Friday 1 March 2013

UNION BUDGET 2013: Decoded

















UNION BUDGET: Decoded

The Union Budget failed to meet the already high expectation that the street had. This expectation was built on the actions already taken by the Finance Minister since his taking over the ministry during last year. He even conducted Road Shows and fund managers to attract foreign investments.
But in this budget there are no big bang announcements to revitalize the investment cycle or any material incentive to increase or attract savings in financial markets. Over and above this the confusion on the implications of section 90A of income tax act relating to existing tax relief to foreign investments from countries having Double Taxation Avoidance Agreement with India dampened the sentiment of the market. Though Finance Minister tried to pacify the nerve by mentioning in a media conference that nothing new has been incorporated, market is waiting for the exact explanation from Finance Minister on the matter. This matter will be resolved as Finance Minister himself has gone on record saying that the important constituent to bridge the gap of current account deficit will be foreign inflows. The estimated requirement will be  to the tune of $75 billion in FY 2014. He further added that for India, Foreign Investment is an imperative constituent of growth and he has no choice but to encourage foreign investment.
Walking the tight rope ahead of elections, Finance Minister pegged the fiscal deficit at 5.2% for the current year and 4.8% for FY 2014, reflecting his commitment to fiscal prudence.Revenue deficit for the current year has been estimated at 3.9% and is seen at 3.3% for FY 2014.
The Finance Minister has promised to introduce the Direct Tax Code (DTC) by the end of the current session of the Parliament and is hopeful of finalizing the Goods & Services Tax Bill (GST) in this year. However, the budget only cannot be taken as a place where all the announcements are made at one go. As it is believed that it will be a continuous process and series of announcements will be made to tackle serious issues like subsidies, restructuring of State Electricity Boards etc.
In the meanwhile, the finance ministry has issued clarification as doubts around tax residency certificates (TRC) continued scarring away foreign institutional investors (FIIs) from India. The ministry has clarified that resident of contracting state will be entitled to DTAA benefit and nothing new was introduced in FY14 which was not there in the last fiscal. It also said that there is no intention of the income tax officials to question TRC holders. Thus, tax residency certificates (TRC ) will be accepted as evidence of residence while concerns over DTAA (Double Taxation Avoidance Agreement) will be addressed suitably in the Finance Bill.
Thus, market is left to take its own turn based on its own strength digesting the budget slowly but inevitably.


Highlights of Union Budget for 2013-14
DIRECT TAX
* Direct tax proposals to yield `133 billion FY14
* Personal income tax slabs unchanged FY14
* Some relief to tax payers in 200,000-500,000 bracket
* Tax credit of 2,000 rupees for incomes of ` 500,000
* Surcharge of 10% on people with income over `10 million
* Surcharge on high income tax payers only for one year
* 10% surcharge on cos with income above ` 100 million
* 5-10% surcharge on local co with income over ` 100 million
* Education cess to continue at 3%
* Dividend distribution surcharge raised to 10% vs 5%
* Donation to national children fund to get 100% tax relief
* To introduce DTC bill before end of Budget session
* To incorporate Jan decisions on anti-tax avoidance rule
* GAAR modified provisions seen effective Apr 1, 2016
* Direct Taxes Code work in progress
* Tax on MF redemption, purchase on exchanges cut to 0.001%
* 20% withholding tax on profits distributed by unlisted cos
* Agricultural land exempt from TDS on property deals
* Royalty to overseas parents to attract 25% tax vs 10%
* Tax holiday for power plants extended to Mar 2014
* Sops for power projects to continue for 1 year
* 15% tax on dividend from overseas arms to continue
* No income tax on investor protection fund of depositaries
* 1% TDS on immovable property transfer of over 5 mln rupee


INDIRECT TAX
* Indirect tax proposals to yield `47 billion FY14
* No change in standard rate of excise duty
* No change in peak basic custom duty rate on non-agri goods
* No change in standard rate of service tax
* Customs duty on leather making machine cut to 5.0% vs 7.5%
* Transaction tax of 0.01% on non-farm commodities future
* Commodity Transaction tax on non-farm derivatives trade
* Transaction tax on equity futures cut to 0.01% vs 0.017%
* Transaction tax on MF, ETF redemption cut to 0.001%
* Pegs FY14 customs revenue at ` 1.87 trillion
* To impose service tax on all air-conditioned restaurants
* Sops for low-cost housing to continue
* Films exhibited in cinema halls to have no service tax
* Moots voluntary compliance encouragement plan for svc tax
* Vocational courses exempt from service tax
* Coir, jute handmade carpets exempt from excise duty
* Farm produce testing service included in negative list
* Export duty on rice bran oil, oil cakes withdrawn
* To provide certain concessions to aircraft MRO industry
* To up import duty on set-top boxes to 10% from 5%
* Cut custom duty on leather footware machines to 5% vs 7.5%
* Import duty on raw silk to be raised to 15% from 5%
* 10% export duty on unprocessed ilmenite
* 2% customs duty on bituminous coal
* To up import duty on luxury cars to 100% from 75%
* Import duty on yatchs raised to 25% from 10% now
* Duty on 800CC motor cycles raised to 75% vs 60%
* Zero excise duty on cotton, fibre
* Handmade jute, coir carpets to be excise duty exempt
* Zero excise duty on cotton at fibre stage
* To up specific excise duty on all cigarettes by 18%
* To raise excise duty on non-taxi SUVs to 30%
* Female passengers can get 100,000 rupee duty-free gold
* Male passengers can get duty-free gold worth `50,000
* Ships, vessels exempted from excise duty
* To up duty on mobile phones above `2,000 to 6%
* No change in mobile phone excise duty up to `2,000
* Excise duty on marble hiked to 60 rupee/sq mtr vs 30 rupee
* Basic customs duty on dehulled oatgrains cut to 15%
* No change in 10% basic customs duty on non-farm products.
TAX REFORMS
* To set up tax administration reform commission
* Little room to raise taxes in constrained economy
* Need for state and central govts to pass a GST law
* Draft bill on GST in Parliament in next few mos
* Two  additions to service tax negative list
* Include vocational courses in negative list
* One-time amnesty scheme for service tax due from 2007
* Allocates 90 bln rupee as CST compensation to states
* To encourage voluntary compliance to boost service tax collection.

FINANCIAL SECTOR, BANKS
* To introduce investment allowance for high value investment
* To introduce 15% investment allowance to attract invest
* Rajiv Gandhi equity plan to be eased; to cover MF investments
* Rajiv Gandhi equity plan investment cap up by `200,000
* 15% deduction for investment up to ` 1 billion till FY15
* Expect to raise 250 bln rupees via tax-free bonds FY13
* Pvt sector infra investment seen 47% in 12th plan
* To allow some institutions to issue tax-free bonds in  FY14
* To approve 500 bln rupee tax-free bonds in FY14
* To encourage infra debt funds to boost infra growth
* PSU banks  are well regulated, must be adequately capitalised
* To allot 140 bln rupees for capital infusion in PSU banks
* Will ensure PSU banks always meet Basel III norms
* Gave 125 bln rupees to PSU bks for recapitalization in  FY13
* PSU banks assured all branches to have ATMs by Mar 2014
* Plan to set up exclusive bank for women
* To provide 10 bln rupees initial capital for women's bank
* To allot 60 bln rupees for rural housing fund under NHB
* License to women bank by Oct 2013
* To provide `60 billion for rural housing fund
* `20 billion allocation to create urban housing fund
* NHB to set up urban housing fund
* KYC of banks sufficient for insurance policies
* Insurance cos can open Tier 2 city branch without IRDA nod
* Banking correspondence can sell micro-insurance products
* Towns with 10,000 people to have LIC, GIC offices
* To introduce inflation linked instruments
* Inflation indexed bonds to be introduced
* Scope of Rashtriya Swasthya Bima Yojana to be expanded
* Approval given to FII to trade in exchange traded FX derivatives
* SEBI to ease norms for foreign portfolio investment
* Allow FIIs to use corporate bond income for margin need
* SMEs will be allowed to be listed without IPO
* Stock Exchanges to have dedicated debt segment
* MF distributors allowed to become stock exchange members
* Exchanges can introduce dedicated debt segment
* Insurance, pension cos can directly trade in debt segment
* ETFs will be eligible for pension, insurance investment
* Post offices to move to core banking solutions
* To give `5.32 billion for core banking at post offices
* To allot ` 3 billion for mother, child nutrition plan




INFRASTRUCTURE
* IIFCL, ADB to offer credit enhancement for infra cos
* Rural Infra Dev Fund corpus raised to `200 billion
* To set up regulatory authority for road sector
* Road construction facing financial stress
* Revival of investment in manufacturing sector a key challenge
* ` 30 billion road projects to be awarded in Apr-Sep
* To allot `148.73 billion for JNNURM
* To use bulk of Nehru urban renewal Plan for buying buses
* To buy 10,000 buses from fund of Nehru urban renewal plan
* Infra debt funds to be encouraged
* 12th plan projects $1 trln for infra invest
* Allocates `500 million to set up apparel parks
* `960 million for interest subvention in textile FY14
* Loans at 6% rate for women textile entrepreneurs
* Assure support to commerce ministry to boost exports
* Initial work on Chennai-Bengaluru corridor started
* To give Delhi-Mumbai corridor more funds if needed
* To set up 2 new ports at Andhra Pradesh, West Bengal
* 2 ports at Andhra, W Bengal to add 100 mln tn capacity
* To have Bengaluru-Mumbai Industrial corridor
* Plan grid connecting waterways, roads, ports
* Delhi-Mumbai Industrial Project has made rapid progress
* Oil, gas policy to move to revenue sharing model
* Natural gas pricing policy to be reviewed
* Work on 2 new smart industrial cities will start FY14
* Natural gas policy will be reviewed
* To announce policy on Shale gas exploration
* Shale gas projects to be encouraged
* To move oil E&P pacts to revenue sharing from profit sharing
* Must reduce dependence on imported coal
* 5 mtpa LNG terminal to be fully operational in FY14
* Coal import estimated to rise to 185 million tn by FY17
* To cut dependence on coal import in medium-, long-term
* States must prepare plans immediately for power distribution cos
* Urge state govts to approve recast of electricity boards
* To give `5 billion to SIDBI for factoring loan guarantee
* To double SIDBI's refinance capacity to `100 billion
* Non-tax sop to MSME to stay 3 yr post move to higher class
* Non-tax benefits to MSME for 3 yrs after moving higher
* MSME benefits to stay 3 yrs post move to higher category
* Textile tech upgrade scheme to get 24 bln rupees FY14
* Additional tax sop for first time home owners
* 1st home loan to get more tax cut Up to 2.5 mln
* No custom duty for plant, machinery for semi-conductors
* Generation-based incentives for wind energy projects
* To expand Private FM stations to 294 more cities
* To auction 839 more radio channels in FY14

SUBSIDY
* FY14 total subsidy seen `2.31 trillion
* FY14 petroleum subsidy seen `650 billion
* FY13 petroleum subsidy seen `969 billion
* FY14 food subsidy seen `900 billion
* FY13 food subsidy seen `850 billion
* FY13 fertilizer subsidy seen `660 billion
* FY14 fertilizer subsidy seen `660 billion

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