On 29th February, 2016, the Finance Minister Sri Arun Jaitley presented the Union Budget 2016-17 in Parliament. A brief introduction was given regarding the achievements in comparison with the global economy as well as the last three years of the previous Government. Some of the key features of the Union Budget are as follows-
- Growth of Economy accelerated to 7.6% in 2015-16.
- CPI inflation has come down to 5.4%.
- Foreign exchange reserves touched highest ever level of about 350 billion US dollars.
- The Current Account deficit has declined to 14.4 billion.
- Robust growth achieved despite very unfavorable global conditions and two consecutive years shortfall in monsoon by 13%.
- Despite increased devolution to States by 55% as a result of the 14th Finance Commission award, plan expenditure increased at RE stage in 2015-16 – in contrast to earlier years.
- Additional fiscal burden due to 7th Central Pay Commission recommendations and OROP.
- To ‘Transform India’ to have a significant impact on economy and lives of people.and to focus on the macro-economic stability and prudent fiscal management
- To Continue with the ongoing reform programme and ensure passage of the Goods and Service Tax bill and Insolvency and Bankruptcy law.
- To undertake important reforms by giving a statutory backing to AADHAR platform.
To provide legal framework for dispute resolution and re-negotiations in PPP projects and public utility contracts and to undertake important banking sector reforms and public listing of general insurance companies for significant changes in FDI policy.
- To expand the scope of e-assessments to all assessees in 7 mega cities in the coming years.
Financial Sector Reforms:
- A comprehensive Code on Resolution of Financial Firms to be introduced.
- The RBI Act 1934, to be amended to provide statutory basis for a Monetary Policy Framework and a Monetary Policy Committee through the Finance Bill 2016.
- To set up a Financial Data Management Centre.
- RBI to facilitate retail participation in Government securities.
- New derivative products will be developed by SEBI in the Commodity Derivatives market.
- Amendments in the SARFAESI Act 2002 to enable the sponsor of an ARC to hold up to 100% stake in the ARC and permit non institutional investors to invest in Securitization Receipts.
- Comprehensive Central Legislation to be bought to deal with the menace of illicit deposit taking schemes.
- To increase members and benches of the Securities Appellate Tribunal.
- Allocation of 25,000 crore towards recapitalisation of Public Sector Banks.
- Target of amount sanctioned under Pradhan Mantri Mudra Yojana will be increased to 1,80,000 crore.
- The General Insurance Companies owned by the Government to be listed in the stock exchanges.
Agriculture and Farmers’ Welfare
- The Government to allocate 35,984 crore for the agriculture sector and ‘Pradhan Mantri Krishi Sinchai Yojana’ to be implemented in mission mode, 28.5 lakh hectares will be brought under irrigation.
- A dedicated Long Term Irrigation Fund will be created in NABARD with an initial corpus of about 20,000 crore.
- 5 lakh farm ponds and dug wells in rain fed areas and 10 lakh compost pits for production of organic manure will be taken up under MGNREGA.
- To promote organic farming through ‘Parmparagat Krishi Vikas Yojana’ and ‘Organic Value Chain Development in North East Region’.
- Allocation under Pradhan Mantri Gram Sadak Yojana increased to 19,000 crore.
- To reduce the burden of loan repayment on farmers, a provision of 15,000 crore has been made in the BE 2016-17 towards interest subvention .
- To allocate 5,500 crore in Prime Minister Fasal Bima Yojana.
- To allocate 850 crore for four dairy projects – ‘Pashudhan Sanjivani’, ‘Nakul Swasthya Patra’, ‘E-Pashudhan Haat’ and National Genomic Centre for indigenous breeds.
Rural Sector
- To allocate 87,765 crore in rural sector and grant –in- aid of 2.87 lakh crore will be given to Gram Panchayats and Municipalities.
- Every block under drought and rural distress will be taken up as an intensive Block under the Deen Dayal Antyodaya Mission.
- To allocate 38,500 crore for MGNREGS.
- 300 Rurban Clusters will be developed under the Shyama Prasad 4 Mukherjee Rurban Mission
- District Level Committees under Chairmanship of senior most Lok Sabha MP from the district for monitoring and implementation of designated Central Sector and Centrally Sponsored Schemes.
- A new Digital Literacy Mission Scheme for rural India to cover around 6 crore additional household within the next 3 years.
- New scheme Rashtriya Gram Swaraj Abhiyan proposed with allocation of 655 crore.
Social Sector including Health Care :
- To allocate 1,51,581 crore for social sector including education and health care.
- To allocate 2,000 crore for initial cost of providing LPG connections to BPL families.
- New health protection scheme will provide health cover up to One lakh per family and for senior citizens an additional top-up package up to ` 30,000 will be provided.
- 3,000 Stores under Prime Minister’s Jan Aushadhi Yojana will be opened during 2016-17. ‘National Dialysis Services Programme’ to be started under National Health Mission through PPP mode.
- “Stand Up India Scheme” to facilitate at least two projects per bank branch. This will benefit at least 2.5 lakh entrepreneurs.
- National Scheduled Caste and Scheduled Tribe Hub to be set up in partnership with industry associations.
Education:
- 62 new Navodaya Vidyalayas will be opened in the remaining uncovered districts over the next two years.
- Sarva Shiksha Abhiyan to increasing focus on quality of education.
- Regulatory architecture to be provided to ten public and ten private institutions to emerge as world-class Teaching and Research Institutions. Higher Education Financing Agency to be set-up with initial capital base of 1000 Crores.
- Digital Depository for School Leaving Certificates, College Degrees, Academic Awards and Mark sheets to be set-up.
Skill development:
- To allocate 1700 crore for skill development.
- To set up 1500 Multi Skill Training Institutes across the country.
- National Board for Skill Development Certification to be setup in partnership with the industry and academia.
Job creation:
- Government of India will pay contribution of 8.33% for of all new employees enrolling in EPFO for the first three years of their employment. Budget provision for this scheme is 1000 crore.
- Deduction under Section 80JJAA of the Income Tax Act will be available to all assesses who are subject to statutory audit under the Act.
- To make 100 Model Career Centre by the end of 2016-17 under National Career Service.
- Model Shops and Establishments Bill to be circulated to States.
Infrastructure and Investment :
- Amendments to be made in Motor Vehicles Act to open up the road transport sector in the passenger segment.
- Total investment in the road sector, including PMGSY allocation, would be 97,000 crore during 2016-17.
- To approve nearly 10,000 kms of National Highways in 2016-17 and allocation of 55,000 crore in the Budget for Roads. Additional 15,000 crore to be raised by NHAI through bonds.
- Total outlay for infrastructure is 2,21,246 crore.
- Comprehensive plan, spanning next 15 to 20 years, to augment the investment in nuclear power generation to be drawn up.
- Steps to re-vitalise PPPs, to introduce during 2016-17 Public Utility (Resolution of Disputes) Bill, Guidelines for renegotiation of PPP Concession Agreements, New credit rating system for infrastructure projects.
- Reforms in FDI policy in the areas of Insurance and Pension, Asset Reconstruction Companies, Stock Exchanges.
- 100% FDI to be allowed through FIPB route in marketing of food products produced and manufactured in India.
- Approved a new policy for management of Government investment in Public Sector Enterprises, including disinvestment and strategic sale.
Ease of Doing Business:
- Amendments in Companies Act to improve enabling environment for start-ups.
- A Task Force has been constituted for rationalisation of human resources in various Ministries.
- Comprehensive review and rationalisation of Autonomous Bodies.
- To introduce a Bill for Targeted Delivery of Financial and Other Subsidies, Benefits and Services by using the Aadhar framework.
- Price Stabilisation Fund with a corpus of 900 crore to maintain stable prices of Pulses.
- “Ek Bharat Shreshtha Bharat” programme will be launched to link States and Districts in an annual programme that connects people through exchanges in areas of language, trade, culture, travel and tourism.
Fiscal Discipline:
- Improvement upon the Revenue Deficit target from 2.8% to 2.5% of GDP in RE 2015-16.
- The total expenditure has been projected at 19.78 lakh crore consisting of 5.50 lakh crore under Plan and 14.28 lakh crore under Non-Plan.
- Rationalised and restructured more than 1500 Central Plan Schemes into about 300 Central Sector and 30 Centrally Sponsored Schemes.
Tax Reforms to relief small tax payers:
- To raise the ceiling of tax rebate under section 87A from 2000 to 5000 to lessen tax burden on individuals with income upto 5 laks.
- To increase the limit of deduction of rent paid under section 80GG from 24000 p.a. to 60000 p.a. in order provide relief to those who live in rented houses.
- Increase the turnover limit under Presumptive taxation scheme under section 44AD of the Income Tax Act to 2 crores to bring big relief to a large number of assessee in the MSME category.
- Extend the presumptive taxation scheme with profit deemed to be 50%, to professionals with gross receipts up to 50 lakh.
Measures to boost growth and employment generation:
- Accelerated depreciation wherever provided in IT Act will be limited to maximum 40% from 1.4.2017.
- Benefit of deductions for Research would be limited to 150% from 1.4.2017 and 100% from 1.4.2020.
- Benefit of section 10AA to new SEZ units will be available to those units which commence activity before 31.3.2020.
- The weighted deduction under section 35CCD for skill development will continue up to 1.4.2020.
- 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.
- Lower the corporate tax rate for the next financial year for relatively small enterprises i.e companies with turnover not exceeding 5 crore (in the financial year ending March 2015), to 29% plus surcharge and cess.
- 100% deduction of profits for 3 out of 5 years for startups setup during April, 2016 to March, 2019. MAT will apply in such cases.
- 10% rate of tax on income from worldwide exploitation of patents developed and registered in India by a resident
- Commitment to implement General Anti Avoidance Rules (GAAR) from 1.4.2017.
- Exemption of service tax on services provided under Deen Dayal Upadhyay Grameen Kaushalya Yojana and services provided by Assessing Bodies empanelled by Ministry of Skill Development & Entrepreneurship.
- Exemption of Service tax on general insurance services provided under ‘Niramaya’ Health Insurance Scheme launched by National Trust for the Welfare of Persons with Autism, Cerebral Palsy, Mental Retardation and Multiple Disability.
- Basic custom and excise duty on refrigerated containers reduced to 5% and 6%.
Incentivising Make in India :
- Changes in customs and excise duty rates on certain inputs to reduce costs and improve competitiveness of domestic industry in sectors like Information technology hardware, capital goods, defence production, textiles, mineral fuels & mineral oils, chemicals & petrochemicals, paper, paperboard & newsprint, Maintenance repair and overhauling [MRO] of aircrafts and ship repair.
Measures for moving towards a pensioned society :
- Withdrawal up to 40% of the corpus at the time of retirement to be tax exempt in the case of National Pension Scheme (NPS).
- Annuity fund which goes to legal heir will not be taxable.
- In case of superannuation funds and recognized provident funds, including EPF, the same norm of 40% of corpus to be tax free will apply in respect of corpus created out of contributions made on or from 1.4.2016.
- Limit for contribution of employer in recognized Provident and Superannuation Fund of 5 lakh per annum for taking tax benefit.
- Exemption from service tax for Annuity services provided by NPS and Services provided by EPFO to employees.
- Reduce service tax on Single premium Annuity (Insurance) Policies from 3.5% to 1.4% of the premium paid in certain cases.
Measures for promoting affordable housing :
- 100% deduction for profits to an undertaking in housing project for flats upto 30 sq. metres in four metro cities and 60 sq. metres in other cities,approved during June 2016 to March 2019 and completed in three years. Minimum Alternate Tax will apply to these undertakings.
- Deduction for additional interest of 50,000 per annum for loans up to 35 lakh sanctioned in 2016-17 for first time home buyers, where house cost does not exceed 50 lakh.
Additional resource mobilization for agriculture, rural economy and clean environment:
- Additional tax at the rate of 10% of gross amount of dividend will be payable by the recipients receiving dividend in excess of 10 lakh per annum.
- Surcharge to be raised from 12% to 15% on persons, other than companies, firms and cooperative societies having income above 1 crore.
- Tax to be deducted at source at the rate of 1 % on purchase of luxury cars exceeding value of ten lakh and purchase of goods and services in cash exceeding two lakh.
- Securities Transaction tax in case of ‘Options’ is proposed to be increased from .017% to .05%.
- Equalization levy of 6% of gross amount for payment made to nonresidents exceeding 1 lakh a year in case of B2B transactions.
- Krishi Kalyan Cess, @ 0.5% on all taxable services, w.e.f. 1 June 2016. Proceeds would be exclusively used for financing initiatives for improvement of agriculture and welfare of farmers. Input tax credit of this cess will be available for payment of this cess.
- Infrastructure cess, of 1% on small petrol, LPG, CNG cars, 2.5% on diesel cars of certain capacity and 4% on other higher engine capacity vehicles and SUVs. No credit of this cess will be available nor credit of any other tax or duty be utilized for paying this cess.
- Excise duty of ‘1% without input tax credit or 12.5% with input tax credit’ on articles of jewellery [excluding silver jewellery, other than studded with diamonds and some other precious stones], with a higher exemption and eligibility limits of 6 crores and 12 crores respectively.
- Excise on readymade garments with retail price of 1000 or more raised to 2% without input tax credit or 12.5% with input tax credit.
- ‘Clean Energy Cess’ levied on coal, lignite and peat renamed to ‘Clean Environment Cess’ and rate increased from 200 per tonne to 400 per tonne.
- Excise duties on various tobacco products other than beedi raised by about 10 to 15%.
- Assignment of right to use the spectrum and its transfers has been deducted as a service leviable to service tax and not sale of intangible goods. Reducing litigation and providing certainty in taxation:
- To providing a stable and predictable taxation regime and reduce black money.
- Domestic taxpayers can declare undisclosed income or such income represented in the form of any asset by paying tax at 30%, and surcharge at 7.5% and penalty at 7.5%, which is a total of 45% of the undisclosed income. Declarants will have immunity from prosecution.
- Surcharge levied at 7.5% of undisclosed income will be called Krishi Kalyan surcharge to be used for agriculture and rural economy.
- New Dispute Resolution Scheme to be introduced. No penalty in respect of cases with disputed tax up to10 lakh. Cases with disputed tax exceeding 10 lakh to be subjected to 25% of the minimum of the imposable penalty. Any pending appeal against a penalty order can also be settled by paying 25% of the minimum of the imposable penalty and tax interest on quantum addition.
- High Level Committee chaired by Revenue Secretary to oversee fresh cases where assessing officer applies the retrospective amendment.
- One-time scheme of Dispute Resolution for ongoing cases under retrospective amendment.
- Penalty rates to be 50% of tax in case of underreporting of income and 200% of tax where there is misreporting of facts.
- Disallowance will be limited to 1% of the average monthly value of investments yielding exempt income, but not exceeding the actual expenditure claimed under rule 8D of Section 14A of Income Tax Act.
- Time limit of one year for disposing petitions of the tax payers seeking waiver of interest and penalty. 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).Monetary limit for deciding an appeal by a single member Bench of ITAT enhanced from 15 lakhs to 50 lakhs. To remove backlog of cases 11 new benches of Customs, Excise and Service Tax Appellate Tribunal (CESTAT) are to be created.
- ‘e-Sahyog’ to be expanded to reduce compliance cost, especially for small taxpayers.
Simplification and rationalization of taxation:
- 13 cesses, levied by various Ministries in which revenue collection is less than 50 crore in a year to be abolished. For non-residents providing alternative documents to PAN card, higher TDS not to apply. Revision of return extended to Central Excise assesses.
- Customs Act to provide for deferred payment of customs duties for importers and exporters with proven track record. Customs Single Window Project to be implemented at major ports and airports starting from beginning of next financial year.
-Press Information Bureau