Union Budget 2016 – A Balancing Act

Union Budget 2016 – Pro-Rural, drumming the “Rich”

The Union Budget 2016, presented by the FM Mr.Arun Jaitley, was a conspicuous attempt on behalf of the Government to shred its “not-for-poor” image. The budget unveiled several measures to woo farmers, the jobless in rural areas, non-farm sectors in rural areas along-with a push to enhance physical and social infrastructure in the rural areas. The theme of the budget was unmistakably “Go-Rural.”   Everything else such as ease of doing business, fiscal, financial, tax reforms etc., received a step-motherly treatment on the hands of Mr.Jaitely, who presented his third Union budget. FM positioned his budget as “Transformative Agenda”. There is definitely a powerful message here for the agricultural sector in terms of long-term dedicated irrigation fund and doubling of farm income over a period of five years.

In the fiscal year that would soon close, the growth forecast is at 7.6%. On the fiscal deficit front, there is a credibility in the commitment to keep it at 3.5% of the GDP. This is more so because the government managed to achieve the previous commitment of 3.9%. This promise is therefore important and sends a positive signal to rating agencies about the seriousness of fiscal consolidation. One can really visualise Mr.Jaitely now looking to Mr.Rajan and saying ‘Your Move’. The markets have reacted positively in anticipation of rate cuts by RBI.

We cannot miss the infrastructure boost that this budget aims to provide. There is a fund commitment of an amount upwards of Rs.2.25,000 crores as initial annual allocation through creation of a National Investment in Infrastructure Fund. This fund is expected to invest in public sector infra-finance companies. They can then use the investment to access debt markets, both domestic and international. Foreign pension funds, institutional investors who look for secure investments should find this attractive.

Moving to individuals, the FM seems to say, “Sir / Madam, if you are ‘super rich’, please take a higher surcharge on your taxes”. So if you have a taxable income of higher than Rs.1 Crore, or if your annual dividend earnings cross Rs.10 lacs, the surcharge on tax has been increased from 12% to 15%.

An item that attracted lot of ire from the salaried class was taxing 60% of the PF corpus. Fireworks and negative reactions followed and government immediately pedalled back. A statement was made that only interest accrued on contributions made after 1^st April would be taxed. But even then, the bitterness of pill remains.

A quick look at some of the key proposals:

Rural and Agriculture

• Allocation for welfare of Farmers – Rs.35984 crores
• Rural sector allocation – Rs.87000 crores
• Grant in aid of Rs.2.87 lacs crores to Gram Panchayats and Municipalities as per recommendations of 14^th Finance Commission
• Rs.38500 crores for MGNREGS
• Various irrigation projects fast-tracked; 28.5 lac hectares to be brought under irrigation; NABARD fund with initial corpus of Rs.20000 crores and various other proposals to enhance productivity

Social Sector

• Social section allocation including education and healthcare – Rs.1,51,584 crores
• Rs.2000 crores for LPG to BPL families, health protection cover schemes and various other proposals.
• New Navodaya Vidyalayas, focus on quality education, higher education financing with a corpus of Rs.1000 Crores.

Banking and Finance

• Rs.25000 crores to be infused as capital into state run banks in 2016-17. More funds if required would be raised.
• Target of amount sanctioned under Pradhan Mantri Mudra Yojana increased to Rs 1,80,000 crores.

Taxation

• Domestic taxpayers can declare undisclosed income or such income represented in the form of any asset by paying tax at 30%, surcharge at 7.5% (to be called Krishi Kalyan surcharge) and penalty at 7.5% (totalling to 45% of undisclosed income). Declarants would have immunity from prosecution.
• New dispute resolution scheme for faster clearing of cases. No penalty for cases with disputed tax upto Rs.10 lacs.
• Penalty rates to be 50% of tax in case of underreporting of income and 200% of tax where there is misreporting of facts.
• Excise duty raised from 10% to 15% on tobacco products other than beedis
• SUVs, Luxury cars to be more expensive. 4% high capacity tax for SUVs. Pollution cess of 1 per cent on small petrol, LPG and CNG cars; 2.5 per cent on diesel cars of certain specifications; 4 per cent on higher-end models.
• 0.5% Krishi Kalyan Cess on all services
• Deduction for rent paid will be raised from Rs 20,000 to Rs 60,000 to benefit those living in rented houses.
• Additional exemption of Rs. 50,000 for housing loans up to Rs. 35 lakh, provided cost of house is not above Rs. 50 lakh.

Infrastructure

• Total investment in road sector to be Rs.97000 crores during 2016-17
• Allocation of Rs.55000 crores for Roads and an additional Rs.15000 crores to be raised by NHAI through bonds
• Total infra outlay at around Rs.2,25,000 crores

To facilitate employment and growth

• Increase the turnover limit under Presumptive taxation scheme under section 44AD of the Income Tax Act to Rs.2 crores to bring big relief to a large number of assessees in the MSME category.
• Extend the presumptive taxation scheme with profit deemed to be 50%, to professionals with gross receipts up to Rs 50 lakh.
• Lower the corporate tax rate for the next financial year for relatively small enterprises i.e companies with turnover not exceeding Rs.5 crores (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.
• Non-banking financial companies shall be eligible for deduction to the extent of 5% of their income in respect of provision for bad and doubtful debts.

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