Budget Highlights 2016-17
Yesterday, most of us were clued to the Budget speech by Finance Minister Arun Jaitley or were following updates on Budget on various social media & news sites. I am not a Budget expert, but here are some key takeaways which I think will directly impact you as an investor or tax payer.
Key points –
- No increase in Service Tax rates. However, just like Swachch Bharat Cess, consumers will have to now bear introduction of Krishi Kalyan Cess of 0.5% on service tax for the welfare of farmers. So total tax will be 15% from June 1st onwards.
- No proposals related to FPIs
- INR 25000 crores for recapitalization of Banks
- Reduction in Corp.Tax rate, in certain situations and with caveats
Fiscal discipline –
- Fiscal targets retained 3.9% for FY16 and 3.5% for FY17
- Allocations to states to be increased for empowerment
- Plan/non-plan expenditure separation to be abolished
- FRBM Act - to be reviewed by setting up committee (range of fiscal targets, credit growth linkage etc)
- Roads, highways – for 2017, 55000 crores allocation plus 15000 crores to be raised by NFAI bonds
- Total outlay on roads, rail, infra INR 2,21,000 crores
- Amendment in motor vehicles act to enable new framework for passenger transport
- Incentives of oil and gas discovery in deep water, to encourage investment in oil & gas sector
- Dispute resolution mechanism in PPP
- New credit rating structures for PPP infra
- FDI policy changes in - Insurance pension, stock exchange, pension funds, asset reconstruction segments
- 100% FDI through FIPB in marketing of food products for food produced in India
- CPSE assets to be monetized, Niti ayog will formulate strategic sales of assets
Financial sector reforms-
- Bankruptcy code, 'resolution of financial firms' act to be tabled in parliament
- RBI Act – policy committee based approach to monetary policy
- Financial stability – integrated data gathering
- Retail investors to be permitted in G-secs, access to NDS OM
- Corporate bond market development
- Asset recon companies – sponsor can hold 100% in ARC
- Commodity market – new derivative products to be developed by SEBI
- Allocation of 25000 crores for recapitalization of PSU banks
- IDBI – below 50% stake of government is an option being considered
- General insurance companies owned by government to be listed on stock exchanges for encouraging public ownership and transparency
- Social security platform based on Aadhar
Ease of doing business-
- Companies Act amendments for start-ups and other efficiency initiatives
- No change in income tax slabs.
- Income below 5 lakhs – Rebate increased from Rs.2,000 to Rs. 5,000 for an individual having annual income of up to Rs.5 lakh per annum. Now, such individuals can avail total rebate of Rs.5,000 in an assessment year.
- 60 K Deduction for House Rent: Deduction amount claimed against rent paid to be increased from 24,000 pa to 60,000 pa under Sec 87A. Not many know about this. Basically this is useful to people staying on rent but do not have HRA as an income component.
- Increase turnover limit to 2 crores – MSME category: presumptive income computation scheme
- Presumptive income computation scheme- for professionals. 50% of gross receipts.
- Accelerated depreciation benefit to be limited to 40%
- R&D deduction 150% FY17, 100% by FY20
- Reduction in corporate tax – (a) New manufacturing companies incorporated on or after 1.3.2016 to be given an option to be taxed at 25% + surcharge and cess provided they do not claim profit linked or investment linked deductions and do not avail of investment allowance and accelerated depreciation.
- Below 5 cr turnover – 29% tax rate
- 100% deduction of profit for start-ups 3 out of 5 years – MAT will apply
- New Patent regime – 10% income tax on patent related income on worldwide incomes
- Complete pass through of income-tax to securitization trusts including trusts of ARCs. Securitization trusts required to deduct tax at source.
- Long term cap gains period reduced from 3 to 2 years, on securities of unlisted companies
- Residency of foreign companies – "place of effective management (POEM)" - implementation deferred by 1 year
- GAAR implementation remains on schedule
- 40% of NPS Withdrawal taxfree: Up to 40% of the corpus withdrawal to be tax exempt in the case of National Pension Scheme (NPS). With additional 50 K additional tax benefit beyond 80C, NPS to become attractive for investors. The remaining 60% can be tax-free too if used for buying annuity.
- Only 40% EPF withdrawal to be taxfree: To create a level playing field amongst retirement products, Government seems to be moving EPF from 100 % EEE regime to partial EEE regime to put it on par with NPS. This is applicable only on new investments from now on. Salaried employees upto 15k per month income will be kept out of the purview of proposed taxation. PPF continues to be tax free.
- 50 K additional tax deduction for home buyers : First time home buyers to get an additional deduction of Rs.50,000 on interest component of EMI. Value of such houses should not exceed Rs 50 lakh and loan 35 lakhs.
- REITs – distribution of income free for DDT (in certain cases of affordable housing)
- 10 % Dividend Tax: Additional tax at the rate of 10% of gross amount of dividend earned will be payable by the recipients receiving dividend in excess of 10 lakh per annum. Kindly note that this is for income from only company stock dividends and NOT from MF dividends.
- 12 to 15% surcharge for income over 1 crore
- Additional tax on luxury cars
- STT on options to be increased from 0.017 to 0.05%
- Foreign e-commerce – person making payment to non-resident ecommerce – Equalization levy of 6% of gross amount for payment made to nonresidents exceeding 1 lakh a year in case of B2B transactions.
- Infra cess 2.5% on diesel cars, 4% on SUVs due to pollution. Exemption on environment friedly cars to continue
- New Dispute resolution mechanism for tax payers, compliance window for undisclosed income
- 13 different cess imposed with below 50cr collection to be abolished
- Non-residents without PAN (currently higher rate applied) – in case of specified document, no imposition of higher TDS rate)
- Long term irrigation fund to be created at NABARD = INR 20000 crores
- 89 irrigation projects to be fast-tracked
- Unified agri market scheme – e-Market platform
- Increased allocation to Gram-sadak yojna
- Interest subvention allocation INR 15000 crores
- 100% Electrification by 2018
- Digital literacy scheme
- Land Records modernization
Social sector, healthcare-
- Health insurance for poor
- Duty exemption on medical equip related to dialysis
- Entrepreneurship schemes for dalits, women
Education, skilling, Jobs -
- Quality education – new regulations planned
- Higher education financing agency, with initial outlay of INR 1000 crores
- Digital repository for educational documents
- GoI will pay contribution of 8.33% for of all new employees enrolling in EPFO for the first three years of their employment. Budget provision of INR1000 crore for this scheme