‘Budget 2015 is Historical’

Union Budget 2015: A Step in the Right Direction

Intro: The Union Budget 2015 without falling to the temptation of populism is a step in the right direction to ensure long-term growth.

Finance minister Arun Jaitley presented the first full period budget of NDA government amid tight fiscal situation and mounting expectations. Focus was on delivering growth along with changing the administrative mechanism for bringing in ease of doing business and stability in taxation regime. Flagship programmes of the NDA government like “Make in India, Swachh Bharat, and Skill India” were adequately taken care of by the finance minister and he tried to cater to the needs of every section of society. Economic survey also highlighted the fact that Indian economy has the potential to grow at 8 per cent or even beyond in the next fiscal. Key budget proposals can be summarised in two parts-

Another Union Budget 2015 Story: Social Face of Budget
Policy Front

• Empowering the states – Central government has increased the revenue share of states from 32% to 42% and politics has been kept aside in this decision. Now states are financially more powerful and we can reasonably expect that the plea of centre not providing the funds will not be taken by the state governments’ for not fulfilling their promises.
• Direct benefit transfer – Poor and needy should be given the subsidy but the beneficiary never gets the full dividends of government schemes. Direct benefit transfer will stop the leakage and ensure that the target population gets benefited from the scheme and the government has already completed its first phase by opening the bank accounts of families living below the poverty line.
• Focus on infrastructure development – Private investors are cautious about Public Private Partnership (PPP) and therefore FM has announced that public spending will be geared up. Reduced oil prices have eased out the situation for the government and additional fund requirements are to be met partially thorough cess on petrol and diesel.
• Disinvestment of loss making PSUs – Government has targeted mobilisation of Rs. 69,500 Crores in the budget by way of disinvestment which will include loss making PSUs also. Disinvestment target for the previous budget fell short and the government is dependent on this route to keep the fiscal deficit within the target.
• Focus on social inclusion – Various schemes have been announced for the benefit of those who are sitting at the bottom of the pyramid. Insurance cover at a premium of Rs. 12 per annum, priority to SC/ST enterprises in the lending etc. are steps taken to ensure inclusive development. Schemes like Jan Dhan Yojna have been implemented successfully and it is expected to play the pivotal role in major government schemes.
• Vision Make in India – Government has taken steps to revive the manufacturing sector and create more jobs which includes bringing in ease of doing business and amending the taxation laws suitably (discussed separately). Keen to remove the administrative difficulties for the businessmen now online excise and service tax registration will get completed within two working days.
• Agriculture sector – Large part of our population is dependent on agriculture and the agricultural income is under stress. Government has launched scheme to address two major factors which are critical to agriculture i.e. soil and water. Funds have been allocated for rural credit (as it is the major reason of the plight of farmers) and schemes like “Pradhan Mantri Gram Sinchai Yojna”, soil health card are also launched and the government is focusing on improving the quality & effectiveness of activities under MNREGA.

Taxation Front

• Black money – Series of punitive measures have been announced by the government to curb the black money menace which includes making the offence as non-compoundable and punishment up to 10 years. Bill for new law related to black money parked abroad and to deal with benami transaction shall be introduced soon. CBDT and CBEC will have access to each other’s database and PAN has been made mandatory for transactions exceeding Rs. 1 lakh.
• Deferral of General Anti Avoidance Rule and its prospective application – Implementation of GAAR has been deferred for two more years and FM has announced that its application will be prospective only (i.e. investments made on or after 1st April 2017). It is a big step towards ensuring a stable tax regime.
• GST rollout – Finance minister has said that the GST will be implemented by April 1, 2016. It will add buoyancy to the economy and will reduce the cascading effect of taxation. Increase in service tax rate is a step towards moving to GST.
• Abolition of wealth tax – Wealth tax has been abolished and a surcharge of 2% is levied on super rich class (i.e. persons having income of more than Rs. 1 Crore). It is based on the principles of taxation that the rich should pay more taxes and the government is expecting to realise Rs. 9,000 Crores as against Rs. 1,000 Crores from wealth tax.
• Reduction in corporate tax rate – Government has proposed to reduce the corporate tax rate from 30% to 25% over four year time with an aim to improve our position as an attractive investment destination. It may be noted that government will gradually withdraw the exemptions given to corporate sector and eventually increase the effective tax rate.
• Increase in service tax rate– Government has increased the service tax rates from 12.36% to 14% and this move is severely criticised in media and has been termed as additional burden on the middle class.The criticism is also justified up to a certain extent but the rates have been increased to fecilitate towards moving GST.
• Changes in taxation of royalty – Tax on royalty has been proposed to decreased to 10% as against 25% which is expected to facilitate technology inflow at low cost. It will help the new entrepreneurs and small business as in most of the cases the tax incidence is borne by the Indian counterpart.
• Change in PE definition to attract investors – Government has proposed to change the Permanent Establishment (PE) norms to encourage offshore fund managers to relocate to India. There were concerns that if a fund manager resides in India then it would attract PE provisions and now the government has clarified it will help in mobilising the investment.
• Miscellaneous – Section 80JJAA is proposed to be amended so as to provide tax benefit under the said section and shall be available even if the new regular work force is fifty employees. Additional depreciation @ 20% is allowed on new plant and machinery installed by a manufacturing unit or a unit engaged in generation and distribution of power. There were concerns about time limit for availing the cenvat credit on inputs and input services which has now been increased to one year from six months.

 The finance minister has charted a growth path and taken various measures to restore the credibility of the Indian economy but still a long way to go.
Shshank Saurav (The writer is Chartered Accountant)