Chartered Accountants India Union Budget 2017 and recent development in regulatory frame work
This brie ng is for the use of the clients of Lodha & Co. and its associates and is meant for private circulation only. The budget proposals highlighted in the brie ng are subject to approval of both the Houses of the Parliament and the assent of the President. Material discussed herein is meant to provide general information only. Readers should always seek professional advice before acting on the information provided. This document has been prepared based upon details and information available to public and the sources are believed to be reliable. Though due care has been taken to ensure accuracy, no representation is made that it is accurate and complete.
FOREWORD In a historic move, the Finance Minister has combined the Railway and General Budget, advanced it by a month and dispensed with the distinctive allocation towards Plan and Non-Plan expenditure. The Budget has been presented amidst a time where the world economy is facing challenges due to the impending monetary policy stance of the US Federal Reserve, the ambiguity around commodity prices specially crude oil and the signs of protectionism indicated by increasing retreat from globalisation of goods, services and people in several parts of the world. In spite of this the Indian economy has been projected by both the IMF and World Bank to be poised for a GDP growth between 7.2%-7.8% for the next two fiscal years. In the global macro economic backdrop, the calibration in the Indian economy post demonetisation and much awaited GST which is now on anvil, Budget 2017 is a stable fine balancing act, with fiscal prudence, directional spending and no surprises on the taxation front which aims to lead the country to a sustainable growth. It focuses on spending more in rural areas, infrastructure and poverty alleviation and at the same time maintaining the fiscal deficit target at 3.2%. Budget strengthens the bedrock of the Indian economy by focusing on Farmers, Rural Population, Youth, Poor and the Underprivileged and also giving impetus to Infrastructure, Financial Sector, Digital Economy, Public Service, Prudent Fiscal Management and Tax Administration. A number of reforms aimed at farmers have been proposed including a target for agricultural credit in 2017-18 at a record level of ` 10 lakh crores. For transportation sector as a whole, including rail, roads, shipping, provision of ` 2.41 lakh crores has been made. In the infrastructure sector the outlay of expenditure was pegged at a considerable amount of ` 3.9 lakh crores. Lending target for Pradhan Mantri Mudra Yojana aimed at Dalits, Tribals, Backward Classes and Women to be set at ` 2.44 lakh crores. Foreign Investment Promotion Board is to be abolished in 2017-18 and liberalisation of FDI policy being under consideration will lead to smoother inflow of funds which were hitherto under approval route. On the Direct Taxation front need for increasing the taxpayer base has been recognised. Majority of the proposed measures under direct taxation are of an anti-abuse nature and aim at increasing transparency and bringing rationalization. Significant changes proposed in Personal taxation include reducing the rate of taxation between income of ` 2.5 lakhs to ` 5 lakhs to 5% from 10% and levying a surcharge of 10% where annual taxable income is between ` 50 lakhs and ` 1 crore. To provide impetus to MSME companies, the corporate tax rate has been reduced for companies with annual turnover upto ` 50 crores to 25%. Measures in the area of Capital Gain involve reduction of holding period from 3 to 2 years for transfer of immovable property, shifting of the base year for indexation from 1.4.1981 to 1.4.2001 for all classes of assets. Withdrawal of capital gains exemption on sale of equity shares not subject to Security Transaction Tax at the time of acquisition is a change worth noting alongwith provisions introduced regarding fair valuation of unquoted shares leading to harsher tax incidence on unrealized valuation gains that to in the hands of both the buyer and seller. The framework for computation of Book Profit for MAT upon convergence with Ind AS has been streamlined, this would include certain gains even though recognised on fair value measurement will be considered for MAT on realisation or deferred for a period of 5 years, as the case may be. Further, time limit for carry forward of MAT/AMT credit has been proposed to be increased from 10 years to 15 years. Recent Guidelines/Circular w.r.t. Place of Effective Management (POEM) and General Anti-Avoidance Rules (GAAR) has paved the way for implementation of related provisions. Various measures to ensuring ease of doing business include changes in the TDS and TCS regime, an increased time limit for start-ups to claim tax holiday and carry forward its losses even if shareholding reduces below the specified limit, reduction in the time for completing assessment of tax returns. Considering the prevailing practices in other parts of the world interest to associate enterprises above a threshold limit of ` 1 crore claimed by specified entities is proposed to be restricted to 30% of EBITDA. Further, additional measures such as introduction of secondary adjustment provisions under Transfer Pricing regulations levying tax on notional interest calculation on additional margin arising due to primary adjustments if not repatriated to India by associated enterprises could add to the compliance burden. The Government in its effort towards digitisation and transparency of transactions has restricted the transaction in cash to be less than to ` 3 lakh per day. Allowability of individual cash payments has been reduced from ` 20,000 to ` 10,000. Further, cash donation exceeding ` 2000 received by a political party has been made taxable. A scheme for issuance of Electoral Bonds has been proposed as a major reform towards regulating the electoral funding. On the Indirect taxation front, no major changes were proposed in view of the proposed introduction of the Goods and Service Tax in the near future. The budget seems to be directionally correct, fiscally prudent, strengthens the governance fabric of the nation and is in line with the government s vision of building a New Age India. The words of the Finance Minister, When my aim is right, when my goal is in sight, the winds favour me and I fly indicate how the budget is balanced on intent and its effective implementation will provide the needed direction to the Indian economy. 2 nd February, 2017 Team Lodha & Co Budget Briefing 2017 1
2 Budget Briefing 2017
Contents Budget Highlights 4 Budget Proposals Direct Tax Laws 13 Indirect Tax Laws 28 Recent developments in regulatory framework 37 Macro Economic Indicators 51 Budget Briefing 2017 3
BUDGET HIGHLIGHTS DIRECT TAXES Tax Rates No changes have been proposed in the basic exemption limit and the tax rates except the following: Rate of taxation for individual or Hindu undivided family (HUF) or every association of persons or body of individuals, whether incorporated or not or every artificial juridical person for income slab of ` 2.5 lakhs to ` 5 lakhs reduced to 5% from the present rate of 10%. Reduction of tax rates for domestic company having turnover not exceeding ` 50 crores to 25% from 30%. Surcharge of 10% of tax payable on Individuals whose annual taxable income is between ` 50 lakhs and ` 1 crore. Dividend Income taxable @ 10% extended to all resident assessees except domestic company and certain exempted funds, trusts, institutions. Income from transfer of carbon credits has been proposed to be taxed @ 10% (plus applicable surcharge and cess) on a gross basis (i.e. without deduction of expenditure or allowance). Minimum Alternate Tax MAT/AMT credit can be carried forward upto a period of 15 assessment years. MAT/AMT credit shall not be allowed to be carried forward to subsequent year to the extent foreign tax credits (FTC) allowable against MAT/AMT exceeds the FTC allowable against the tax computed under the regular provisions of the Act. MAT provisions have been amended in line with Ind AS which includes: Net Profit and Loss before Other Comprehenhive Income (OCI) for the year to be adjusted for computing book profit. In the year of Ind AS adoption, OCI items which are to be reclassified to Profit and Loss subsequently to be included in the book profit in the year in which such reclassification is made. Adjustment to fair value of PPE, Intangible assets and investments in subsidiaries, associates and joint ventures shall be included in the book profit in the year of disposal/realisation/retirement. In respect of other adjustments to be included in the book profit equally over a period of five years. Capital Gains Period of holding to qualify as long term capital asset in case of immovable property being land or building or both has been reduced from the existing 36 months to 24 months. Base date for Capital Indexation shifted from 1st April, 1981 to 1st April, 2001 and the cost of improvement shall accordingly include only those capital expenses which are incurred thereafter. Benefit of long term capital gains to the extent of ` 50 lakhs extended to investments made in any bond notified by the Central Government redeemable after three year. Conversion of preference share of a company into its equity share are proposed not to be regarded as transfer. Transfer of rupee denominated bonds of an Indian company between two non-residents outside India not to be regarded as transfer and not subject to capital gain tax. Further, Non-taxation of gains on appreciation of rupee denominated bonds extended to secondary holder of such bond. Exemption under section 10(38) for income arising on transfer of equity share acquired shall be available only if the acquisition of share is chargeable to Securities Transactions Tax. Where consideration received or accruing for transfer of share of a company (other than quoted share) is lower than the Fair Market Value (FMV) of such share, the FMV shall be deemed to be the full value of consideration for the purposes of computing capital gain. Gains arising to an individual or HUF on transfer of land or building or both under a joint development agreement shall be chargeable to tax in the previous year in which the certificate of completion for the whole or part of the project is issued by the competent authority. The above benefit of deferment of tax shall not be available in case of transfer of its share on or before the issuance of the completion certificate and it will be taxed in the year of such transfer under the normal provisions of the Act. Capital gain arises from the transfer of an asset, being the asset held by a trust or an institution in respect of which accreted income (i.e. excess of fair market value of assets over aggregate amount of liability) has been computed, the cost of acquisition of such asset shall be deemed to be the fair market value of the asset which has been taken into account for computation of accreted income as on the specified date referred to in sub-section (2) of section 115TD. 4 Budget Briefing 2017
In case of consolidation of Mutual Fund Schemes (MFS), there will be no change in the cost of acquisition or period of holding in the hands of the assessee. In case of transfer of shares of an Indian company between two foreign companies pursuant to a taxneutral demerger, the cost of acquisition of such shares for resulting foreign company shall be the same as it was in the hands for demerged foreign company. Other Heads of Income The annual value of house property consisting of any building and land appurtenant or part of the property held as stock-in-trade, for the period upto one year from the end of the financial year in which the certificate of completion of construction of the property is obtained from the competent authority, shall be taken to be Nil. Section 56(2)(x) has been inserted to provide that receipt of the sum of money or the property or shares or any other moveable or immovable property in which company are not substantially interested by any assessee (as against the earlier provision to include Individual and HUF only) without or inadequate consideration in excess of ` 50,000 shall be chargeable to tax in the hands of the recipient under the head Income from other sources. Section 58(1A) is proposed to be amended to extend the provisions of section 40(a)(ia) to income under the head Income from other sources from the present applicability on Profits & gains from Business or Profession. Section 40(a)(ia) provides for disallowance to the extent of 30% of amount paid to a resident on which TDS has not been deducted. In line with the recommendation of OECD / BEPS Action Plan, interest paid to non-resident AE will be restricted to 30% of EBITDA if it exceeds ` 1 crore and would apply to Indian company and Indian Perment Establishment (PE) of foreign entity. Secondary adjustment shall be carried out as a result of primary adjustment to the arms length price of the transaction exceeding ` 1 crore as per transfer pricing regulation. It provides that if there is an increase in total income or reduction in the loss, the excess money which is available with its AE, if not repatriated to India within the prescribed time, shall be deemed to be an advance made by assessee to such AE and the interest on such advance shall be computed as income of assessee, in the prescribed manner. Transactions referred to in section 40A(2)(b) are proposed to be excluded from the scope of Domestic Transfer Pricing. The tax incidence on indirect transfer shall not apply to any investment held by a non-resident, directly or indirectly, in case of FII registered as Category-I or Category II FPI under the SEBI (FPI) Regulations, 2014. In the year of winding up of the off shore fund the condition relating to maintain of monthly average corpus for the purposes of not constituting business connection shall not apply. Deduction & Allowances An eligible start-up as referred to in section 80-IAC shall be allowed to carry forward and set off of losses if all the shareholders who held shares carrying voting power on the last day of the year or years in which the loss was incurred continue to hold those shares on the last day of such previous year. Profit linked deduction of 100% of the profits under section 80-IAC by an eligible start-up for any three consecutive assessment years is now extended within the block of seven years from the date of incorporation. Deduction under section 80G has been restricted to ` 2,000 if paid in cash. Disallowance of depreciation on capital assets under section 32 and capital expenditure made under section 35AD on cash payment exceeding ` 10,000. The ceiling limit of Section 40A(3) of the Act is also proposed to be reduced to ` 10,000. Penalty of a sum equal to amount of receipt if the aggregate of cash received is ` 3,00,000 or more in a single day to be levied. Maximum amount of cash donation, a political party can receive is restricted to ` 2,000 per person. Deduction for interest on loan under section 43B to include interest payments made to co-operative bank other than a primary agricultural credit society or a primary co-operative agricultural and rural development bank on actual payment basis. Deduction limit in respect of provision for bad and doubtful debts by Banks has been increased from 7.5% to 8.5% of the amount of total income. Deduction for contributions by self-employed individuals to NPS under section 80CCD(1) has been increased from 10% to 20% of gross total income in line with other Individuals. Further, partial withdrawal from NPS to the extent of 25% of the employee contribution is exempt from tax. In case of transfer of a capital asset on which deduction under section 35AD (capital expenditure on specified business) has been claimed, the cost of such asset shall be actual cost to the assessee as reduced by the depreciation calculated at the rate in force since the date of its acquisition. Budget Briefing 2017 5
Section 71(3A) has been inserted whereby the set-off of loss under the head Income from house property against any other head of income is restricted to ` 2 lakhs for any assessment year. However, the unabsorbed loss shall be allowed to be carried forward for set-off in subsequent years. A new explanation to Section 11 has been inserted to provide that Charitable Trust or Institutions contributing to the corpus of other charitable institutions out of their income shall not be treated as an application of income. Presumptive Taxation Reduction in existing rate of deemed total income of 8% to 6% in respect of presumptive income under section 44AD of the Act if it is in any mode other than cash. Threshold limit for audit of business entities who opt for presumptive income scheme increased from ` 1 crore to ` 2 crores. Threshold limit for maintenance of books for individuals and HUF increased from turnover of ` 10 lakhs to ` 25 lakhs or income from ` 1.20 lakhs to ` 2.50 lakhs. Advance Tax, Tax Deduction and Collection at Source The withholding tax rate of 5% on interest payment to a non-resident / FIIs and QFIs have been extended to 1 st July, 2020 as against 1 st July, 2017. Further, the benefit extended to rupee denominated bond. Individuals or HUF (other than those covered under 44AB of the Act), paying to a resident any income by way of rent exceeding ` 50,000 per month are required to deduct tax at source @ 5%. No tax shall be withheld from commission payable to Individuals and HUFs, provided they furnish selfdeclaration stating that the tax on their total income for the relevant year is Nil. Reduction in TDS rate to 2% from the existing rate of 10% in case of payments made/ credited to a person engaged only in the business of operation of call centre. The benefit of paying advance tax on or before 15th March by one instalment is now proposed for professionals declaring profits and gains in accordance with presumptive taxation regime. Keeping in view the uncertain nature of dividend income, interest on deferment of advance tax shall not be levied in case of under-estimation or failure in estimation of such income. In case of settlement of dispute in foreign jurisdiction, the assesse can claim for the credit of taxes paid in the year in which such settlement took place by furnishing to the tax authority the evidence of settlement of dispute and the proof of payment along with undertaking that no credit in respect of such amount has been claimed or shall be claimed in any other year. In order to strengthen the PAN mechanism, it is proposed to insert new section 206CC to provide that any person paying any sum or amount, on which tax is collectable at source shall furnish his Permanent Account Number to the person responsible for collecting such tax, failing which tax shall be collected at the twice the rate mentioned in the relevant section under Chapter XVII BB or at the rate of 5% whichever is higher. Returns, Assessment and Penalties Time limit for furnishing of revised return is reduced by one year and it can be filed upto the end of the relevant assessment year or before the completion of assessment, whichever is earlier. Time limit for completion of assessment or re-assessment has been reduced from existing 21 months to 18 months from the end of the assessment year for AY 2018-19, and for AY 2019-20 and onwards, the said time limit shall be twelve months from the end of the assessment year in which the income was first assessable. Time limit for making an order of assessment, reassessment or re-computation under section 147, in respect of notices served under section 148 on or after the 1st day of April, 2019 shall be twelve months from the end of the financial year in which notice under section 148 is served. A tax deductor shall be entitled to receive simple interest on refund due at the rate of one-half per cent for every month or part of a month, from the date on which claim for refund is made in the prescribed form or in case of an order passed in appeal, from the date on which the tax is paid, to the date on which refund is granted. A new section 241A has been inserted whereby the Assessing Officer has powers to withhold the grant of refund upto the date of completion of assessment by recording the reasons in writing and with the previous approval of the Principal Commissioner or Commissioner. Non-furnishing of return of income with the prescribed time limit shall attract a penalty of ` 5,000 if filed before 31st December and in other cases ` 10,000. However, penalty shall be limited to ` 1,000 if total income does not exceed ` 5 lakhs. Section 269ST has been inserted to restrict the receipt of cash to the extent of ` 3 lakhs from a person in a day in respect of single transaction or event. In case of non-compliance, enabling provisions has been inserted to levy a penalty of a sum equal to the amount of such receipt. 6 Budget Briefing 2017
Penalty of ` 10,000 proposed to levied on an accountant or a merchant banker or a registered valuer, who furnishes incorrect information in a report or certificate under any provisions of the Act. To claim tax exemptions Charitable Trust or institutions exempt under section 11 and 12 and political parties under section 13A are required to file their return of income within the specified due dates. Section 133A has been proposed to be amended to provide powers to Income Tax authority to survey the place at which an activity for charitable purpose is carried on. In search and seizure, reason to believe or reason to suspect shall not be disclosed to any person or any authority or the Appellate Tribunal. Further, the authorised officer may provisionally attach any property for six months after recording reasons and taking prior approval of Principal Director General or Director General or Principal Director or Director. The authorised offices has been given powers to make a reference to the valuation officer referred to in section 142A. Income accrual other than those covered under Income Declaration Scheme, 2016 shall be deemed to have accrued, arisen or received in the year in which a notice has been received under the relevant provisions of the Act. The Authority of Advance ruling for Central Excise, Custom Duty and Service Tax has been merged with such authority under Income Tax Act. INDIRECT TAXES CUSTOM DUTY General Basic Rate There is no change in peak rate of basic customs duty which is 10%. Amendments in Customs Act Section 2 relating to definitions have been amended to include the following concept: beneficial owner which means any person on whose behalf the goods are being imported or exported or who exercises effective control over the goods being imported or exported. foreign post office which means any post office appointed under clause (e) of sub-section (1) of section 7 to be a foreign post office. international courier terminal which means any place appointed under clause (f) of sub-section (1) of section 7 to be an international courier terminal. passenger name record information which means the records prepared by an operator of any aircraft or vessel or vehicle or his authorised agent for each journey booked by or on behalf of any passenger. Custom station under Section 2(13) to include customs airport, international courier terminal, foreign post office. Section 17 is being amended to rationalize the requirement of production of documents (any documents needed for the purpose) for verification of selfassessment. Refund of duty paid in excess before an order permitting for clearance of goods for home consumption is proposed to be made to the applicant in the following two cases also (to avoid hardship and unjust enrichment) where- (i) such excess payment is evident from the bill of entry in the case of self-assessed bill of entry or (ii) the duty actually payable is reflected in the reassessed bill of entry in the case of reassessment. Definition of Authority for Advance Ruling to include as constituted under section 245-O of the Income-tax Act, 1961. Authority for Advance Rulings constituted under section 245-O of the Income-tax Act shall be the Authority for giving advance rulings for the purposes of the Customs Act. Application fees for Advance Rulings to increase from ` 2,500 to ` 10,000. Time limit for pronouncement of advance ruling in writing by the authority to increase from 90 days to 6 months from the receipt of an application. Section 30A and 41A is being newly inserted to make it obligatory for the person-in-charge of a conveyance that enters or departs India from / to any place outside India or any other person as may be specified by the Central Government by notification in the Official Gazette, to deliver to the proper officer the passenger and crew arrival / departure manifest and passenger name record information of arriving / departing passengers in such form, containing such particulars, in such manner and within such time as may be prescribed. In case of delay in delivering the information a penalty not exceeding ` 50,000 may be imposed. The importer has been obligated to present the bill of entry before the end of the next day following the day (excluding holidays) on which the aircraft or vessel or vehicle carrying the goods arrives at a customs station at which such goods are to be cleared for home consumption or warehousing. In case of delayed presentation of Bill of Entry, charges have been specified. Sub-section (2) of section 47 is being amended to provide the manner of payment of duty and interest Budget Briefing 2017 7
thereon in the case of self-assessed bills of entry or, as the case may be, assessed, reassessed or provisionally assessed bills of entry. Section 49 has been amended to include storage of goods in public warehouses where the imported goods have been entered for warehousing. Further, storage of imported goods pending clearance is no longer allowed in private warehouses. Section 127B is being amended to insert a new subsection (5) therein to enable any person, other than applicant also, referred to in sub-section (1) to make an application to the Settlement Commission. Section 127C(5A) has been inserted to enable the Settlement Commission to amend the order passed by it under sub-section (5), to rectify any error apparent on the face of record. Amendment in The Customs Tariff Act, 1975 Exemption to three categories of non-actionable subsidies specified have been withdrawn from the scope of anti-subsidy investigations. EXCISE DUTY General Basic Rate No change in basic excise duty which is 12.50%. Amendments in Central Excise Act, 1944 Application fees for Advance Rulings to increase from ` 2,500 to ` 10,000. Time limit for pronouncement of advance ruling in writing by the authority to increase from 90 days to 6 months from the receipt of an application. New Section 23-I inserted under Advance Rulings for transferring the pending application and proceedings from the erstwhile authority to the authority constituted under section 245-O of the Income Tax Act. Section 32E(5) has been inserted to enable any person, other than assessee to make an application to the settlement commission in respect of show cause notice issued to him for pending case. Section 32F(5A) has been inserted to enable the settlement commission to amend the order passed by it at any time within 3 months from the date of passing of the order under Section 32F(5) subject to certain limitations. Amendments in Central Excise Rules, 2002 and The Cenvat Credit Rules, 2004 Time limit of 3 months [further extendable by 6 months] has been allowed for granting remission of duty. Time limit of 3 months [further extendable by 6 months] has been allowed for approval of requests regarding transfer of CENVAT credit on shifting, sale, merger, etc. of the factory. Retrospective Amendment Tariff rate of excise duty of 12.5% [as against present tariff rate of 27%] on motor vehicles for transport of more than 13 persons falling under tariff items 8702 90 21 to 8702 90 29 of the First Schedule to the Central Excise Tariff Act, 1985 retrospectively w.e.f 1st January 2017. SERVICE TAX No change in the service tax rate of 14%, Swachh Bharat Cess of 0.5% and Krishi Kalyan Cess of 0.5%. Changes made with retrospective method Exemptions on taxable services by way of life insurance to members of the Army, Navy and Air Force under the Group Insurance Schemes of the Central Government. Exemptions on taxable services by way of grant of long term lease of 30 years or more of industrial plots provided or agreed to be provided by a State Government industrial development corporation or undertaking. Value of service portion in execution of works contract involving transfer of goods and land or undivided share of land, as the case may be, shall not include value of property in such land or undivided share of land with effect from 1st July, 2010. Other Changes in Finance Act 1994 Application fees for Advance Rulings to increase from ` 2,500 to ` 10,000. Time limit for pronouncement of advance ruling in writing by the authority to increase from 90 days to 6 months from the receipt of an application. Service tax to the extent of cess paid under Research and Development Cess Act, 1986 earlier exempted will be payable as a part of service tax. Banks and financial institutions including non-banking financial companies engaged in providing services by way of extending deposits, loans or advances have been excluded from the ambit of explanation-i (e) of sub-rule (3) and (3A) of Rule 6 of Cenvat Credit Rules, 2004. The word residential have been omitted to widen the scope of exemption in relation to all 2 year full time post graduate programmes conducted by IIMs. Exemptions- effective from 2 nd February, 2017 Any process amounting to manufacture or production of goods excluding alcoholic liquor for human consumption. 8 Budget Briefing 2017
Any intermediate production process as job worker not amounting to manufacture. Services provided or agreed to be provided by the Army, Naval and Air Force Group Insurance Funds by way of life insurance to members of the Army, Navy and Air Force under the Group Insurance Schemes of the Central Government. The amount of viability gap funding (VGF) payable to the selected airline operator for the services provided to the Government by way of transport of passengers embarking from or terminating in a Regional Connectivity Scheme (RCS) airport, for a period of 1 year from the date of commencement of operations of the Regional Connectivity Scheme (RCS) airport as notified by Ministry of Civil Aviation. Goods and Service Tax (GST) The GST Council has finalised its recommendations on almost all the issues based on consensus on the basis of nine meetings held. Preparation of IT system for GST is on schedule. The extensive reach-out efforts to trade and industry for GST to make them aware of the new taxation system. OTHER MEASURES AND PRONOUNCEMENTS Fiscal Management: Stepped up allocation for Capital expenditure by 25.4% over the previous year. Total resources being transferred to the States and the Union Territories with Legislatures is ` 4.11 lakh crores against ` 3.60 lakh crores in BE 2016-17. FRBM Committee has recommended 3% fiscal deficit for the next three years, keeping in mind the sustainable debt target and need for public investment, fiscal deficit for 2017-18 is targeted at 3.2% of GDP and Government remains committed to achieve 3% in the following year. Net market borrowing of Government restricted to ` 3.48 lakh crores after buyback in 2017-18, much lower than ` 4.25 lakh crores of the previous year. Revenue Deficit of 2.3% in BE 2016-17 stands reduced to 2.1% in the Revised Estimates. The Revenue Deficit for next year is pegged at 1.9%, against 2% mandated by the FRBM Act. Financial Sector: Foreign Investment Promotion Board (FIPB) to be abolished in 2017-18. Constitution of an expert committee to integrate spot market and derivatives market in the agricultural sector for commodities trading whereby e-nam would be an integral part of the framework. The draft bill to curtail the menace of illicit deposit schemes will be introduced in order to protect the poor and gullible investor Regulatory gaps in Multi State Cooperative Societies Act, 2002 shall be amended in consultation with various stakeholders as part of Clean India agenda. A mechanism to streamline institutional arrangements for resolution of disputes in infrastructure related construction contracts, PPP and public utility contracts will be introduced as an amendment to the Arbitration and Conciliation Act 1996. A Computer Emergency Response Team for our Financial Sector (CERT-Fin) will be established. The Government will put in place a revised mechanism and procedure to ensure time bound listing of identified CPSEs on stock exchanges. The shares of Railway PSEs like IRCTC, IRFC and IRCON will be listed in stock exchanges. It has been proposed to create an integrated public sector oil major which will be able to match the performance of international and domestic private sector oil and gas companies. A new ETF with diversified CPSE stocks and other Government holdings will be launched in 2017-18. In line with the Indradhanush roadmap, ` 10,000 crores for recapitalisation of Banks provided in 2017-18. Lending target under Pradhan Mantri Mudra Yojana has been doubled and set at ` 2.44 lakh crores. Priority will be given to Dalits, Tribals, Backward Classes and Women. The Finance Minister in his budget speech has referred to introduction of legislative changes, or even a new law, to confiscate the assets located within the country of big time offenders, including economic offenders, fleeing the country to escape the reach of law. Infrastructure: For transportation sector as a whole, including rail, roads, shipping, provision of ` 2,41,387 crores have been made in 2017-18. Railways For 2017-18, the total capital and development expenditure of Railways has been pegged at ` 1,31,000 crores. This includes ` 55,000 crores provided by the Government. Budget Briefing 2017 9
A Rashtriya Rail Sanraksha Kosh will be created with a corpus of ` 1 lakh crores over a period of 5 years for passenger safety. Unmanned level crossings on Broad Gauge lines will be eliminated by 2020. In the next 3 years, the throughput is proposed to be enhanced by 10%. This will be done through modernisation and upgradation of identified corridors. Railway lines of 3,500 kms will be commissioned in 2017-18, as against 2,800 kms in 2016-17. 70 projects have been identified for construction and development. 500 stations will be made differently abled friendly by providing lifts and escalator. SMS based Clean My Coach Service has been initiated. It is now proposed to introduce Coach Mitra facility, a single window interface, to register all coach related complaints and requirements. By 2019, all coaches of Indian Railways will be fitted with bio toilets. Tariffs of Railways would be fixed, taking into consideration costs, quality of service and competition from other forms of transport. A new Metro Rail Policy will be announced with focus on innovative models of implementation and financing, as well as standardisation and indigenisation of hardware and software. Railways will offer competitive ticket booking facility to the public at large. Service charge on e-tickets booked through IRCTC has been withdrawn. Cashless reservations have gone up from 58% to 68%. Roads In the road sector, Budget allocation for highways increased from ` 57,976 crores in BE 2016-17 to ` 64,900 crores in 2017-18. 2,000 kms of coastal connectivity roads have been identified for construction and development. Total length of roads, including those under PMGSY, built from 2014-15 till the current year is about 1,40,000 kms which is significantly higher than previous three years. Others Selected airports in Tier 2 cities will be taken up for operation and maintenance in the PPP mode. By the end of 2017-18, high speed broadband connectivity on optical fibre will be available in more than 1,50,000 gram panchayats, under BharatNet. A Digi Gaon initiative will be launched to provide tele-medicine, education and skills through digital technology. Proposed to set up strategic crude oil reserves at 2 more locations, namely, Chandikhole in Odisha and Bikaner in Rajasthan. This will take our strategic reserve capacity to 15.33 MMT. Second phase of Solar Park development to be taken up for additional 20,000 MW capacity. For creating an eco-system to make India a global hub for electronics manufacturing a provision of ` 745 crores in 2017-18 in incentive schemes like M-SIPS and EDF. A new and restructured Central scheme with a focus on export infrastructure, namely, Trade Infrastructure for Export Scheme (TIES) will be launched in 2017-18. Digitisation: 125 lakh people have adopted the BHIM app so far. The Government will launch two new schemes to promote the usage of BHIM; these are, Referral Bonus Scheme for individuals and a Cashback Scheme for merchants. Two new schemes naming Referral Bonus Scheme for individuals and Cashback Scheme for merchants shall be launched to promote the usage of Bharat Interface for Money (BHIM) Application. Launching Aadhar Pay, a merchant version of Aadhar Enabled Payment System being specifically beneficial for those who do not have debit cards, mobile wallets and mobile phones. A Mission will be set up with a target of 2,500 crores digital transactions for 2017-18 through UPI, USSD, Aadhar Pay, IMPS and Debit cards. Banks have targeted to introduce additional 10 lakh new POS terminals by March 2017. They will be encouraged to introduce 20 lakh Aadhar based POS by September 2017. A proposal to mandate all Government receipts (at petrol pumps, block offices, road transport offices etc.) through digital means, beyond a prescribed limit, is under consideration. Proposal of creating a Payments Regulatory Board in the Reserve Bank of India in place of the existing Board for Regulation and Supervision of Payment and Settlement Systems. The Negotiable Instruments Act is being considered for amendment to ensure that the payees of dishonoured cheques are able to realise the payments. Maximising efforts to introduce e-assessment under various laws in the coming year. Enforcing greater accountability of officers of Tax Department for specific act of commission and omission. 10 Budget Briefing 2017
Public Service: 84 Government schemes have been boarded on the Direct Benefit Transfer (DBT) platform to LPG and kerosene consumers. Utilisation of the Head Post Offices as front offices for rendering passport services to obtain passports and redress passport related grievances. Development of Centralised Defence Travel System through which travel tickets can be booked online by soldiers and officers. A comprehensive web based interactive Pension Disbursement System for Defence Pensioners will be established. Proposal for introducing a system of single registration and two tier system of examination. Rationalising the number of tribunals and merge tribunals wherever appropriate. Farmers: Targeted agricultural credit in 2017-18 has been fixed at a record level of ` 10 lakh crores. Farmers will also be benefitted from 60 days interest waiver announced on 31st December, 2016. For ensuring seamless flow of credit to small and marginal farmers, computerisation and integration of all 63,000 functional Primary Agriculture Credit Societies (PACS) with the Core Banking System of District Central Cooperative Banks shall be implemented by NABARD in 3 years at an estimated cost of ` 1,900 crores. Increase in coverage of Fasal Bima Yojna from 30% of cropped area in 2016-17 to 40% in 2017-18 and 50% in 2018-19 for which a budget provision of ` 9000 crores have been made. New mini labs will be set up in Krishi Vigyan Kendras (KVKs) ensuring 100% coverage of all 648 KVKs in the country for soil sample testing. Allocation of ` 20,000 crores in Long Term Irrigation Fund increasing its total corpus to ` 40,000 crores. Setting up of Micro Irrigation Fund with an initial corpus of ` 5,000 crores achieving the goal of per drop more crop. For ensuring better prices for farmers produce in the market, coverage of National Agricultural Market (e-nam) will be expanded from the current 250 markets to 585 Agriculture Produce Market Committees (APMCs) and assistance up to a ceiling of ` 75 lakhs will be provided to every e-nam market for establishment of cleaning, grading and packaging facilities. A model law on contract farming to be prepared and circulated among the States for adoption. Setting up of Dairy Processing and Infrastructure Development Fund in NABARD with a corpus of ` 8,000 crores over 3 years with an initial corpus of ` 2,000 crores. Rural Population: Over ` 3 lakh crores spent in rural areas every year, for rural poor from Central Budget, State Budgets, Bank linkage for self-help groups, etc. Aim to bring 1 crore households out of poverty and to make 50,000 gram panchayats poverty free by 2019. The budget provision of ` 38,500 crores under MGNREGA in 2016-17 has been increased to ` 48,000 crores in 2017-18 being the highest ever allocation for MGNREGA. Against target of 5 lakh farm ponds under MGNREGA, 10 lakh farm ponds would be completed by March 2017. During 2017-18, another 5 lakh farm ponds will be taken up. The pace of construction of Pradhan Mantri Gram Sadak Yojana (PMGSY) has accelerated to reach 133 km roads per day in 2016-17, as against an average of 73 km during the period 2011-2014. Allocation of ` 23,000 crores in 2017-18 from ` 15,000 crores in 2016-17 in Pradhan Mantri Awaas Yojana Gramin. Further, proposal to complete 1 crore houses by 2019 for the houseless and those living in kutcha houses. The Government is on the way to achieving 100% village electrification by 1st May, 2018. Sanitation coverage in rural India has gone up from 42% in October 2014 to about 60%. Open Defecation Free villages are now being given priority for piped water supply. Proposal to provide safe drinking water to over 28,000 arsenic and fluoride affected habitations in the next four years as a sub mission of National Rural Drinking Water Programme (NRDWP). Mason training will be provided to 5 lakh persons by 2022, with an immediate target of training for imparting new skills to the people in the rural areas. Budget Briefing 2017 11
Proposal is under consideration for launching programme of Human Resource reforms for results during 2017-18. Total allocation for Rural, Agriculture and Allied sectors is ` 1,87,223 crores. Youth: Proposal is under consideration for introducing a system of measuring learning outcomes in schools. Innovation Fund for Secondary Education proposed to encourage local innovation for ensuring universal access, gender parity and quality. Improvement to be introduced in 3479 educationally backward districts. Greater administrative and academic autonomy will be enabled in good quality institution whereby autonomous status shall be awarded based on accreditation and ranking. Proposal for launching SWAYAM platform with minimum of 350 online courses enabling students to virtually attend the courses taught by competent faculty. Establishing an autonomous and self-sustained premier testing organisation named National Testing Agency for conducting all entrance examinations for higher education institutions. Promotion of the scheme Pradhan Mantri Kaushal Kendras (PMKK) from 60 districts to more than 600 districts and establishing 100 India International Skills Centres across the country. Launching of scheme naming Skill Acquisition and Knowledge Awareness for Livelihood Promotion programme (SANKALP) at a cost of ` 4,000 crores for the purpose of providing market relevant training to 3.5 crore youth. Proposal for launching the next phase of Skill Strengthening for Industrial Value Enhancement (STRIVE) in 2017-18 at a cost of ` 2,200 crores. Proposal is under consideration for establishing a special scheme for creating employment in leather and footwear industries. Incredible India 2.0 Campaign will be launched across the world to promote tourism and employment. The Poor and the Underprivileged: Setting up of Mahila Shakti Kendra at village level with an allocation of ` 500 crores in 14 lakh Anganwadi for providing opportunities for skill development, employment, digital literacy, health and nutrition for rural women. Under Maternity Benefit Scheme ` 6,000 each will be transferred directly to the bank accounts of pregnant women who undergo institutional delivery and vaccinate their children. Infrastructure status shall be awarded to affordable housing. Refinancing of individual housing loans of about ` 20,000 crores in 2017-18 by National Housing Bank. Preparation of action plan for eliminating various chronic diseases associated with poverty such as Kala- Azar and Filariasis by 2017, Leprosy by 2018, Measles by 2020 and Tuberculosis by 2025. Action plan has been prepared to reduce IMR from 39 in 2014 to 28 by 2019 and MMR from 167 in 2011-13 to 100 by 2018-2020. To create additional 5,000 Post Graduate seats per annum to ensure adequate availability of specialist doctors to strengthen Secondary and Tertiary levels of health care. Setting up of two new All India Institutes of Medical Sciences in the States of Jharkhand and Gujarat. Proposal to amend the Drugs and Cosmetics Rules ensuring availability of drugs at reasonable prices and promoting usage of generic medicines. New rules for regulating medical devices will also be formulated. Undertaking of Legislative reforms to simplify, rationalise and amalgamate the existing labour laws into 4 Codes being (i) wages; (ii) industrial relations; (iii) social security and welfare; and (iv) safety and working conditions to foster conductive labour requirement. The allocation for Scheduled Castes has been increased by 35% compared to BE 2016-17. The allocation for Scheduled Tribes has been increased to ` 31,920 crores and for Minority Affairs to ` 4,195 crores. For senior citizens, Aadhar based Smart Cards containing their health details will be introduced. 12 Budget Briefing 2017
BUDGET PROPOSALS- DIRECT TAX LAWS INCOME TAX RATES IN PERCENTAGE** Slab Existing Proposed Basic Surcharge* Cess Basic Surcharge* Cess Individuals and HUF etc. Upto ` 2,50,000 Nil Nil Nil Nil Nil Nil ` 2,50,001 to ` 5,00,000 10 Nil 3 05 Nil 3 ` 5,00,001 to ` 10,00,000 20 Nil 3 20 Nil 3 ` 10,00,001 to ` 50,00,000 30 Nil 3 30 Nil 3 ` 50,00,001 to ` 1,00,00,000 30 Nil 3 30 10 3 Above ` 1,00,00,000 30 15 3 30 15 3 Firms and Local authorities Upto ` 1,00,00,000 30 Nil 3 30 Nil 3 Above ` 1,00,00,000 30 12 3 30 12 3 Co-operative Societies Upto ` 10,000 10 Nil 3 10 Nil 3 ` 10,001 to ` 20,000 20 Nil 3 20 Nil 3 ` 20,001 to ` 1,00,00,000 30 Nil 3 30 Nil 3 Above ` 1,00,00,000 30 12 3 30 12 3 Companies Domestic Turnover Upto ` 50 Crores Upto ` 1,00,00,000 25 Nil 3 25 Nil 3 ` 1,00,00,001 to ` 10,00,00,000 25 7 3 25 7 3 Above ` 10,00,00,000 25 12 3 25 12 3 Companies Domestic Others Upto ` 1,00,00,000 30 Nil 3 30 Nil 3 ` 1,00,00,001 to ` 10,00,00,000 30 7 3 30 7 3 Above ` 10,00,00,000 30 12 3 30 12 3 Companies Foreign Upto ` 1,00,00,000 40 Nil 3 40 Nil 3 ` 1,00,00,001 to ` 10,00,00,000 40 2 3 40 2 3 Above ` 10,00,00,000 40 5 3 40 5 3 (*) Subject to relief for marginal increase in Income. (**) To be read in conjunction with Notes as given below. Notes: In case of a resident individual (both male and female) who attains the age of 60 years or more but less than 80 years at any time during the previous year, the basic exemption limit is up to ` 3,00,000. In case of a resident individual (both male and female) who attains the age of 80 years or more at any time during the previous year, the basic exemption limit is up to ` 5,00,000. An individual resident in India having total income not exceeding ` 3,50,000 shall be entitled for a deduction under section 87A of an amount equal to 100% of income tax payable or an amount of ` 2,500 whichever is less. In case of every company having total income chargeable to tax under section 115JB (relating to minimum alternate tax) of the Act and where such income exceeds ` 1 crore but does not exceed ` 10 crores, or exceeds ` 10 crores, as the case may be, surcharge at the rate Budget Briefing 2017 13
of 7% or 12%, whichever applicable, shall be levied and marginal relief shall also be available. In case of person (other than a company) having total income chargeable to tax under section 115JC (relating to alternate minimum tax) of the Act and where such income exceeds ` 1 crore, surcharge at the rate of 15% shall be levied and marginal relief shall also be available. Income tax rates as applicable in case of Individual and HUF also applies to every association of persons or body of individuals or every artificial juridical person referred to in sub-clause (vii) of clause (31) of section 2 of the Act. ADDITIONAL RESOURCE MOBILISATION Rationalization of taxation of income by way of dividend It is proposed to amend section 115BBDA so that to levy @ 10% tax in respect of Income derived by way of dividend in excess of ` 10 lakhs, so as to provide that the provisions of said section shall be applicable to all resident assessees except domestic company and certain funds, trusts, institutions referred to in section 10(23C) and section 12AA of the Act. Previously, such levy was applicable in case of resident individual, Hindu undivided family (HUF) or firm. Deduction of tax at source in the case of certain Individuals and Hindu undivided family It is proposed to insert a new section 194-IB in the Act to provide that Individuals or a HUF (other than those covered under section 44AB of the Act), responsible for paying to a resident any income by way of rent exceeding ` 50,000 for a month or part of month during the previous year, shall deduct an amount equal to 5% of such income as incometax thereon. However, tax shall be deducted on such income at the time of credit of rent, for the last month of the previous year to the account of the payee or at the time of payment whichever is earlier. It is further proposed that the deductor shall not be required to obtain tax deduction account number (TAN) as per section 203A of the Act. It is also proposed to provide that where the tax is required to be deducted as per the provisions of section 206AA, such deduction shall not exceed the amount of rent payable for the last month of the previous year or the last month of the tenancy, as the case may be. This amendment will take effect from 1 st June, 2017. MEASURES FOR PROMOTING AFFORDABLE HOUSING AND REAL ESTATE SECTOR Incentives for promoting Investment in immovable property The existing provision of the Act provide for concessional rate of tax and indexation benefit for taxation of capital gains arising from transfer of long-term capital asset. It is proposed to amend section 2(42A) of the Act so as to reduce the period of holding to qualify as long term capital asset in case of immovable property being land or building or both from the existing 36 months to 24 months. Rationalisation of provisions of Section 80-IBA to promote Affordable Housing The existing provision of section 80 IBA provides for 100% deduction in respect of the profits and gains derived from developing and building certain housing projects subject to specified conditions laid down therein. It is proposed to amend certain conditions as specified in section 80-IBA so as to provide following relaxations: The size of residential unit shall be measured by taking into account the carpet area and not the built-up area. The restriction of 30 square meters on the size of residential units shall not apply to the place located within a distance of 25 kms from the municipal limits of the Chennai, Delhi, Kolkata or Mumbai. The condition of period of completion of project for claiming deduction under this section shall be increased from existing 3 years to 5 years. Tax incentive for the development of capital of Andhra Pradesh Section 96 of the Right to Fair Compensation and Transparency in Land Acquisition, Rehabilitation and Resettlement Act, 2014, the compensation received by the landowner in lieu of acquisition of land is exempt from income tax. The Land Pooling Scheme is an alternative form of arrangement made by the Government of Andhra Pradesh for formation of new capital city of Amaravati to avoid landacquisition disputes and lessen the financial burden. In this scheme, the compensation is the plot or land provided to landowners. However, the existing provisions of the Act do not provide for such exemption to individual and HUF, who was the owner as on 2 nd June, 2014. It is proposed to insert a new section 10(37A) to provide that in respect of said persons, capital gains arising from following transfer shall not be chargeable to tax: - Transfer of capital asset being land or building or both, under the said scheme. Sale of Land Pooling Ownership Certificates (LPOCs) by the said persons received in lieu of land transferred under the scheme. Sale of reconstituted plot or land within two years from the end of the financial year in which the possession of such plot or land was handed over to the said persons. 14 Budget Briefing 2017