DNS Budget Highlights 2013

1. D N S Ad v i s o rs
BUDGET HIGHLIGHTS
2013-14
Overview of Union Budget 2013
A. Preface
B. Budget Estimates
C. Snapshot of Sectoral Analysis
D. Direct Tax Proposals
E. Indirect Tax Proposals
F. Contact Us
DNS Advisors Pvt Ltd
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New Delhi-110048
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2. A. Preface
Finance Minister P. Chidambaram presented the Union Budget 2013-14 in parliament on 28th February, 2013 in
the backdrop of current grave economic crisis which is reflected in the growth trajectory in last two years. The
combination of low growth, high inflation, high fiscal deficit and ever high trade/current account deficit has raised
a lot of concerns. The deterioration in the economic situation can be marginally attributed to developments taking
place abroad. With an optimism to improve our macroeconomic environment and strengthen domestic growth
drivers to sustain high growth in the medium term, the Finance minister presented his 8th and India’s 82nd Annual
Budget.
The Key Economic challenges currently faced by the economy include getting back to potential growth rate of 8
percent, inclusive development emphasis on improving human development indicators especially of women, the
scheduled castes, the scheduled tribes, the minorities and some backward classes, encouraging foreign investment
that is consistent with our economic objectives, controlling inflation and fiscal deficit.
Economic Overview
Slowdown in Indian economy has to be seen in the context of slowing global economic growth
from 3.9 per cent in 2011 to 3.2 per cent in 2012. However, no reason for gloom or pessimism.
Of the large countries of the world only China and Indonesia growing faster than India in 2012-
13. In 2013-14, only China projected to grow faster than India.
Between 2004 and 2008 and again in 2009-10 and 2010-11 the growth rate was over 8 per cent
and crossed 9 per cent in four of those six years.
High growth rate can again be achieved through cooperation. ‘Higher growth leading to inclusive
and sustainable development’ to be the mool mantra.
The purpose of Budget is to create economic space and find resources to achieve the objective of
inclusive development.
A new fiscal consolidation path with fiscal deficit at 5.3 per cent of GDP this year and 4.8 per
cent of GDP in 2013-14 has been announced by the Government.
Foreign investment in an imperative in view of the high current account deficit (CAD). FII, FDI
and ECB three main source of CAD Financing. Foreign investment that is consistent with our
economic objectives is to be encouraged.
Development must be economically and ecologically sustainable and democratically legitimate.
Battle against inflation must be fought on all fronts. Efforts in the past few months have brought
down headline WPI inflation to about 7 per cent and core inflation to about 4.2 percent.
.
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3. B. Budget Estimates
Budget Estimates • Ministry of Women and Child Development to
design schemes that will address the concerns of
women belonging to the most vulnerable groups,
• During 2013-14, Budget Estimates of total
including single women and widows. An additional
expenditure of 16,65,297 crore and of Plan
sum of 200 crore proposed to be provided to the
Expenditure at 5,55,322 crore
Ministry to begin work.
• Fiscal deficit for the current year contained at 5.2
Minorities
per cent and for the year 2013-14 budgeted at 4.8
per cent.
• An increase of 12 per cent over the Budgeted
Estimates to Ministry of Minority Affairs.
• Revenue deficit for the current year at 3.9 per cent
and budgeted for the year 2013-14 at 3.3 per cent.
• Allocation of 160 crore to the corpus of Maulana
Azad Education Foundation to raise its corpus to `
• By 2016-17 fiscal deficit to be brought down to 3
1,500 crore during 12th Plan period.
per cent, revenue deficit to 1.5 per cent and
effective revenue deficit to zero per cent.
Disabled Persons
• Clarity in tax laws, a stable tax regime, a non-
adversarial tax administration, a fair mechanism for • A sum of 110 crore to the Department of
dispute resolution and independent judiciary for Disability Affairs for ADIP scheme in 2013-14
greater assurance is underlying theme of tax against RE 2012-13 of 75 crore.
proposals.
Micro, Small and Medium Enterprises
• All flagship programmes fully and adequately
funded and sufficient funds provided to each • Benefits or preferences enjoyed by MSME to
Ministry or Department consistent with their continue up to three years after they grow out of
capacity to spend funds. this category.
• Budget for 2013-14 to have one overarching goal of • Refinancing capacity of SIDBI raised to 10,000
creating opportunities for our youth to acquire crore.
education and skills that will get them decent jobs or
self employment. • Another sum of 100 crore provided to India
Microfinance Equity Fund.
Inclusive Growth • A corpus of 500 crore to SIDBI to set up a Credit
Guarantee Fund for factoring.
SC, ST, Women and Children
• A sum of 2,200 crore during the 12th Plan period
• Allocations for Scheduled Caste Sub Plan and Tribal to set up 15 additional Tool Rooms and
Sub Plan increased substantially over the allocations Technology Development Centres with World
of the current year. Funds allocated to these Sub Bank assistance.
Plans cannot be diverted.
• Ministry of Corporate Affairs to notify that funds
provided to technology incubators located within
• 97,134 crore allocated for programmes relating to academic Institutions and approved by the
women and 77,236 crore allocated for programmes Ministry of Science and Technology or Ministry of
relating to children. MSME will qualify as CSR expenditure.
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4. C. Snapshots of Sectoral Analysis
Investment, Infrastructure and Industrial Agriculture
Development
• 27,049 crore allocated to Ministry of Agriculture,
• Communication with investors to be improved to an increase of 22 percent over the RE of current
remove any apprehension or distrust, including fears year.
about undue regulatory burden.
• Agricultural research provided 3,415 crore.
• Need of new and innovative instruments to
mobilize funds for investment in infrastructure • Interest subvention scheme for short-term crop
sector. Few measures: loans to be continued.
- Infrastructure tax-free bond of 50,000 crore in • For 2013-14, target of agricultural credit kept at 7
2013-14, lakhs crore.
- Raising corpus of Rural Infrastructure
development Fund (RIDF) to 20,000 crore and • Bringing green revolution to eastern India a
- 5,000 crore to NABARD to finance remarkable success. 1,000 crore allocated in 2013-
construction for warehousing. 14.
• Companies investing 100 crore or more in plant and • 500 crore allocated to start a programme of crop
machinery during the period 1.4.2013 to 31.3.2015 diversification that would promote technological
will be entitled to deduct an investment allowance innovation and encourage farmers to choose crop
of 15 per cent of the investment. alternatives.
• The Cabinet Committee on Investment (CCI) has • Allocation for integrated watershed programme
been set up. Decisions have been taken in respect of increased from 3,050 crore in 2012-13 (BE) to `
a number of gas, power and coal projects. 5,387 crore.
• Incentives to semiconductor wafer fab
manufacturing facilities, including zero customs Health and Education
duty for plant and machinery.
• Health for all and education to all remains priority.
Textile • Funds allocated to the Ministry of Health &
Family Welfare, New National Health Mission,
• The Government has recently announced a financial
National Programme for the Health Care of
package of Rs. 3,884crore for waiver of loans of
Elderly
handloom weavers and their cooperative societies
• Technology Upgradation Fund Scheme (TUFS) to • 4,727 crore for medical education, training and
continue in 12th Plan with an investment target of research.
1, 51,000 crore.
• Allocation of 50 crore to Ministry of Textile to • 1,650 crore allocated for six AIIMS-like
incentivize setting up Apparel Parks within the institutions for extending govt. aided medical
SITPs to house apparel manufacturing units. facility to public/
• A new scheme called the Integrated Processing • Allocation of ` 65,867 crore to the Ministry of
Development Scheme will be implemented in the Human Resource Development, an increase of 17
12th Plan to address the environmental concerns of percent over the RE of the current year.
the textile industry.
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5. C. Snapshots of Sectoral Analysis (Continued)
Financial Sector Capital Market
Banking • Proposal to amend the SEBI Act, to strengthen
the regulator, under consideration.
• A standing Council of Experts to be constituted in
the Ministry of Finance to analyze the international • Proposals finalized with SEBI
competitiveness of the Indian financial sector.
- SEBI will simplify the procedures and
• Compliance of public sector banks with Basel III prescribe uniform registration and other
regulations to be ensured 14,000 crore provided in norms for entry for foreign portfolio
BE 2013-14 for infusing capital. investors.
• All branches of public sector banks to have ATM by - Rule that, where an investor has a stake of 10
31.3.2014. per cent or less in a company, it will be treated
as FII and, where an investor has a stake of
• Proposal to set up India’s first Women’s Bank as a more than 10 per cent, it will be treated as
public sector bank. Provision of 1,000 crore as FDI will be laid.
initial capital.
- FIIs will be permitted to participate in the
• 6,000 crore to Rural Housing Fund in 2013-14. exchange traded currency derivative segment
to the extent of their Indian rupee exposure in
India
• National Housing Bank to set up Urban Housing
Fund. 2,000 crore to be provided to the fund in
- SEBI to prescribed requirement for angel
2013-14.
investor pools by which they
- can be recognized as Category I AIF venture
Insurance
capital funds
• A multi-pronged approach to increase the
- Small and medium enterprises, to be permitted
penetration of insurance, both life and general, in
to list on the SME exchange without being
the country.
required to make an initial public offer (IPO).
• Rashtriya Swasthya Bima Yojana to be extended to
other categories such as rickshaw, auto-rickshaw
and taxi drivers, sanitation workers, rag pickers and
mine workers.
• A comprehensive social security package to be
evolved for unorganized sector by facilitating
convergence among different schemes.
• Rule that, where an investor has a stake of 10 per
cent or less in a company, it will be treated as FII
and, where an investor has a stake of more than 10
per cent, it will be treated as FDI will be laid.
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6. D. Direct Tax Proposals
Personal Taxation Corporate Taxation
General Surcharge
• Tax Rebate - No revision in slab rates proposed. • Surcharge on Domestic Companies – It is
However, a tax credit of Rs. 2,000 to every person is proposed to increase the surcharge from 5 percent
proposed who has a total income up to 5 lakhs. to 10 percent on domestic companies whose taxable
income exceeds 10 crore per year. The rate of
surcharge shall be 5 percent where the taxable
• Surcharge - A surcharge of 10 percent to be imposed
income exceeds one crore but does not exceed ten
on persons whose taxable income exceeds Rs. 1 crore
crores.
per year. It will apply to individuals, HUFs, firms and
entities with similar tax status.
• Surcharge on Foreign Companies - For foreign
companies paying higher rate of corporate tax, the
Deductions under Chapter VI A surcharge is proposed to increase from 2 percent to
5 percent, if the taxable income exceeds Rs 10 crore.
The rate of surcharge shall be 2 percent where the
• Life Insurance Premium – It is proposed to
taxable income exceeds one crore but does not
increase the permissible eligibility life insurance
exceed ten crores.
policies premium rate from 10 percent to 15 percent
of the sum assured for persons suffering from
disability or certain ailments. This relaxation shall be
All the additional surcharges will be
available in respect of policies issued on or after
in force for only one year, that is
1.4.2013.
Financial Year 2013-14.
• Deduction u/s 80D - Contributions made to
schemes of Central and State Governments similar to
• Surcharge on DDT - Increase in the surcharge on
Central Government Health Scheme, would also be
dividend distribution tax or tax on distributed
eligible for deduction u/s 80D of the Income tax Act.
income from 5 percent to 10 percent is proposed.
• Deduction u/s 80G - Donations made to National
Children Fund eligible for 100 percent deduction. In case of Resident Transferor
• Deduction for Home Loan - An additional
deduction of interest of Rs.100,000 to be claimed in Tax Deducted at Source
AY 2014-15 for buyer who takes a loan for an
amount not exceeding Rs. 25,00,000 i.e. Rs. 2,50,000 • TDS on sale of immovable property – It is
as against Rs. 1,50,000 for earlier. proposed to levy a TDS at the rate of 1% on the
value of the transfer of immovable property where
the consideration exceeds Rs. 50 lakhs. However,
agricultural land will be exempt. TDS would be
deductible u/s 194IA.
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7. D. Direct Tax Proposals (Contd..^2)
Dividend Tax Others
• Tax on Foreign Dividend - Concessional rate of tax • Securitization Trust - Exemption to the
of 15 percent on dividend received by an Indian Securitization Trust from income tax. Tax shall be
company from its foreign subsidiary is proposed to levied only at the time of distribution of income by
continue for one more year. the Securitization Trust at the rate of 30 percent in
the case of companies and at the rate of 25 percent
• Tax on distribution by Domestic Companies - in the case of an individual or HUF. No further tax
Further, proposed that the Indian company shall not on income received by investors from the Trust.
be liable to pay dividend distribution tax on the
distribution of such the income received from its • Investor Protection Fund - Investor Protection
foreign subsidiary to its shareholders. Fund set up by a depository for the protection of
interest of beneficial owners will be exempt from
• Tax on Buy back of shares - Levy of a final income tax.
withholding tax at the rate of 20 percent on profits
distributed by unlisted companies to shareholders • Tax on interest income of Non Resident –
through buyback of shares. Income distributed by an IDF-Mutual Fund and
interest payment by an IDF-NBFC to a non-resident
shall be chargeable to tax at a lower rate of 5 percent.
Encourage repatriation of funds • Alternative Investment Funds - Subject to certain
from overseas companies and conditions, pass through status is proposed to be
removes cascading effect of DDT extended to category I Alternative Investment Funds
registered with SEBI as venture capital funds. Angel
Investors who are recognized as category I AIF
venture capital funds will also get pass through
status.
Deductions/Exemptions
• Securities Transaction Tax - Reductions in STT:
- Equity futures: from 0.017% to 0.01%
• Investment Allowance - An investment allowance at
- MF/ETF redemptions at fund counters: from
the rate of 15 percent to a manufacturing company
0.25% to 0.001%
that invests more than 100 crore in plant and
- MF/ETF purchase/sale on exchanges: from
machinery during the period 1.4.2013 to 31.3.2015 of
0.1% to 0.001%, only on the seller.
the actual cost of new asset shall be provided u/s
32AC
• Commodities Transaction Tax - It is proposed to
levy CTT on non-agricultural commodities futures
• Power Sector Exemption - “Eligible date” for
contracts at the same rate as on equity futures, that is
projects in the power sector to avail benefit u/s 80-
at 0.01 percent of the price of the trade.
IA of the Income-tax Act, extended from 31.3.2013
to 31.3.2014.
• GAAR - Modified provisions of GAAR will come
into effect from 1.4.2016.
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8. E. Indirect Tax Proposals – Excise and Customs
Excise Duty Customs
• No change in the normal rate of excise duty of • No change in the peak rate of basic customs duty of
12% 10% for nonagricultural products
Increase in Duty Increase in Duty
• Duty on imported luxury goods such as high end
• Specific excise duty on cigarettes increased by
motor vehicles, motor cycles, yachts and similar
about 18 percent. Similar increase on cigars,
vessels increased.
cheroots and cigarillos.
• Effective Duty of 10 percent on export of
• Excise Duty increased on following items unprocessed ilmenite and 5 percent on export on
ungraded ilmenite.
Item Old Rate New Rate
• Excise Duty on following items also increased
SUV’s > 1500 cc 27% 30%
Marble 30 per sq. mtr. 60 per sq. mtr. Item Old Rate New Rate
Silver Set Top Boxes 5% 10%
Nil 4%
Manufacturer
Mobile Phones Raw Silk 5% 15%
1% 6%
price > Rs. 2000 Steam Coal
Nil 2%
(BCD)
Steam Coal
Reliefs 1% 2%
(CVD)
• Relief to readymade garment industry. In case of Reliefs
cotton, zero excise duty at fibre stage also. In case
of spun yarn made of manmade fibre, duty of 12 • Period of concession available for specified part of
percent at the fibre stage. electric and hybrid vehicles extended up to 31
March 2015.
• Handmade carpets and textile floor coverings of
coir and jute totally exempted from excise duty. • Duty on specified machinery for manufacture of
leather and leather goods including footwear
reduced from 7.5 to 5 percent.
• To provide relief to ship building industry, ships
and vessels exempted from excise duty. No CVD
• Duty on pre-forms precious and semi-precious
on imported ships and vessels. stones reduced from 10 to 2 percent.
Others • Export duty on de-oiled rice bran oil cake
withdrawn.
• MRP based assessment in respect of branded
medicaments of Ayurveda, Unani, Siddha, • Concessions to air craft maintenance, repair and
Homeopathy and bio-chemic systems of medicine overhaul (MRO) industry.
‘
to reduce valuation disputes is proposed.
• Duty free gold limit increased to 50,000 in case of
male passenger and 1, 00, 000 in case of a female
passenger subject to conditions.
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9. E. Indirect Tax Proposals – Service Tax and GST
Service Tax Good and Service Tax
• No change in the normal rate of excise of service • A sum of 9,000 crore towards the first installment
tax of 12%. of the balance of CST compensation provided in
the budget.
• Services included in Negative List
• Work on draft GST Constitutional amendment bill
- Vocational courses offered by institutes and GST law expected to be taken forward.
affiliated to the State Council of Vocational
Training ----------------------------------------------------------------
- Testing activities in relation to agricultural
produce The speech was concluded by finance minister with
following words of “Saint Tiruvalluvar”:
• Restaurant Services – The condition for having
a liquor license for levy of service tax on “Kalangathu Kanda Vinaikkan Thulangkathu Thookkang
Restaurants is proposed to be removed. Hence, Kadinthu Seyal”
Service Tax would be applicable on all air
conditioned restaurant. (What clearly eye discerns as right, with steadfast will and mind
unslumbering, that should man fulfill)
• Copyright on Films - Exemption of Service Tax
on copyright on cinematography limited to films
exhibited in cinema halls instead of full exemption
of service tax on copyright of cinematography.
This space is intentionally left blank
• Abatement on Construction Services - For
homes and flats with a carpet area of 2,000 sq.ft.
or more or of a value of 1 crore or more, which
are high-end constructions, where the component
of services is greater, rate of abatement reduced
from 75 to 70 percent.
• Amnesty Scheme - Out of nearly 17 lakh
registered assesses under Service Tax only 7 lakhs
file returns regularly. In order to motivate them to
file returns and pay tax dues, a onetime scheme
called ‘Voluntary Compliance Encouragement
Scheme’ proposed to be introduced. Defaulter
may avail of the scheme on condition that he files
truthful declaration of Service Tax dues since 1st
October 2007.
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10. F. Contact Us
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Email: Deepak@dnsadvisors.com
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