Wealth Vistas - Budget Special Issue

WEALTH VISTAS

Wealth Vistas | Budget Special Feb 2015 | www.agroy.com

Think Budget!Think Rhetoric!Think Again!

A m i d s t v e r y h i g h

expectations, FM Arun

Jaitley presented his first

full term budget. In my

view, the three salient

features of this budget

are: (a) to attract large

foreign investments, (b)

enable social sector reforms through

health insurance, small enterprise and

productive agriculture, (c) a big shift in

federal structure wherein centre takes

care of revenue collection and public

policy whereas states are entrusted with

the task of public spending.

A closer look at the Budget, makes it look

extra ordinary and full of some big

reforms. For a Government with a

decisive mandate to rule for 5 years, this

budget aptly lays down a road map for

the next 5 years and not necessarily for

just one year.

One tends to look at how one has

individually gained from this budget and

thus may get disappointed... but wait,

this budget was not about you or me, it

was about us, as a country at large. And

India will hopefully stand to gain.

AGROY would like to thank Shri Sudhir

Chandra (Former Chairman CBDT) and

Shri S K Goel (Former Chairman

CBEC) for their invaluable inputs

towards this Budget Special issue of

Wealth Vistas.

Reforms amidst RhetoricThe Union Budget 2015 like every year, left most

of us high and dry wanting for more. The initial

reactions were of it being a lame duck budget,

not bad but not good either! Initial downward

movement on stock markets also suggested it to

be a budget yet agin high on rhetoric and low on

reforms. However, as we take a closer look and it

starts to sink in, we come across pleasant

surprises and moves. Someone aptly posted on

facebook - “This budget is like a composition by

A R Rehman, first time you listen and you don't

get head and tail of it, but slowly it picks up and

becomes chart-buster”. Here we try to unravel

the big reforms proposed in this budget which

aim to give a shape to Modi’s so called rhetoric.

Banking Reforms

Announcement of setting up of Monetary Policy

Committee and amendment of the RBI Act

though downplayed in the Budget would have a

far reaching impact towards achieving long term

inflation rate stabilisation. Along with this, the

setting up of an autonomous Banks Board

Bureau is a big structural change envisaged in

banking sector. This would take care of search

and selection of bank heads, directors and

outlining business strategy for public sector

banks. Eventually leading to a holding company

structure for all PSU Banks and reducing their

dependance on Central Government.

Announcement of a comprehensive Bankruptcy

Code and allowing large NBFCs to use Sarfaesi

Act is another step towards reducing credit

defaults and bringing about ease of doing

business.

Financial Sector Reforms

Though Gujarat International Finance Techcity

(GIFT) is being talked about to become one of

Asia’s biggest financial hub, the two big

announcements which would go far to make

India a global financial hub are setting up of

Public Debt Management Agency and the

Financial Redressal Agency (FRA). The Public

Debt Management Agency aims at deepening

the not so popular Indian Bonds and Debt

market. On the other hand FRA aims to protect

financial consumers / investors from all sectors

under one roof.

Merger of Commodity Markets Regulator FMC

with SEBI is also a big step in right direction.

Stung by the NSEL Scam, dwindling volumes on

MCX and rising dubba trading menace, this

move aims at transforming the commodities

market and bringing better regulations.

Hopefully, this will also pave way for the merger

of Equity Brokers and Commodity Brokers for a

seamless and hassle free trading experience for

Tushar AgarwalFCA, MBA (UK)

CEO Agroy

follow me on: agroyblog.wordpress.com

investors.

Taxation Reforms

The most awaited of all reforms is the

introduction of GST, and this budget finally

brings it one step closer by announcing the

roll out by 1st April 2016.

Announcement of laws to tackle black money, benami properties and change in FEMA with power to attach properties are seen as renewed focus of Government on


Nil.

Social Sector Reforms

FM announced creation of a Universal System of Social Security. Riding on the back of the Jan Dhan Scheme and Aadhaar Cards, he could roll out a series of health, accident insurance and pension schemes for the poor.

A big announcement was the setting up of MUDRA Bank to fund the micro finance sector and in turn the smallest entrepreneur.

Making the New Pension Scheme as an optional alternative to Employee Provident Fund and Private Health Insurance as an a l t e r n a t i v e t o E S I a r e t w o b i g announcements that will benefit the salaried class.

Infrastructure Reforms

In terms of infrastructure, there are two important announcements. First was setting up of National Investment and Infrastructure Fund with an outlay of Rs.20000 crore. Second was the increase of Rs.80000 crore in CAPEX spending by PSUs. This would give the much needed infrastructure development push to the economy.

curtailing black money.

Reduction of corporate tax rate without touching the individual tax rates is a bold and highly un-populist measure risking the Government to be labled as pro-corporates. But wait, think again. As far as individual tax slabs are concerned, they have been largely rationalised in line with the Direct Tax Code during last 2 years, though corporate tax rates have remained unchanged amidst recurring annual demands. The move also aims at making our tax structure internationally competitive to bring in foreign investment. Take a look at the corporate tax rates in some countries - UK (21%), China (25%), Singapore (17%). And finally, the staggered reduction in corporate tax rate to 25% along with removal of exemptions and the imposition of 2% surcharge on super rich in lieu of wealth tax would actually increase the corporate tax burden to about 34.6%.

Abolition of Wealth Tax yet again confirms the resolve of this Government to simplifying overall tax regime.

Removal of MAT on FIIs brought some cheer to markets. Hence the long term capital gain for FII investments which though was nil but was still taxed under MAT would now remain

Indirect tax proposals in the

2015 Finance bill are based

on Government's avowed

policies of-

(i) Introduction of GST

w.e.f. April 2016- the FM

clearly stated his intention

of having a state-of-art

GST system. Increase of

rate of Service Tax levy to 14%, and widening of

Service Tax base indicate movement of tax

system in the direction of GST. Measures taken

include: removal of large number of exemptions

in the area of Service Tax- (a) on entry to

amusement parks, concerts, award functions

etc., (b) on services provided by Govt. to

business, (c) on many construction services

received by Govt; levy of Service tax on job-work

manufacture of alcoholic liquors for human

consumption; clarification that Service tax will be

leviable on Foreman's commission for chit funds,

and on expenses of providing service

reimbursed by service receiver.

(ii) Ease of doing business policy seems to

have been promoted through: (a) Introduction of

Advance Ruling Authority for all resident firms,

(b) Registration for Central Excise and Service

tax assesses in two days, (c) powers given to

Chief Commissioners/ commissioners to

recover arrears in instalments, (d) reducing

litigation by simplifying/ standardizing

penalty provisions, (e) no retrospective

effect to Service Tax on chit fund,

reimbursement expenses.

(iii) Make In India policy and consequent

job creation promoted by; (a) Removal of

Inverted Duty for 22 items leading to cost

reduction and higher competitive edge for

domestic manufacture, (b) Exemption from

SAD for inputs for manufacture of ITA

products, (c) Facilitation measures for

Cenvat credit on capital goods and inputs

for manufacture.

(iv) Digital India policy promoted through:

(a) Proposed Single Window for documents

filing, (b) E-invoices allowed with digital

signatures, (c) E-records maintenance

being allowed with digital signatures, (d)

Duty exemption for tablet computers and

parts

(v) Renewable Energy policy promoted

through: (a) Duty exemptions for Solar

water heaters and systems and parts/inputs

thereof, (b) Similar exemptions for wind

energy systems/ parts/ inputs (c) LED lights

and parts/inputs, etc.

Govt has no miracle up

its sleeve should come

as no surprise to

anyone.

Every year budget gets

talked about a lot. Its

analyses however are

difficult to synthesize for invariably people

seem to talk about it in such varying ways that

the reader has the choice of picking what he

wants to hear.

Till some years ago, middle class interest in

budget was limited to the price of diesel,

petrol; test was what was more expensive,

what was cheaper; did the IT slab move up,

but today economy is no longer an abstract

idea, it has become a tangible, living

presence & nothing demonstrates it better

than the budget.

What the present budget tells us is that the

broad political & economic logic that has

drawn successive regimes will continue. It

doesn't reject the system of governance that

it has inherited, but aims to make it work

better. It seeks to build momentum by

creating the conditions for change. For the

present Govt, every day comes with a job list.

Temperamentally PM can make this kind of

approach work - his management style is

hands on & detail oriented enough, but the

political & administrative machinery in this

country is unused to such rigour. Things must

move on the ground and for that what needs

to change lies outside the syllabus of the

budget.

There is not much change on Direct taxes

front, except the withdrawal of Wealth Tax Act

and declaring that DTC is no longer

considered necessary. Minor changes in the

monetary limits of sections 80D, 80DDB,

80DD, 80U & 80CCD are definitely going to

help the medium and small tax payers.

Introduction of Explanations 6 and 7 in

section 9 (1)(i) would raise investor's

sentiments.

Shri S K GoelFormer Chairman CBEC

Shri Sudhir ChandraFormer Chairman CBDT


Direct Taxes:Ÿ Corporate Tax Rate reduced to 25% for

over next four years, simultaneously exemptions to corporates to be withdrawn.

Ÿ No change in income tax slabs for Individuals. Exemptions For Individual Tax Players To Continue. Overall tax deduction benefits to individual investors at 4.44 lacs.

Ÿ Wealth Tax abolished. But 2% surcharge on income tax for super rich.

Ÿ To Enact New Law For Black Money. Concealment of foreign income and assets will attract 10 yrs of rigorous imprisonment and penalty of 300%

Ÿ Benami Property Transaction Bill to tackle black money transaction in real estate soon

Ÿ Foreign Exchange Management Act to be ammended suitably to allow for seizure of equivalent assets in India in case of Foreign Assets created using black money.

Ÿ To Tighten Reporting Of Cash transactions. Quoting PAN a must for all purchases above One Lakh.

Ÿ Tax pass through to be allowed in alternative investment funds to boost small firms, startups

Ÿ Proposes to rationalise capital gains tax regime for real estate investment trusts. Rental Income from REITS to have pass through facility.

Ÿ 100% deduction allowed for all contributions in Swachh Bharat Abhiyan [except contribution in CSR].

Ÿ To defer GAAR by 2 years . Retrospecive tax provisions will be avoided.

Ÿ Income Tax On Royalty Fees For Technical Reduced To 10%. Reduced taxes on Technical Services to 10% from 25%

Ÿ Deduction on Health insurance u/s 80D increased from 15000 to 25000. For senior citizens to 30000. Additional deduction of Rs.50000 u/s 80CCD towards New Pension Scheme. No change in limits u/s 80C.

Ÿ Transport Allowance exemption increased from 800 pm to 1600 pm

Ÿ Domestic Transfer Pricing limit increased from 5crores to 20 crores

Ÿ Introduction of Tax Free Infra Bonds for road, rail and irrigation projects

Ÿ No MAT for FPIs and FIIs. This comes as a big boon for Foreign Investors in Indian Equities market who were being taxed under MAT despite Nil tax on Long Term Capital Gains.

Indirect Taxes:Ÿ GST roll out by 1st April 2016Ÿ Service Tax increased to 14%Ÿ To reduce Custom Duty on 22 itemsŸ Excise reduced to 6% for footwear above

1k per pair

Other highlights:Ÿ Merger of Commodity Regulator FMC

with SEBIŸ Infrastructure investment push by 70000

crore on public capex expenditureŸ Subsidy rationalisation by cutting

leakages through Jan Dhan-Aadhaar-Mobile

Ÿ States get almost 62% of total resources allocation

Ÿ Employee’s contribution to EPF below an income threshold will be optional without reducing employer’s contribution.

Ÿ Contribution to ESI to be made optional against private health insurance

Ÿ Ammendment to RBI Act and constitution of a Monetary Policy Committee

Ÿ Bankruptcy law reform has been identified as a key to ease of doing business. Br ing comprehensive Bankruptcy code in 2015-16.

Ÿ Visa on Arrival scheme extended to 150 countries

Ÿ Introduction of Gold Bonds and Indian Gold Coins with Ashoka emblem

Ÿ FM proposes to do away with different types of foreign investment and replace them with composite caps.

Ÿ Proposed a “plug and play” model, where all clearances will be put in place before a project is auctioned. 5 new ulta mega power plants at investment of approx. 1 lac crore in plug and play mode

Ÿ Setting up a Financial Redressal AgencyŸ Setting up of Atal Innovation Mission

(AIM) to nurture innovation culture, R&D and Scientific Research

Ÿ Setting up of National Skill Mission to consolidate all skill development initiatives

Ÿ Benefits for MSME sector – setting up of Mudhra Bank, electronic bill discounting system and fund for technology startups.

BUDGET 2015 - HIGHLIGHTS

Warren Buffet

WoW words of wisdom

“If you buy things you

do not need, soon

you will have to sell

things you need.”

Key Indices CMP

Sensex 29220.12 -461.65 -1.6%

Nifty 8844.60 -107.75 -1.2%

DJIA 18132.70 715.85 4.1%

NASDAQ 4963.53 280.12 6.0%

Nikkei 18797.94 1191.72 6.8%

Hang Seng 24823.29 227.44 0.9%

Gold ($/oz) 1213.28 -72.62 -5.6%

Silver ($/oz) 16.59 -0.36 -2.1%

Brent Crude ($) 62.21 13.18 26.9%

USD / INR 61.67 -0.28 -0.5%

EUR / INR 69.04 -1.02 -1.5%

CMP Change

27.50 69.7%

72.90 48.5%

1128.60 47.8%

158.80 39.3%

1649.50 36.7%

Monthly Change

Rs. In Crore

11476

12919

1036

99254

Net FII Investment

Monthly Gainers (A Grp)

Suzlon Energy

Piavav Defence

79708

Feb-2015

Jan-2015

Dec-2014

Fin Year to Month

Last Fin Year

Tata Elxsi

Fortis Healthcare

Wockhardt

-10.0 -5.0 0.0 5.0 10.0

NiftyAuto

BankEnergy

FinanceFMCG

ITMedia

MetalPharma

Realty

Sectoral Performance - Feb 2015(Source: IISL sectoral indices)

% Change from previous month

MARKET INDICATORS AS ON 27-FEB-2015

FOR PRIVATE CIRCULATION ONLY. This document has been prepared by AGROY Finance & Investment Ltd (AGROY). This document is subject to changes without prior notice and is intended only for the person or entity to which it is addressed to and may contain confidential and/or privileged material and is not for any type of circulation. Kindly note that this document does not constitute an offer or solicitation for the purchase or sale of any financial instrument or as an official confirmation of any transaction. The information contained herein has been compiled from publicly available data or other sources believed to be reliable, Though all effort will be made to keep the above information updated, AGROY or any of its Directors or employees are under no obligation to keep the information current or to keep providing this document on regular basis to anyone. This document is prepared for information only and is not intended to be and must not alone be taken as the basis of an investment decision. The user assumes the entire risk of any use made of this information.


Economy & Finance

Wealth Vistas - Budget Special Issue