Budget 2017 by CA Manish Hingar
- 2. Economic Growth to Continue Adequate liquidity Government Capex Low Fiscal Deficit Low Inflation Low Interest Rates Indian Economy
- 3. Major Changes in Budget Presentation 3 •Provides for Integrated Planning and development of Infrastructure •Undoes the Colonial Legacy & political interference in Railway plans Railways Merged with Union Budget •This allows for timely approval and allocation of resources for the Fiscal •Government Expenditures and Plans can kick start from the beginning of the financial year •Expense categorization to be under Capital & Revenue Heads •Reduces Policy complexity in implementation and monitoring Budget Announcement Date Preponed to 1st Feb Plan & Non Plan Categorization Done away with
- 4. Some Facts & Figures Fiscal Deficit for FY18 at 3.2% of GDP, Increased in Capital Expenditure by 11% YOY, 100% Village Electrification by May 2018, 1 Crore new Houses under PMAY by 2019 for the houseless and those living in kutcha houses, Foreign Exchange Reserve reached 361 Billions USD, FDI grew 36% in H1 2016-17 over H1 2015- 16 despite 5% reduction in global FDI inflows
- 5. Structural Reform in Financing Budgets Source: FY18 Union Budget. As % ofGDP Government by disciplining its Fiscal Deficit is looking to: • Improve India’s International Credit Rating, • Creates Headroom for RBI to reduce key policy rates and • Makes investment/ borrowings for private sector cheap
- 6. Transform, Energise and Clean India TRANSFORM the quality of governance and quality of life of our people; ENERGISE various sections of society, especially the youth and the vulnerable, and enable them to unleash their true potential; CLEAN the country from the evils of corruption, black money and non-transparent political funding
- 7. Themes to foster agenda Farmers : committed to double the income in 5 years; Rural Population : providing employment & basic infrastructure; Youth : energising them through education, skills and jobs; The Poor and the Underprivileged : strengthening the systems of social security, health care and affordable housing; Infrastructure: for efficiency, productivity and quality of life; Financial Sector : growth & stability by stronger institutions; Digital Economy : for speed, accountability and transparency; Public Service : effective governance and efficient service delivery through people’s participation; Prudent Fiscal Management: to ensure optimal deployment of resources and preserve fiscal stability; Tax Administration: honouring the honest.
- 8. Farmers and Agriculture Agricultural credit in 2017-18 at a record level of Rs. 10 lakh crores 60 days interest waiver Support NABARD for computerisation and integration of all Primary Agriculture Credit Societies with the Core Banking System of District Central Cooperative Banks in 3 years. Coverage under Fasal Bima Yojana scheme will be increased from 30% of cropped area in 2016-17 to 40% in 2017-18 and 50% in 2018-19. New mini labs in Krishi Vigyan Kendras (KVKs)
- 9. Rural Population Aim to bring one crore households out of poverty and to make 50,000 Gram Panchayats poverty free by 2019. Women participation in MGNREGA has increased to 55% from less than 48% MGNREGA allocation the highest ever at `Rs. 48,000 crores in 2017-18. Pace of construction of PMGSY roads accelerated to 133 km roads per day in 2016-17, against an avg. of 73 km during 2011-2014. 100% village electrification by 1st May 2018 Total allocation for Rural, Agriculture and Allied sectors is Rs. 1.87 Lacs crores
- 10. Infrastructure TOTAL BUDGET for Rail, Road and Shipping – 2.41 Lacs Crores Capital and Development Exp. In railways -1.31 Lacs Crores Unmanned Level Crossing (Broad gauge) will be eliminated by 2020, New Railways Lines – 3500 kms., 500 Stations – with Lifts and Escalators SMS Based – Clean my Coach All Coaches with bio toilets – 2019 New Metro Rail Act - greater private participation and investment. 2,000 kms of coastal connectivity roads Airports in Tier 2 cities for operation and maintenance in PPP model Optical Fiber Broadband to 1.5 Lacs gram panchayats. Second phase of Solar Park with capacity of 20,000 MW.
- 11. Other Measures Aadhar based Smart Cards for Senior Citizens containing their health details FIPB (Foreign Investment Promotion Board) to be abolished IRCTC, IRFC and IRCON will be listed in stock exchanges. create an integrated public sector ‘oil major’ A new ETF with diversified CPSE stocks and other Government holdings Rs. 10,000 crores for recapitalisation of Banks Head Post Offices as front offices for Passport services 10 lakh new POS terminals 2,500 crore digital transactions through UPI, USSD, Aadhar Pay, IMPS and debit cards Aadhar Enabled Payment System, will be launched shortly
- 12. Personal Income Tax Tax Rate for individual assesses between income of Rs. 2.5 lakhs to 5 lakhs reduced to 5% from the present rate of 10% Surcharge of 10% of tax payable on categories of individuals whose annual taxable income is between Rs. 50 lakhs and Rs. 1 crore. Simple one-page Form for individuals having taxable income upto Rs. 5 lakhs other than business income Tax rebate of Rs. 2,500 if Income is upto Rs. 3.5Lacs.
- 13. Personal Income Tax Annual Taxable Income Existing Tax New Tax Gain Rs 2.5 Lakhs - - - Rs 3.5 Lakhs 5,150 2,575 2,575 Rs 5 Lakhs 20,600 12,875 7,725 Rs. 10 Lakhs 128,750 115,875 12,875 Rs. 50 Lakhs 1,364,750 1,351,875 12,875 Rs. 75 Lakhs 1,673,750 1,826,963 (153,213) Rs. 100 Lakhs 2,909,750 3,186,563 (276,813)
- 14. Tax to GDP – Big improvement required Source: Budget Speech 1.74 2.46 No. of Persons employed in organised sector in 'cr People not filingtax People filing tax 3.79 1.81 No. of Persons employed in Unorganised sector in 'cr People not filingtax People filing tax No. of companies registered in India in 'lacs 5.97 7.97 Companies who filed tax
- 15. Tough roads for Non Compliance Penalty of Rs. 5,000/-if return is filed after due dates before 31st Dec. Penalty of Rs.10,000/- if filed after 31st Dec. However, if the income is less then 5 lacs then the penalty will be lower at Rs. 1000. Time period for revising a tax return is being reduced to 12 months. Now Tax Authorities can open cases upto 10 years ( earlier 7 years) if search and seizure operation reveals undisclosed income and assets worth over Rs. 50 Lacs.
- 16. Ease of Doing Business The profit (linked deduction) exemption available to the start-ups for 3 years out of 5 years is changed to 3 years out of 7 years. MAT credit is allowed to be carried forward up to a period of 15 years instead of 10 years at present Income tax for companies with annual turnover upto Rs. 50 crore is reduced to 25% Threshold limit for audit of business entities who opt for presumptive income scheme increased from Rs. 1 crore to Rs. 2 crores. Threshold for maintenance of books for individuals and HUF increased from turnover of 10 lakhs to 25 lakhs or income from 1.2 lakhs to 2.5 lakhs Under scheme for presumptive taxation for professionals with receipt upto Rs. 50 lakhs p.a. Advance tax can be paid in one instalment instead of four.
- 17. Go Digital… Under scheme of presumptive income for small and medium tax payers whose turnover is upto 2 crores, the present, 8% of their turnover which is counted as presumptive income is reduced to 6% in respect of turnover which is by non-cash means. No transaction above Rs. 3 lakh would be permitted in cash subject to certain exceptions.
- 18. Road Ahead… US fed raising interest rates India Quarterly Earnings UP Election Outcome European Banking Crisis China Slow down GST Roll Out
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- 21. Sector BudgetProposal Nature of Impact Comments Telecom Proceeds from License fee and spectrum charges from telecom service providersat INR 443bn against INR 787bn in FY17RE Neutral As per expectation government is not planning for spectrum auction in FY18. INR 443bn comprises only recurring charges and deffered payments from earlier spectrumauctions Budgeting of INR 6.9bn as extra budgetary resourse for Hemisphere properties Positive Progress in Tata comm excess land monetisation Impact of Budget on Key Sectors Sector Budget Proposal Nature of Impact Comments Capitalgoods Defence capital acquisition outlay ofINR 865bn against INR 717bn for FY17RE Positive Growth of about 20% overFY17RE Budgetary support towardsRailways capital expenditure at INR 550 bnagainst INR 463bn in FY17RE Neutral Inline withexpectation Overall outlay for infrastructure development at INR 3961bn against INR 3586bn in FY17RE Positive Increase of 10.5% over last year provides scope for EPC and equipment companies to grow Outlay for IPDS and DDUGJY for improvement in urban and rural, transmission and distribution improvement increased to INR 106 bn from INR 79bn in FY17RE Positive Increases the pie for EPC contractors and equipment manufacturers Section 80-IA sunset clause isnot extended Negative
- 22. Sector BudgetProposal Nature ofImpact Comments Power Lower BCD on LNG from 5% to 2.5% Noimpact Under Power Sector Development Fund, government was already supplying LNG without any duties, taxes. Sec 80-IA exemption not extended beyond FY17E Negative Largely in continuation with earlier stance, construction companies claiming the benefit will have full tax in FY18E. Infrastructure Roads sector outlay up 11% toINR1.24t Positive Positive for both developerand construction companies. Railways Capex up 9% YoY toINR1.3t Positive Positive for contractors like L&T, KEC andKalpataru Infrastructure status to Affordable housing Positive RE sector focus contractors like Alhuwalia contractors, BL Kashyap, etc could bebeneficiary. RealEstate Holding period reduced to 2 years, vs 3 years for eligibilityof LTCG exemption Positive Inventory churn would help better price discovery. Partly negative for primary developer / new launches. Setoff lossses under Housingproperty restricted toINR2lac Negative Lower setoff vs unlimited setoff earlier will lower investor demand, positive in long termthough. Infrastructure status to Affordable housing Positive LT funding will help improve RE sector /developer outlook with focus on low/mid incomehousing. Units area at 30sq.mtr (municipal limit of 4 metro)/60sq.mtr on carpet basis, vs build up area; 100% PAT dedn for developer, time increased to 5 years vs 3 years. Positive Developers with focus on low/mid income housing project would benefitimmensely. These could also entice developers to reinvent business model to cater to this large market pie. Developer can have 1 year stock in trade for completedbuilding Negative While positive given earlier stance of zero holding allowance, the developer holding high inventory in completed project will be negatively impacted (higher tax burden, on no/deemed cash flows). This could lead to higher inventory sell-off. Impact of Budget on Key Sectors
- 23. Sector FY18 Budget Proposals Nature of Impact Comments Oil & Gas Customs duty on LNG cut from 5% to 2.5% Positive Minor savings of US$ 0.2/mmbtu (Rs 0.4/sc m) at current spot price. Beneficial for cos. across the value chain viz. Petronet LNG (savings in internal consumption & higher R- LNG vols.), GAIL (lower input cost for petchem segment), IGL, MGL, Gujarat Gas (spread improvement to the extent benefit is retained or pass on to customers to make CNG/PNG/natural gas slightly more competitive against alternate fuel) Petroleum subsidy allocation of INR 275 bn for FY17E and INR 250 bn for FY18E Neutral Subsidy allocation for FY17 is adequate. For FY18, allocation is adequate assuming current oil price at USD 55/bbl. If oil price is higher, then monthly price hike on kerosene and LPG has to continue or allocation to be increased by INR 70-80 bn to keep oil cos. out of subsidy net at USD 60/bbl oil price No reduction in cess on crude oil Negative Expectation was it will reduce to 10% which would have increased ONGC's and Oil India's EPS by INR 2.5/sh and INR 5.5/sh respectively. Proposal to create mega oil company Neutral Too early to determine impac t and will be determined by through merging some cos. how merger is structured. However, it is a difficult to proposition to implement due to opposition from employees union. FY18 Budget Proposals Nature of Impact Metals & Mining Customs duty on HRC for welded tubes and pipes reduced from 12.5% to 10% Positive Mildly positive for pipe cos. such as Welspun Gujarat, Jindal Saw and Maharashtra Seamless (ERW) Customs duty on nickel reduced from 2.5% to Nil Positive Beneficial for stainless steel producers Aluminium ore export duty at 15% Neutral Bauxite already had export duty and now extended to other ores including laterite. Impact of Budget on Key Sectors
- 24. Sector BudgetProposal Nature of Impact Comments Consumer Reduction in personal incometax Positive Will boost low ticket consumption Increased spendingon MNREGA Positive Will boost FMCG consumption 6% excise hike oncigarette Positive This is a moderate hike in tax against a steep hike expected. Impact of Budget on Key Sectors Sector Budget Proposal Nature of Impact Comments Agriculture Fertilizer subsidy - Total fertilizer subsidy allocated is INR700bn (INR498bn for urea + INR202bn for complex fertilizers). Requirement for FY18 is estimated currently to be INR550bn. Hence incremental subsidy allocated (INR150bn)will benefit fertilizer companies as portion of their prior period receivables get paid. Positive Positive for fertilizer companies. This will decrease their working capital requirements and improve the RoCEfor the business. Agricultural Credit - target for FY18 has been fixed at a record level of INR1,000bn. To support flow of credit to farmers, government to support NABARD for computerisation and integration over 3 years at a cost of INR19bn Positive Can help improve demand for agricultural inputs Crop Insurance - Pradhan Mantri Fasal Bima Yojna(PMFBY) coverage to be increased from 30% of cropped area in FY17 to 40% in FY18 and 50% in FY19. Budget provision of INR90bn in FY18 vs budget provision of INR55bn in FY17 Positive Can help improve demand for agricultural inputs Irrigation - Pradhan Mantri Krishi Sinchai Yojana (PMKSY)- Per Drop More Crop, allocation has been increased to INR74bn from earlier budget of INR58bn. In addition, a Long Term Irrigation Fund has already been set up in NABARD. Prime Minister has announced an addition of INR200bn to its corpus. This will take the total corpus of this Fund to INR400bn. A dedicated Micro Irrigation Fund will be set up in NABARD to achieve the goal, ‘per drop more crop’. The Fund will have an initial corpus of INR50bn. Positive Can help improve demand for agricultural inputs
- 25. Sector Budget Proposal Nature of Impact (Positive/Negative/Neutral) Comments Cementand BuildingMaterials Infrastructure status to affordable Housing Positive Housing accounts for 60-65% ofoverall cement consumption in India and this will increase the overall cement demand. Housing demand will have spillover effect on building materialsdemand. It will be partially offset by slowdown in investment led housing demand. For affordable housing instead of built up area, 30sqm and 60sqm of carpet area will be considered. 30 sqm in municipal limits and 60 sqm for rest of country will be considered Positive Allocated Rs 290bn under Pradhan Mantri Awas Yojana in rural and urban v/s allocation of Rs 209 bn in previous year. Net increase of Rs 81 bn. Proposes to complete 10 mn houses by 2019 for the houseless and those living in kutchahouses Positive In a negative move for landlords (those who buy and rent), the set-off loss against income from house property has been limited to Rs200k/annum against no priorlimit Negative Increase in budget allocation for highways from around Rs 580bn to Rs 650bn. Addition of 200bn to dedicated long term irrigation fund in Nabard Mildly Positive Roads have a lessercontribution to overall cement demand and irrigationis more driven by state budgets. Person whose land has got pooled under land pooling scheme of AP government for creation of new capital will be exempt from capital gains tax provided they were holding it as on 2/6/2014 Positive Exemption of capital gains taxwill incentivise people to sell land and improve land acquisition for the upcoming capital finally drivingcement demand from thecapital Cut in import duty on LNG from 5% to 2.5% Positive Tile players have around 20% of costsas power and fuel and they will benefit to the extent of the price cuts which will be passed on by LNG players Impact of Budget on Key Sectors