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Budget discussion @ XIME...2

This is in continuation to my part 1.

Finally, the stage was given to me to summarize and give a concluding remarks. I started by summing up what Mr.Crasta, Dr.Venkatachalam, Prof. Srinivasan and the Students presented. The presentation I made in the morning was projected to the students. RK Lakshman's cartoon inspired me and I used it in the title sheet. Following are the summary of my presentation:

Summary of the budget:
  • The budget has 2 parts. The outlay and the taxation.
  • For the first time in the history, the total expenditure shot above Rs.10 lakhs crore.
  • How the collection was put to use and the deficit created due to excess expenditure
  • The deficit was projected at 6.8% of the GDP
Direct Tax
  • No change proposed to the Corporate Tax rates.
  • Removal of FBT & CTT. The impact of removal of FBT on Individuals
  • Increasing the MAT rate by 50% (from 10% to 15%) - Hit to the industries
  • Electoral Trust - contribution to be 100% deductible from Business Income
  • Investment criteria for deduction rather than Tax benefit on revenue. Investment in cold storage etc.,
  • The much awaited sunset clauese for STPI benefit extended only by 1 year. Not much impact for large companies, but benefit small companies
  • The ADR (Alternate Dispute Resolution) & Safe Harbour rules benefits the Multinational Companies and those who acquire businesses.
  • The Wealth Tax exemption limit increased by 100% (From Rs.15 lakhs to Rs.30 Lakhs)
  • Presumptive tax - Limit extended to Rs.40 Lakhs. No Advance Tax.
  • The much awaited tax rate for LLP announced. It would be on par with the partnership. So no tax on the partners (except the tax on salaries). More to know on this, as to the taxation on dissolution
Direct Tax - Individual
  • The basic exemption increased by Rs.15,000 for Senior Citizens (Rs.10,000 for others)
  • Surcharge of 10% removed (Benefits only those above Rs.10 Lakhs of taxable income)
  • Certain FBT items now taxable in the individual hands (ESOP, Superannuation contribution)
  • Gift in kind from non-relative taxable above limits
  • Deduction for maintenance of dependents with severe disability increased to Rs.1 lakh
  • Education loan criteria relaxed (now extended to vacation and other studies beyon Secondary School also)
  • The advance tax limit has been increased to Rs.10,000.
Indirect Tax
  • The overall Customs duty rate structure was maintained.
  • Excise duties on certain items increased and certain items reduced.
  • Branded jewellery is now exempted from Excise duty
  • More services brought into the taxable services (Consulting by advocate, Railway transportation etc.,)
  • The GST is as per plan. Though myself not confident about the roll-out, the industries are ambitious.
Challenges / My comments on the budget
  • Maintaining the growth rate would be a tough job with the increasing Fiscal Deficit
  • Bridging the Fiscal deficit would result in more borrowing & servicing the borrowing
  • Divestment of PSU holding could have generated money, but cannot be used for funding Fiscal deficit
  • Simplification of tax procedures (Filing returns, Completion of assessments)
  • UID – within 18 months. Hoping that Nandan Nilekeni will deliver it.
  • Funding Infrastructure. Make sure that there are no over-runs like the Mumbai sea-link
  • Floods & Drought may hamper the growth of the economy (Agriculture, Power etc.,)
  • Basic education. It was a disappointment. While importance was give to higher education, the basic education was neglected.
I forgot to mention the "Horse can fly" story by Prof.Srinivasan. When everyone was guessing whether the FM will deliver whatever he promised, this story can be connected to that. The story goes like this...
Once a king wanted to punish a person, as he did not like him. So he asked him what he wants as last wish. He said, he wanted to make a Horse fly. The King was shocked and asked him "are you crazy". That person replied with confident that he can make a horse fly. The King said you have an option that you can die peacefully now. If you cannot make the horse fly, you will be butchered. The person requested that he should be allowed 1 year time and wanted a horse, so that he can train and make it fly. The king granted a horse and 1 year time. That person's friend shouted at the person "What make you to think that a Horse can fly. What will happen if you cannot make it fly?". The person calmly answered - "My dear friend, in this 1 year time, anything can happen:
  • I may die naturally or otherwise
  • The king may die. If he dies, there are 2 possibilities (a) The new King may forgive me or (b) if the King is dethroned, the successor will let me free (a foe of a foe is a friend!)
  • The horse may die. In that case, I will get another horse and 1 more year to train it.
  • Who knows, the horse may fly also
So, friends who knows the FM may deliver or new turn of things can happen (like the unexpected economic downturn). The memory of the public is very short and the budget is valid for the year. So, let us wait and see. Due to paucity of time and the requirement is to give an overall view, I did not go deeper into the budget in the presentation.

I will have a separate post for the Individual's tax impact of the budget.

Cheers,
Gopal

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