Analysis :Budgetary Balance Sheet

Intro: Finance Minister Shri Arun Jaitley has tried to balance the reality and the expectations .The NDA government has tried to give something to every one through the budget. 

Amid of speculations about the bitter pills for reviving the economic health of the country, Finance Minister Shri Arun Jaitley presented the first budget of the NDA government and assured to accelerate the economic growth.He has shown his thrust to revive the infrastructure sector and he has also tried to assure the investor’s about a clear and stable policy regime. The share market has welcomed the steps taken by him and Sensex soared over 475 points by the afternoon and closed 72 points down due to profit booking. Some good decisions have been taken both at the policy level and taxation level which shows the thrust of the government to drive the growth by revamping the infrastructure and manufacturing sector.
Policy Front
1. Reducing the fiscal deficit : The government has set the target of reducing the fiscal deficit to 3 per cent by 2017. The government has announced to constitute an ‘Expenditure Monitoring Committee’ which will provide suggestions to cut down the expenditure without compromising the growth.
2. Retrospective amendments in the legislation : FM has assured the investors that going forward impact of any retrospective amendment shall be analysed thoroughly by a high level committee before enacting the same.In the recent past various amendments were made to overrule a settled position under the law which has dented our image and impacted the overall investment environment.

3. New tax legislation : GST is expected to be introduced by December which will widen the tax base for the government and reduce the litigation and compliance for the taxpayers. Similarly DTC is to be reviewed in its present shape and a final call shall be taken after due consultation to replace the age old legislation.
4. Infrastructure building : Two days before the union budget the Railway Minister announced the fast speed trains and bullet train with a view to modernise the growth engine of our economy. Finance Minister showed his thrust to boost the infrastructure sector and relied on the ‘Public Private Partnership’ (PPP) model which is a success in the past. Government has announced investment in NHAI and State highways to the tune of Rs. 37,887 crore (including Rs. 3,000 crore for North-east). Similarly plans are also on board for development of Airports in Tier-I and Tier-II cities via AAI and PPP. The government also plans to give a boost to the water transport and Allahabad-Haldia waterway has also been announced to reap the potential.
Government has announced to set up 100 smart cities to ensure that every part of the country gets opportunity to develop.Separate funds to the tune of Rs. 8,000 crore have been allocated for rural housing project and Rs. 4,000 crore has been set aside for national housing bank. FDI cap is also proposed to be increased in defence and insurance sector. However it must be noted that even after raising the sectoral cap for the FDI, the control shall remain with Indians. In addition to this several tax incentives are also provided to infra sector.
5. Steps for agricultural and rural sector : Growth of the agricultural sector still remains the key to ensure the overall development of the country which ensures that the economic gains are shared among all. The budget proposal has tried to understand some of the problems of the farmers. The government has announced creation of ‘Long Term Rural Credit Fund’of Rs. 5,000 crore to save the farmers from the clutches of money-lenders. However creation of the fund only shall not ensure that the objective is achieved. The government and RBI has to overhaul the entire rural credit system in which even the bank officials collude with the money-lenders (Sudkhors) and the benefits never reach the targeted mass.
Similarly Rs. 5,000 crore have been set aside for scientific warehousing to face any natural calamity (like draught, etc.). This is a big step to overhaul the ‘Food Corporation of India’ (FCI) which is entrusted with the task of procuring the food grains from the farmers. Government has also planned to launch ‘Kisan TV’ for farmers to provide them market related information. Study for technical feasibility of the project for linking the rivers is also announced.
6. Higher education:The government has announced ‘National Multi Skill Programme’ and setting up of five IITs & IIMs and four AIIMs is part of this initiative. Funds are also allocated to modernise the madrasas and bring them at par with the other educational institutions.
7. Encourage the entrepreneurship: The government has announced for creation of a venture capital fund with Rs. 10,000 crore to provide assistance to the start-ups. It will encourage young people to take initiative and help the indigenous industry to grow.
8. Banking and Insurance sector reforms: Budget proposal announced the divestment of the government’s stake in the public sector banks. State run banks are although performing better but they need capital to comply with the Basel norms. Similarly the insurance sector also needed a revamp and the government has proposed to increase the FDI cap to 49 per cent. However it may be noted that the control of these two important sectors (banks & insurance) shall remain with the government and Indians respectively.
Taxation Front
1. Amendments related to infrastructure sector : In addition to a clear policy related to the infrastructure sector, the government has also announced tax incentives. The sunset clause u/s 80IA related to the power sector has been extended till 2017. Renewable energy sector has also got tax incentive from the government and windmill equipment are now exempted from excise duty. Custom duty on import of windmill equipment is also reduced to 5per cent. Definitive tax regime has been spelled out for ‘Real Estate Investment Trust’ (REIT) and ‘Infrastructure Investment Trust’ (Invit).
2. Steps to reduce litigation and bringing clarity over the legislative intent : In case of transfer pricing, the methodology for determination of ‘Arm’s Length Price’ (ALP) to be applied for the period prior to entering into ‘Advance Pricing Agreements’ (APA). In case of indirect taxation the benefit of advance ruling is extended to resident private limited companies also. These steps will provide a clear guidance to the assesse about the taxability of the transactions and reduce the litigation.
Similarly the budget has clarified that any expenditure incurred to discharge the ‘Corporate Social Responsibility’ (CSR) as provided under Companies Act, 2013 shall not be allowed for deduction. Government has also announced a big relief to the tax payers by limiting the TDS related disallowances (in case of residents) up to 30 per cent of the expense claimed.
3. Relief to individuals and increase in savings : Our Savings-GDP ratio is constantly declining over the years and the government has increased the exemption limit for the individuals/HUF u/s 80C to achieve the twin objective of providing tax relief to tax payers and increasing the savings.
4. Investment linked incentives: The earlier government switched from ‘Profit linked incentive’ to ‘Investment linked incentive ‘and the budget has further made the amendments to make it more attractive for the investors. Government has proposed to enlarge the scope of Section 35AD and included two new businesses and minimum limit of investment for availing investment allowance deduction u/s 32AC has been lowered from Rs. 100 crore to Rs. 25 crore. Investment linked incentive are better tool to mobilise the investment.
5. Provisions related to Trusts/NGOs : The budget has provided the Income Tax Commissioner more powers to cancel the registration of those institutions whose activities are not in the nature of benefit of general public.
6. ­Globally accepted accounting standards : Memorandum explaining Finance Bill has clarified that accounting standards notified under Income Tax shall be used only for the computation of Income (although it was a settled principle earlier also). The government has announced that Ind-AS which is almost similar to ‘International Financial Reporting Standards’ (IFRS) shall be mandatory from FY 16-17. This will reduce the compliance cost for the corporates and increase the acceptabilityof their financial statements.
Finance Minister has considered all the aspects to revive the economic growth and adequate measures have been taken to increase the industrial productivity, export promotion, employment generation etc.                  -CA ShshankSaurav