From continued support to Start Up India and Stand-Up India to big time investments in agriculture, infrastructure and rural development, the finance minister in his third budget has proposed a host of measures to make Indian economy “hold its ground amid global headwinds”. Lex Witness takes you through some important measures taken in the budget this year.
It is said that the budget presented by the government is not merely a statement of receipts and expenditure, it is, in fact, a statement of government policy. The budget, indeed, reflects and shapes, and is, in turn, shaped by the country’s economy. The annual exercise of presenting budget in the Parliament is one of the most important duties of the government. This exercise is mandated by the Constitution of India. The Articles 112, 113 and 114(a) mandate presentation of Annual Financial Statements, Demand for Grants and Appropriation Bill. A Finance Bill is also presented at the same time to fulfill the requirement of Article 110 (1)(a) of the Constitution, detailing the imposition, abolition, remission, alteration or regulation of taxes proposed in the Budget.
This year’s budget was presented by the Finance Minister amid turbulent time when the student unrest and protests were visible all across the campuses following the arrest of a student leader in Delhi over the charges of sedition and the suicide of a Dalit student in Hyderabad University.
The budget this year is heavily geared towards the rural India. According to Finance Minister, the budget 2016-17 reflects government’s firm commitment to substantially boost investment in agriculture, social sector, and infrastructure, and employment generation on the one hand and simultaneously sticking to the fiscal consolidation path. The growth of GDP is seen at 7.6%. Under the FRBM Act, 2003, the government has set a fiscal deficit target of 3.5% for the year 2016-17. However, the government has proposed reviewing of the working of the FRBM Act by a Committee to review the implementation of the FRBM Act and give its recommendations on the way forward. The government has also proposed to give statutory status to Adhar. A new bill for Targeted Delivery of Financial and Other Subsidies, Benefits and Services by using the Aadhar framework will be introduced in the Parliament.
The budget has also relaxed FDI norms in some sectors. It has allowed FDI in insurance and pension sectors under the automatic route upto 49% and 100% FDI under the automatic route in case of asset reconstruction companies and entities engaged in marketing of food products produced and manufactured in India. FDI limit for individual foreign investors in stock exchanges has been increased from 5% to 15%.
To strengthen public private partnership mode, the budget has proposed to enact a legislation. It has proposed to introduce a Public Utility (Resolution of Disputes) Bill in the Parliament during 2016-17. For the bond market, the Finance Minister has proposed to permit FPIs to invest in ‘unlisted debt securities’ as well allowing them to invest in pass through securities issued by securitization companies.
For the ease of doing business, the Finance Minister has announced that the Companies Act 2013 will be amended which will have provision for registration of a new company in one day. To deal with the problems of stressed assets in public sector banks, the FM has announced allocation of ` 25,000 cr to these banks. According to FM, amidst all global headwinds, the Indian economy has held its ground firmly, and going forward, we must strengthen firewalls against risks.
Let us now look at the major announcements made by the budget 2016-17.
The Budget 2016-17 proposes to double the income of the farmers by 2022. The total allocation for agriculture and farmers’ welfare this year is ` 35,984 crore. Highlighting the lack of irrigation, the government has proposed to bring more areas under irrigation. The implementation of 89 irrigation projects under AIBP, are going to be fast tracked. The budget proposes a dedicated Long Term Irrigation Fund which will be created in NABARD with an initial corpus of about ` 20,000 crore. The budget also announces a simultaneous programme for sustainable management of ground water resources with an estimated cost of ` 6,000 crore and proposed it for multilateral funding.
As for increasing the access to market by the farmers, the budget proposes a Unified Agriculture Marketing Scheme which envisages a common e-market platform that will be deployed in selected 585regulated wholesale markets. The budget has increased allocation for Pradhan Mantri Gram Sadak Yojana (PMGSY). For the effective implementation of Crop Insurance Scheme, the budget has provided a sum of ` 5,500 crore in the Budget 2016-17. An online Procurement System has also been proposed to be undertaken through the Food Corporation of India.
The budget this year is rural centric with emphasis on rural employment and infrastructure. For rural development as a whole, ` 87,765 crore has been allocated for 2016-17. A sum of ` 2.87 lakh crore will be given as Grant in Aid to Gram Panchayats and Municipalities as per the recommendations of the 14th Finance Commission. For the year 2016-17, a sum of ` 38,500 crore has been allocated for MGNREGS. And ` 9,000 crore has been provided for Swachh Bharat Abhiyan. The budget proposes to establish a new Digital Literacy Mission Scheme for rural India to cover around 6 crore additional households within the next 3 years. The government has already introduced two schemes to promote digital literacy, which are National Digital Literacy Mission and Digital Saksharta Abhiyan (DISHA). Also, the National Land Record Modernisation Programme has been revamped under the Digital India Initiative and will be implemented as a Central sector scheme with effect from 1st April, 2016.
The Budget proposes to provide LPG connection to BPL households and has set aside a sum of ` 2,000 crore. A new health protection scheme has also been proposed to provide health cover up to ` one lakh per family for the BPL category. For senior citizens of age 60 years and above belonging to this category, an additional top-up package up to ` 30,000 will be provided. For the patients who need dialysis, the budget proposes to start a National Dialysis Services Programme. For this, the funds will be made available through PPP mode under the National Health Mission. To reduce the cost, certain parts of dialysis equipment will be exempted from basic customs duty, excise/CVD and SAD.
An increasing share of allocation under Sarva Shiksha Abhiyan is made in this budget. A Higher Education Financing Agency (HEFA) with an initial capital base of ` 1,000 crores is going to be set up. The HEFA will be 12 not-for-profit organisations that will leverage funds from the market and supplement them with donations and CSR funds. The government is also going to set up 1500 Multi Skill Training Institutes across the country and spend ` 1,700 crore for these initiatives.
For job creation in the formal sector, the budget proposes to pay the Employee Pension Scheme contribution of 8.33% for all new employees enrolling in EPFO for the first three years of their employment. Further, the Finance Bill, 2016 proposes to broaden and liberalize the scope of the employment generation incentive available under Section 80JJAA of the Income Tax Act. To boost retail trade, the budget also proposes to circulate a Model Shops and Establishments Bill which can be adopted by the state governments on voluntary basis.
The budget has allocated ` 55,000 crore for Roads and Highways and additional Rs 15,000 crore to be raised by NHAI through bonds. The total investment in the road sector, including PMGSY allocation, is seen at ` 97,000 crore during 2016-17.
The Budget 2016-17 has proposed to amend the Motor Vehicles Act and open up the road transport sector to private players in the passenger segment. Through this new legal framework, the government will entrepreneurs to operate buses on various routes. To augment infrastructure spending further, the budget aims at mobilisation of additional finances to the extent of ` 31,300 crore by NHAI,PFC, REC, IREDA, NABARD and Inland Water Authority through raising of Bonds during 2016-17. For enhancing private sector role in the development of infrastructure in the Public Private Partnership (PPP) mode, the budget proposes three new initiatives:
For power generation, the FM has announced that the government is drawing up a comprehensive plan, spanning next 15 to 20 years, to augment the investment in nuclear power generation. Budgetary allocation up to ` 3,000 crore per annum, together with public sector investments, is to be leveraged to facilitate the required investment for this purpose.
The Budget has proposed to establish a comprehensive Code on Resolution of Financial Firms, a specialized resolution mechanism to deal with bankruptcy situations in banks, insurance companies and financial sector entities. The budget allocates ` 25,000 crore in BE 2016-17 towards recapitalisation of Public Sector Banks. The FM has said that if additional capital will be required by these Banks, the government is committed to find the resources for doing so.
To tackle the problem of stressed assets in the banking sector, the Budget proposes to make amendments in the SARFAESI Act 2002 to enable the sponsor of an Asset Reconstruction Companies (ARCs) to hold up to 100% stake in the ARC and permit non-institutional investors to invest in Securitization Receipts. To curtail illicit deposit taking schemes, the budget propose to bring in comprehensive Central legislation in 2016-17 to deal with the menace of such schemes. The budget also proposes to amend the SEBI Act 1992 in the coming year to provide for more members and benches of the Securities Appellate Tribunal.
The budget has raised the ceiling of tax rebate under section 87A from ` 2000 to ` 5000 to lessen tax burden on individuals with income up to ` 5 lakhs and increases the limit of deduction of rent paid under section 80GG from ` 24000 per annum to ` 60000, to provide relief to those who live in rented houses. The Presumptive taxation scheme under section 44AD of the Income Tax Act is available for small and medium enterprises i.e non corporate businesses with turnover or gross receipts not exceeding one crore rupees.
The budget has proposed two changes in corporate income-tax rates:
The budget proposes 100% deduction of profits for 3 out of 5 years for startups set up during April 2016 to March 2019. MAT will apply in such cases. Capital gains will not be taxed if invested in regulated notified Fund of Funds and by individuals in notified startups, in which they hold majority shares. The budget proposes a special patent regime with 10% rate of tax on income from worldwide exploitation of patents developed and registered in India. The Budget also proposed to make amendment in Companies Act to enable new startup to register their companies in one day.
Asset Reconstruction Companies (ARCs) will be provided a complete pass through of income-tax to securitization trusts including trusts of ARCs. The income will be taxed in the hands of the investors instead of the trust.
The period for getting benefit of long term capital gain regime in case of unlisted companies has been reduced from three to two years. Non-banking financial companies shall be eligible for deduction to the extent of 5% of its income in respect of provision for bad and doubtful debts.
General Anti Avoidance Rules (GAAR) is expected to be implemented from 1.4.2017 and the government would conform with the recommendations of the OECD on BEPS on tax planning strategies.
In the housing sector, the budget proposes to give 100% deduction for profits to from a housing project for flats up to 30 sq. metres in four metro cities and 60 sq. metres in other cities, approved during June 2016 to March 2019, and is completed within three years of the approval.
On income accruing to foreign e-commerce companies from India, the budget proposes that a person making payment to a non resident, who does not have a permanent establishment, exceeding in aggregate ` 1 lakh in a year, as consideration for online advertisement, will withhold tax at 6% of gross amount paid, as Equalization levy. The levy will only apply to B2B transactions.
The Budget has a limited period scheme from 1st June to 30th September, 2016, for domestic taxpayers to declare undisclosed income by paying tax at 30%, and surcharge at 7.5% and penalty at 7.5%. There will be no scrutiny or enquiry regarding income declared in these declarations under the Income Tax Act or the Wealth Tax Act and the declarants will have immunity from prosecution.
The budget has a new Dispute Resolution Scheme. According to this new scheme, penalty in respect of Income-tax cases with disputed tax up to ` 10 lakh will be levied. Cases with disputed tax exceeding Rs 10 lakh will be subjected to only 25% of the minimum of the imposable penalty for both direct and indirect taxes. Any pending appeal against a penalty order can also be settled by paying 25% of the minimum of the imposable penalty. However, certain categories of persons charged with offences under specific Acts are proposed to be barred from availing this scheme
The Budget has fixed penalty rates to be 50% of tax in case of underreporting of income and 200% of tax where there is misreporting of facts. The budget also proposes to provide a time limit of one year for disposing petitions of the tax payers seeking waiver of interest and penalty. The budget has made it mandatory for the assessing officer to grant stay of demand once the assesse pays 15% of the disputed demand, while the appeal is pending before Commissioner of Income-tax (Appeals).
“Well-balanced budget. FM shown determination to keep fiscal deficit at 3.5%. We were expecting focus on rural economy and infrastructure and FM has done that. FM has touched on every aspect. It's a wellrounded, progressive Budget”
The budget has created 11 new benches of Customs, Excise and Service Tax Appellate Tribunal (CESTAT) for removing backlog of cases. The monetary limit for deciding an appeal by a single member Bench of ITAT is proposed to be enhanced from ` 15 lakhs to ` 50 lakhs.
13 Cesses Abolished & No Higher TDS for Non-resident The Budget has abolished 13 cesses, levied by various Ministries in which revenue collection is less than ` 50 crore in a year. The budget proposes to amend section 206AA of the Income Tax Act for those non-residents providing alternative documents to PAN card, higher TDS will not apply.
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