Has Budget 2015-16 Lived Up to the Expectations?
Feb 28, 2015

Author: PersonalFN Content & Research Team

The much awaited Union Budget 2015-16, which was expected to be a big-bang one on reforms; has finally been announced. The electorates who voted the Modi-led-NDA to power by a thumping majority had huge expectations. So, let see whether these expectations were met.

Overall, the finance minister has left something for all. He has tried to do a balancing act, promoting growth and giving social security in a way. The finance minister has also given a roadmap for next four years, and within that broader framework the union budget 2015-16 was presented. The thrust of budget remained on rural empowerment, infrastructure development, encouraging industrial growth and reducing regional disparity.

The Budget also identified five challenges. Stress in agricultural income, difficulties in increasing investment in infrastructure, decline in manufacturing and resource crunch in view of higher devolution in taxes to states and maintaining fiscal discipline are major challenges cited by the finance minister.

Highlights of revenues and expenditure

It is estimated that total revenue of the Government may increase to Rs 14.49 lakh crore in the Financial Year (FY) 2015-16. This amounts to a jump of 15.8% over the revised estimates for FY 2014-15. The plan expenditure of the Government on the other hand is Rs 4.65 lakh crore, which is quite close to the revised estimates for FY 2014-15. The non-plan expenditure of the Government would rise 8.2% in FY 2015-16 amounting to Rs 13.12 lakh crore. It is also estimated that, the share given to states would go up by massive 50% in the next fiscal. As against Rs 3.48 lakh crore in FY 2014-15, states are likely to get 5.24 lakh crore in FY 2015-16. On defence the Government is expected to spend Rs 2.47 lakh crore.

Focus on economic growth and infrastructure development

To get economic growth back on track, it is imperative that investment cycle picks up. Considering the constraints on balances sheets of private players, the Government has identified that in Public Private Partnership (PPP) projects the Government would be prepared to absorb greater risk. The Government endevours to revisit and revitalise the PPP model in infrastructure. Therefore, there have been massive outlays to developmental projects this time. The Economic Survey 2014-15 suggests that India’s economy may grow at 8.1% to 8.5% in 2015-16. However, to clock higher growth it is imperative to invest significantly in infrastructure. Infrastructure growth has lagged over last few years. Giving big push to infrastructure, the Government plans to spend Rs 70,000 crore on infrastructure development in the country. Setting up of National Investment Infrastructure Fund is also envisaged. There is also a proposal to issue tax-free infra-bonds for funding projects in roads, rail and irrigation projects. To improve connectivity, the Government has set a target of building 1,00,000 km of roads. The Government also proposed setting up 5 ultra-mega- power projects with capacity of 4,000 MW each. Identifying the need to develop green energy sources, the Government has planned to augment the green energy capacity to 1,75,000 MW which will consist of Solar energy (1,00,000 MW), Wind energy (60,000MW) , energy from bio-mass (10,000 MW) and energy generated through small hydro-power plants (5000 MW).

Giving more space to companies to invest in capacity additions and to boost tax collections the Government has proposed to cut corporate tax from 30% to 25% over next 4 years. Furthermore, to enhance the prospects form businesses and provide them ease of doing business, the finance minister announced that expert committee would be appointed. At present, India ranks 142nd on the list of 189 countries for ease of doing business. The Government aims to better the rank to 50. It has been observed that in India, it takes years to get prior approvals for setting up projects which is very time spending and costs investors a great deal of money. The Government endeavours to provide multiple sanctions at one source. The finance minister also made it clear that the Government would launch a comprehensive bankruptcy code of global standards for ease of doing business.

Agriculture and Rural Development

Agriculture is an imperative area for achieving overall economic growth and maintaining stability of foods prices. The Government is expected to spend Rs 5,300 crore to support micro-irrigation. It will also provide Rs 1 lakh crore for rural development under various schemes. The Government also expects banks to lend Rs 8.5 lakh towards agriculture credit. The Government is also expected to create Unified National Agriculture Market to give a fair chance to the producer to earn more without burdening the end consumer. To give boost to value addition to agricultural produces; the Government has provided exemption to pre cold storage services. With an aim of educating students in agriculture, the Government has planned to set up a post graduate institute of Horticulture Research & Education in Amritsar.

Path to fiscal consolidation

The Government is expected to adhere to its fiscal deficit target of 4.1% of GDP. For the ensuing financial year i.e. 2015-16, the Government has set a target of 3.9% while the year after that at 3.5%. By FY 2017-18, the Government plans to reduce the fiscal deficit to 3.0% of GDP in 2017-18. So the journey for fiscal deficit target of 3.0% will be achieved in 3 years rather than 2 years. The Government plans to raise Rs 41,000 crore from selling its stake from various companies in FY 2015-16. Further, it has revised down the disinvestment target for FY 2014-15 to Rs 31,350 crore.

The Economic survey indicates containing Current Account Deficit to 1%. Therefore in congruence, the finance minister has kept a target of containing CAD below 1.3% for which it has also proposed to allow Gold Monetisation Scheme. Likewise the Government is expecting inflation to be at 5% by March this year. The Government expects to contain retail inflation under 6% as stated under Monetary Policy Framework Agreement with RBI.

PersonalFN is of the view that huge rise in non-plan expenditure and rather bold assumptions on the revenue side may make it difficult for the Government to meet fiscal deficit target in FY 2015-16. Furthermore, softer crude oil and other commodity prices which have been the primary drivers of decrease in inflation are beyond the control of Indian Government. Any unforeseen rise in crude oil and other commodity prices may disturb the stats of the Government.

As far as achieving infrastructure growth and overall economic growth is concerned, the Government would have to maintain a balance between launching new projects and running the existing projects effectively. Issues such as availability of coal to power plants have not been fully addressed and the Government is committing investments to new power plants. Unless such issues are resolved it may be difficult to achieve growth targets. Crucial changes to monetary policy framework and inflation targeting need to be monitored closely to achieve desired outcomes.

Budget for consumers:

To facilitate a smooth transition to levy of tax on services by both the Centre and the States, it is proposed to increase the present rate of service tax plus education cesses from 12.36% to a consolidated rate of 14%. This is bad news for consumers who now have to dole out more for availing services. Likewise excise duty has been hiked on cigarettes and tobacco making it costlier for the consumers. Aerated drinks would become costly too! This would help consumers kick bad habits.

Custom duty on 22 items has been reduced in order to give a push to manufacturing activities in India rather than promoting consumption of end products.

Personal Finance Proposals:

There were many expectations of the aam aadmi. While a few have been honoured, there are some pleasant surprises too. Here’s a snapshot of what was expected and what is announced in the union budget 2015-16.

Sr. No. Subject / Topic Current Provisions What was Expected What is Announced
1. Basic Exemption Limit Income tax rates for Individuals and HUFs for FY 2014-15:
Net Taxable Income (in Rs) Rate
Upto Rs 2,50,000
(for general tax payers – male and female)
Upto Rs 3,00,000 (for senior citizens, above 60 years of age) Upto Rs 5,00,000 (for very senior citizens aged 80 and above)
Rs 2,50,001 to Rs 5,00,000 # 10%
Rs 5,00,001 to Rs 10,00,000 20%
Above Rs 10,00,000 30%
# For senior citizens (aged above 60 but below 80), with NTI falling between Rs 3,00,001 to Rs 5,00,000 are taxed @ 10%. For very senior citizens (individuals who have completed 80 years of age), the base exemption limit stands at Rs 5 lakh of their income.

Asseesees have to pay edu. cess @ 3% on computed tax liability.

Surcharge @ 10% is levied it the total income in the financial year exceeds Rs 1 crore.

Tax Credit or Special Rebate of Rs 2,000 is available to individuals whose NTI is below Rs 5 lakh. This rebate is limited to the extent of tax liability or or Rs 2,000 (whichever is less)
Increase in the income tax exemption limit from Rs 2,50,000 to Rs 3,00,000

30% tax slab should be applicable only to those drawing income of more than Rs 20 lakh in case of individual assessees and HUFs.

(Such expectation ensued after the Modi-led-NDA Government increased the base exemption by Rs 50,000 in its first budget presented in July 2014.)
Not Addressed.

If the Government had to honour this, it would have left higher disposable income in the hands of individuals and thus higher demand along with investments in the economy. But given the commitment to walk tight on the path of fiscal consolidation, the Government has left this untouched.
2. Deduction u/s. 80C of I-T Act, 1961 Subject to maximum of Rs 1,50,000 p.a. for investments made in eligible instruments Hike by another Rs 50,000 taking the limit to Rs 2,00,000

(This was based on a precedence that limit u/s. 80C was increased from Rs 1,00,000 to Rs 1,50,000 in July 2014.)
Not Addressed.

If the Govt. had to honours this it would have left higher disposable income and boost savings for individuals.
3. Reinstate deduction u/s. 80CCF – for investment in infrastructure bonds This deduction is not available Now that the Modi-led-NDA Government has the agenda of promoting infrastructure to clock better economic growth, it was expected that the Government may once again reinstate this Section – and this time possibly with a higher deduction limit of upto Rs 50,000 p.a.

(Earlier, a deduction of up to Rs 20,000 was available to individuals and HUFs (over and above Section 80C) vide introduction in Finance Act 2010 to encourage inflows into the infrastructure sector. This section was extended vide the Finance Act, 2011 for financial year 2011-12; but later, there was no clause for extension in the Finance Act, 2012)
Not Addressed.

This could have led individuals at least enjoy an additional deduction over and above what is available u/s. 80C while the Government endeavours to focus on infrastructure to clock better economic growth.
4. Exemption for children’s education allowance and hostel allowance Education Allowance: Rs 100 per month for a maximum of two children (i.e. in other words Rs 2,400 p.a. totally)

Hostel Allowance: Rs 300 per month per child but subject to a maximum of two children (i.e. Rs 7,200 p.a.)
It was expected that FM re-evaluated and increased these exemption limits to rational level considering rising cost of education

(These limits were set several years ago.)
Not Addressed.
5. Conveyance or Transport Allowance Rs 800 per month (i.e. Rs 9,600 p.a.) It was expected to raise it at least to Rs 3,000 per month (i.e. Rs 36,000 p.a.)

(This was on the backdrop of rising cost of commuting over the years. Conveyance allowance was introduced first time in 1998)
Addressed, but with lower amount of Rs 1,600 per month (i.e. Rs 19,200 p.a.)

FM could have been more realistic as cost of commuting has gone up dramatically over the years.
6. Reimbursement of Medical Expenses Subject to maximum of Rs 15,000 p.a. An expectation that this be raised to Rs 50,000 p.a.

(This was on the backdrop of medical cost having increased manifold. Reimbursement for medical expenses was introduced for the first time in 1998.)
Not Addressed.

The Government kept this unchanged but proposed changes in Section 80D i.e. deduction in respect of health insurance premium.
7. Deduction u/s. 80D for Premium paid in respect of health insurance For non-senior citizens: A maximum of Rs 15,000 p.a.

For senior citizens: A maximum of Rs 20,000 p.a.
In case of non-senior citizens it was expected that the deduction limit be raised to Rs 20,000 p.a., while in case of senior citizens to Rs 30,000

(This is again in the backdrop that medical insurance premium have been revised by some insurers, especially in case of policies for senior citizens.)
Addressed by increasing the deduction limit for non-senior citizens to Rs 25,000, while for senior citizens to Rs 30,000. Therefore, together, FM has proposed a deduction of Rs 55,000; going a little far from what was expected.

But the fear is such increase may also lead general insurance companies increase premium for medical insurance arbitrarily and make hay when the sun shines.

For very senior citizen (age 80 or more) who are not covered by health insurance, a deduction of Rs 30,000 towards expenditure incurred on their treatment is proposed.
8. Lock-in period for tax saving FDs At present the lock-in period for tax saving FDs is 5 years It was expected to reduce the lock-in period to 3 years.

(Such a move was intended at making tax saving FDs comparable to tax saving mutual funds as regards the tenure is concerned. This would have also resulted in higher savings through bank FDs and also give a boost to the banking sector.)
Not Addressed.
9. Include Mutual Fund Linked Retirement Plan (MFLRP) u/s. 80CCD Currently no deduction is available This was a proposal from SEBI

(It was expected that FM implements this in the interest of investors and which in turn would have benefited the Indian mutual fund industry, since it is long-term hard earned money).
Not Addressed.
Some Pleasant Surprises
10. Deduction u/s. 80DD for maintenance including medical treatment of a handicapped dependent Deduction of a fixed sum of Rs 50,000 p.a. or fixed sum Rs 1,00,000 p.a.

(Depending upon the severity of the disability suffered by the dependent)
There were no expectations Proposed an additional deduction of Rs 25,000 for differently abled persons.
11. Deduction u/s. 80U for individual resident suffering from any specified disability Deduction of a fixed sum of Rs 50,000 p.a. or fixed sum Rs 1,00,000 p.a.

(Depending upon the severity of the disability)
There were no expectations Proposed an additional deduction of Rs 25,000 for differently abled persons.
12. Deduction u/s. 80DDB for expenditure incurred on medical treatment Deduction Rs 40,000 or the amount actually paid, whichever is lower. And for senior citizen the deduction is Rs 60,000 or the amount actually paid, whichever is lower There were no expectations Proposed to enhance the deduction to Rs 80,000 in case of very senior citizens towards expenditure on account of specified diseases of serious nature.
13. Deduction for contribution to Pension Fund and New Pension Scheme Deduction of up to Rs 1,00,000 There were no expectations Proposed to increase the deduction from Rs 1,00,000 to Rs 1,50,000.

Also, for social safety net and the facility of pension to individuals, an additional deduction of Rs 50,000 is proposed to be provided for contribution to the New Pension Scheme under Section 80CCD.

This will enable India to become a pensioned society instead of a pensionless society.
14. Contributions to Swachh Bharat 100% deduction for contributions, other than by way of CSR contribution, to Swachh Bharat Kosh and Clean Ganga Fund
15. Investments in Sukanya Samriddhi Scheme Investments to this Scheme are eligible for deduction u/s. 80C . It is announced that All payments to the beneficiaries including interest payment on deposit will also be fully exempt.
16. Varishta Bima Yojana It is proposed that service tax exemptions will be provided for the benefit of senior citizens.
17. From Jan Dhan to Jan Suraksha
  • Pradhan Mantri Suraksha Bima Yojna to cover accidental death risk of Rs 2,00,000 for a premium of just Rs 12 per year
  • Atal Pension Yojana to provide a defined pension, depending on the contribution and the period of contribution. Government to 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.
  • Pradhan Mantri Jeevan Jyoti Bima Yojana to cover both natural and accidental death risk of Rs 2,00,000 at premium of Rs 330 per year for the age group of 18-50
  • A new scheme for providing Physical Aids and Assisted Living Devices for senior citizens, living below the poverty line.
  • Unclaimed deposits of about Rs 3,000 crores in the PPF, and approximately Rs 6,000 crores in the EPF corpus. The amounts to be appropriated to a corpus, which will be used to subsidize the premiums on these social security schemes through creation of a Senior Citizen Welfare Fund in the Finance Bill.
  • Government committed to the on-going schemes for welfare of SCs, STs and Women
18. Monetisation of Gold It proposed to allow Gold Monetisation Scheme to allow the depositors of gold to earn interest in their metal accounts and the jewellers to obtain loans in their metal account to be introduced.

Sovereign Gold Bond, as an alternative to purchasing metal gold scheme to be developed.

India will also commence work on developing an Indian gold coin, which will carry the Ashok Chakra on its face.
19. Wealth Tax It is proposed to abolish wealth tax and replace it with an additional surcharge of 2% on the super-rich with a taxable income of over Rs 1 crore. This perceived to lead to tax simplification and enable the Department to focus more on ensuring tax compliance and widening the tax base.
20. Black Money and its accountability Generation of black money will be dealt with seriously. Bill for a comprehensive new law to deal with black money parked abroad to be introduced in the current session.

Key features of new law on black money:
  • Evasion of tax in relation to foreign assets to have a punishment of rigorous imprisonment upto 10 years, be non-compoundable, have a penalty rate of 300% and the offender will not be permitted to approach the Settlement Commission.
  • Non-filing of return/filing of return with inadequate disclosures to have a punishment of rigorous imprisonment upto 7 years.
  • Undisclosed income from any foreign assets to be taxable at the maximum marginal rate.
  • Mandatory filing of return in respect of foreign asset.
  • Entities, banks, financial institutions including individuals all liable for prosecution and penalty.
  • Concealment of income/evasion of income in relation to a foreign asset to be made a predicate offence under PML Act, 2002.
  • PML Act, 2002 and FEMA to be amended to enable administration of new Act on black money.
  • Benami Transactions (Prohibition) Bill to curb domestic black money to be introduced in the current session of Parliament.
  • Acceptance or re-payment of an advance of Rs 20,000 or more in cash for purchase of immovable property to be prohibited.
  • PAN being made mandatory for any purchase or sale exceeding Rupees 1,00,000

Conclusive Remarks:

While the Finance Minister has not been able to live up to many of the aforesaid expectation, overall a decent budget given the path to fiscal consolidation the Government has to walk on.

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