In Budget 2016, Arun Jaitley shuns populism; focuses on investment, growth, jobs

Finance Minister Arun Jaitley today announced withdrawal of tax exemptions from a host of services including those provided by lawyers to other advocates, including on arbitral tribunals, even as he exempted financial regulators and others from service tax.

The Finance Bill 2016 also proposes that the power to arrest in service tax evasion is being restricted only to situations where the taxpayer has collected the tax but not deposited it to the exchequer, and that too above a threshold of Rs 2 crore.

“The monetary limit for launching prosecution is being increased from Rs 1 crore to Rs 2 crore of Service Tax evasion,” said the Bill tabled in Parliament by Jaitley.

As per Bill, the ‘Negative List’ entry that covers ‘service of transportation of passengers, with or without accompanied belongings, by a stage carriage’ is being omitted with effect from June 1. Such services will attract a service tax of 5.6 per cent.

Service Tax is also being levied on transportation of passengers by air conditioned stage carriage with effect from June 1 (with 60 per cent abatement). In this case also the rate of service tax would be 5.6 per cent.

In another step to broaden the tax base, the government proposes to levy 14 per cent tax on services provided a senior advocate to an advocate or partnership firm of advocates providing legal service; and a person represented on an arbitral tribunal to an arbitral tribunal.

“Exemption on (these services) is being withdrawn with effect from April 1, 2016 and service tax is being levied under forward charge,” the Bill said.

On the other hand, 5.6 per cent service tax has been withdrawn on housing projects under Housing For All (HFA) (Urban) Mission/Pradhan Mantri Awas Yojana (PMAY) and low cost houses up to a carpet area of 60 square metres in a housing project under ‘Affordable housing in Partnership’ component of PMAY from March 1.

The levy has also been removed on low cost houses up to a carpet area of 60 square metres in a housing project under any housing scheme of the state government.

The 14 per cent service tax on regulators SEBI, IRDAI and PFRDA has also been proposed to be withdrawn from April 1.

In an important move, Jaitley proposed that the services of general insurance business provided under ‘Niramaya’ Health Insurance scheme launched by National Trust for the Welfare of Persons with Autism, Cerebral Palsy, Mental Retardation and Multiple Disability will be exempted from the with from April, 2016. Currently, the rate of service tax is 14 per cent.

Costlier items

Cars, locally made mobiles, branded garments, air travel, aerated drinks, cigarettes and smart watches are the among items that will be costlier while footwear, solar lamps and routers are slated to cost less following changes in tax structure in the Budget 2016-17.

As a result of a new levy, Krishi Kalyan cess, on all services, activities including eating out, watching movies in theaters and payment of bills, will also become more expensive.

Continuing the trend set by his predecessors, Finance Minister Arun Jaitley today came down heavily on smokers and tobacco consumers by imposing up to 15 per cent excise duty on all tobacco products.

“To discourage consumption of tobacco and tobacco products, I propose to increase the excise duties on various tobacco products other than beedi by about 10 to 15 per cent,” Jaitley said in his Budget speech.

Potential car buyers will have to shell out more - from as low as Rs 3,000 to over Rs 1 lakh - on new purchases as the Finance Minister announced infrastructure cess of up to 4 per cent on vehicles.

“The pollution and traffic situation in Indian cities is a matter of concern. I propose to levy an infrastructure cess, of 1 per cent on small petrol, LPG, CNG cars, 2.5 per cent on diesel cars of certain capacity and 4 per cent on other higher engine capacity vehicles and SUVs,” Jaitley said.

Petrol/LPG/CNG driven vehicles of length not exceeding 4 meters and engine capacity not exceeding 1,200cc would attract a cess of 1 per cent.

Diesel driven vehicles of length not exceeding 4 meter and engine capacity not exceeding 1,500cc will attract a cess of 2.5 per cent, while other higher engine capacity and SUVs and bigger sedans would be levied at 4 per cent.

Moreover, cars priced above Rs 10 lakh will also attract tax of 1 per cent at source.

“I also propose to collect tax at source at the rate of 1 per cent on purchase of luxury cars exceeding value of Rs 10 lakh and purchase of goods and services in cash exceeding Rs two lakh,” Jaitley said.

After the Budget announcements, air travel will become expensive due increase in excise duty on aviation turbine fuel (ATF) to 14 per cent from 8 per cent besides the additional levy of Krishi Kalyan cess.

Soft drinks and mineral water will also be dearer as Jaitley proposed to hike excise duty on “water including mineral water, aerated water containing added sugar or sweetening matter” to 21 per cent from 18 per cent earlier.

Branded readymade garments costing Rs 1,000 or more will become costlier as the excise duty on them has been increased to 2 per cent without CENVAT credit from nil earlier.

Customs duty on imported imitation jewelery has gone up from 10 per cent to 15 per cent while customs duty on industrial solar water heater has increased from 7.5 per cent to 10 per cent which will make these items costlier.

Provident Fund

To bring about parity in New Pension Scheme and other retirement schemes, the government has decided to impose tax at the time of withdrawal on 60 per cent of the contributions made after April 1, 2016, to EPF and other schemes.

At present, social security schemes run by retirement fund body EPFO are tax free EEE scheme. That means deposits, accrual of interest and withdrawals are tax free under the scheme.

In order to bring greater parity in tax treatment of different types of pension plans, it is proposed that the contributions made on or after April 1, 2016 by an employee participating in a recognised provident fund and superannuation fund, up to 40 per cent of the accumulated balance attributable to such contributions on withdrawal shall be exempt from tax, said Budget Memorandum.

It is proposed to provide that any payment in commutation of an annuity purchased out of contributions made on or after April 1, 2016, which exceeds 40 per cent of the annuity, shall be chargeable to tax.

Under the existing provisions of section 80CCD, any payment from National Pension System Trust to an employee on account of closure or his opting out of the pension scheme is chargeable to tax.

Announcing measures for moving towards a pensioned society, Finance Minister Arun Jaitley said, “Pension schemes offer financial protection to senior citizens. I believe that the tax treatment should be uniform for defined benefit and defined contribution pension plans.”

He said, “I propose to make withdrawal up to 40 per cent of the corpus at the time of retirement tax exempt in the case of National Pension Scheme. In case of superannuation funds and recognised provident funds, including EPF, the same norm of 40 per cent of corpus to be tax free will apply in respect of corpus created out of contributions made after April 1, 2016.”

The minister also said that the annuity fund which goes to the legal heir after the death of pensioner will not be taxable in all three cases.

He proposed a monetary limit for contribution of employer in recognised Provident and Superannuation Fund of Rs 1.5 lakh per annum for taking tax benefit.

The minister also proposed to exempt from service tax the Annuity services provided by the National Pension System (NPS) and Services provided by EPFO to employees.

Government has also proposed that 14 per cent service tax on services provided by Employees� Provident Fund Organisation (EPFO) to employees, being exempted, with effect April, 2016.

The budget has also proposed to increase the threshold for deducting tax deducted at source (TDS) on payment of accumulated balance due to an employee in EPF Rs 50,000 from existing Rs 30,000.

Last year budget had provided that the members of private provident fund trusts will not have to pay tax on pre-mature withdrawals provided the amount is either less than Rs 30,000 or their tax liability is nil even after including the withdrawn sum to their income.

Cess on crude oil

In relief to ONGC and Cairn India, Finance Minister Arun Jaitley today changed the cess on the crude oil they produce domestically to ad valorem while at the same time offered calibrated marketing freedom to firms such as RIL for yet to be produced gas discoveries.

Meeting half-way the demand of domestic oil producers to link cess on crude oil to prevailing price, Jaitley in his Budget for 2016-17 change cess on crude oil to 20 per cent of the prevailing oil price as compared to Rs 4,500 per tonnes currently.

At USD 35 per barrel oil price, this essentially means Oil and Natural Gas Corp (ONGC) will have to pay Rs 3,500 per ton cess on crude oil it produces from fields given to it on nomination basis. The same will be the rate for Cairn India’s Rajasthan oil fields.

These firms had wanted cess to be levied at 8-10 per cent of the oil prices, which slumped to an 11-year low.

The Oil Industry (Development) Act, 1974, provides for collection of cess as a duty of excise on indigenous crude oil. Cess incurred by producers is not recoverable from refineries and thus, forms part of cost of production of crude oil.

The cess was levied at Rs 60 per tonne in July 1974 and subsequently revised from time to time. In 2005-06, when the crude oil prices had increased from an average of USD 40 per barrel to USD 60, the OID cess was raised from Rs 1,800 to Rs 2,500 per tonne from March 1, 2006.

Again, when the crude prices climbed to over USD 100, the rate of cess went up to Rs 4,500 (USD 12 per barrel) with effect from March 17, 2012.

“The Oil Industry (Development) Act 1974 is being amended so as to reduce the rate of Oil Industries Development Cess on domestically produced crude oil, from Rs 4,500 per tonne to 20 per cent ad valorem OIDB Cess. The amendment in the Act will be effective from the date of assent to the Finance Bill, 2016,” the Finance Bill said.

Jaitley in his budget speech in Lok Sabha said two stage gas pricing freedom would be given to firms like RIL and ONGC who have several gas discoveries that are unviable at current price of USD 3.82 per million British thermal unit.

“India is blessed with rich natural resources including oil and gas. However, their discovery and exploitation has been below our potential,” he said.

With near stagnation in domestic production and consequent rapid increase in imports, the “Government is considering to incentivise gas production from deep-water, ultra deep-water and high pressure-high temperature areas, which are presently not exploited on account of higher cost and higher risks,” he said.

“A proposal is under consideration for new discoveries and areas which are yet to commence production, first, to provide calibrated marketing freedom; and second, to do so at a pre-determined ceiling price to be discovered on the principle of landed price of alternative fuels,” he said.

100% FDI in marketing, processing of food products approved

With a view to benefit farmers and reduce wastage of fruits and vegetables, the government today allowed 100 per cent foreign direct investment in marketing and processing of foods products.

Finance Minister Arun Jaitley in Budget for 2016-17 said the FDI policy has to address the requirements of farmers and food processing industry as a lot of fruits and vegetables grown by farmers either do not fetch the right prices or fail to reach the market.

“Food processing industry and trade should be more efficient,” he said.

“100 per cent FDI will be allowed through FIPB route in marketing of food products produced and manufactured in India.  This will benefit farmers, give impetus to food processing industry and create vast employment opportunities,” he said in his speech.

When asked to comment on his party’s stand on FDI in multi-brand retail later during an interaction with Doordarshan, he said: “My party has reservations... our intention (on FDI proposals in Budget) is to let foreign companies buy products from our farmers, process it and sell it domestic or international market, it will help farmers.”

Reacting on the move, Food processing Minister Harsimrat Kaur Badal said the announcement will provide tremendous impetus to the sector.

“The farmers will also get better price for their produce and it will create strong linkages from farm to folk,” she said.

Dhanraj Bhagat, Partner, Grant Thornton India said that it is still not clear whether this will be permitted for retail marketing or only wholesale marketing.

“We will need to study the fine print before concluding on the same. In the event that this applies to retail marketing then it could be a prelude to opening of multi-brand retail marketing, beginning with the food sector. The opening up of this retail sector for food would be beneficial to the farmer, which is one of the key directions in the 2016 budget,” Bhagat said.