Finance Minister Arun Jaitley on Saturday announced first-ever social security for the poorest of poor, stringent punishment for stashing black money abroad, and major tax relief for investment in infrastructure sector. Presenting his first full-year Budget, which seems to be investment oriented with sharp focus on consolidation of economy and stronger rupee, the Finance Minister also announced reduction in corporate tax over the next four years and abolition of wealth tax. He, however, levied an additional 2 per cent surcharge on income above Rs1 crore, thereby affecting the super rich. An across-the-board increase in service tax by 2 per cent was also announced.
This was Modi Government’s first annual Budget that shunned populism and was similar to the Railway Budget. The Budget focused on the poll promises made by the BJP. In his 90-minute speech, Mr Jaitley mentioned that stashing black money abroad will be a non-compoundable offense with 300 per cent tax on concealed income and assets. He also stated that a comprehensive legislation will be formulated soon that could make concealment of income and assets abroad an offense liable for punishment with rigorous imprisonment for 10 years.
In his first-ever social security schemes, the Finance Minister announced Pradhan Mantri Suraksha Bima Yojna that will cover accidental death risk, thereby facilitating easy access to insurance. Here, a cover of Rs2 lakh will be applicable for a premium of just Rs12 per year. Atal Pension Yojna proposes to provide a defined pension depending on individual contribution. Jyoti Bima Yojna will cover both natural and unnatural death for 2 lakh by paying a premium of Rs330 a year. This will be applicable for individuals in the age group of 18-50 years.
While proposing no changes in income tax slabs for individuals, he extended benefits of deduction on health insurance premium for senior citizens from Rs15,000 to 20,000. For those above 80 years, deduction of Rs30,000 will be allowed. Combining these incentives and including an enhanced deduction of Rs1.5 lakh on account of contribution to pension fund, the relief in tax deduction could go up to Rs4.42 lakhs.
Mr Jaitley also focused on rationalisation of various taxes by proposing to reduce the corporate tax by 5 per cent from 30 to 25 per cent over the next 4 years and abolition of wealth tax. He proposed to garner additional Rs41,000 crore by increasing the service tax to 14 per cent from existing 12.36 per cent. Wanting to further consolidate on improving economy and stronger rupee, he laid a strong emphasis on infrastructure, by providing increased funding of Rs70,000 crore and permitting issuance of tax-free bonds for roads and railways.
To encourage foreign investors, Jaitley announced postponing the implementation of the controversial GAAR till 2017 and to be enacted from prospective effect. To discourage the outgo of foreign exchange on import of gold, Jaitley introduced a Sovereign Gold Bond as an alternative to purchasing metal gold. The bond will carry a fixed rate of interest and will be redeemable in cash on face value of the gold. The FM seemed buoyant and optimistic about the current state of economy keeping in mind the inflation rate at 5.1 per cent and a negative WPI. As the current account deficit is expected to be less than 1.3 per cent of the GDP and this coupled with an expected growth of 7.4 per cent, Jaitley said India is poised for a major leap to become the fastest growing large economy in the world.
Pointing out that exchange reserves have increased to a record of $340 billion and the Rupee has become stronger by 6.4 per cent against a broad basket of currencies, the Finance Minister said that growth in 2015-16 is expected to be between 8-8.5 per cent and the aim to achieve a double-digit rate soon seems feasible.
But this outlook is not without its share of hurdles. The Finance Minister highlighted five major challenges faced by the Indian economy. Weak agricultural income, slow pace of private sector investment, infrastructure decline in manufacturing, lesser fiscal space due to high devolution in taxes to States and maintaining fiscal discipline are some of the key issues that need attention. According to Jaitley, the fiscal deficit target of 3 per cent of GDP will now be achieved in three years instead of two years as proposed earlier.
Jaitley announced reduction in excise duty on variety of electronics and hardware goods, including mobile phones and lED lights. With an increased excise duty on cigarettes and all the tax proposals, the gross tax receipts are estimated to be at Rs 14,49,490 crores. Devolution to States will be Rs 5,23,958 crores. Non-tax revenues are estimated to be Rs 2,21,733 crores with the fiscal deposit pegged at 3.9 per cent of the GDP.
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