Think Finance, Destination TAPMI
– Prasun Banerjee, Editor TJEF
This Budget Season, we witnessed huge drama on the stock market, with Finance Minister announcing the revival of the LTCG-tax of 10%, the market nose-dived and continued to do so until the magical word of “grandfathering” announced by Mr. Arun Jaitley. Here we try to pictorially depict what LTCG-tax means in Indian context and its implications. Feel free to comment, how you feel about it.
– By Varun Krishna Gupta and Chandra Sekhar Routray
At the midnight-joint session of Indian parliament when the gong sounded, the iconic goods and services tax was rolled out. This was only the fourth such occasion in the history when such a session was conducted. GST replaced 17 state and federal levies on everything. Earlier sellers went through a nightmare of central and state sales tax, entry tax, turnover tax, service tax, excise, and octroi. This cascading effect of taxes made India one of the highest indirectly taxed nations in the world. GST effectively terminates this cascading effect and embodies the essence of “One Nation, One Tax”.
GST Models across the Globe
France, became the first nation, to implement GST in order to curb tax- evasion. Since then, more than 140 countries have implemented GST. Some countries like Brazil and Canada have implemented a dual model of GST. India has also implemented the dual model of GST. According to a report from Nomura Holdings Inc. GST rollout fueled inflation in countries like Australia, Japan, Malaysia, and Singapore. The reason being the tax rate was lower than pre-existing rates. U.S.A does not have GST, as it ensures high autonomy for the states.
Indian version of GST
India customized the dual GST model to synchronize with the needs of its economic transaction.
|
Particulars |
India (Proposed) | Canada | UK |
| Standard Rate | 0% (for food staples), 5%, 12%, 18% and 28% (+ Cess for luxury items) | GST 5% and HST varies from 0% to 15% | 20% Reduced rates- 5 %, exempt, zero rated |
| Threshold Exemption Limit | 20 lakhs (10 lakhs for NE states) | Canadian $ 30,000 (Appx ₹15.6 lakhs) | £ 73,000 (Appx ₹61.32 lakhs) |
| Returns and Payments | Monthly and one annual return | Monthly, quarterly or annually based on turnover | Usually quarterly. Small business option- annual |
| Reverse Charge Mechanism |
Applicable on goods (new) as well as services (currently under Service tax) | Reverse charge applies to importation of services and intangible properties. | Applicable |
| Exempt Services | A number of food items have been exempted from any of the tax slabs. Fresh meat, fish, chicken, eggs, milk, butter milk, curd, natural honey, fresh fruits and vegetables, flour, besan, bread, all kinds of salt, jaggery and hulled cereal grains have been kept out. |
Real estate, Financial Services, Rent (Residence), Charities, Health, Education | Medical, Education, Finance, Insurance, Postal services |
Chinks in the GST Bill Armor
Different Tax Slabs – AC and non-AC, outdoor and indoor will be having different tax rates. So, a restaurant having both has to make different arrangements.
Anti-Profiteering Rule – The law doesn’t clarify how the costs incurred on account of the transition from GST to non-GST era are to be factored in. It also doesn’t specify how loss-making units pass on the benefits. Many companies are producing two sets of price tags for the same product to avoid confusion. But a comparison of profit or loss for pre- and the post-GST period would be difficult for companies.
Unorganized Sector– India being mostly an unorganized economy with smaller companies comprising nearly 45 percent of manufacturing, an establishment of this supply chain is difficult.
Tax Credit – There is little clarity on input tax credit on the old goods produced before July 1. GST isn’t a retrospective tax and since traders have already paid taxes for the existing stock, there are concerns about their old stocks.
GST Return Forms – According to GST rules, businesses will have to file 37 forms in a year—three each month for CGST, IGST and SGST, and one at the year’s end. For a company with operations in 20 states, it means 740 annual returns.
Conclusion
GST aims to create a uniform tax structure pan-India, removing several layers of taxation. As the time progresses, clarity will follow on many fronts. According to analysts, GST can increase India’s GDP by 2%, by transforming India into a common market larger than Europe, the US, Brazil, Mexico, and Japan combined.
By Dhanyakumar M H
Expectations from Industry:
What Budget has to offer?
Increases in household disposable income. Provides a boost to first-time auto buyer preferably two-wheeler or entry level car.
Increase in rural income would help two wheelers, tractor and entry level car manufactures. It may also help an LCV segment of commercial vehicles.
Conclusion:
Overall the budget has not met the expectation of the auto industry and there was no surprise as well. But the move towards reducing personal income tax and push for rural India is welcomed. As this would increase the disposable income, industry expects an increase in sales of two wheelers, tractors, entry level cars and finally MHCV & HDCV because of push to infrastructure development. Industry is hoping to see more revival post GST implementation as there will be zig-zag in tax structure.
By Nishant D’Souza
Year on year FMCG companies has posted robust results in their 3rd quarter reason being many major festivals happen during this period. However, the same was not emulated this year, companies posted flat or below par results as demonetization sent the FMCG sector into paralysis and the only budget could be the probable savior.
Measures and their impact:
A lot of initiatives have been undertaken to revive agricultural growth and increase the focus of investments in rural areas:
Additional surcharge of 10% on annual income over 50 lakhs will surely come as a dent on the revenues of the high-end service industry.
Apart from the change in excise duty on cigarettes no other change in service tax or excise duty was witnessed. Abolition of Foreign Investment Promotion Board should witness the much needed FDI in the consumer durable industry. Overall this budget has greatly helped in meeting the expectations of the corporates who have been vying for an increase in the personal disposable income.
By Payal Sachdeva and Tuhina Kumar
Expectations
Announcements made in the Budget
Conclusion
The government has met most of the expectations except for more capital infusion in the banks. Thus, markets reacted positively to the budget and financial stocks shot up. Both Nifty and Sensex closed at a 3-month high of 28000 and 8700 respectively.
Stock Recommendation
The government’s move towards affordable housing is likely to push CanFin Homes as its loan portfolio is skewed towards the same.
By Nimisha Khattar & Tushar Abhyankar
Before the budget was due, speculations were rife that the Union Budget of 2017 will bring relief to the taxpayers especially individuals. The move was correctly guessed so, as this budget brought a reduction in taxes. Following are some of the important tax amendments in this Budget –
Individual Tax Rates
The Finance Minister announced a cut in tax rate from 10% to 5% in the individual tax slab of Rs.2.5 lakh to Rs.5 lakhs. But the rebate under section 87A was reduced from Rs. 5,000 to Rs. 2,500 for the above income group. In spite of this, the individual who has a taxable income of up to Rs.3 lakhs does not have to pay any tax. The total tax savings for individuals between income Rs.3 lakhs to Rs.5 lakhs and between Rs.5 lakhs to Rs.50 lakhs is Rs. 7,700 and Rs. 12,900 respectively.
However, the large taxpayers have come under the ambit of bigger tax bracket owing to a surcharge of 10% to be levied if income if between Rs.50 to Rs.1 crore.
The other tax rates and surcharges, and 80C limit of Rs.1.5 lakhs will remain the same.
Lower Capital Gains Tax
The holding period for land, in order to be qualified as a long-term asset, has now reduced to 2 years from the earlier period of 3 years. This means that if the land is sold after two years, then it will be subjected to Long Term Capital Gains tax at the rate of 20%, instead of being taxed as short-term capital gains with a tax rate 30%
Also, the base year for calculating the indexed cost has changed from 1981 to 2001.
Simpler Tax Form
A simple one-page form will be introduced for the individuals whose taxable income excluding business income is less than Rs.5 lakhs.
Also, the individuals who are filing their tax returns for the first time will not be subjected to scrutiny unless it’s reasonably doubtful.
Corporate Taxes Slashed
The tax rate for MSME companies with income less than Rs.50 lakhs has been reduced from 30% to 25%.
House Property
The unlimited interest deduction under house property, given on rent has been limited to Rs.2 lakhs. This will reduce the demand for buying the second property.
Other Amendments: –
Penalty up to Rs. 20,000 will be imposed on the taxpayers who do not file their returns on time. The penalty shall not exceed Rs. 1,000 in case total income is less than Rs.5 lakhs
Reopening of tax cases up to 10 years if search operations reveal undisclosed income, over and above Rs.50 lakhs.
TDS of 5% to be deducted on rental payments above Rs. 50,000 per month, in order to bring higher rental income individuals under the tax bracket.
Emergency withdrawal up to 25% from National Pension Scheme (NPS) will not attract any tax.
Finance@TAPMI 