New Delhi, February 28, 2015
Finance Minister Arun Jaitley kept personal income tax rates unchanged while offering individual tax payers several concessions, proposed to reduce corporate tax from 30% to 25% over the next four years and abolished wealth tax in his General Budget for 2015-16 presented to the Lok Sabha on Saturday.
Union Minister for Finance Arun Jaitley arriving at Parliament House to present the General Budget 2015-16, in New Delhi on February 28, 2015.
Finance Minister Arun Jaitley kept personal income tax rates unchanged while offering individual tax payers several concessions, proposed to reduce corporate tax from 30% to 25% over the next four years beginning next year and abolished wealth tax in his General Budget for 2015-16 presented to the Lok Sabha today.
Mr Jaitley also proposed several measures aimed at fostering "cooperative federalism", empowering the States and meeting five major challenges faced by the economy: agricultural income under stress, weak private sector investment in infrastructure, decline in manufacturing, resource crunch in view of higher devolution in taxes to states and maintaining fiscal discipline.
He declared that the fight against the scourge of black money would continue and announced that a new law would be put in place to tackle the evil.
He also said taxation was an instrument of social and economic engineering and listed steps aimed at fostering a stable taxation policy and non-adversarial tax administration.
Mr Jaitley said the Goods and Services Tax (GST) introduced in the last session of Parliament would play a transformative role in the way the economy functioned and felt this transformative piece of legislation in indirect taxation needed to be matched with transformative measures in direct taxation.
In this regard, he proposed the reduction in corporate tax from 30% to 25% over the next four years and said this would lead to higher level of investment, higher growth and more jobs.
He said the broad principles adopted in finalizing the tax proposals included measures to curb black money; job creation through revival of growth and investment and promotion of domestic manufacturing and ‘Make in India’; minimum government and maximum governance to improve the ease of doing business; benefits to middle class taxpayers; improving the quality of life and public health through Swachch Bharat initiatives; and stand alone proposals to maximize benefits to the economy.
He said the proposed new law on black money would specifically deal with illegal wealth stashed abroad and that the Bill in this regard would be introduced in the current session of Parliament.
The key features of the Bill will include punishment of rigorous imprisonment upto ten years for concealment of income and assets and evasion of tax in relation to foreign assets. This offence will be made non-compoundable and offenders will not be permitted to approach the Settlement Commission. Penalty for such concealment of income and assets at the rate of 300 per cent of tax shall be levied. Non-filing of return or filing of return with inadequate disclosure of foreign assets will be punishable with rigorous imprisonment up to seven years, he said.
Mr Jaitley said that, to curb domestic black money, a new and more comprehensive Benami Transactions (Prohibition) Bill would be introduced in the current session of Parliament. He said this law would enable confiscation of benami property and provide for prosecution, thus, blocking a major avenue for generation and holding of black money in the form of benami property, especially in real estate.
Quoting of PAN will be made mandatory for any purchase or sale exceeding the value of Rs.1 lakh. To improve enforcement, the Central Board of Direct Taxes (CBDT) and the Central Board of Excise and Customs (CBEC) would leverage technology and have access to information in each other’s data-base, he said.
He said job creation would be encouraged through revival of growth and investment and promotion of domestic manufacturing and "Make in India".
The tax "pass through" is proposed to be allowed to both Category-1 and Category-2 alternative investment fund so that tax is levied on the investors in these funds and not on the funds per se.
To rationalize the capital gain regime for the sponsors exiting at the time of listing of the units of Real Estate Investment Trusts (REITs) and Infrastructure Investment Trusts (InvITs) subject to payment of Securities Transaction Tax (STT) is proposed, he said.
He said the Permanent Establishment (PE) norm will be modified to encourage fund managers to relocate to India.
He said the General Anti Avoidance Rule (GAAR) would be deferred by two years. It will apply to investments made on or after 01-04-2017, when implemented.
Corporate tax to be cut to 25% in four years:Budget
In order to facilitate young entrepreneurs, the rate of income tax on royalty and fees for technical services will be reduced from 25 per cent to 10 per cent. To generate greater employment opportunities the benefit of deduction for employment of new regular workman to all business entities will be extended. The eligibility threshold of minimum 100 regular workmen will be reduced to 50.
Recognizing the importance of indirect taxes in the context of promotion of domestic manufacturing and Make in India, the Finance Minister said basic custom duty on certain inputs, raw materials, intermediates and components in 22 items was proposed to be reduced to minimize the impact of duty evasion. All goods, except populated printed circuit boards for use in manufacture of ITA bound items are proposed to be exempted from SAD. Subject to actual user condition, SAD will be reduced on import of certain other imports and raw materials.
Mr Jaitley the wealth tax would be replaced with an additional surcharge of 2 per cent on the "super rich" with taxable income of more than Rs 1 crore. This is expected to yield Rs 9000 crore against the Rs 1008 crore generated currently by wealth tax.
To eliminate the scope for discretionary exercise of power and provide a hassle-free structure to the tax payers, he proposed to increase the threshold limit for domestic transfer pricing from Rs.5 crore to Rs. 20 crore.
In order to rationalize the minimum advance tax (MAT) provisions for foreign institutional investors (FIIs), profits corresponding to their income from capital gains on transactions in securities which are liable to tax at a lower rate, shall not be subject to MAT, he said.
The education cess and the secondary and higher education cess is proposed to be subsumed in central excise duty. The general rate of central excise duty of 12.36 per cent, including the cesses will be rounded off to 12.5 per cent.
The ad-valorem rates of excise duty lower than 12 per cent and those higher than 12 per cent with a few exceptions are not proposed to be increased. Excise duty on footwears with leather uppers and having retail price of more than Rs.1,000 per pair is proposed to be reduced to 6 per cent.
Mr Jaitley said online central excise and service tax registration will be done in two working days. As a measure of business facilitation, the time limit for CENVAT credit on inputs and input services will be increased from 6 months to one year. Service tax plus education cess is proposed to be increased from 12.36 per cent to 14 per cent to facilitate transaction to GST.
He proposed 100 percent deduction for contributions made, other than by way of corporate social responsibility (CSR) contributions, to the Swachh Bharat Kosh. Similar tax treatment has been proposed for the Clean Ganga Fund.
He proposed an increase in clean energy cess from Rs.100 to Rs.200 per metric tonne of coal, etc. to finance clean environment initiatives.
He said excise duty on sacks and bags of polymers of ethylene other than for industrial use is proposed to be increased from 12 per cent to 15 per cent. He also mentioned an enabling provision to levy Swachh Bharat Cess at the rate of 2 per cent or less on all or certain services, if the need arises.
Mr Jaitley said that services by common effluent treatment plant will be exempt from service tax. He also proposed the extension of concessions on customs and excise duty available to electrically operated vehicles and hybrid vehicles upto 31-03-2016.
He proposed no change in the rate of personal income tax and rate of tax for companies in respect of income earned in the finance year 2015-16, assessable in Assessment Year 2016-17.
Mr Jaitley proposed to levy a surcharge @ 12 per cent on individuals, HUFs, AOPs, BOIs, artificial juridical persons, firms, cooperative societies and local authorities having income exceeding Rs.1 crore.
Surcharge in the case of domestic companies having income exceeding Rs.1 crore and up to Rs.10 Crore is proposed to be levied @ 7 per cent and surcharge @ 12 per cent is proposed to be levied on domestic companies having income exceeding Rs.10 crore.
He proposed that in the case of foreign companies the surcharge will continue to be levied @ 2 per cent if the income exceeds Rs.1 crore and is up to Rs. 10 Crore, and @ 5 per cent if the income exceeds Rs.10 crore.
He also proposed to levy a surcharge @ 12 per cent as against current rate of 10 per cent on additional income tax payable by companies on distribution of dividends and buyback of shares, or by mutual funds and securitization trusts on distribution of income.
The education cess on income tax @ 2 per cent for fulfilment of the commitment of the Government to provide and finance universalized quality based education and 1 per cent of additional surcharge called ‘Secondary and Higher Education Cess’ on tax and surcharge is proposed to be continued for the financial year 2015-16 for all taxpayers, he said.
Describing the extension of benefits to middle class tax payers as the priority of the government, Mr Jaitley proposed the following concessions for them:
A. Increase in the limit of deduction in respect of health insurance premium from Rs.15,000 to Rs.25,000.
(1) For senior citizens the limit will stand increased to Rs.30,000 from the existing Rs.20,000.
(2) For very senior citizens of the age of 80 years or more, who are not covered by health insurance, deduction of Rs.30,000 towards expenditure incurred on the treatment will allowed.
B. The deduction limit of Rs.60,000 towards expenditure on account of specified diseases of serious nature is proposed to be enhanced to Rs.80,000 in case of very senior citizens.
C. Additional deduction of Rs.25,000 will be allowed for differently abled persons under Section 80DD and Section 80U of the Income Tax Act.
D. The limit on deduction on account of contribution to a pension fund and the New Pension Scheme is proposed to be increased from Rs.1 lakh to Rs.1.5 lakh.
E. To provide social safety net and the facility of pension to individuals and additional deduction of Rs. 50,000 is proposed to be provided for contribution to the New Pension Scheme under Section 80 CCD. This will enable India to become a pensioned society instead of a pensionless society.
F. Investments in Sukanya Samriddhi Scheme are already eligible for deduction under Section 80C. All payments to the beneficiaries including interest payment on deposit will also be fully exempt.
G. Transport allowance exemption is being increased from Rs. 800 to Rs. 1,600 per month.
H. For the benefit of senior citizens, service tax exemption will be provided on Varishta Bima Yojana.
Mr Jaitley said these concessions had been given to individual taxpayers despite inadequae fiscal space.
"After taking into account the tax concession given to middle class tax payers in my last Budget and this Budget, today an individual tax payer will get tax benefit of Rs 4,44,200. As and when my fiscal capacity improves, individual taxpayers will have a lot to look forward to," he said.
Other taxation proposals include conversion of existing excise duty on petrol and diesel to the extent of Rs 4 per litre into Road Cess to fund investment in roads and other infrastructure. An additional sum of Rs 40,000 crore will be made available through this measure for these sectors.
In service tax, exemption is being extended to certain pre- cold storage services in relation to fruits and vegetables so as to incentivise value addition in this crucial sector. The Negative List under service tax is being slightly pruned and certain other exemptions are being withdrawn to widen the tax base.
Yoga wil be included within the ambit of charitable purpose under Section 2(15) of the Income-tax Act.
Further, to mitigate the problem being faced by many genuine charitable institutions, the Budget proposed to modify the ceiling on receipts from activities in the nature of trade, commerce or business to 20% of the total receipts from the existing ceiling of Rs25 lakh. A national database of non profit organisations is also being developed, he said.
Mr Jaitley said most of the provisions of the proposed Direct Taxes Code (DTC) had already been included in the Income-tax Act. Among the very few aspects of DTC which were left out, some issues had been addressed in today's Budget.
"Further, the jurisprudence under the Income-tax Act is well evolved. Considering all these aspects, there is no great merit in going ahead with the Direct Tax Code as it exists today," he said.
Mr Jaitley said his direct tax proposals would result in revenue loss of Rs 8,315 crore, whereas the proposals in indirect taxes are expected to yield Rs 23,383 crore. Thus, the net impact of all tax proposals would be a revenue gain of Rs15,068 crore, he said.
Mr Jaitley began his Budget Speech by saying that the economy had turned aorund dramatically in the last nine months, since the Narendra Modi took over on May 26, 2014, with the real gross domestic product (GDP) growth expected to accelerate to 7.4 per cent, making India the fastest growing large economy in the world.
He said macro-economic stability had been restored and conditions had been created for sustainable poverty elimination, job creation and durable double digit economic growth.
He listed the Jan Dhan Yojana, which brought over 12.5 crore families into the financial mainstream in just 100 days, transparent coal block auctions to augment resources of the States and ‘Swachh Bharat’, the cleanliness mission, as the key achievements of the government.
He said India had now embarked on two more game-changing reforms -- the GST and the JAM Trinity - Jan Dhan, Aadhar and Mobile -- to implement direct transfer of benefits.
He said GST would put in place a state-of-the art indirect tax system by 1st April 2016 while the JAM Trinity would allow transfer benefits in a leakage-proof, targetted and cashless manner.
Mr Jaitley said the declining inflation rate was one of the major achievements of the Government and said this represented a structural shift. He said consumer price index (CPI) inflation was expected to remain at close to 5% by the end of the year, which would allow further easing of monetary policy.
He said a Monetary Policy Framework Agreement had been concluded with the Reserve Bank of India (RBI) to keep inflation below 6%.
He said that, based on the new series, the estimated GDP growth for 2014-15 is 7.4%, which is expected to go up to between 8 and 8.5 per cent in the next financial year, making double-digit growth seem feasible very soon.
He mentioned the Government's plan for Housing for All by 2022, and said this would require the construction of two crore houses in urban areas and four crore in rural areas. He said the vision included power supply for each house and means of livelihood for at least one member of each family, substantial reduction in poverty, electrification of the remaining 20,000 villages, including off-grid solar power by 2020, connecting each of the 1,78,000 unconnected habitation, providing medical services in each village and city, and ensuring a Senior Secondary School within 5 km of every child.
He said this also involved strengthening rural economy, increasing irrigated area, ensuring communication connectivity to all villages, to make India, the manufacturing hub of the world through Skill India and the Make in India Programmes, encouraging and growing the spirit of entrepreneurship and development of Eastern and North Eastern regions on par with the rest of the country.
Mr Jaitley assured the House that the country would meet the challenging fiscal deficit target of 4.1% of GDP set by the previous government. He said the Government was firm on achieving a fiscal deficit target of 3% within three years.
He stressed the need for a well targeted system of subsidy delivery and reduction in leakages. He said the Government was committed to the rationalization of subsidies. He said the direct transfer of benefits (DBT), started mostly in scholarship schemes, would be further expanded to increase the number of beneficiaries from the present 1 crore to 10.3 crore.
He proposed to fully support the Agriculture Ministry’s organic farming scheme – “Paramparagat Krishi Vikas Yojana”. He also proposed an allocation of Rs 5,300 crore for the Pradhan Mantri Gram Sinchai Yojana, an irrigation scheme.
In order to support the agriculture sector with the help of effective agriculture credit and focus on small and marginal farmers, he proposed to allocate Rs. 25,000 crore to the corpus of the Rural Infrastructure Development fund (RIDF) set up in NABARD, Rs. 15,000 crore for Long Term Rural Credit Fund; Rs. 45,000 crore for Short Term Cooperative Rural Credit Refinance Fund; and Rs. 15,000 crore for Short Term RRB Refinance Fund.
He said that the Government had set an ambitious target of Rs. 8.5 lakh crore of agricultural credit. Stating the Government’s commitment to supporting employment through the Mahatma Gandhi National Rural Employment Guarantee Scheme (MGNREGA), he proposed an initial allocation of Rs. 34,699 crore for the programme.
Mr Jaitley proposed to create a Micro Units Development Refinance Agency (MUDRA) Bank, with a corpus of Rs. 20,000 crore, and credit guarantee corpus of 3,000 crore, which will refinance Micro-Finance Institutions through a Pradhan Mantri Mudra Yojana,. He added that priority would be given to Scheduled Castes (SC) and Scheduled Tribes (ST) enterprises in lending.
Expressing concern over the large proportion of India’s population that is without any kind of insurance, he said that the soon-to-be- launched Pradhan Mantri Suraksha Bima Yojana would cover accidental death risk of Rs. 2 lakh for a premium of just Rs. 12 per year.
Similarly, the Government will launch the Atal Pension Yojana, which will provide a defined pension, depending on the contribution, and its period. To encourage people to join this scheme, the Government will contribute 50% of the beneficiaries’ premium limited to Rs. 1,000 each year, for five years, in the new accounts opened before 31st December, 2015.
He also announced the Pradhan Mantri Jeevan Jyoti Bima Yojana which covers both natural and accidental death risk of Rs. 2 lakhs. The premium will be Rs. 330 per year, or less than one rupee per day, for the age group 18-50, he said.
Referring to the unclaimed deposits of about Rs. 3,000 crore in the Public Provident Fund (PPF) and approximately Rs. 6,000 crore in the Employees Provident Fund (EPF) corpus, the Minister said that the amounts would be appropriated to a corpus, which will be used to subsidize the premia on these social security schemes through creation of a Senior Citizen Welfare fund in the Finance Bill.
He reiterated the Government’s commitment to the ongoing schemes for the welfare of SCs, STs and women.
Underlining the need to increase public investment in infrastructure, Mr Jaitley proposed increased outlays for roads and the gross budgetary support to the railways, by Rs. 14,031 crore and Rs. 10,050 crore, respectively.
He said the capital expenditure of the public sector undertakings (PSUs) was expected to be Rs. 3,17,889 crore, an increase of approximately Rs. 80,844 crore over the Revised Estimates (RE) 2014-15.
He also proposed to establish a National Investment and Infrastructure Fund (NIIF) with an annual flow of Rs. 20,000 crore.
He said that he also intended to permit tax free infrastructure bonds for the projects in the rail, road and irrigation sector. He said the public private partnership (PPP) mode of infrastructure development had to be revisited and revitalized.
Mr Jaitley proposed to establish the Atal Innovation Mission (AIM) in the NITI Aayog, which will provide an Innovation Promotion Platform involving academiciansand draw upon national and international experiences. A sum of Rs. 150 crore is proposed to be earmarked for the mission.
He said the Government establishing a mechanism, to be known as SETU (Self-Employment and Talent Utilisation), which will support all aspects of start-up businesses, and other self-employment activities, particularly in technology-driven areas. An amount of Rs. 1,000 crore has been initially earmarked in NITI Aayog, the body which has replaced the Planning Commission, for the purpose.
Mr Jaitley said the Government also proposed to set up five new Ultra Mega Power Projects (UMPPs), each of 4000 MW, in the plug-and-play mode.
To promote investment in the country, he proposed to set up a Public Debt Management Agency (PDMA) which will bring both India’s external borrowings and domestic debt under one roof.
He also proposed to merge the Forwards Markets Commission with the Securities and Exchange Board of India (SEBI) to strengthen regulation of commodity forward markets and reduce wild speculation. He said enabling legislation, amending the Government Securities Act and the RBI Act was proposed in the Finance Bill, 2015.
Regarding the Employees Provident Fund (EPF), the Minister said the employees need to be provided two options, EPF or the New Pension Scheme (NPS). He said, for employees below a certain threshold of monthly income, contribution to EPF should be optional, without affecting or reducing the employer’s contribution.
Noting that India is one of the largest consumers of gold in the world, Mr Jaitley proposed to introduce a Gold Monetisation Scheme, which will replace both the present Gold Deposit and Gold Metal Loan Schemes. The new scheme will allow the depositors of gold to earn interest in their metal accounts and the jewelers to obtain loans in their metal account. Banks/other dealers would also be able to monetize this gold. He also proposed a Sovereign Gold Bond, as an alternative to purchasing metal gold.
He also announced commencement of work on developing Indian Gold Coin, which will carry the Ashok Chakra on its face.
Highlighting need for increasing investments from all sources, the Finance Minister proposed to allow foreign investments in Alternate Investment Funds. He said that, in order to catalyze investments from the Indian private sector in South East Asia, a Project Development Company will set up manufacturing hubs in Cambodia, Myanmar, Laos and Vietnam.
In order to support programmes for women's security, advocacy and awareness, the Minister proposed to provide another Rs. 1,000 crore to the Nirbhaya Fund.
He said resources would be provided to start work on landscape restoration, signage and interpretation centres, parking, access for the differently abled, visitors’ amenities, including security and toilets, illumination and plans for benefiting communities around them at various heritage sites in the country.
Expressing concern over environmental degradation, Mr Jaitley said that the target of renewable energy capacity had been revised to 1,75,000 MW till 2022. He said the Government was also launching a scheme for Faster Adoption and manufacturing of Electric Vehicles (FAME) with an initial outlay of Rs. 75 crore.
He said the Government would soon launch a National Skills Mission which will consolidate skill initiatives spread across several Ministries. He said Rs. 1,500 crore has been set apart for the Deen Dayal Upadhyay Gramin Kaushal Yojana, a skills programme for rural youth.
He proposed to set up a fully IT based Student Financial Aid Authority to administer and monitor scholarships and educational loan schemes, through the Pradhan Mantri Vidya Lakshmi Karyakram.
Mr Jaitley said a new Indian Institute of Technology (IIT) would be set up in Karnataka and the Indian School of Mines, Dhanbad would be upgraded into a full-fledged IIT.
New All India Institutes of Medical Sciences (AIIMS) will be set up in Jammu & Kashmir (J&K), Punjab, Tamil Nadu, Himachal Pradesh and Assam. Another AIIMS-like institution will be set up in Bihar.
A Post-Graduate Institute of Horticulture Research & Education will be set up in Amritsar, Punjab, three new National Institutes of Pharmaceutical Education and Research (NIPERs) will be set up in Maharashtra, Rajasthan and Chattisgarh and one Institute of Science and Education Research will be set up in Nagaland and Odisha each.
Two Indian Institutes of Management (IIMs) will be set up in J&K and Andhra Pradesh, he said.
Mr Jaitley said the National Optical Fibre Network Programme (NOFNP) of 7.5 lakh kms networking 2.5 lakh villages would be further speeded up by allowing willing States to undertake its execution.
He said that, inspite of the large increase in the devolution to states, adequate provision was being made for the schemes for the poor with allocation of Rs. 68,968 crore to the education sector including mid-day meals, Rs. 33,152 crore to the health sector and Rs. 79,526 crore for rural development activities including MGNREGA, Rs. 22,407 crore for housing and urban development, Rs. 10,351 crore for women and child development, and Rs. 4,173 crore for Water Resources and Namami Gange.
The Minister said that adequate funds had been provided for the needs of the armed forces. As against likely expenditure in this year of Rs. 2,22,370 crore, the budget allocation for 2015-16 is Rs. 2,46,727 crore, he said.
He said the Non-Plan expenditure for 2015-16 was estimated at Rs 13,12,220 crore. Plan expenditure is estimated to be Rs. 4,65,277 crore, which is very near to the R.E. of 2014-15.
The total expenditure has accordingly been estimated at Rs. 17,77,477 crore. Gross tax receipts are estimated to be Rs. 14,49,490 crore. Devolution to the States is estimated to at Rs. 5,23,958 crore. Share of Central Government will be Rs. 9,19,842 crore.
Non-tax revenues for the next fiscal are estimated to be Rs. 2,21,733 crore.
He said that, with these estimates, the fiscal deficit would be 3.9 percent of GDP and the revenue deficit would be 2.8 percent of GDP.
Mr Jaitley said the Government was committed to change, growth, jobs and genuine effective upliftment of the poor and the under-privileged. He also reaffirmed its commitment to the Constitutional principles of equality and justice for all without concern for caste, creed or religion.
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