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The first Union Budget of newly formed government is a Balanced Budget with focus on kick starting investment led growth, assuring a stable and progressive tax regime to attract foreign flows (both FDI and FII) and a roadmap for fiscal consolidation.

Key Highlights are as follows: • The government has targeted a nominal GDP growth of 13.4% in FY15 against 12.3%

achieved in FY14 • Fiscal deficit of 4.5% of GDP achieved in FY14 was lower than budgeted target of

4.8% of GDP; the government has announced a fiscal consolidation roadmap target to reduce fiscal deficit to 4.1% in FY15, 3.6% in FY16 and to 3% by FY17

• The government plans to reduce expenditure to control fiscal deficit; Disinvestment amounting to Rs 634bn will be the key factor (contributing about 0.5% of GDP) for financing deficit in the current year

• Receipts are expected to grow at 12.9% to Rs 17.9 trn while on the expenditure side – non plan expenditure budgeted to grow at 9.4% to Rs 12.2 trn over previous year and planned budget allocation spending increased by 20% to Rs 5.75 trn

• FDI in defense and insurance increased to 49% (with full Indian management and control) through the FIPB route

Key Policy Announcements and its Impact

1. Tax provisions relating to Slabs and Investment Products & Services: Ø Increase of Rs 50,000 in deduction limit for permissible investments

under Sec 80C Ø Nominal Increase in threshold exemption limit by Rs 50,000 for

Individuals, HUF, AOP, BOI, Senior Citizens etc Ø Sec 54 providing for exemption from capital gains on transfer of a

long term capital asset being buildings or lands appurtenant thereof and being a residential house has been amended to specify that exemption would be available provided new asset is in India and comprises only ‘one residential house’.

Ø Sec 54EC has been amended to provide that overall limit of Rs 50 lacs for investing in Capital Gains Exemption Bonds by aggregating investment in the year of transfer of original asset and investment in subsequent year

Ø Commodity derivatives transactions entered on a recognized stock exchange liable to Commodity Transaction Tax (CTT) shall not be deemed to be speculative transaction by amending Sec 43 (5)

 

 

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2. Changes in Dividend and Income Distribution Tax Computation: Presently, dividend and income distribution tax payable by companies and mutual funds respectively is applied at prescribed rate (for eg 25% plus surcharge and education cess rate applicable on dividend distributed by mutual funds for individuals) on the net amount.

Ø Effective 1st October 2014, distribution tax is to be computed by

grossing up the amount of dividend / income distribution while making distributions. As a result of grossing up, the amount payable as dividend distribution tax would increase.

Consider the following illustration highlighting change for Individuals and Corporates: Individuals:

Particular Existing Proposed

Surplus available for distribution 100 100

Dividend Distribution Tax (DDT) Rate (%) 28.33% 28.33%

Effective Tax Rate (%) * 22.07% 28.33%

Tax Amount (Rs) 22.0728 28.3250

Net payout to Investor (Rs) 77.9271 71.6750 *Calculation based on grossing up of dividends as per new provisions vs net dividends as per old provision

Corporates:

*Calculation based on grossing up of dividends as per new provisions vs net dividends as per old provisions

Particular Existing Proposed

Surplus avai lab le for d istr ibut ion 100 100 Div idend Distr ibut ion Tax (DDT) Rate (%) 33.99% 33.99%

Effective Tax Rate (%) * 25.37% 33.99%

Tax Amount (Rs) 25.3675 33.9900

Net payout to Investor (Rs) 74.6324 66.0100

 

 

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3. Tax Rates on and holding period changes for MF Products

Long Term Capital Gains tax rate on Non-Equity oriented Funds w.e.f 11th July 2014: Category of Investor Type of Funds Existing Proposed

All resident tax payers

Debt/ Money Market and Non-Equity

oriented Funds

20% with indexation benefit or 10% without

indexation benefit

20% with indexation benefit

Revision in definition of Holding Period for determining Long Term Capital Gains for Non-Equity oriented Funds w.e.f 11th July 2014: Category of Investor Type of Funds Existing Proposed

All tax payers Holding period for the purpose of computing Long Term

Capital Gains

12 months 36 months

Ø Benefit of concessional tax rate of 10% on Long Term Capital Gains will now be available only to listed securities and zero coupon bonds other than units of MFs

Holding period changes for computing tax on Unlisted Securities:

Nature of Investment Holding

period for LTCG

Proposed Holding

period for LTCG

Tax Rates

Shares of unlisted Public Company

12 months 36 months For resident investors – 20% with indexation benefit For non-resident investors 10% without indexation benefit

Shares of private Company

12 months 36 months 20% with indexation benefit

 

 

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Disclaimer: “All” information contained in this document has been obtained from sources believed by The Ratnakar Bank Limited (“Bank”) to be accurate and reliable. Although reasonable care has been taken to ensure that the information herein is true, such information is provided ‘as is’ without any warranty of any kind by the Bank in particular, makes no representation or warranty, express or implied, as to the accuracy, timeliness or completeness of any such information. The Bank does not warrant its completeness and accuracy. It does not constitute an offer to sell or a solicitation to buy any security or other financial instrument. Publishing lists of products merely indicates the funds and securities, which we analyse in and shall not be construed as recommended schemes by the Bank. Clients are advised to obtain individual financial advice based on their risk profile before taking any action based on the information contained in this material. Clients alone shall have the right to choose their investments and shall be responsible to invest in with their objectives and risk appetite, for which we holds no liability. The Bank does not guarantee the performance of products listed in the collateral and accepts no responsibility whatsoever including any loss suffered by clients resulting from investing in such funds. Investment products are subject to market risks including the possible loss of the principal amount invested. Past performance is not indicative of future results, prices can go up or down. Please read the Key Information Memorandum(s)/Scheme Investment Document(s) & Statement of Additional Information/ Term Sheet/ Prospectus carefully before investing.

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