Fall in dutiable imports % 5
  5. 5. Balance of Payments Overview The stress on India’s BoP was felt during FY 2011-12 as a fallout of the Euro Zone crisis and inelastic domestic demand for certain key imports also continued through FY 2012-13 and the first quarter of FY 2013-14. The position of capital inflows during the past three years is as follows: 65.30 92.00 47.90 - 20.00 40.00 60.00 80.00 100.00 US$ Billion 2011-12 2012-13 2013-14 This moderation in levels essentially reflects a sharp slowdown in portfolio investment and net outflow in ‘short-term credit’ and ‘other capital’. Favorable Actions Non-favorable Factors TimelycorrectiveactionsbyRBI Resulting into 6
  6. 6. Balance of Payments 306.6 502.2 195.6 318.6 466.2 147.6 0 100 200 300 400 500 600 Exports Imports Trade deficit 2012-13 2013-14 Reduction in Trade Deficit (US$ Billion) 10.5% of GDP 7.9% of GDP 47% 40% 25% -12% Factors resulting into Reduction in Trade Deficit Reduction in Import of Gold & Silver Reduction in non POL and non gold imports Change in exports Higher imports under POL and Non-DGCI&S imports 88.2 32.4 0 20 40 60 80 100 US$ Billion 2012-13 2013-14 Current Account Deficit 4.7% of GDP 1.7% of GDP 292 304.2 US$ Billion 2013-14 2012-13 Leading to Favorable Forex Reserves 7
  7. 7. International Trade Export Composition & Sectoral Performance Noticeable compositional changes have taken place in India’s export basket between FY 2000-01 and FY 2013-14 with the share of petroleum, crude, and products increasing by nearly five times to 20.1 per cent, catapulted by its 33.5 per cent growth (CAGR) Percentage Share CAGR 200-01 to 2013-14 Growth Rate 2013-14 2000- 01 2013-14 I. Primary Products 16.0 15.6 16.9 4.7 II. Manufactured Goods 78.8 63.7 15.1 4.6 III. Petroleum, crude & products 4.2 20.1 33.5 3.0 Total Exports 100.0 100.0 17.2 4.1 Industries including petroleum products, engineering goods, chemicals, agriculture, textile minerals have contributed to the increase with growth rate of 4.1 per cent while certain industries like gems & jewelry and electronic goods are still facing negative growth. Import growth 32.30% 0.30% -8.30% -20.00% -10.00% 0.00% 10.00% 20.00% 30.00% 40.00% Import Growth 2011-12 2012-13 2013-14 Deceleration of Import growth owing to fall in non-oil imports by 12.8 per cent. Gold Imports: Gold imports declined from 1078 tonnes in FY 2011-12 to 664 tonnes in FY 2013-14, on the back of several measures taken by the government. In value terms, gold and silver imports fell by 40.1 per cent to US$ 33.4 billion in FY 2013-14. India’s Services Trade 6thLargest Exporter 3.4% share of world exports 7thLargest Importer 3% share of world imports YOY growth of 4 per cent in FY 2013-14 as compared to 2.4 per cent in FY 2012-13 Moderate export growth Fall in imports Trade Deficit Fall in Trade Deficit by 27.8% 8
  8. 8. Inflation Along with slow growth, inflation continued to be an impediment. Although average WPI inflation declined in FY 2013-14 to 6.0 per cent from 8.9 per cent in FY 2011-12 and 7.4 per cent in FY 2012-13, it is still high. Moreover, WPI inflation in food averaged 12.2 per cent annually in the five years ending FY 2013-14, was steeper than non-food inflation. Fortunately, the rising inflation that slowed the growth, savings, investment and consumption, has subsided. CPI declined from 10.21 per cent during FY 2012-13 to about 9.49 per cent in FY 2013-14. Fuel inflation was in double digits in the last three quarters. A major reason for high inflation in fuel and power items was the rationalization of tariff for electricity in many states, in addition to the policy of allowing greater pass-through in diesel prices and rupee depreciation. IMF forecasts commodity prices to remain stable. This will keep WPI in check. However, sub-normal monsoon on account of El Nino effect and high oil prices due to geo political situation in Middle East poses risk. Government’s decision on fertilizer subsidy and increase in Minimum Support Price would also impact food inflation. The government needs to move towards a low and stable inflation regime through fiscal consolidation, establishing a monetary policy framework, and creating a competitive national market for food. Further lower inflationary expectations should increase domestic household financial savings and make resources available for investment. 0 1 2 3 4 5 6 2004 2007 2010 2013 Volatility y-o-y CPI Inflation (%) Volatility y-o-y CPI Inflation (%) 9
  9. 9. Key Initiatives 10 Key Initiatives
  10. 10. Administrative & Economic Initiatives Regulatory Initiatives:  Sovereign right of the Government to undertake retrospective legislation to be exercised with extreme caution and judiciousness.  Legislative and administrative changes to sort out pending tax demands of more than Rs. 4 lakh crore under dispute and litigation.  Measures for widening the applicability of AAR.  Introduction of GST to be given thrust.  Convergence with International Financial Reporting Standard by adoption of the new Indian Accounting Standards (Ind AS) by Indian Companies. Foreign Direct Investment:  The composite cap of foreign investment to be raised to 49 per cent with full Indian management and control through the FIPB route.  The composite cap in the insurance sector & defense sector to be increased up to 49 per cent from 26 per cent with full Indian management and control through the FIPB route.  Requirement of the built up area and capital conditions for FDI to be reduced from 50,000 square meters to 20,000 square meters and from USD 10 million to USD 5 million respectively for development of smart cities. Budget Estimates:  Budget Plan increase targeted towards Agriculture, capacity creation in Healthcare and Education, Rural Roads and National Highway Infrastructure, Railway network expansion, Clean Energy initiatives, development of Water Resources and River Conservation plans.  Proposed to establish an Export Promotion Mission to bring all stakeholders under one umbrella. MSME Sector:  Definition of MSME to be reviewed to provide for a higher capital ceiling.  Fund of Funds with a corpus of Rs.10,000 crore for providing equity through venture capital funds, quasi equity, soft loans and other risk capital specially to encourage new startups by youth to be set up. 11
  11. 11. Sectoral Impact 12 Sectoral impact
  12. 12. Agriculture  Agricultural sector has performed remarkably well in FY 2013-14. The agriculture GDP growth for FY 2013-14 is estimated at 4.6 per cent as compared to 4.0 per cent in last four years.  Average level of mechanization in agriculture is only 25 per cent as compared to more than 90 per cent in developed countries.  Agriculture export likely to cross US$ 45 billion in FY 2013-14; higher from US$ 41 billion in FY 2012-13.  Sub-optimal management of food stocks led to wastages, fuelled inflationary pressures and added to food subsidy outgo leading to wastage of economic resources.  While the continued growth of Indian agriculture is significant in the context of food security and climate change, some major concerns remain including soil degradation, market distortions that prevent creation of national common market and creation of robust distribution network and warehousing.  On a positive note, there appears to be no cause of alarm on the El Niño front as India is well placed on food grains availability, with record domestic production and huge stocks in the central pool. Budget Highlights:  Rs. 1,000 crore provided for ‘Pradhan Mantri Krishi Sinchayee Yojna’ for assured irrigation.  More productive and asset creating linkages to agriculture and allied activities would be provided under MGNREGA.  Rs. 100 crore set aside for ‘Agri-tech Infrastructure Fund’.  Technology driven second green revolution with focus on higher productivity and including ‘Protein Revolution’ will be area of major focus.  Transformation plan to invigorate the warehousing sector and significantly improve post- harvest lending to farmers.  Corpus of Rural Infrastructure Development Fund raised by an additional Rs. 5,000 crore from the target given in the Interim Budget to Rs. 25,000 crore.  Allocation of Rs. 5,000 crore provided for the Warehouse Infrastructure Fund.  Rs. 100 crore provided for development of organic farming in North Eastern States.  Basic Excise Duty on machinery for preparation of fruits, nuts or vegetables, poultry, meat etc. reduced from 10 per cent to 6 per cent. 13
  13. 13. Real Estate & Housing  Smart Cities: A sum of Rs. 7,060 crore is provided in the current fiscal for the project of developing one hundred ‘Smart Cities’  Incentives for REITS: Complete pass through for the purpose of taxation.  A modified REITS type structure for infrastructure projects – ‘Invits’.  Allocation for NHB increased to Rs. 8,000 crore to support rural housing.  Extended additional tax incentive on home loans shall be provided to encourage people, especially the young, to own houses.  Mission on Low Cost Affordable Housing anchored in the NHB to be set up.  A sum of Rs. 4,000 crore for NHB from the priority sector lending shortfall with a view to increase the flow of cheaper credit for affordable housing to the urban poor/EWS/LIG segment is provided.  Slum development to be included in the list of CSR activities to encourage the private sector to contribute more. 14
  14. 14. Infrastructure  The 12th Five year plan has laid special emphasis on infrastructure development as quality infrastructure is important not only for sustaining high growth but ensuring inclusive growth.  Today’s outlook portrays stalled infrastructure projects due to economic slow down, lower demand , sharp rise in input costs and failure of terms of PPP agreements.  The challenge remains in identification of core set of projects, channelizing investments, expatiating implementation, maintenance of facilities, co-ordination amongst the central ministry and balancing of environmental concerns.  India has further tried to strengthen its railways, road transport, ports and civil aviation that is an important factor to any infrastructure requirement of a country. Budget Highlights:  Vision of the Government is that 500 urban habitations to be provided support for renewal of infrastructure and services in next 10 years through PPPs.  Present corpus of Pooled Municipal Debt Obligation Facility to be enlarged to Rs. 50,000 crore from Rs. 5,000 crore.  Rs. 100 crore provided for setting up a National Industrial Corridor Authority.  An institution to provide support to mainstreaming PPPPs called 4PIndia to be set up with a corpus of Rs. 500 crores.  New Airports: Scheme for development of new airports in Tier I and Tier II cities to be launched.  An investment of an amount of Rs. 37,880 crores in NHAI and State Roads is proposed which includes Rs. 3,000 crores for the North East.  Target of NH construction of 8500 km will be achieved in current financial year.  Work on select expressways in parallel to the development of the Industrial Corridors will be initiated. For project preparation NHAI shall set aside a sum of Rs. 500 crore. 15
  15. 15. Mining and Metals  Changes, if necessary, in the MMDR Act, 1957 to be introduced to encourage investment in mining sector and promote sustainable mining practices.  To give an impetus to the stainless steel industry, increase in basic customs duty on imported flat-rolled products of stainless steel from 5 per cent to 7.5 per cent.  Duty on ship breaking scrap and melting scrap of iron or steel rationalized by reducing the basic customs duty on ships imported for breaking up from 5 per cent to 2.5 per cent.  To prevent misuse and avoid assessment disputes, basic customs duty on semi processed, half cut or broken diamonds, cut and polished diamonds and colored gemstones rationalized at 2.5 per cent. Full exemption from Basic Customs Duty to pre-forms of precious and semi-precious stones.  To encourage exports, pre-forms of precious and semi-precious stones exempted from basic customs duty.  Export duty on bauxite increased from 10 per cent to 20 per cent.  Basic Customs Duty on some stainless steel flat products is being increased 5 per cent to 7.5 per cent. 16
  16. 16. Energy Conventional Energy:  With 78 per cent of total demand of crude met through imports, India needs to resort to import dependency. To meet ever growing demand for petroleum products, the GOI has endeavored to enhance exploration and exploitation of petroleum resources, along with developing a concrete and structured distribution and marketing system.  Electricity generation by power utilities grew by 6 per cent in 2013-14.  The overall long term demand for coal is closely linked to the performance of the main end use sectors, i.e. thermal power, iron & steel and cement. Sharp deceleration in the production of natural gas in the past two-three years has further increased the energy sector’s dependence on coal.  Shale Gas can emerge as an important new source of energy, as India holds several shale formations.  Rs. 100 crore is allocated for a new scheme ‘Ultra-Modern Super Critical Coal Based Thermal Power Technology.’ New & Renewable Energy:  Rs 500 crores provided for Ultra Mega Solar Power Projects in select states.  A Green Energy Corridor Project is being implemented to facilitate evacuation of renewable energy across the country.  Concessional basic customs duty of 5 per cent extended to machinery and equipment required for setting up of a project for solar energy production.  Specified inputs for use in the manufacture of EVA sheets and back sheets and flat copper wire for the manufacture of PV ribbons exempted from basic customs duty.  Reduction in basic customs duty & SAD on selected parts and raw materials used in the manufacture of wind operated generators.  Concessional basic customs duty of 5 per cent and exemption of Excise Duty on machinery and equipment required for setting up of compressed biogas plants. 17
  17. 17. BFSI  Time bound program as Financial Inclusion Mission to be launched on 15 August 2014 with focus on the weaker sections of the society.  Banks to be encouraged to extend long term loans to infrastructure sector with flexible structuring.  Banks to be permitted to raise long term funds for lending to infrastructure sector with minimum regulatory pre-emption such as CRR, SLR and Priority Sector Lending.  RBI to create a framework for licensing small banks and other differentiated banks.  Differentiated banks serving niche interests, local area banks, payment banks etc. are contemplated to meet credit and remittance needs of small businesses, unorganized sector, low income households, farmers and migrant work force.  Kissan Vikas Patra to be reintroduced.  A National Savings Certificate with insurance cover to provide additional benefits for the small saver introduced.  Service provided by recovery agents (Bank, FIIs, and NBFC) brought under reverse charge mechanism.  Service Tax exemption available for specified micro insurance schemes expanded to cover all life micro-insurance schemes where the sum assured does not exceed Rs. 50,000 per life insured. 18
  18. 18. Telecommunication & IT  A series of reform measures by the Government, innovation in wireless technology and active participation by the private sector played an important role in the growth of the telecom sector in the country.  Central Government Departments and Ministries to integrate their services with the e-Biz, a single window IT platform for services on priority by 31 December 2014.  Policy for better spectrum management through trading and sharing of spectrum needs to be looked into so as to bring down the cost of spectrum.  Pan India program ‘Digital India’ with an outlay of Rs. 500 crore to be launched.  Program for promoting ‘Good Governance’ to be launched with a sum of Rs. 100 crore.  Rs. 100 crore allocated for 600 new and existing Community Radio Stations.  Film & Television Institute, Pune and Satyajit Ray Film & Television Institute, Kolkata are proposed to be accorded status of Institutes of national importance and a ‘National Centre for Excellence in Animation, Gaming and Special Effects’ to be set up.  Corpus of Rs. 200 crore to be set up to establish Technology Centre Network .  A nationwide ‘District level Incubation and Accelerator Program’ to be taken up for incubation of new ideas and necessary support for accelerating entrepreneurship.  Rs. 100 crore is provided to set up a Technology Development Fund for Defense. 19
  19. 19. Service Sector  Growth of Service sector closely linked to FDI inflows and the role of transnational firms.  India’s share in Service Exports grown from 0.6 per cent in FY 1990 to 3.3 per cent in FY 2013. Export of financial services is on a high sky in FY 2013.  No formal source to count inflation in Service Sector. (Service Price Indices (SPI) have been developed in few sectors like Telecom, Railways, Postal and Banking on experimental basis) Share and Growth of India Service Sector (Provisional Estimate for 2013-14) Healthcare  Services by technical testing of newly developed drugs on human participants brought under service tax.  For safe disposal of medical and clinical wastes, services provided by common biomedical waste treatment facilities exempted. Top Sectors % Share Trade, hotels and restaurants 24.00 Financing, insurance, real estate & business services 18.50 Community, social and personal services 14.50 Constructions 7.80 Total Services GDP 64.80 Total GDP 100.00 Services Others India GDP composition 2013-14 20
  20. 20. Other Sectors Rural Development:  Initial sum of Rs. 100 crore for ‘Start Up Village Entrepreneurship Program’ for encouraging rural youth to take up local entrepreneurship programs. Skill Development  A School Assessment Program is being initiated at a cost of Rs. 30 crore.  Rs. 100 crore provided for setting up virtual classrooms as Communication Linked Interface for Cultivating Knowledge (CLICK) and online courses.  Rs. 500 crore provided for setting up 5 more IITs in Jammu, Chhattisgarh, Goa, Andhra Pradesh and Kerala.  5 IIMs in the States of Himachal Pradesh, Punjab, Bihar, Odisha and Rajasthan.  Skill India to be launched to skill the youth with an emphasis on employability and entrepreneur skills. Automobiles  ED on parts of tractors transferred/removed within two factories of the same manufacturer of tractor is being exempted. Consumer & Capital Goods  Full exemption from customs duty is granted to de-oiled soya extract and oil cake/oil cake meal of groundnut, sunflower, canola, mustard and rice bran, up to 31st December 2014.  Steps taken to boost domestic production of electronic items and reduce our dependence on imports. These include imposition of basic customs duty on certain items falling outside the purview of IT Agreement, exemption from SAD on inputs/ components for PC manufacturing, imposition of education cess on imported electronic products for parity, etc.  Color picture tubes exempted from basic customs duty to make cathode ray TVs cheaper and more affordable to weaker sections.  To encourage production of LCD and LED TVs below 19 inches in India, basic customs duty on LCD and LED TV panels of below 19 inches reduced from 10 percent to Nil. 21
  21. 21. Taxation Proposals 22
  22. 22. Direct Tax proposals Individual Income- tax below 60 years Total income Tax rates < 250,000 Nil > 250,000 < 500,000 10% > 500,000 < 1,000,000 20% > 1,000,000 30% Individual Income- tax over 60 years Total income Tax rates < 300,000 Nil > 300,000 < 500,000 10% > 500,000 < 1,000,000 20% > 1,000,000 30% How will the change impact you ( example for individual < 60 years ) Income FY 13-14 FY 14-15 Savings 210,000* 1,000 Nil 1,000 550,000 40,000 35,000 5,000 1,200,000 190,000 185,000 5,000 * Impact of rebate not considered Individual Income- tax • Need was felt to encourage household savings that fell from 33.7 per cent in FY 2009-10 to 30.1 per cent in FY 2012-13. To boost such savings it is proposed to raise the limit of investment linked deduction under section 80C of the Act from Rs. 100,000 to Rs.150,000. Consequently, the investment limits under PPF scheme have been revised to Rs. 150,000. • In order to mitigate the high cost housing finance for middle and lower middle class, deduction limit for interest on loan in respect of self occupied house property from Rs.150,000 to Rs.200,000. 23
  23. 23. Direct Tax proposals Corporate Income- tax Grossing up of Dividend Distribution Tax (DDT) ( w.e.f. 1 October 2014) The company declaring dividend will have to shell out additional taxes as now it is proposed to gross up the dividend amount. Manufacturing Incentive To encourage investment in manufacturing sector an additional deduction of 15 per cent under Section 32AC of the Act to continue till the block of FY 2016-17 instead of FY 2014-15. The limit of minimum Rs. 100 crore investment has been revised to Rs. 25 crore per year prospectively. Tax holiday for power sector Extension of the sunset clause for the power sector up till 31 March 2017. Real Estate Investment Trust (REIT) and Infrastructure Investment Trust (Invit) Conducive tax regime for new categories of investment vehicles namely the REIT and Invit have been specified. Advance for transfer of capital asset Income generated due to forfeiture of advances for transfer of capital asset to be taxable as ‘Income from other Sources’. Consequently, no reduction in cost to be claimed by the transferor while actual sale of the capital asset Corporate Social Responsibility CSR expenditure though incurred for the purposes of Companies Act, 2013 cannot be allowed under the existing provisions of Income- tax Act unless that are incurred for the purpose of business and meeting the requirements of Section 30 to Section 36 of the Act. Disallowance of expenditure for non- deduction of taxes Time limit for payment of taxes deducted from payments made to non residents, proposed to be extended up to the date of filing of Return of Income under Section 139(1) of the Act. Disallowance on non payment of tax at source on payments made to residents to be restricted to 30 per cent of the amount of expenditure claimed. Scope of disallowance under this provision extended to expenditure on salaries, director fees and all other expenditure taxable under XVIIB of the Act 24
  24. 24. Direct Tax proposals Transfer Pricing and International taxation Roll Back of Advance Pricing Agreement (APA) [w.e.f. 1 October 2014] A roll back provision refers to the applicability of the futuristic methodology of determination of ALP to the past international transactions. Such a roll back has been proposed for past four proceeding financial years from the previous year for which the APA applies. Introduction of concept of range Inter-quartile range as a concept of benchmarking international transaction is followed widely internationally. The same is proposed to be implemented as a part of transfer pricing provisions replacing the concept of arithmetic mean with limited use of provisions of arithmetic mean where comparable are inadequate. The same is under analysis and appropriate rules would be framed. Multiple year data Currently only one year data is permitted to be used for benchmarking. The same is proposed to be amended for use of multiple year data. This will also be in line with international practices. Amendment to the definition of International Transaction Section 92B(2) covers agreements between two unrelated parties with substantial influence from related parties generally referred to as ‘deemed international transactions’. To end an uncertainty on whether such unrelated party to be a resident or non- resident, it is proposed to amend the definition to include non- residents and residents in unrelated parties. Concessional tax rate on dividends received from foreign companies With an incentive for attracting repatriation of dividend income earned by Indian companies from investments made abroad concessional rate of 15 per cent has been continued. Concessional rate of tax on overseas borrowing (194 LC) [w.e.f. 1 October 2014] Concessional rate of withholding tax of 5 per cent to long term infrastructure bonds is now proposed to be extended to any long term bond Advance Ruling to apply to resident private companies 25
  25. 25. Indirect Tax proposals Service Tax  Scope of ‘Custom and Central Excise Settlement Commission’ to extend to Service tax.  Power of Service Tax Authorities enhanced in case of search and seizure by granting powers to any other officer notified by board.  Service provided by Director to body corporate brought under the reverse charge mechanism.  Services provided by the Employees’ State Insurance Corporation for the period prior to 1 July 2012 exempted, from service tax.  Re-credit of CENVAT credit allowed if export proceeds are received within one year from the end of specified period.  Value of service portion in works contract relating to movable and immovable property aligned to 70 per cent (w.e.f. 1 October 2014).  Variable interest rates (18 per cent to 30 per cent) to be applicable for delay in payment of tax (w.e.f. 1 October 2014).  Time-limit for taking CENVAT credit on input and input services shall be six months from date of invoice or challan or other documents specified.  Point of taxation as per Rule 7 on reverse charge to be amended to be the date of payment or the date subsequent to end of three months from the date of invoice, whichever is earlier (w.e.f. 1 October 2014).  Abatement rate to be revised to 60 per cent in case of transport of goods by vessel (w.e.f. 1 October 2014). Excise and customs:  The scheme of Advance Ruling in indirect taxes to be expanded to cover resident private limited companies. The scope of Settlement Commission to be enlarged to facilitate quick dispute resolution.  ‘Indian Customs Single Window Project’ to facilitate trade, to be implemented.  Mandatory fixed pre-deposit of 7.5 per cent of the duty demanded (including penalty) for filing appeal with the Commissioner (Appeals) or the Tribunal at the first stage and 10 per cent for filing second stage appeal before the Tribunal (subject to a total ceiling of Rs. 10 crore).  On failure to pay duty within a period of one month from the due date, penalty is payable at the rate of 1 per cent of the duty not paid for each month. 26
  26. 26. Glossary 27 CAD – Current Account Deficit NHAI – National Highway Authority of India GDP – Gross Domestic Product NH – National Highway FCNR – Foreign Currency Non Residential MMDR – Mines and Minerals Development and Regulation CPI – Consumer Price Index FY – Financial Year BOP – Balance of Payments BE – Budget Estimate POL – Petroleum, Oil & Lubricants ECB – External Commercial Borrowing YOY – Year On Year RBI – Reserve Bank of India IMF – International Monetary Fund US FED – United States Federal Reserve GST – Goods and Services Tax GOI – Government of India FIPB – Foreign Investment Promotion Board CVD – Counter Veiling Duty FDI – Foreign Direct Investment ED – Excise Duty MSME – Micro Small and Medium Enterprises CRR – Cash Reserve Ratio LIG – Low Income Group SLR – Statutory Liquidity Ratio REITS – Real Estate Investment Trusts PSL – Priority Sector Lending Invits – Infrastructure Investment Trusts KVP – Kisan Vikas Patra CSR – Corporate Social Responsibility FII – Foreign Institutional Investor NHB – National Housing Board BN – Billion MGNREGA – Mahatma Gandhi National Rural Employment Guarantee Act NBFC – Non Banking Financial Corporation EWS – Economically Weaker Section FDI – Foreign Direct Investment PPP – Public Private Partnership FPI – Foreign Portfolio Investor IT – Information Technology IIT – Indian Institute of Technology BFSI – Banking, Financial Services and Insurance DGCI&S – Director General of Commercial Intelligence & Statistics IIM – Indian Institute of Management SAD – Special Additional Duty CAGR – Compounded Annual Growth Rate AAR – Authority for Advance Ruling The Act – Income Tax Act, 1961

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