C.J.S NANDA
CHARTERED ACCOUNTANT
BUDGET AT GLANCE
A lot has happened since the new government
has taken charge and understandably,
expectations are getting built-up in the run-up to
the budget. The reform measures undertaken so
far are nothing less than transformational. One
has to only look at the gamut of sectors touched
by the government initiatives to get an idea of
the potential cascading impact the steps can
have on our economy.
FACESAVER AT CLOSE
• Volatility kept the market company on budget day as
investors frowned upon the absence of "big-bang"
measures but gave a token thumbs-up to the
proposed cut in corporate tax and the deferral of the
dreaded General Anti-Avoidance Rules (GAAR).
• The upshot was the BSE sensex ended the day with a
gain of 141.38 points after a roller-coaster ride - the
first rise on a budget day in four years.The
benchmark index opened on a promising note at
29411.33 and made steady gains as the finance
minister talked about implementing the goods and
services tax from April 2016.
• The stocks then softened as the budget speech spoke
of several social initiatives and the fiscal deficit
road map.
• The markets whooped as the finance minister
announced a staggered cut in corporate taxes to 25
per cent although the fine print suggested that the
effective gains need not be as high as initially
expected.
• The deferment of the GAAR by two years took the
30-share index to the day's peak of 29560.32 - a gain
of 340 points. However, the joy was short-lived and
stocks came back to negative territory as Jaitley
finished his budget speech.
• Although it saw an abrupt drop of more than
200 points at one stage, the index managed to
recover the ground lost since this morning.
• The reason behind the drop during intra-day
trades was the hike in excise duties on cigarettes.
The shares of the cigarette major ITC, which
have a huge weightage in the sensex, tanked by
8.27 per cent after the budget raised excise
duties by 25 per cent on cigarettes up to 65mm
in length.
MARKET REFORMS
• Propose to merge commodities regulator with
SEBI
• To bring a new bankruptcy code
• To set up public debt management agency
• Proposes to introduce a public contract
resolution of disputes bill
• To establish an autonomous bank board bureau
to improve management of public sector banks
POLICY REFORMS
• To enact a comprehensive new law on black money
• Propose to create a universal social security system
for all Indians
• To launch a national skills mission soon to enhance
employability of rural youth
• To raise visa-on-arrival facility to 150 countries from
43
• Allocates 346.99 billion rupees for rural
employment guarantee scheme
• Raises threshold for application of transfer pricing
rules to 200 million rupees from current 50 million
rupees
MARKET REACTION
• BSE index gains 0.48 percent; NSE index up
0.65 percent
• ITC slumps after budget hikes excise duty on
cigarette
STOCKS NEGATIVELY IMPACTED
• Media companies: Companies in the media
space could be affected by the change in service
tax rules. Now, the entertainment sector would
be brought under the service tax net. Earlier,
these services were exempted from service tax.
The tax would push up prices of services like
theatre tickets or cable television. As a result, it
could discourage customers and affect demand.
• Metal and mining stocks: The Budget
announced two measures that could directly
impact metals and mining companies, the
increase in clean energy cess on coal to Rs
200/tonne from Rs 100/tonne, and the hike in
basic custom duty on metallurgical coke to 5%
from 2.5% earlier. Coal and metallurgical coke
are key raw materials. The increase in clean
energy cess on coal could also impact power
companies like NTPC, Tata Power and CESC,
which depend on coal to produce energy.
However, the impact would be limited.
• PSU banks: The Budget announced that the
government will infuse Rs 7940 crore in PSU
banks in the next fiscal. “However, this is a
meager amount in comparison with the
humongous capital requirements by the PSU
banks over next few years to meet BASEL III
norms,” a report by Kotak Securities said. This is
why the Budget has negative impact on the
banks mentioned above
• Tobacco Companies: The government usually
reduces taxes for essential goods and increases
tax burden on goods which are not essential
and/or harmful. One such product which sees
high taxation is cigarettes. The Budget further
increased tax burden by hiking excise duty in
certain cigarette products by 25% and 15%. This
would make your cigarettes costlier from April
2015. Any rise in price negatively impacts
demand and thus corporate profits.
• Consumer durables: The consumer durables
company is in the plastic product-making
business. The government wants to deter plastic
consumption to reduce its harmful effects on the
environment. For this reason, the Budget
increased excise duty from 12% to 18% on plastic
products (polymers). This would make plastic
products costly.
BORROWING
• Gross market borrowing seen at 6 trillion rupees
• Net market borrowing seen at 4.56 trillion
rupees
TAXATION
• To abolish wealth tax
• Replaces wealth tax with additional 2 pct
surcharge on super rich
• Proposes to cut to 25 percent corporate tax over
next four years
• Corporate tax of 30 percent is uncompetitive
• Net gain from tax proposals seen at 150.68
billion rupees
• Extends withholding tax concession on foreign
debt purchases by two years
• Expects to implement goods and services tax by
April 2016
• To reduce custom duty on 22 items
• Basic custom duty on commercial vehicle
doubled to 20 percent
• Proposes to increase service tax rate and
education cess to 14 percent from 12.36 percent
PERSONAL INCOME TAX
• No revision of income tax brackets
• Limit of deduction of health insurance premium
increased to 25,000 rupees from 15,000 rupees;
limit increased to 30,000 rupees from 20,000
rupees for the elderly
• People aged above 80 and not covered by health
insurance to be allowed deduction of 30,000
rupees for medical expenses
• Additional deduction of 25,000 rupees for the
disabled
• Limit on deduction for contributions to pension
fund and new pension scheme increased to
150,000 rupees from 100,000 rupees
• Additional deduction of 50,000 rupees for
contribution to new pension scheme under
section 80CCD
• Monthly transport allowance exemption doubled
to 1,600 rupees
• Plans to introduce direct tax regime that is
internationally competitive on rates without
exemptions
• Exemptions for individual tax payers to continue
• To enact tough penalties for tax evasion in new
bill
• Tax dept to clarify indirect transfer of assets and
dividend paid by foreign firms
INFRASTRUCTURE
• Investment in infrastructure will go up by 700
bln rupees in 2015/16 over last year
• Plans to set up national investment
infrastructure fund
• Proposes tax-free infrastructure bonds for
projects in roads, rail and irrigation projects
• Proposes 5 "ultra mega" power projects for
4,000 MW each
• Second unit of Kudankulam nuclear power
station to be commissioned
• Ports in public sector will be encouraged to
corporatize under Companies Act
INVESTMENT
• Government to provide 79.4 billion rupees
capital infusion to state-run banks
• Propose to do away with different types of
foreign investment caps and replace them with
composite caps
• To allow foreign investment in alternative
investment funds
• Public investment needed to catalyse investment
SUBSIDIES
•
•
•
•
Food subsidy seen at 1.24 trillion rupees
Fertiliser subsidy seen at 729.69 billion rupees
Fuel subsidy seen at 300 billion rupees
Major subsidies estimated at 2.27 trillion rupees
CIGRATTES
• Raises excise duty on cigarettes by 25 percent for
cigarettes of length not exceeding 65 mm
• Raises excise duty by 15 percent for cigarettes of
other lengths
GOLD
• To launch gold deposit accounts and sovereign
bond
• Import duty stays at 10 percent; disappoints
jewelers
• To work on Indian-made gold coin to cut
imports
INFLATION
• Expects consumer inflation to remain close to 5
percent by March, opening room for more
monetary policy easing
• Monetary policy framework agreement with the
RBI clearly states objective of keeping inflation
below 6 percent
• One of the achievements of my government has
been to conquer inflation. This decline in my
view represents a structural shift