Transform, Energize and Clean India- Prudent Budget BUDGET

Transform, Energize and Clean India- Prudent Budget BUDGET 2017-18 Tata Capital Investment Advisory Services Email: investmentadvisory@tatacapital.com

Summary : Budget s 10 Segment Focus for TEC Agriculture & Farmers Welfare Fasal Bima Yojana to be expanded to 40% of cropped area Rs.20000 crore additional corpus for Long Term Irrigation Fund Set up of Dairy Processing and Infra fund with initial corpus of Rs.20,000 Cr Rural Sector Rs. 19000 crores allocation for PMGSY Rs. 48,000 crore for MGNREGS Rs.23,000 for PMAY-Gramin Poor and Under Privileged Allocation of Rs. 52393 crore for SC, ST &Minorities NHB to refinance Rs.20,000 crores of Housing Loans Allocation of Rs.1,56,528 crores for Welfare of Women and Child Youth: Education, Skills & Job Creation Rs.4000 crores for SANKALP & Rs.2200 crores for STRIVE Rs.500 crore for Mahila Shakti Kendra Legislative Reforms for existing labor laws Public Service Introduction of Legislative changes./new law for economic offenders Pension Disbursement System for Defense Pensioners Rationalization of Tribunals Infrastructure & Investment Total infra outlay: Rs.3,96,135 crore Road sector: Rs.64,900 crores Rs.10,000 crore for Bharat Net Project Financial Sector Reforms Rs.10,000 cr for Bank Recapitalization Rs.2.44 lakh crore lending target under PMMY Listing of Railway PSEs Digital Economy Two New Schemes to promote BHIM No transaction above Rs.3 Lakhs in Cash Target of 2,500 cr digital transactions for FY18 Fiscal Prudence Fiscal deficit at 3.2% for 2017-18 RE Revenue deficit at 1.9% in FY17-18 Plan expenditure increase by 10.7% Tax Administration Efforts to expand tax base Tax rate reduced to 5% for income upto Rs.5 Lacs Transparency in Electoral Funding

Budget at a Glance- Quick Analysis In Rs. Crores Particulars 2015-2016 2016-2017 2017-2018 Change over (Actuals) (RE) (BE) RE Revenue Receipts 1195025 1423562 1515771 6.48% Tax Revenue (net to centre) 943765 1088792 1227014 12.69% Non-Tax Revenue 251260 334770 288757-13.74% Capital Receipts 595748 601038 630964 4.98% Recoveries of Loans 20835 10634 11932 12.21% Other Receipts 42132 56500 72500 28.32% Borrowings and other liabilities * 532791 533904 546532 2.37% Total Receipts 1790783 1978060 2146735 8.53% Non-Plan Expenditure 1065669 1176094 1201657 2.17% On Revenue Account 992142 1129137 1162877 2.99% Interest Payments 441659 492670 523078 6.17% On Capital Account 73527 46957 38780-17.41% Plan Expenditure 1065669 1176094 1201657 2.17% On Revenue Account 992142 1129137 1162877 2.99% On Capital Account 73527 46957 38780-17.41% Total Expenditure 1790783 1978060 2146735 8.53% Revenue Expenditure 1537761 1731037 1836934 6.12% Grants for creation of Capital Assets 131754 166840 195350 17.09% Capital Expenditure 253022 247023 309801 25.41% Revenue Deficit 342736 354015 321163 (2.5) (2.3) (1.9) Effective Revenue Deficit 210982 187175 125813 (1.6) (1.2) (0.7) Fiscal Deficit 532791 533904 546532 Primary Deficit (3.9) 91132 (0.7) (3.5) 41234 (0.3) (3.2) 23454 (0.1) Government pegs fiscal deficit target at 3.2% for 2017-18 and 3% for next year. Capital expenditure pegged at 3.09 lakh crore for 2017-18, up 25.4% from the Budget estimates of Rs 2.47 lakh crore for the fiscal year. Better mix of revenue and capital expenditure Current Account Deficit declined from 1% last year to 0.3% in first half of current fiscal.

Allocations of Important Ministries Rural & Infra Focus Skill Development, Rs.3,016 crore Micro & SMEs, Rs.6,482 crore Minority Affairs, Rs.4,195 crore New & Renewable Energy, Rs.5,473 crore Housing & Urban Poverty Alleviation, Rs.6,406 crore Water Resources, Rs. 6,887 crore Social Justice & Empowerment, Rs. 7,763 crore Drinking Water & Sanitation, Rs.20,011 crore Woman & Child Development, Rs.22,095 crore Rural Development, Rs.107,758 crore Urban Development, Rs. 34,212 crore Human Resources Development, Rs.79,686 crore Road & Highways, Rs.64,900 crore Railways, Rs.55,000 crore Agriculture & Farmers Welfare, Rs.51,026 crore Health & Family Welfare, Rs.48,853 crore Total allocation to infrastructure segments stands at Rs.3,96,135 crores

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Measures to overhaul the economy Measures Announcements Total Outlay on Infrastructure enhanced to Rs.3,96,135 crore for FY17-18. Roads & Railways gets lions share of theentire spend. Infrastructure & Investments New Metro Rail Policy to be announced with focus on innovative models of implementation and financing, as well as standardization and indigenization of hardware and software to create new job opportunities. To make India Global hub of electronics manufacturing higher allocation of incentive schemes like M-SIPS and EDF provided to the tune of Rs.745 crore. For Passenger Safety in Railways, Rs.1 Lakh crore Rashtriya Rail Sanraksha Kosh to be created over a period of 5 years. A comprehensive Code on Resolution of Financial Firms will be introduced as a Bill in the Parliament during 2016-17. Financial Sector Reforms Government targets to phase out FIPB and further liberalize FDI Policy. Target to create operational and legal framework to integrate spot and derivative commodities market with e- NAM an integral part. To amend Multi state Cooperative Societies act to curtail the menace of illicit deposit schemes. Government Proposes to create Payment and Regulatory board in the Reserve Bank of India by replacing the existing Board for Regulation and Supervision of Payment and Settlements. Digital Economy Government considering to amend the Negotiable Instrument Act. No cash transaction above Rs. 3 Lakh to be allowed. Reduce the presumptive income to 6% for non-cash transactions for tax payers whose turnover is below Rs.2 crore.

Measures to overhaul the economy Measures Announcements In order to make MSME companies more viable, income tax for smaller companies with annual turnover of upto Rs.50 crore reduced to 25%. Rationalize Corporate Taxes To allow companies to use MAT credit in future years, government allowed carry forward of MAT upto a period of 15 years instead of 10 years earlier. Startups set up during Apr 2016 to Mar 2019 to get 100% deduction of profits for 3 years out of 5 years changed to 3 years out of 7 years. Concessional with-holding rate of 5% charged on interest earned by foreign entities in ECBs, Bonds or G- secs extended to masala bonds as well. Further concession availability extended to 30.6.2020. Transparency in electoral funding. Only up to Rs.2000/- from one person can be received as donation in cash. Reserve Bank of India to enable issuance of electoral bonds. Every political party to file IT returns within the time prescribed in accordance of Income Tax Act. Clean India & Ease of Doing Business Increase threshold limit for audit of Business entities for presumptive income scheme from Rs.1 crore to Rs.2 crore. Further, threshold for maintenance of books for individuals and HUF increased to Rs.25 lakhs turnover or income of Rs.2.5 lakhs from earlier Rs.10 Lakhs turnover and 1.2 lakh income. Foreign Portfolio Investor (FPI) Category I & II exempted from indirect transfer provision. Indirect transfer provision shall not apply in case of redemption of shares or interests outside India as a result of or arising out of redemption or sale of investment in India which is chargeable to tax in India

Impact on Investors Debt Considering the three potential sources of global uncertainties viz. Fed Rate Hikes, upswing in commodity prices; specifically OIL and recent move towards global protectionism, the focus continues to remain on macro stability. The budget has been in line of market expectations with gross borrowings kept at 5,80,000 crore and net at Rs.3,50,000 crore. However, adding the supply of state borrowings the total supply would stand at Rs.10,50,000 crores. In an interest rate ending cycle the supply can be tough to get absorbed by the market. As visibility of further rate cuts diminishes, it would be prudent to remain at the shorter/medium end of the curve we for the bond markets. We continue to believe consistent curve steepening. This effect may be further helped by positive system liquidity in context of heavy gross bond supply. Equity The budget maintained the balanced between fiscal prudence and growth impetus in a fairly efficient manner thereby lifting overall market sentiment which resulted in positive equity market reaction for the day. The budget targeted the underprivileged and middle-income segment which was most affected by the demonetization move and offered to increase the disposable income in those segments. On a sectoral basis, infrastructure and rural got the most push which was on expected lines. The budget has tried to stay away from ambitious expenditure boost and maintained the fiscal deficit target within tolerance levels. While the Budget response has broadly been positive, we believe Equity markets are expected to track earnings recovery post demonetization impact and sustained recovery in macro indicators to take further direction.

Tax Measures Rate of income tax on income between Rs. 2.5 lakh and Rs. 5 lakh reduced to 5 % from the current 10%. 10% Surcharge imposed for individuals with annual income between Rs 50 lakh and Rs. 1 crore. Surcharge levied on individuals, companies, firms and cooperative societies with income above Rs 1 crore to continue at 15%. 3 yr period for long-term capital gains tax on immovable property reduced to 2 years; base year indexation shifted from 1.4.1981 to 1.4.2001. Interest deduction in respect of let out property vis-à-vis self-occupied property, it is proposed to restrict set off of loss from house property against income under any other head during the current year up to Rs. 2 lakhs. The loss not so set off would be allowed to be carried forward for set off against house property income for eight assessment years. Affordable housing funding size increased to carpet area of 30-60 sq meters and extended to 5 years. Tax on unsold housing to be taxed at rental rates. Service charge on e-tickets booked through IRCTC will be withdrawn.

Tax Savings Scenarios for Individuals Effective: 1 st April 2017 Resident Individual Below 60 years of age 60 yrs =< 80 yrs Above 80 years of age (A) Gross Total Income 500,000 500,000 500,000 Additional Deductions under Budget 2017 u/s 87A 2,500 2,500 2,500 (B) Total Deduction (B) 2,500 2,500 2,500 (C)Total Income (A - B) 497,500 497,500 497,500 Basic Exemption 250,000 300,000 500,000 Tax in FY 2016-17 25,235 20,085 Nil Tax in FY 2017-18 13,118 10,468 Effective Tax Savings 48.02% 47.88% NA No other deduction is considered to show the tax savings due to changed provision. Tax Rate changed from 10% to 5% + 3% Education Cess

Tax Savings Scenarios for Individuals Effective: 1 st April 2017 Resident Individual Below 60 years of age 60 yrs =< 80 yrs Above 80 years of age (A) Gross Total Income 1,000,000 1,000,000 1,000,000 Additional Deductions under Budget 2017 u/s 87A - - - (B) Total Deduction (B) - - - (C)Total Income (A - B) 1,000,000 1,000,000 1,000,000 Basic Exemption 250,000 300,000 500,000 Tax in FY 2016-17 77,250 66,950 25,750 Tax in FY 2017-18 64,375 54,075 12,875 Effective Tax Savings 17% 19% 50% Tax Rate: 20% + 3% Education Cess

Tax Scenarios for Individuals Income above Rs.1 crore Effective: 1 st April 2017 Resident Individual Below 60 years of age 60 yrs =< 80 yrs Above 80 years of age Dividend (A) Gross Total Income 12,000,000 12,000,000 12,000,000 Additional Deductions under Budget 2017 u/s 87A - - - (B) Total Deduction (B) - - - (C)Total Income (A - B) 10,000,000 10,000,000 10,000,000 Basic Exemption 250,000 300,000 500,000 Tax in FY 2015-16 3,968,075 3,950,309 3,879,240 Tax in FY 2016-17 3,968,075 3,950,309 3,879,240 Effective Tax Savings 0% 0% 0% Note: Surcharge for Income above Rs. 1 crore has continue to be at 15%. Tax Rate: 30%+ 3% cess

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