The Union Budget 2014-15
was presented in Parliament today. In his address, Finance Minister
Arun Jaitley commented on goals of the Indian economy and laid out his
budget proposals for 2014-15. The budget speech also mentioned a few
changes to some Acts.  These include the Goods and Services Tax, the
Direct Taxes Code, the Indian Financial Code (FSLRC), the Mines and
Minerals Act, the Insurance Laws (raising FDI), the Apprenticeship Act,
and the Price Chits and Money Circulation Schemes Act. 

Budget Highlights

  • In 2014-15, total expenditure is budgeted at Rs 17,94,892 crore, an
    increase of 13% (or Rs 2,04,458 crore) above the revised estimate of
    2013-14.  Revenue expenditure is budgeted at Rs 15,68,111 crore and
    capital expenditure at Rs 2,26,781 crore. 
  • This will be funded by receipts (without borrowings) of Rs
    12,63,715 crore, which is an increase of 19% (or Rs 1,97,820 crore). 
    The increase is on account of a 17% (or Rs 1,41,232 crore) increase in
    tax revenues.  Borrowings are budgeted to increase by 1% (or Rs 6638
    crore) to Rs 5,31,177 crore. 
  • Revenue deficit is targeted at 2.9% of Gross Domestic Product
    (GDP), and fiscal deficit is targeted at 4.1% of GDP, which is lower
    than the revised estimates. 
  • Due to restructuring of CSS schemes, the total central assistance to states has increased 184% (Rs 2,19,369 crore). 

Policy Highlights of the Budget

  • Expenditure Management Commission: The government
    will set up an Expenditure Management Commission which will look into
    various aspects of expenditure reforms to be undertaken by the
    government. 
  • Retrospective taxation: All fresh cases arising
    out of the retrospective tax amendment made in Finance Bill 2012 on
    capital gains tax for indirect transfer of shares in India will be
    scrutinized by a High Level Committee to be constituted by the Central
    Board of Direct Taxes (CBDT) before any action in initiated. 
  • Foreign Direct Investment: FDI in defence
    manufacturing and in the insurance sector will be increased from 26% to
    49%.  In addition, FDI in low cost housing will be encouraged by
    decreasing the built up area and capital conditions from 50,000 sq kms
    to 20,000 sq kms, and from USD 10 million to USD 5 million respectively,
    with a three year post-completion lock in.  In addition, foreign
    manufacturing units in India will be allowed to sell products through
    retail route including e-commerce platforms without additional
    approval. 
  • Disinvestment: To infuse Rs 2,40,000 crore as
    equity into public sector banks to keep in line with Basel III norms,
    government will undertake sale of shares of these banks, while retaining
    the ownership. 
  • Capital Markets: The new Indian Accounting
    Standard, which is in line with the International Financial Reporting
    Standards (IFRS), will be adopted by Indian companies by 2015-16
    voluntarily and will be mandatory from financial 2016-17.  In addition,
    the budget proposes uniform Know-Your-Customer (KYC) norms to be used
    across the financial sector and introduction of a single D-MAT account
    for all financial sector customers. 

Tax Proposals

Personal Income Tax

  • Tax rates and slabs:  The exemption limit has been
    raised by Rs 50,000 for individuals below the age of 80 years. 
    Therefore, the zero tax rate applies up to the income of Rs 2.5 lakh for
    those below 60 years of age, Rs 3 lakh for those between 60 and 80
    years, and remains constant at Rs 5 lakh for those above 80 years of
    age.  There is no other change in the rates of slabs.  Therefore, income
    from the exempt level to Rs 5 lakh will be taxed at 10%, from Rs 5 lakh
    to Rs 10 lakh at 20%, and above that at 30%.  The 10% surtax introduced
    in the interim budget for persons earning above Rs 1 crore has been
    retained.
  • Deductions:  The limit under Section 80C has been
    raised to Rs 1.5 lakh (earlier Rs 1 lakh).  In addition, the limit for
    deduction for payment of interest on housing loan for a self-occupied
    property has been increased to Rs 2 lakh from Rs 1.5 lakh.

Dividend Distribution Tax:  Earlier, the tax was
imposed on the dividend distributed.  Now the tax amount will also be
grossed up to compute the base on which it will be imposed. 
Effectively, the tax rate has increased from 15% to 17.65%.

Long Term Capital Gains Tax:  Generally, a person has
to hold an asset for 36 months for it to be classified as long term;
however, this period is only 12 months in the case of a share in a
company or any other listed security, a mutual fund unit or a zero
coupon bond.  The latter is being amended and increased to 36 months for
an unlisted security or a mutual fund unit (other than an equity
oriented fund).

Real Estate Investment Trusts:  A specific tax regime
is being placed that clarifies the tax to be paid by the trust, the
sponsor of an SPV from whom the asset is acquired, and the unit holder.
Incentives for investment

  • The Finance Act 2013 provided for a 15% deduction in case of
    investment in plant and machinery over Rs 100 crore during the financial
    years 2013-14 and 2014-15.  This facility is being extended for two
    more years.  Further, any investments above Rs 25 crore will also get
    such benefit for investments in 2014-15 to 2016-17.
  • The tax holiday for power sector projects has been extended by three years to March 31, 2017
  • The Income Tax Act provides for investment linked deduction for
    capital investments in 11 areas.  Two more have been added:  slurry
    pipeline for iron ore, and semiconductor wafer fabrication units.

Indirect Taxes:  Several rates have been changed in
customs and excise.  There are also a few retrospective exemptions in
excise duty.  The negative list for service tax has been pruned.
 
PRS will be further releasing a Vital Stats document on the Budget analysing key issues tomorrow.

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