10 min read.Updated: 03 Mar 2015, 01:12 PM ISTLivemint
Here are the 8 questions and answers that explain how the Budget 2015 affects the government, industries and you
New Delhi: Finance minister Arun Jaitley on Saturday unveiled a budget that aims to ramp up growth. Here are the 10 questions and answers that explain how the Union Budget 2015 affects the government, industries and you.
Finance minister Arun Jaitley has introduced a host of measures to make it easy for foreign investors to invest in India.
Jaitley has postponed the implementation of the general anti-avoidance rules (GAAR) by two years. This will provide a respite for foreign investors who have been dreading implementation of GAAR, which would empower the tax department to crack down on entities that structure investments in such a way as to avoid paying tax.
Jaitley said a bankruptcy code will be rolled out in the next fiscal that will make it easier for investors to exit their investments.
To cut down the time taken in resolving disputes arising out of public contracts in the infrastructure sector, the finance minister has proposed a Public Contract (resolution of disputes) law.
Jaitley allowed foreign investments in alternative investment funds (AIFs) and a tax pass-through on both Category-I and Category-AIFs, so that tax is levied on the investors in these funds and not on the funds per se. This will help private equity (PE) investors mobilize more resources.
Also, the budget seeks to correct the present taxation structure where PE investors have a built-in incentive for fund managers to operate from offshore locations. To encourage such offshore fund managers to relocate to India, the permanent establishment norms will be modified so that the mere presence of a fund manager in India would not constitute PE of the offshore funds, resulting in adverse tax consequences.
The budget also rationalized the capital gains regime for the sponsors of real estate investment trusts (REITs) and infrastructure investments trusts (InvITs) exiting at the time of listing of the units of REITs and InvITs, subject to payment of securities transaction tax.
The government also proposes to do away with the distinction between different types of foreign investments, especially between foreign portfolio investments and foreign direct investments (FDI), and replace them with composite caps.
The finance minister has also proposed to bring only those indirect transfer transactions under the capital gains tax net where 50% of the value of all assets owned and controlled are located in India. He has also stipulated that the value of such assets should exceed ₹ 10 crore.
This will provide clarity to foreign investors on the taxability of merger and acquisition (M&A) transactions in India where shares are transferred outside India, though the underlying asset is in India.
2) Does it make it easy to do business in India?
The government proposes to appoint an expert committee to prepare draft legislation that will make it easier to obtain regulatory clearances quickly, in turn making it easier to do business in India.
“I intend to appoint an expert committee for the purpose to examine the possibility and prepare a draft legislation where the need for multiple prior permissions can be replaced with a pre-existing regulatory mechanism," finance minister Arun Jaitley said while presenting the Union budget on Saturday.
Jaitley said investors spent a large amount of time and resources in getting multiple permissions.
The government aims towards facilitating ease of doing business, he said, adding he has recently launched an E-biz portal which integrates 14 regulatory permissions at one source.
“However, if we really want to create jobs, we have to make India an investment destination which permits the start of business in accordance with publicly stated guidelines and criteria," Jaitley said.
India has been ranked 142 among the 189 countries in the World Bank’s latest ease of doing business index, falling two places from last year’s ranking.
Jaitley also said the online central excise and service tax registration will now be completed in two working days. The assessees under these taxes will be allowed to issue digitally signed invoices and maintain electronic records.
These measures will help cut down paperwork and red tape, he added.
Jaitley also abolished the wealth tax and replaced it with an additional surcharge of 2% on the super-rich with a taxable income of over ₹ 1 crore to improve tax collections and tax the more affluent.
3) Does it give a fillip to agriculture?
For the agriculture sector, the budget is a mixed bag. While the finance minister said that stress in agricultural incomes is a key challenge, he has done little to address it upfront. Instead, the budget has concentrated on providing more agricultural credit and expanding irrigation schemes.
We have already taken major steps to address the two major factors critical to agricultural production: soil and water, the finance minister said.
With an aim to irrigate the field of every farmer and improving water use efficiency, the budget allocated ₹ 5,300 crore to support micro-irrigation, watershed development and the Pradhan Mantri Krishi Sinchai Yojana (PMKSY). The PMKSY scheme was announced in last year’s budget with an allocation of ₹ 1,000 crore. However, the scheme is yet to be launched.
Observing that farm credit underpins the efforts of hard-working farmers, the budget set up an ambitious target of ₹ 8.5 trillion for rural credit.
Further, the budget expanded the scope of rural credit with a focus on small and marginal farmers. Towards this, the budget allocated ₹ 25,000 crore for the Rural Infrastructure Development Fund, ₹ 15,000 crore for Long Term Rural Credit Fund, ₹ 45,000 crore for Short Term Cooperative Rural Credit Refinance Fund, and ₹ 15,000 crore for Short Term RRB (Regional Rural Banks) Refinance Fund.
On stressed farm finances, the budget hoped a national agricultural market will increase incomes of farmers. “I intend this year to work with the States, in NITI (Aayog), for the creation of a Unified National Agriculture Market," finance minister Arun Jaitley said.
4) Does it make it easy to Make in India?
The Union budget proposals to promote domestic manufacturing failed to match the hype around Prime Minister Narendra Modi’s ambitious Make in India campaign.
Despite finance minister Arun Jaitley’s assertion that the National Democratic Alliance government wants to position India as a manufacturing hub and that he wants to create an environment for local production, policy steps to promote manufacturing were missing in the budget.
The contribution of manufacturing in the country’s gross domestic product has declined from 18% in 2013-14 to 17% in 2014-15. Manufacturing exports have remained stagnant at about 10% of GDP. The finance minister laid emphasis on local manufacturing of defence equipment, including aircraft and said the Make in India policy should lead to greater self-sufficiency in these areas. He raised defence expenditure for 2015-16 to ₹ 2.47 trillion from ₹ 2.22 trillion in the current fiscal.
He also proposed to increase customs duty on imported or complete built units of commercial buses from 10% to 20% and tariff rate from 10% to 40%. However, customs duty on commercial vehicles in completely knocked down (CKD) kits and electrically operated vehicles including those in CKD condition will continue to be at 10%.
The minister also proposed to revive investment in manufacturing sector through tax-breaks. Tax pass through status is proposed to be allowed to funds such as social venture funds, infrastructure funds, venture capital funds, SME funds, private equity funds, debt funds or fund of funds, so that tax is levied on the investors in these funds and not on the funds themselves.
Jaitley also reduced the rates of basic customs duty on certain inputs, raw materials, intermediates and components to minimise the impact of duty inversion and reduce the manufacturing cost in several sectors. Some other changes address the problem of Cenvat credit accumulation due to the levy of SAD.
5) Will it boost public savings?
Finance minister Arun Jaitley didn’t tinker with the tax regime for individual taxpayers either by way of raising or lowering tax sops in his budget for the next fiscal year unveiled on Saturday.
Benefits under Section 80C of the Income-tax Act remained unchanged with one exception. Contributors to the National Pension Scheme (NPS) will be allowed to deduct ₹ 50,000 more from their taxable income if they are contributing ₹ 1.5 lakh a year to scheme.
“It is proposed to increase the limit of deduction u/s 80CCD of the Income-tax Act on account of contribution by the employee to National Pension Scheme (NPS) from ₹ 1 lakh to ₹ 1.5 lakh. It is also proposed to provide a deduction of upto ₹ 50,000 over and above the limit of ₹ 1.5 lakh in respect of contributions made to NPS," the budget document said.
The budget also proposed to increase the limit of deduction u/s 80D of the Income-tax Act from ₹ 15,000 to ₹ 25,000 on health insurance premium. In case of senior citizen, it enhanced the limit from ₹ 20,000 to ₹ 30,000 for tax rebate.
The finance minister also announced an increase in the limit of deduction in case of very senior citizens u/s 80DDB of the Income-tax Act on expenditure for treatment of specified diseases from ₹ 60,000 to ₹ 80,000.
6) Does it make consumer products costlier or cheaper?
Going out to eat and drink, buying mineral water and aerated drinks, smoking and watching movies are all set to become more expensive—the budget presented on Saturday increases the service tax and the excise duty on cigarettes.
The increase in the service tax rate will lead to an increase in the prices of a wide range of services used by consumers.
“To facilitate a smooth transition to levy of tax on services by both the centre and the states, it is proposed to increase the present rate of service tax plus education cess from 12.36% to a consolidated rate of 14%," finance minister Arun Jaitley told Parliament. “The revised rate shall come into effect from a date to be notified."
Jaitley increased the excise duty on 65 mm cigarettes by 25% and on other cigarettes by 15%. Shares of ITC Ltd, the country’s biggest cigarette maker, slumped as much as 9.06% to ₹ 358.05 on Saturday afternoon on the BSE.
However, some other consumer items such as leather footwear and camera phones may become cheaper as the excise duty rates on these products were cut. The excise duty on leather footwear selling for more than ₹ 1,000 per pair was halved to 6%.
7) Has social sector spending increased?
It seems budget 2015 has allotted more to the social sector. With ₹ 79,526 crore for rural development, including the Mahatma Gandhi National Rural Employment Guarantee Act (MGNREGA) allocated in the budget and an additional allocation of ₹ 5,000 crore based on need.
In the previous budget, an allocation of ₹ 83,793 crore had been made to the ministry of rural development which includes MGNREGA, Pradhan Mantri Grahmin Sadak Yojana and rural works.
“The government has decided to continue supporting important national priorities such as agriculture, education, health, MGNREGA, and rural infrastructure including roads. Programmes targeted for the poor and the under-privileged, will be continued by us," said finance minister Arun Jaitley.
8) What does it mean for infrastructure financing?
The finance minister on Saturday laid out plans to boost infrastructure, relying on public investment as private investment remains weak.
Finance minister Arun Jaitley increased allocations to rail, road and other infrastructure projects by ₹ 70,000 crore and proposed a ₹ 20,000 crore National Investment and Infrastructure Fund (NIIF).
NIIF, which will initially be funded by the government, will raise debt in future that can be invested in infrastructure finance companies such as the Indian Railway Finance Corp. Ltd and National Housing Bank.
“It is no secret that the major slippage in the last decade has been on the infrastructure front," Jaitley said during his budget address.
He also announced tax-free infrastructure bonds for projects in the rail, road and irrigation sectors.
The budget proposes to take measures to deepen the Indian bond market to promote investment, especially in infrastructure by setting up a public debt management agency (PDMA) which will bring both India’s external borrowings and domestic debt under one roof.
In order to help unlock capital in completed projects, it provides for rationalizing the capital gains regime for the sponsors exiting at the time of listing of the units of infrastructure investments trusts (and real estate investment trusts, or REITs), subject to payment of securities transaction tax. The rental income of REITs from their own assets will have pass-through status.
It proposes to continue levying road cess on petrol and diesel to primarily fund investments in the roads and railways sectors.
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