What Should I Know About the Union Budget 2016

The Finance Minister Arun Jaitley presented the Union Budget today. He said that India had a robust growth rate in spite of a global slowdown and shortfall in monsoon in the country. There are further risks of the slowdown in the global economy and turbulence along with fiscal burden of 7^th Central Pay Commission recommendations. He pointed that fiscal deficit in RE 2015-16 and BE 2016-17 have been retained at 3.9% and 3.5% respectively and the Revenue Deficit target is down from 2.8% to 2.5% in RE 2015-16.

The government wants to use this year’s budget to focus on prudent fiscal management and give priority to the rural sector. It wants to provide opportunities to the infrastructure sector, employment generation and to bring macro economic stability. It wants to bring reform in different areas.

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Here are the key takeaways of the budget –

What is new in the budget for the common man like you and me?

• There are no changes in the personal income tax slabs but our Corporate tax rate is reduced to 29% 🙂
• The HRA deduction for tax computation on rent paid will be raised from Rs. 20,000 to Rs. 60,000. This will help people living on rent.
• There will be an additional exemption of Rs. 50,000 for housing loans up to Rs. 35 lakh if the person is buying the house for the first time and the purchase value is not above Rs. 50 lakh.
• There will be no Service Tax for houses built with area under 60 sq m.
• Under the National Pension Scheme (NPS), at the time of retirement, when the maturity amount is being withdrawn, 40% of it will be tax exempt. 🙂 (rest you can buy annuities – annuities are taxable)
• 60% of the EPF (& Superannuation) will be taxed at the time of withdrawal (any amount that is contributed before 1st April 2016 will not be taxed) – this tax is only on interest part. 🙁 (this is to bring NPS & EPF on the same page – there’s no change in PPF taxation)
• There will be a 15% surcharge (earlier 12%) on income greater than Rs. 1 crore.
• The government will pay EPF contribution of 8.33% for all new employees for first three years over and above the contribution by the employee and employer. 🙂
• There is an increase in the tax rebate for people with income less than Rs. 5,00,000 per annum.The rebate has been increased from Rs. 2000 to Rs. 5000 🙂
• The presumptive tax has been extended to professionals earning up to Rs 50 lakh per year.
• An additional tax of 10% will be charged on dividend earned greater than Rs. 10 lakh per annum. (this will be applied on stocks – no tax in case of Mutual Funds)
• Limit for contribution of employer in recognized Provident and Superannuation Fund of ` 1.5 lakh per annum for taking tax benefit.
• Reduce service tax on Single premium Annuity (Insurance) Policies from 3.5% to 1.4% of the premium paid in certain cases
• NRIs providing alternative documents to PAN card will not be required to pay higher TDS if applicable.
• The government has limited the tax compliance window from June 1 to September 30 2016 for declaring undisclosed income at 45% including surcharge and penalties.
• Expansion in the scope of e-assessments to all assessees in 7 mega-cities in the coming years. 🙂

Our Take – The income tax slabs remain same though taxes have been increased for some people. There are benefits like increased deductions. The government is trying to bring more people in the tax net.

What is in the Budget for the corporate world?

• Corporate income tax rate has been decreased to 29% plus surcharge for companies with turnover less than or equal to Rs. 5 crore. Manufacturing companies incorporated after April 1, 2016 will have to pay a tax of 25% + surcharge provided they do not claim exemptions.
• General Insurance companies will be listed in the stock exchange
• SEBI will develop new derivative products in the Commodity Derivatives market.
• There are incentives to be provided for deepwater gas exploration
• There is a 2.5% tax on diesel vehicles purchase which is not so good for companies manufacturing diesel vehicles.
• NBFCs can get a deduction of 5% of income for provision against bad debts.
• The government has not announced any additional amount for funding banks’ bad debts and provision for bad debts. This will be seen as a negative factor as there were expectations of recapitalization.
• There is a 1% cess on petrol and CNG cars
• Tobacco Tax is up to 15%
• Excise duty on retail garments is increased to 6%
• The clean energy cess on coal production has increased to Rs. 400/tonne and there are exemptions for environmentally friendly cars.

Our Take – The clean energy cess might be passed on to the energy distribution companies who might not be able to pass it to consumers. This can affect their profitability. Tobacco products, cars, retail garments would become more expensive.  This will be seen as a negative factor as there were expectations of more recapitalization. The incentives for the companies will definitely help. The cess on cars using non-renewable sources of energy and incentives for energy efficient cars depict that the environment is being considered.

What is in it for Rural Development?

• A sum of Rs 35,984 crore is earmarked to be allotted to agriculture.
• A crop insurance scheme, Pradhan Mantri Fasal Bima Yojana that was announced earlier will have a fund of Rs 5,500 crore. Farmers will pay a nominal uniform premium and the rest will be borne by the government.
• A Long Term Irrigation Fund has been set up under NABARD
• There will be incentives to improve dairy production.
• There will be measures to bring focus on drought hit areas
• There will be better e-market regulations in 585 regulated markets.
• A Soil Health Card scheme will be implemented to cover14 crore farm holdings by March
• Promote organic farming in NE India.
• A new scheme Rashtriya Gram Swaraj Abhiyan has been proposed. It has been allocated ` Rs. 655 crores.

Our Take – The Finance Minister has taken many positive steps to provide impetus for growth to the rural sector.

What are other social developmental measures undertaken in the budget?

• The government will provide LPG connection in name of women in rural households. A sum of Rs 2,000 crore is earmarked for this.
• The Government will provide health insurance of up to Rs. 1 lakh per family and a top up insurance of Rs. 35,000 for people above 60 years.
• 2.87 lakh crore will be given to Gram Panchayats and Municipalities as grants.
• The National dialysis service programme will come under PPP model which means certain equipment exempt from custom duty which will help patients.
• The budget has allocated funds for two schemes introduced to promote digital literacy for rural India. It expects to cover 6 crore homes in the next three years.
• A sum of Rs. 9,000 crore has been earmarked for Swachch Bharat Abhiyan.
• The government will have 1,500 multi-skill training institutions in the country with the aim of teaching skills to about 1 crore youth over the next three years so that they are employable or can start their own profession.
• It plans to have CCTVs in all the important train stations over a period of time.
• A Higher Education Financing Agency will be set up with an initial funding of Rs. 1000 crores.

Our Take – The government has tried to address many social development causes and tried to bring the benefits of economic development to a larger population. The health care sector and tourism sector have not been offered any benefits.

What is the impact of the budget for entrepreneurs?

• Minimum Alternate Tax (MAT) will be applicable for startups that qualify for 100 per cent tax exemption.
• 500 crore has been allotted to a scheme to encourage entrepreneurship among SC/ST and women.
• A tax holiday has been announced for startups up to three of five years of setting up the company.
• It has proposed a Stand Up India Scheme. This will facilitate at least two projects per bank branch. This will help many entrepreneurs.
• A programme for Entrepreneurship Education and Training through Massive Open Online
• Courses has been proposed.

Our Take – It is too early to analyse how these steps will affect entrepreneurs but the finance minister has considered entrepreneurs in the budget.

What are the Other Measures taken?

• A Price Stabilisation Fund for stability of prices of pulses has been initiated. It has a corpus of Rs. 900 crores.
• All new schemes sanctioned will have a sunset date and outcome
• There will be a one-time dispute resolution for ongoing cases under retrospective amendment in case of tax issues for companies.
• 13 different cesses levied by various departments which have a revenue collection less than Rs. 50 crore in a year  will be abolished in an attempt to simplify tax regime
• It wants to give more power to the AADHAR platform to ensure benefits reach the deserving.

The 2016-17 Budget is comprehensive and has covered many key areas. We will be able to see the real impact of the Budget once the steps are implemented.