Announced in the backdrop of strong domestic macroeconomic fundamentals and soaring expectations,  budget 2015 is a fine inclusive balancing act.  The Budget boldly resorts to a higher fiscal deficit of 3.9% to enable provision for increased outlays on various rural initiatives, socio economic schemes, infrastructure needs and more so enhanced allocations to states as per the fourteenth Finance commission recommendations.  As far as tax proposals are concerned,  the Budget lays down a clear roadmap for implementation of GST  and attempts to deal with Black money in a credible manner .  Deferral of GAAR by 2 years and its applicability to investments made thereafter, reduction of tax rates for royalties and technical services to 10%,  non applicability of MAT to FIIs, clarity on taxation of REITs , invits and AIFs are welcome steps.  A roadmap for a futuristic tax regime of lower corporate rates and phasing out of exemptions over the next four years   heralds an era of a transparent tax regime of no surprises.   The lack of fiscal space did not permit meeting of the popular expectations of increase in slabs and housing interest deduction for individuals or abolition or reduction of MAT for SEZs and infra companies.  But all in a fine balancing inclusive futuristic budget.

"Overall on the face of it, it look like a good budget which made the right moves to promote investment in priority sectors,  promote rural sector development, reduction in corporate taxes,  assurance on GST, reign in black money etc. Though the devil may be in details, I feel that budget enhances the feel good factor"

" Increase in excise duty though nominal, (I.e. From 12.36% to 12.50%) run contrary to the principle of making in India campaign as it increase the cost of manufacture. Industry was expecting a drop in excise duty, which would have gone well with the impending GST and make in India campaign"

" The increase in Service tax from 12.36 to 14 percent would be a precursor to introduction of GST, would avoid the feeling of steep increase of taxes on service, on introduction of GST as the proposed rate under GST is 16 % or more. Service industries shall be geared to factor even a higher service tax cost next year”

" Devolution of 62% of the tax revenue to the states (including state taxes) is giant leap towards empowering states with additional funds to lead local developments. I wish this opportunity could have been leveraged by the FM to address the states revenue concern on introduction of GST, so that it could have taken out resistance to GST, if any"

" The announcement that the much awaited GST will be introduced on 1st April 2016, will definitely rejuvenate the industry and the Administrators to expedite the preparations right earnest. The GST will make manufacturing more competitive and thereby support "make in India" Campaign. How fast the FM will move the wheels of change to usher in GST will be keenly watched in the coming days"

Great Budget in terms of a balanced focus on all sectors. As regards Indirect taxes the GST announcement of 1 April 2016 is heartening .Infrastructure announcements of policy are futuristic . Corporate Tax rate at 25% is what Corporates want . As regards MAT the Industry expected a lower rate similar to Corporate tax. The question before GST is  why there should be a difference between mean Cenvat rate for goods and Services i.e. 12.5% versus 14%.

A genuine attempt to meet the expectations of the cross section of the society. Has broken the traditional shackles and is ready to promote merit side by side, the deserving and the needy. The firm date announcement of GST hopefully would encourage the participating partners i.e States to move forward resolving the tricky and touchy layers of economic grant/compensation for each one of them.  Deferral of GAAR which is inevitable has been pronounced gracefully. The desire and ambition of less litigative and non-adversarial approach by the revenue would ever remain a mirage in the absence of trustworthy discretion and orientation in the hands of the top brass of revenue administration. YOGI GURUS have a lot to smile but must be beware of the possible interpretative mysteries which may evolve on the term “YOGA”, baffling even a Yogic body and mind. 

Make in India has allowed freezing of excise duty at 12.5% but at the cost of service providers whose tax rate now stands enhanced to 14%. With just an year away for GST difference in levy rates is creating doubts on the startup date and process.

Lastly, the amendment to curb black money is a clear toss between democratic compulsions and economic realities. Governance all over the world speaks heavily and loudly on this issue as a social commitment, but keeping the business investment options open and wide. Though tough, it may be advisable to take a prudent call to recover larger taxes and heavier fines which can fiscally support growth and development, rather than lodging people in jail.

First-off-the-blocks comments on Budget 2015

The Finance Minister had the unenviable task of reconciling the seemingly irreconcilable – pushing infrastructure development, ‘ease of doing business’ and ‘make in India’ along with the right dose of populism to counter the post-Delhi Election blues.

In the first blush, he appears to have managed this tightrope-walk reasonably well.

While a staggering 70,000 crores have been added to the corpus for spending on infrastructure, several announcements have been made in the social security front to bring most of the Indian populace under the insurance and pension net.

Reforms have been announced in the financial sector which may help to free-up more funds for the enhanced spending in infrastructure and other priority areas.

Most importantly, a resounding confirmation of introduction of GST from April 1, 2016 has been announced – this of course would be dependent upon the progress of the Constitutional amendment bill.

From an ‘ease-of-business’ perspective procedural relaxations have been announced under various tax laws. While corporate Income Tax rates are being rationalized, service tax rate has been increased from 12.36 to 14% - while this may have an inflationary effect in the short-term, this is probably an attempt to align to the expected GST rate of services and to that extent expected. The time-limit for availment of credit has been enhanced from six months to one year – thereby taking care of a major pain-point of the trade.

In a surprising move, despite the fact that India already has a higher-than-global-average ‘carbon tax’, the Clean Energy Cess on coal has been doubled. The impact of this would need to be factored in the power tariffs which may prove to be highly ‘disruptive’ – to borrow a phrase from the Economic Survey of India, which seemed to have warned the Government against such a move since this may adversely impact the access to energy for the poorest.

All in all, while an attempt has been made to tick all the check-boxes, one would need to deep-dive into the fine-print to decode the precise impact of this Budget.

I believe it is a balanced budget which has both carrot and stick for higher tax collection and  start of journey for simplification of the tax regime. Specifically:

Thumbs Up proposals are:

·   Proposed reduction in corporate tax rate from 30% base rate to 25% over next 4 years with lower exemptions. Also the minister has been able to give any fresh exemptions announced over the years. Also the reduction in tax rate on Royalty and FTS payments from 25% to 10%.

·   Abolition of Wealth tax, reduction of custom duties, Removal of SAD, rationalization of tax rate structure in IDT

·   Scrapping of DTC and deferment of GAAR by 2 yrs along with prospective implementation of the same.

Thumbs Down proposals are:

·   Increase in service tax rate to 14%

·   No clarity or Roadmap for implementation of GST

Thumbs Up

a) Deferment of GAAR for 2 years with prospective implementation i.e. from April 1, 2017 instead of augusr 30, 2010.

b) Rationalization of ReIT's with pass through benefit.

c) DTC is scraped.

Thumbs Down

a) Increase in corporate tax rate from 33..995 to 34.608%

b) Marginal increase in Excise duty from 12.36% to 12.5%. This would have impact on local manufactures.

c) GAAR has not been dropped for ever, now with all the more reason after introduction of measures to curb black money etc...

Six key takeaways on tax front from the Union Budget 2015

Thumbs Up

1. Non-adversarial tax regime: The budget has introduced several measures for ensuring non-adversarial tax regime in terms of the following:

1. • Reiteration by the Finance Minister (FM) that ordinarily retrospective tax provisions adversely impact the stability and predictability of the taxation regime and resort to such provisions shall be avoided
   • Clarity on taxability of indirect transfer of assets in India in line with the recommendations of Shome Committee, such as laying down threshold limit of more than Rs 10 crores for the value of Indian assets, which represent at least 50% of the value of all the assets owned by the foreign company
   • Deferment of GAAR by 2 years; GAAR to apply to investments made on or after 1 April 2017 when implemented

2. Tax rate rationalization:

2. • Corporate tax rates to be reduced from 30% to 25% over a period of 4 years; to be accompanied by removal of tax exemptions and incentives to reduce tax disputes and improve administration.
   • Abolition of wealth tax considering lower tax revenues, higher cost of collection, significant amount of compliance burden on the taxpayer as well as administrative burden on the department. To be accompanied by levy of 2% additional cess on super rich earning income more than Rs 1 crore
   • Reduction in tax rate for royalty and FTS paid to a non-resident taxpayer from 25% to 10%

3. Residential status: Introduction of OECD concept of place of effective management (POEM) for determining residential status of companies to align the provisions of the domestic law with the tax treaties and international standards

Thumbs Down

1. Lower relief for Individual taxpayers: Today, the FM announced several measures for the benefit of middle class such as increase in deduction under section 80D to individuals in respect of health insurance premium from Rs 15,000 to Rs 25,000, increase in transport allowance from existing Rs 800 to Rs 1600 per month, etc. However,  some of the expectations which have not been met are:

1. • reducing tax rates and increasing slab rates for individuals,
   • reintroduction of standard deduction for salaried taxpayers,
   • increase in section 80C investment limit to promote savings (although an additional deduction of Rs 50,000 under section 80CCD has been provided for contributions made by any individual to National Pension Scheme)
   • higher deduction for interest on housing loan
   • increase in medical reimbursement from current limit of Rs 15,000, etc.

2. No clarifications relating to certain Transfer Pricing (TP) provisions:

2. • No clarity on implementation of announcements made in 2014 budget as regards rules for APA rollback, use of range concept for determination of arm’s length price, acceptance of multiple year data, etc.
   • No clarificatory amendment in the TP law to the effect that TP will not apply to transactions where income does not arise
   • No announcement laying roadmap for adopting anti-BEPS measures

3. Increase in service tax rate: The FM in his budget speech stated that GST will put in place a state of-the-art indirect tax system by 1 April 2016. With this objective, to align service tax with GST, the rate of service tax has been increased from 12.36% to 14% (including surcharge) which will increase cost of service albeit in the short term. Additionally, the Central Government has been empowered to impose a Swachh Bharat Cess of 2% on taxable services.