Finance minister Arun Jaitley presented the Union Budget 2017-18 in the Lok Sabha today.The key laudable feature of the Union Budget 2017 was the focus on stability & continuity and no major changes in tax policies. The budget has presented under a variety of upheavals in country internal and external environment. After the shock of Demonetization delivered to Indian economy and resultant cash crunch, Oil prices, rising dollar and volatile commodity prices as well as political developments like Brexit and protectionist policies after win of Republican party in US election posed heightened risks to Indian economy. The Union Budget2017 aims to maintain the government’s fiscal consolidation efforts and maintain a stable economic growth.
Union Budget 2017 was path breaking in several ways in the sense that presentation of the budget was was advanced by a month to early February, Railway and Union budgets were for first time clubbed together and for the very first time,the whole exercise was fully paperless. Here are the highlights of the Union Budget:
Impact of Demonetization
- From 8 November to 30 December (demonetization period), deposits between Rs2 lakh and Rs. 80 lakh were made in 1.09 crore bank accounts.
- In this period (November 8 to December 31) deposits of more than Rs 80 lakh were made in 1.48 lakh bank accounts. This data will be used by help Govt. to expand the tax net.
- Due to Demonetization advance tax on personal Income tax increased by 34.8%
Rural Sector / Schemes for Poor/ Social
- Allocation under MNREGA increased to 48,000 crore from Rs 38,500 crore. This is highest ever allocation
- Total allocation for rural, agricultural and allied sectors for 2017-18 is Rs 187223 crore, which is 24% higher than last year.
- One crore houses for poor by the year 2019.
- Safe drinking water to cover 28,000 arsenic and Fluoride-affected habitations in the next four years.
- Swacch Bharat Abhiyan allocated Rs.9,500 crores.
- Hub to support SC/ST entrpreneurs
- Government is launching a new initiative to provide cooking gas to BPL families with state support.
- LPG connections to be provided under the name of women members of family: Rs 2000 crore allocated for 5 years for BPL families.
- 2.87 lakh crore grants to gram panchayats and municipalities – a quantum jump of 228%.
- 35% increase in allocation for Scheduled Castes to Rs52,393 crore.
- Total allocation for agriculture and farmer welfare at Rs 35984 crores
- 8.5 lakh heactares of land wil be brought under irrigation
- Dedicated micro-irrigation fund to be set up by Nabard to achieve mission of Per Drop, More Crop.
- Rs. 1900 crore support to bring cooperative banks to Core Banking Platforms.
- 5 lakh acres to be brought under organic farming over a three year period.
- Coverage of Fasal Bima Yojana to go up from 30% of cropped area, to 40% in 2017-18 & 50% in 2018-19:
- Govt. to assist rural entrepreneurs to set up 648 Krishi Vigyan Kendras (farm research institutes).
- Rs 60,000 crore for recharging of ground water recharging as there is urgent need to focus on drought hit areas cluster development for water conservation.
- Dedicated irrigation fund in NABARD of Rs.20.000 cr Nominal premium and highest ever compensation in case of crop loss under the PM Fasal Bima Yojna.
- 300 urban clusters to be set up under Shyama Prasad Mukherji urban Mission
- Four schemes for animal welfare.
- Dairy Processing and Infrastructure Development Fund for 80000 crore rupees over three years.
- Rs9,000 crore higher allocation for payment of sugarcane arrears.
- Allocation for infrastructure stands at a record Rs 3,96,135 crore .
- Trade Infrastructure Export Scheme to be launched in 2017-18
- Rs. 55,000 crore for roads and highways. Total allocation for road construction, including PMGSY, – Rs 97,000 crore
- Rs. 27,000 crore to be spent on roadways under Pradhan Mantri Gram Sadak Yojana;
- 65 eligible habitats to be connected via 2.23 lakh kms of road. Current construction pace is 100 kms/day.
- New greenfield ports to be developed on east and west coasts of the country
- For the revival of under served airports. Centre to Partner with States to revive small airports to improve the regional connectivity
- Government to set up strategic crude oil reserves in Odisha and Rajasthan.
- Allocation of Rs10,000 crore for Bharat Net project for providing high-speed broadband in FY18
- Rs 2.41 lakh crore has been allocated to boosting infrastructure for transportation.
Housing/ Real Estate
- The government announced infrastructure status to affordable housing to encourage investment.
- Real estate developers to get tax relief on unsold stock as liability to pay capital gains will arise only in the year a project is completed.
- Instead of Built up area of 30 and 60 sq meters, the carpet area of 30 and 60 sq meters will be applicable for affordable housing.
- Holding period for capital gains tax for immovable property reduced from 3 years to 2 years.
- For joint development agreement signed for development of property, the liability to pay capital gain tax will arise in the year the project is completed.
- one crore houses to be completed by 2017-18 for the homeless.
- Cabinet extends tenure of loans under Credit Linked Subsidy Scheme of Pradhan Mantri Awas Yojana from 15 to 20 years.
- To address the anomaly of interest deduction in respect of self-occupied vis-à-vis let out property, it is proposed to restrict the set off of loss from house property during the current year to Rs 2 lacs.
- Capital and development expenditure pegged at Rs 1.31 lakh cr for railways.
- 22% higher budgetary support of Rs 55,000 crore for Indian Railways a good step.
- RailSanraksha (safety) Fund of Rs 1 lakh cr announced. This opens up new opportunity for rail safety projects
- 3500 km news railway lines are to be put up.
- Service charge on rail tickets booked through IRCTC to be withdrawn.
- Rail safety fund with corpus of Rs 100,000 crore will be created over a period of five years.
- 500 rail stations to be made differently abled-friendly by providing lifts and escalators.
- A new metro rail policy will be announced.
- Delhi and Jaipur to have solid waste management plants and five more to be set up later.
- Coach Mitra facility to redress grievances related to rail coaches.
- Government plans to move in direction of listing of the railway public sector undertakings (PSUs)—Indian Railway Catering and Tourism Corp. (IRCTC), Indian Railway Construction Co. Ltd (IRCON) and Indian Railway Finance Corp. Ltd (IRFC)
- Service charge on e-tickets booking has been withdrawn
- Budget announced setting up of 20 GW of solar power capacity and feeding 7,000 railway stations with solar power, giving a major impetus to the shift to clean energy.
- Full electrification of 18,452 villages identified in 2015 will be achieved by 1st March 2018. So far close to 12,000 villages have been electrified.
- Lower import duty on liquefied natural gas (LNG) and items used in making solar cells and panels.
- In relief to PSU banks, permitted provisioning for Non-Performing Asset has been increased to 8.5% from 7.5%.
- The Union Budget 2017 has also proposed interest taxable on actual receipt instead of accrual basis in respect of NPA accounts of all non-scheduled cooperative banks and thus they shall be treated at par with scheduled banks.
- The Union Budget 2017-18 has pegged an outlay of Rs79,685.95 crore for the education sector for financial year 2017-18, up from Rs72,394 crore in the previous year which is about 10% increase. Out Of the this Rs46,356.25 is for the school sector and the rest for higher education.
- Setting of National Testing Agency which will handle all the entrance exams in higher education will help to remove duplicity and bring more clarity
- Basic dialysis equipment gets some relief.
- A new health protection scheme for health cover upto 1 lakh per family.
- National Dialysis Service Prog with funds thru PPP mode to provide dialysis at all district hospitals.
- Senior citizens will get additional healthcare cover of Rs 30,000 under the new scheme.
- PM Jan Aushadhi Yojana to be strengthened, 300 generic drug store to be opened
Black money / Political Funding
- Government has decided that no transaction above Rs 3 lakh can be made in cash.
- Maximum amount of cash donations a party can receive is Rs 2,000 from *any one source.
- Political parties will be entitled to receive donations by cheque or digital methods.
- As an additional step, amendments will be proposed to RBI Act to enable issuance of electoral bonds in accordance with a scheme that GOI will frame. Under this scheme, a donor can purchase bonds against cheques and digital payments only.
Investments & Miscellaneous
- Abolishing of FIPB board to ease FDI is an important step and will expand investments significantly.
- 100 per cent FDI in marketing of food products products.
- Further liberalization of the FDI policy is under consideration and shall be announced in due course.
- Shops to be given option to remain open all seven days in a week across markets.
PSUs / Disinvestment
- A new PSU ETF has been announced. Success of first 2 tranches of PSU ETFs has encouraged usage of more ETFs for divestment in future.
- Union Budget 2017 has proposed merger of state run Oil firms to creaste an integrated “oil major”
- NPCI target of achieving 25 bln digital transactions for FY through BHIM, UPI, IMPS, Aadhaar Pay
- Online transactions are going to get a boost as goods having not more than CIF value of Rs. 1,000/-, imported through postal parcels, packets and letters, are exempted from payment of BCD, CVD and SAD
- Excise duty on Micro ATM’s, fingerprint reader/ scanner, Iris scanner, miniaturized POS card reader for mPOS, along with parts and components and POS devices to manufacture these equipment’s has been exempted.
- Service charge on e-tickets booking has been withdrawn
Taxes on Corporates / PE Firms
- 5% cut in tax rate for Medium and small Enterprises with turnover less than Rs 50 crore will make them more competitive and help them in formative years.
- Infrastructure and agriculture cess to be levied.
- Window for availing 3 year profit-linked incentives for start ups increased to 7 years against 5 years earlier.
- No double taxation for limited partners or investors who redeem their investments from India
- No taxation if an LP(Limited Partner) sells stake in an Indian fund to another LP.
- No capital gains tax on public markets; so PE firms can continue to exit via IPOs as opposed to secondary or strategic exits where they are taxed.
- Convertible preference shares when converted to equity would not be taxed
- Concessional rate of 5% on interest paid by debt funds extended to 31 July 2020
Personal Taxation / Cess
- The Lowest tax slab has been cut from 10% to 5%
- A surcharge of 10% has been levied on people whose annual taxable income is between Rs 50 lakh and Rs 1 crore.
- A single one-page form for filing income tax returns for taxable income up to Rs 5 lakh.
- Dividend in excess of Rs. 10 lakh per annum to be taxed at additional 10 per cent.
- Partial withdrawal (as per the rules governing National Pension System) not exceeding 25% of the contributions made by an employee shall not be taxable.
- 1 per cent service charge on purchase of luxury cars over Rs. 10 lakh and in-cash purchase of goods and services over Rs. 2 lakh.
- 4% high capacity tax for SUVs.
- Limited tax compliance window from Jun 1 – Sep 30 for declaring undisclosed income at 45% incl. surcharge and penalties
- 0.5 per cent Krishi Kalyan Cess to be levied on all services.Pollution cess of 1 per cent on small petrol, LPG and CNG cars; 2.5 per cent on diesel cars of certain specifications; 4 per cent on higher-end models.
- Tax returns can now be revised within 12 months of the end of the fiscal year instead of existing 24 months.
- Failure to furnish a tax return within the specified due date to attract Rs 1,000 to Rs 10,000 depending upon the time the return is filed and taxable income.
Custom/Excise Duty Changes
- Cut has been announced in customs duty on LNG. This is likely to benefit small industries like ceramic, glass etc.
- Excise duty raised from 10 to 15 per cent on tobacco products other than beedis. lowest excise hike on cigarettes in over five years. Positive for ITC
- Excise 1 per cent imposed on articles of jewelry, excluding silver.
- The government proposes to amend the Drug and Cosmetic Rules to ensure availability of drugs at reasonable prices and promote the use of generic medicines. This move may be opposed by drug industry.
- New rules for regulating medical devices will also be formulated to attract investments. This will reduce cost of such devices,
Conclusions / Impact on Companies / Sectoral Impact
- Union budget 2017 lays emphasis on improving spending & easing of liquidity of rural India& improving the farmers income.
- It also has adhered to fiscal prudence and provide a boost to affordable housing for all, providing infrastructure and enhancing digitalization.
- Foreign portfolio investors (category I & II) have been exempted from capital gains arising from taxation of indirect transfers. This removes a major irritant from their point of view.
- Keeping the fiscal deficit at 3.2% & aiming for 3 % of GDP in future, will lower government borrowings and thus result in reduction in interest rates
- Dairy Processing and Infrastructure Development Fund for 80000 crore rupees over three years bodes well for Diary sector. Effect on stocks like Heritage, Kwality, Hatsun, Parag, Umang, Prabhat in the medium run.
- Higher refinancing target for NHB positive for housing sector and compaies which operate in affordable housing sector. Ashiana, Poddar, Pruvankara Projects, AU housing, Gruh Finance, Repco etc. stand to benefit.
- Benefits of push on affordable housing & infra could trickle down to cement companies and also companies like SREI Infra, NCC, Ramco industries, Visaka industries , Everest industries.
- Higher allocation for Highways could benefit Ashoka Buildcon, IRB Infra, Sadbhav Engineering etc.
- Changes in Taxes related to realty sector s helps those companies having substantial unsold real estate inventory/ stock. This is a great move to providing tax relief to developers as the sales had gone down post demonetization.
- Government is increasing likely to take ETF route to disinvestment which will bring more opportunities for investors.
- Listing of railway public sector undertakings (PSUs) will also lead to good opportunities for investors.
- Financial services sector to benefit from enhanced expenditure
- Investors ware bit panicky before the budget fearing changes in log term gains, raising of short term gains, changes in STT etc. None of these were contained in the budget. Now the big event is out of the way with no negative surprises.
Misses or Expectations Not met
- There was huge expectation of cess rate cut this time on diesel/petrol. This has not materialized. This is -ve for ONGC. However Govt. intent to create an oil major is +ve for ONGC.
- Change in import duty on edible oil was demanded by industry. Since this has not been increased, farmers could shift to other crops and imports could thus continue.
- There was a demand for abolition of MAT. FM has not acceded to this demand in the budget.
- No changes in basic exemption limit of Rs 3 lacs for senior citizens (60 years to less than 80 years) and Rs 5 Lacs for super senior citizens (80 years and above)
- A Change in import duty of edible oil was demanded by industry. This has not been met and farmers could switch over to alternate crops & imports may continue