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Nanubhai Desai & Co. Budget Snapshot 2016 · PDF file 12 per cent to 15 per cent • Corporate Tax It is proposed to reduce corporate tax rate from 30 per cent to 29 per cent for such

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  • INDIA

    2016

    Nanubhai Desai & Co.

  • Forprivatecirculation& internaluseonly This booklet summarises the important proposals included in the budget speech made by the Honourable Finance Minister on 29th February, 2016. Whilst every care has been taken in the preparation of this document it may contain inadvertent errors for which we shall not be held responsible. It must be stressed that the Finance Bill may contain proposals which have not been referred to in the budget speech and additionally, the detailed proposals are liable to amendment during the passage of the Finance Bill through Parliament. The information given in this document provides a bird’s-eye view on the changes proposed and should not be relied for the purpose of economic or financial decision. Each such decision would call for specific reference of the relevant statutes and consultation of an expert.

  • FOREWORD.....

    The third Budget of the NDA (National Democratic Alliance) government lead by Narendra Modi was presented today by Finance Minister Arun Jaitley in the backdrop of slowing down global economy. With the recessionary trends visible worldwide and financial markets being battered in the past one year (which is also reflected at India in a 25 per cent stock market correction in the two month preceding this Budget), Mr Jaitley had to deal with lot of expectations of Industry leaders and aam aadmi (common people)

    The Economic Survey tabled before the Budget outlined the prevailing economic scenario, particularly positive indicators like growth rate of 7.6 per cent, fiscal deficit at 3.9 per cent, highest ever level of foreign exchange reserve of around USD 350 billion, fall to the crude oil prices resulting into huge foreign exchange savings, etc. offers the government desired maneuverability to conclude bold policy direction. India stands out as a bright spot (promising of sustainable economic growth) when almost all the developed economies are in the midst of financial & economic difficulties. At the same time, the RBI’s mandate to the banks to clean up their books, had cast a gloom in the industry circles.

    The Finance Minister, under the circumstances, seems to have met the expectations of high public spending on creating infrastructure aimed to give a big push to the Indian economy. He has presented a budget which scores high on improving macro- fundamentals for reaping demographic dividends and is low on populism. He has outlined agriculture, rural sector, education, skill and job creation, infrastructure, financial sector reforms, ease of doing business, fiscal discipline & tax reforms as the nine pillars for transforming India and has tried to address each of these in a judicious manner and with liberal budgetary allocations. He has resisted the temptation to waver from the path of fiscal consolidation and has stuck to the goal of

    3.5 per cent fiscal deficit; despite the tough global environment. “Make In India”, “Start–up India”, “Stand-up India”, “Infrastructure”, “Krishi kalyan”, “Ease of doing business”, “Skill India” & “Swachh Bharat” have clearly been the drivers of the tax & fiscal policy of this Budget.

    He has also been bold to introduce an Income Disclosure Scheme for domestic tax payers & a Dispute Resolution Scheme to settle pending litigations at the first appellate level. He has also made a sincere attempt to simplify the relevant tax provisions dealing with the penalty, interest & other procedures under the Income Tax Act. As expected, many changes have been also proposed in the direction of implementation of the Action Plans suggested by OECD under BEPS project.

    Under Indirect Tax regime, having regard to the inability of the government to muster the required support to pass the much needed GST bill, the Budget proposals outlines various measures to support the budget strategy. The budget proposals are aimed to boost the growth as well as incentivize domestic value addition to support Make In India. Whilst there is no increase to the prevailing rate of service tax, the introduction of new levy (Krishi Kalyan cess under service tax & Infrastructure cess under Excise Law) shall enable the government to mobilize additional revenue.

    Despite electoral setbacks and an aggressive opposition, the Budget unambiguously signals the commitment of the government towards continued economic reforms and fiscal discipline. It contains announcements, with positive intentions juggling between social & economic reforms at the same time. All in all, a well steered budget in this turbulent time to boost the growth trajectory of the country….

    Monday, February 29, 2016 Mumbai INDIA

    01

  • Foreign Exchange Regulations

    • Foreign investment will be allowed in the insurance and pension sectors in the automatic route up to 49 per cent subject to the extant guidelines on Indian management and control to be verified by the Regulators.

    • 100 per cent FDI in Asset Reconstruction Companies (ARCs) will be permitted through automatic route.

    • Foreign Portfolio Investors (FPIs) will be allowed up to 100 per cent of each tranche in securities receipts issued by ARCs subject to sectoral caps.

    • 100 per cent FDI will be allowed through FIPB route in marketing of food products produced and manufactured in India

    • Investment limit for foreign entities in Indian stock exchanges will be enhanced from 5 to 15 per cent on par with domestic institutions. This will enhance global competitiveness of Indian stock exchanges and accelerate adoption of best-in-class technology and global market practices.

    • The existing 24 per cent limit for investment by FPIs in Central Public Sector Enterprises, other than Banks, listed in stock exchanges, will be increased to 49 per cent to obviate the need for prior approval of Government for increasing the FPI investment.

    • FDI instruments will be expanded to include hybrid instruments subject to certain conditions.

    • FDI will be allowed beyond the 18 specified NBFC activities in the automatic route in other activities which are regulated by financial sector regulators.

    • With a view to promote Make in India and following the practices in advanced countries, foreign investors will be accorded Residency Status subject to certain conditions

    • In order to ensure effective implementation of Bilateral Investment Treaties signed by India with other countries, it is proposed to introduce a Centre State Investment Agreement.

    02

    POLICY ANNOUNCEMENTS AND FOREIGN INVESTMENTS

  • INCOME TAX Tax Rate

    • Personal Tax

    No changes have been proposed in the tax rates for individuals except surcharge which is increase from 12 per cent to 15 per cent

    • Corporate Tax

    It is proposed to reduce corporate tax rate from 30 per cent to 29 per cent for such domestic company whose total turnover or gross receipts in the previous year 2014-15 does not exceed Rs 5 crore. In all other cases, the rate of corporate tax has been kept unchanged i.e at 30 per cent.

    A. Provisions affecting Individuals

    • Tax on certain dividends received from domestic companies

    Where the total income of a resident individual, HUF or firm includes income by way of dividends exceeding Rs 10 lakhs which is received from a domestic company, then such dividends shall be taxable at the rate of 10 per cent. For the purposes of this section, dividend shall have the meaning as defined under section 2(22) but shall not include clause (e) thereof.

    • Simplification and rationalization of provisions relating to taxation of unrealized rent and arrears of rent

    Any amount of arrears of rent or unrealized rent received subsequently from a tenant shall be charged to income-tax in the financial year in which such rent is received or realised irrespective of whether the assessee is the owner of the property or not in that financial year. Further, sum equal to thirty per cent of the arrears of rent or unrealized rent which is received shall be allowed as a deduction.

    • Time period for acquisition or completion of construction of self occupied house property for claiming deduction of Rs 2 lakhs under section 24(b) of interest on capital borrowed is proposed to be increased from three years to five years.

    • Deduction in respect of interest on housing loan

    Section 80EE has been substituted to allow first time home buyers a interest deduction of Rs 50,000/- for loans sanctioned during financial year 2016-17 for an amount not exceeding Rs 35,00,000/- and the value of the residential house property does not exceed Rs 50,00,000/-. The deduction under the proposed section is over and above the limit of Rs 2,00,000 provided for a self-occupied property under section 24.

    • Section 56 to exclude shares received as a consequence of certain business re-organisation, amalgamation or demerger

    It is proposed that any shares received by an individual or HUF asa consequence of demerger or amalgamation of a company or business re-organisation of co-operative bank shall not attract the provisions of section 56(2)(vii).

    • Limit of deduction allowable in section 80GG with respect to rent paid is proposed to be increased from Rs 2000 per month to Rs 5,000 per month.

    03

  • • Withdrawal from Recognised provident Fund

    Withdrawal of any amount of a