UNION BUDGET 2018-19
Dear Members, The Budget always have surprises for everyone; the individual as well as the businessman, and one has to go through lot of documents to know what is right, what is in or what is missed. EPCES, for the first Ɵme has brought to you a comprehensive note on the budget 2018-19. I hope you will find the compilaƟon of informaƟon very useful and you will benefit from it. We would like to have your feedback on this compilaƟon. EPCES places on record its gratefulness to the research secƟon of ASSOCHAM who has provided us the support to bring out this compilaƟon. Thanks & Regards Dr. Vinay Sharma Chairman Export PromoƟon Council for EOUs & SEZs (Ministry of Commerce & Industry, Govt. of India) +91 98108 50501 www.epces.in Follow us on #epces
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Short Take.....................................................................7
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Details.........................................................................14
Direct Tax....................................................................14 Corporation Tax Other Provisions •
Indirect tax ................................................................29
Customs Duty..............................................................29 Excise Duty.................................................................50 Service Tax..................................................................51 •
Fiscal Indicators..........................................................52
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Economic Performance, Prospects and Reforms........53
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Statistical Appendix....................................................61
Short Take Fiscal Situation • •
Fiscal deficit is 3.5 percent of GDP at Rs. 5.95 lakh crore in 2017-18. Projecting fiscal deficit to be 3.3 percent of GDP in the next fiscal. Rs. 21.57 lakh crores transferred as net GST to states as against projection of Rs. 21.47 lakh crores.
Tax • • • • • • •
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No change in personal income tax slabs rates. Standard deduction of Rs. 40,000 allowed for transport, medical reimbursement for salaried tax payers. Senior citizens to get Rs. 50,000 per annum exemption for medical insurance under Sec 80D. Senior citizens get Rs. 10,000 exemption in income from FDs. 85.51 lakh new tax payers filed income tax returns in FY17. Growth in direct taxes (till Jan 15) is 18.7 percent. Surcharge of 10 percent on income above Rs. 50 lakh but less than Rs. 1 crore to be continued next year; 15 percent on income above Rs. 1 crore to also continue. 100 percent tax deduction is allowed to co-operative societies. Corporate Tax of 25 percent extended to companies with turnover up to Rs. 250 crore in financial year 2016-17. Rs. 7.5 lakh per senior citizen limit for investment in interest-bearing LIC schemes doubled to Rs. 15 lakh. Rs. 8,000 crore revenue lost due to standard deduction allowed to salaried employees. Rs. 7,000 crore revenue forgone on account of lower corporate tax for Rs. 250 crore turnover cos. Rs. 19,000 crore revenue loss on direct tax in last fiscal. Long Term Capital Gains Exceeding Rs. 1 Lakh will Be taxed at 10 percent
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without indexing. Short term capital tax remains at 15 percent. A tax on distributed income at 10 percent. Education cess increased to 4 percent from 3 percent to collect additional Rs. 11,000 crore. GST collections projection pegged at Rs. 7.43 lakh crore in full year 201819 as against Rs. 4.44 lakh crore in nine months of current fiscal. Government makes PAN mandatory for any entity entering into a financial transaction of Rs. 2.5 lakh or more.
Customs Duties • • • •
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Customs Duty on certain products, such as mobile phones and televisions has been increased, to provide a fillip to ‘Make in India’. Social welfare surcharge of 10 percent on imported goods. Import of solar tempered glass for manufacture of solar cells exempted from customs duty. Customs duty on crude edible vegetable oils like groundnut oil, safflower seed oil hiked from 12.5 percent to 30 percent; on refined edible vegetable oil from 20 percent to 35 percent. Customs duty on sunglasses, cigarette lighter, toys, bus and truck tyres, select furniture hiked. Customs duty on imitation jewellery hiked from 15 percent to 20 percent; doubled on all watches to 20 percent. Import duty on LCD/LED/OLED panels, parts of TVs hiked to 15 percent; duty on smart watches, wearable devices, footwear doubled to 20 percent.
Agriculture • •
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275 million tones foodgrains and 300 million tones fruits and vegetable have been produced in the country. Farmers to earn 1.5 times the production cost, and the Minimum Selling Price (MSP) for the Kharif Crops has been set at 1.5 times the produce price. Agricultural market and infra fund of Rs. 2000 crore fund will be set up to
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strengthen the market connectivity. A sum of Rs. 500 crore will be allocated for Operation Green to be launched. Rs. 10,000 crore set aside for Fisheries and Aquaculture Development Fund. Rs. 10,000 crore set aside for animal husbandry infra fund. Propose to launch a restructured bamboo mission with a fund of Rs. 1200 crore Agricultural credit target increased from Rs. 8.5 lakh crore to Rs. 11 lakh core.
Rural Economy • • • • •
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8 crore poor women will get new LPG connections. PM Saubhagya Yojana: 4 crore poor people will get power connection. The government will spend Rs. 16,000 crore on this scheme. Government plans to construct 2 crore toilets in next fiscal year under Swachh Bharat Mission. Government target house for all by 2022. 51 lakh houses have been constructed affordable houses in rural and further 50 lakh houses in urban areas. 1 crore houses to be built under Pradhan Mantri Awas Yojana in rural areas. National livelihood scheme gets Rs. 5,750 crore. In 2018-19, ministries will be able to spend Rs. 14.34 lakh crores for creation of livelihood in rural areas. Government gives Rs. 9,975 crore for social security schemes for the next fiscal year.
Education • • •
Rs. 1 lakh crore allocated to revitalisation and upgradation of education sector. By 2022, every block with more than 50 percent ST population will have Eklavya schools at par with Navodaya Vidyalayas. Aims to move from black board to digital board schools by 2022.
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Health •
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Aayushman Bharat programme: 1.5 lakh centers will be set up to provide health facilities closer to home. Rs. 1,200 crore to be allocated for this programme. Flagship National Healthcare protection scheme, with approximately 50 crore beneficiaries. Up to Rs. 5 lakh per family per year for secondary and tertiary care hospitalisation. Rs. 600 crore allocated for tuberculosis patients, at the rate Rs. 500 per month during the course of their treatment. One medical college for every three parliamentary constituencies, with 24 new government medical colleges also being envisioned.
Social Security • • • • •
PM Jivan Bima Yojana has benefited 5.22 crore families. Government will expand PM Jan Dhan Yojana: 16 crore accounts will be included under micro insurance and pension schemes. 1.26 crore accounts opened under Sukanya Samriddhi Scheme. Social inclusion schemes for Scheduled Castes – Rs. 52,719 crore. Social inclusion schemes for Scheduled Tribes – Rs. 39,139 crore.
MSME •
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Rs. 3,794 crore allocated to the MSME sector in the form of capital support and interest subsidy by 2022, every block with more than 50 percent ST population will have Eklavya schools at par with Navodaya Vidyalayas. Rs. 3 lakh crore target has been set for the Mudra Yojana. Rs 4.6 lakh crore sanctioned under MUDRA Scheme.
Petroleum/ Diesel Sector • •
Excise on unbranded diesel cut by 2 rupees to 6.33 rupee/ltr. Excise on unbranded petrol cut by 2 rupees to 4.48 rupee/ltr.
Employee-centric schemes •
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Government will contribute 12% of the wages of new employees in EPF in
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all sectors for next 3 years. Women contribution to EPF reduced to 8% for first 3 years.
Infrastructure • • • •
India needs investment of Rs. 50 lakh crore in the infrastructure sector Construction of new tunnel in Sera Pass to promote tourism. Out of 100 smart cities 99 cities have been selected, with an outlay of Rs. 2.04 lakh crore. 10 prominent tourist sites will be made iconic tourist destinations, with an amalgamation of private funding, marketing and branding. Bharatmala project: To develop 35,000 KM under phase 1 with an outlay of Rs. 5.35 lakh crore.
Railways • • •
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Railway capex has been pegged at Rs. 1.48 lakh crore, up from Rs 1.31 lakh crore last year eliminate unmanned railway crossing. All stations with footfall of greater than 25,000 will have escalators. More stations and trains will progressively be built with WiFi and CCTV camera. Government to eliminate 4267 unmanned rail crossing in broad gauge in 2 years. Allocates Rs. 11,000 crore for Mumbai rail network and Rs. 17,000 crore for the Bengaluru metro. 150 km of additional suburban railway networks to be set up in Bengaluru at the cost of Rs. 17,000 crore.
Aviation •
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Airport Authority of India (AAI) has 124 airports. Propose to increase the number by at least 5 times 1 billion trips a year, Rs. 60 crore has been allocated to kickstart the initiative. UDAN Scheme to connect 64 unconnected airports across the country.
Markets • •
SEBI to consider mandating large corporations to meet 1/4th of their debt needs. SEBI to mull asking large cos. to meet 25% debt from bond market.
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Technology • •
Allocation to Digital India scheme doubled to Rs. 3073 crore. 5 lakh WiFi HotSpots to provide Broadband access to 5 crore rural citizens, at the cost of Rs. 10,000 crore.
Companies • • • •
AADHAAR FOR CORPORATES? Government will evolve a scheme to assign a Unique ID for corporate. Disinvestment target of Rs. 80,000 crore for FY19. National Insurance Co, Oriental Insurance Co and United Assurance Co. to be merged into one entity and subsequently listed. Government revises divestment target for the current fiscal to Rs. 1 lakh crore for FY 18.
Banking •
Recapitalisation will pave the way for public banks to lend an additional Rs. 5 lakh crore.
Industries •
Rs. 7,148 crore allocated for textile sector.
Miscellaneous • • • •
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Defence outlay raised to Rs. 2.82 lakh crore in 2018-19 from Rs. 2.67 lakh crore in current year. Food subsidy to rise to Rs.1.69 lakh crore in 2018-19 from Rs. 1.4 lakh crore in current year. Emoluments for President set at Rs. 5 lakh, Rs. 4 lakh for Vice President, Rs. 3.5 lakh for governors. Emoluments for Parliamentrians: Law for increase in pay based on index to inflation. Government earmarks Rs. 150 crore to commemorate 150 years of birth of Mahatma Gandhi.
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UNION BUDGET 2018-2019
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Direct Tax A. Details Personal Income Tax Rates Income (Rs.) Rate 0 - 2,50,000 Nil 2,50,001 to 5,00,000 5 Per cent 5,00,001 to 10,00,000 20 Per cent Above 10,00,000 30 Per cent In case of Senior Citizens (age of sixty years or more but less than eighty years) Income (Rs.) Rate 0 – 3,00,000 Nil 3,00,001 to 5,00,000 5 Per cent 5,00,001 to10,00,000 20 Per cent Above 10,00,000 30 Per cent In case of Very Senior Citizens (age of eighty years or more) Income (Rs.) Rate 0 – 5,00,000 Nil 5,00,001 to 10,00,000 20 Per cent Above 10,00,001 30 Per cent
Surcharge on income-tax (a) having a total income exceeding fifty lakh rupees but not exceeding one crore rupees, at the rate of ten per cent. of such income-tax; and (b) having a total income exceeding one crore rupees, at the rate of fifteen per cent. of such income-tax: Provided that in the case of persons mentioned above having total income exceeding,-
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(a) fifty lakh rupees but not exceeding one crore rupees, the total amount payable as income-tax and surcharge on such income shall not exceed the total amount payable as income-tax on a total income of fifty lakh rupees by more than the amount of income that exceeds fifty lakh rupees; (b) one crore rupees, the total amount payable as income-tax and surcharge on such income shall not exceed the total amount payable as income-tax and surcharge on a total income of one crore rupees by more than the amount of income that exceeds one crore rupees. In case of co-operative Society Income (Rs.) Rate 0 – 10,000 10 per cent. of the total income Rs.1, 000 plus 20 per cent. of the amount by which 10,001-20,000 the total income exceeds Rs.10,000 Rs. 3,000 plus 30 per cent. of the amount by which 20,001 and above the total income exceeds Rs. 20,000
Surcharge on income-tax In the case of every co-operative society, having a total income exceeding one crore rupees, be increased by a surcharge for the purposes of the Union calculated at the rate of twelve per cent of such income tax: Provided that in the case of every co-operative society mentioned above having total income exceeding one crore rupees, the total amount payable as income-tax and surcharge on such income shall not exceed the total amount payable as income-tax on a total income of one crore rupees by more than the amount of income that exceeds one crore rupees.
In the case of every firm • •
In the case of every firm- 30 per cent In the case of every local authority – 30 per cent
Surcharge on income-tax In the case of every firm, having a total income exceeding one crore rupees, be increased by a surcharge for the purposes of the Union calculated at the rate of twelve per cent. of such income-tax:
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Provided that in the case of every firm mentioned above having total income exceeding one crore rupees, the total amount payable as income-tax and surcharge on such income shall not exceed the total amount payable as income-tax on a total income of one crore rupees by more than the amount of income that exceeds one crore rupees. In the case of a company • In the case of a domestic company - 25 per cent of the total if the total turnover or gross receipts of the company in the previous year 2016-17 does not exceed two hundred and fifty crore rupees and in all other cases the rate of Income tax shall be thirty per cent. • In the case of a company other than a domestic company - 50 per cent if much of the total income as consists of fees for rendering technical services received from Government or an Indian concern in pursuance of an agreement made by it with the Government or the Indian concern after the 29th day of February, 1964 but before the 1st day of April, 1976. On the balance, if any, of the total income- 40 per cent.
Surcharge on income-tax In the case of every domestic company a) having a total income exceeding one crore rupees but not exceeding ten crore rupees, at the rate of seven per cent. Of such income-tax; and b) having a total income exceeding ten crore rupees, at the rate of twelve per cent of such income-tax;
In the case of every company other than a domestic company a) having a total income exceeding one crore rupees but not exceeding ten crore rupees, at the rate of two per cent. Of such income-tax; and b) having a total income exceeding ten crore rupees, at the rate of five per cent. of such income-tax Provided that in the case of every company having a total income exceeding one crore rupees but not exceeding ten crore rupees, the total amount payable as income-tax and surcharge on such income shall not exceed the total amount payable as income-tax on a total income of one crore rupees by more than the amount of income that exceeds one crore rupees:
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Provided further that in the case of every company having a total income exceeding ten crore rupees, the total amount payable as income-tax and surcharge on such income shall not exceed the total amount payable as income-tax and surcharge on a total income of ten crore rupees by more than the amount of income that exceeds ten crore rupees.
Widening and Deepening of Tax Base Entities to apply for Permanent Account Number in certain cases In order to use PAN as Unique Entity Number (UEN) for non-individual entities, it is proposed that every person, not being an individual, which enters into a financial transaction of an amount aggregating to two lakh and fifty thousand rupees or more in a financial year shall be required to apply to the Assessing Officer for allotment of PAN. In order to link the financial transactions with the natural persons, it is also proposed that the managing director, director, partner, trustee, author, founder, karta, chief executive officer, principal officer or office bearer or any person competent to act on behalf of such entities shall also apply to the Assessing Officer for allotment of PAN. This amendment will take effect from lst April, 2018.
Widening of scope of Accumulated profits for the purposes of Dividend Section 2 of the Act defines various terms used in the Act. Clause (22) of the said section defines “dividend� to include distribution of accumulated profits (whether capitalized or not) to its shareholders by a company, whether it is in the nature of,— (a) release of all or any of its assets, (b) issue of debentures in any form (with or without interest) or distribution of bonus to its preference shareholders, (c) distribution of proceeds on liquidation, (d) on the reduction of capital, or (e) in the case of an unlisted company, any loan or advance given to a shareholder having shareholding of 10% or above, or to a concern in
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which such shareholder holds substantial interest (exceeding 20% of shareholding or interest) or any payment by such company on behalf of or for the individual benefit of such shareholder. Explanation 2 to the said clause provides the definition of the term ‘accumulated profits’ for the purposes of the said clause, as all profits of the company up to the date of distribution or payment or liquidation, subject to certain conditions. Instances have come to light whereby companies are resorting to abusive arrangements in order to escape liability of paying tax on distributed profits. Under such arrangements, companies with large accumulated profits adopt the amalgamation route to reduce capital and circumvent the provisions of subclause (d) of clause (22) of section 2 of the Act. With a view to preventing such abusive arrangements and similar other abusive arrangements, it is proposed to insert a new Explanation 2A in clause (22) of section 2 of the Act to widen the scope of the term ‘accumulated profits’ so as to provide that in the case of an amalgamated company, accumulated profits, whether capitalised or not, or losses as the case may be, shall be increased by the accumulated profits of the amalgamating company, whether capitalized or not, on the date of amalgamation. This amendment will take effect from 1st April, 2018 and will accordingly apply in relation to assessment year 2018-19 and subsequent assessment years.
Application of Dividend Distribution Tax to Deemed Dividend With a view to bringing clarity and certainty in the taxation of deemed dividends, it is proposed to delete the Explanation to Chapter XII-D occurring after section 115Q of the Act so as to bring deemed dividends also under the scope of dividend distribution tax under section 115-O. Further, such deemed dividend is proposed to be taxed at the rate of 30 per cent. (without grossing up) in order to prevent camouflaging dividend in various ways such as loans and advances. This amendment relating to imposition of dividend distribution tax on deemed dividend will apply to transactions referred to in sub-clause (e) of
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clause (22) of section 2 of the Act undertaken on or after 1st April, 2018.
New regime for taxation of long-term capital gains on sale of equity shares etc. In order to minimize economic distortions and curb erosion of tax base, it is proposed to withdraw the exemption under clause (38) of section 10 and to introduce a new section 112A in the Act to provide that long term capital gains arising from transfer of a long term capital asset being an equity share in a company or a unit of an equity oriented fund or a unit of a business trust shall be taxed at 10 per cent. of such capital gains exceeding one lakh rupees . This concessional rate of 10 per cent. will be applicable to such long term capital gains, if— i) in a case where long term capital asset is in the nature of an equity share in a company , securities transaction tax has been paid on both acquisition and transfer of such capital asset; and ii) in a case where long term capital asset is in the nature of a unit of an equity oriented fund or a unit of a business trust, securities transaction tax has been paid on transfer of such capital asset. Further, sub-section (4) of the new section 112A empowers the Central Government to specify by notification the nature of acquisitions in respect of which the requirement of payment of securities transaction tax shall not apply in the case of equity share in a company. Similarly, the requirement of payment of STT at the time of transfer of long term capital asset, being a unit of equity oriented fund or a unit of business trust, shall not apply if the transfer is undertaken on recognized stock exchange located in any International Financial Services Centre( IFSC) and the consideration of such transfer is received or receivable in foreign currency. Further, the new provision of section 112A also proposes to provide the following:— i) The long term capital gains will be computed without giving effect to the first and second provisos to section 48, i.e. inflation indexation in respect of cost of acquisitions and cost of improvement, if any, and the benefit of computation of capital gains in foreign currency in the case of a non-
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resident, will not be allowed. ii) The cost of acquisitions in respect of the long term capital asset acquired by the assessee before the 1st day of February, 2018 , shall be deemed to be the higher of – a) the actual cost of acquisition of such asset; and b) the lower of – (I) the fair market value of such asset; and (II) the full value of consideration received or accruing as a result of the transfer of the capital asset. iii) “equity oriented fund” has been defined to mean a fund set up under a scheme of a mutual fund specified under clause (23D) of section 10 and,— a) In a case where the fund invests in the units of another fund which is traded on a recognized stock exchange,(I) A minimum of 90 per cent. of the total proceeds of such funds is invested in the units of such other fund ; and (II) such other fund also invests a minimum of 90 per cent. of its total proceeds in the equity shares of domestic companies listed on recognized stock exchange; and b) in any other case, a minimum of 65 per cent. of the total proceeds of such fund is invested in the equity shares of domestic companies listed on recognized stock exchange. iv) Fair market value has been defined to mean – a) in a case where the capital asset is listed on any recognized stock exchange, the highest price of the capital asset quoted on such exchange on the 31st day of January, 2018. However, where there is no trading in such asset on such exchange on the 31st day of January, 2018 , the highest price of such asset on such exchange on a date immediately preceding the 31st day of January, 2018 when such asset was traded on such exchange shall be the fair market value; and b) in a case where the capital asset is a unit and is not listed on recognized stock exchange, the net asset value of such asset as on the the 31st
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day of January, 2018. v) The benefit of deduction under chapter VIA shall be allowed from the gross total income as reduced by such capital gains. Similarly, the rebate under section 87A shall be allowed from the income tax on the total income as reduced by tax payable on such capital gains. These amendments will take effect from 1st April, 2019 and will, accordingly, apply in relation to the assessment year 2019-20 and subsequent assessment years.
Dividend distribution tax on dividend payouts to unit holders in an equity oriented fund With a view to providing a level playing field between growth oriented funds and dividend paying funds, in the wake of new capital gains tax regime for unit holders of equity oriented funds, it is proposed to amend the said section to provide that where any income is distributed by a Mutual Fund being, an equity oriented fund, the mutual fund shall be liable to pay additional incometax at the rate of ten per cent on income so distributed. For this purpose, equity oriented fund will have the same meaning assigned to it in the new section 112A of the Act. This amendment will take effect from 1st April, 2018.
Taxation of long-term capital gains in the case of Foreign Institutional Investor The existing provisions of section 115AD of the Act inter alia, provide that where the total income of a Foreign Institutional Investor (FII) includes income by way of long-term capital gains arising from the transfer of certain securities, such capital gains shall be chargeable to tax at the rate of ten per cent. However, long term capital gains arising from transfer of long term capital asset being being equity shares of a company or a unit of equity oriented fund or a unit of business trusts, is exempt from income-tax under clause (38) of section 10 of the Act. Consequent to the proposal for withdrawal of exemption under clause (38) of section 10 of the Act, such long term capital gain will become taxable in the hands of FIIs also. As in the case of domestic investors, the FIIs will also
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be liable to tax on such long term capital gains only in respect of amount of such gains exceeding one lakh rupees. The provisions of section 115AD are proposed to be amended accordingly. This amendment will take effect from 1st April, 2019 and will, accordingly, apply in relation to the assessment year 2019-20 and subsequent assessment years.
Tax deduction at source and manner of payment in respect of certain exempt entities In order to encourage a less cash economy and to reduce the generation and circulation of black money, it is proposed to insert a new Explanation to the section 11 to provide that for the purposes of determining the application of income under the provisions of sub-section (1) of the said section, the provisions of sub-clause (ia) of clause (a) of section 40, and of sub-sections (3) and (3A) of section 40A, shall, mutatis mutandis, apply as they apply in computing the income chargeable under the head “Profits and gains of business or profession”. It is also proposed to insert a similar proviso in clause (23C) of section 10 so as to provide similar restriction as above on the entities exempt under subclauses (iv), (v), (vi) or (via) of said clause in respect of application of income. These amendments will take effect from 1st April, 2019 and will, accordingly, apply in relation to the assessment year 2019-20 and subsequent years.
Aligning the scope of “business connection” with modified PE Rule as per Multilateral Instrument (MLI). It is proposed to amend the provision of section 9 of the Act so as to align them with the provisions in the DTAA as modified by MLI so as to make the provisions in the treaty effective. Accordingly, clause (i) of sub-section (1) of section 9 is being proposed to be amended to provide that “ business connection” shall also include any business activities carried through a person who, acting on behalf of the non-resident, habitually concludes contracts or habitually plays the principal role leading to conclusion of contracts by the non-resident . It is further proposed that the contracts should be(i) in the name of the non-resident; or
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(ii) for the transfer of the ownership of, or for the granting of the right to use, property owned by that non-resident or that the non-resident has the right to use; or (iii) for the provision of services by that non-resident. This amendment will take effect from 1st April, 2019 and will, accordingly, apply in relation to assessment year 2019-20 and subsequent assessment years.
“Business connection” to include “Significant Economic presence” It is proposed to amend clause (i) of sub-section (1) of section 9 of the Act to provide that'significant economic presence' in India shall also constitute 'business connection'. Further, “significant economic presence” for this purpose, shall mean(i) any transaction in respect of any goods, services or property carried out by a non-resident in India including provision of download of data or software in India if the aggregate of payments arising from such transaction or transactions during the previous year exceeds the amount as may be prescribed; or (ii) systematic and continuous soliciting of its business activities or engaging in interaction with such number of users as may be prescribed, in India through digital means. It is further proposed to provide that only so much of income as is attributable to such transactions or activities shall be deemed to accrue or arise in India. It is further proposed to provide that the transactions or activities shall constitute significant economic presence in India, whether or not the non-resident has a residence or place of business in India or renders services in India. The proposed amendment in the domestic law will enable India to negotiate for inclusion of the new nexus rule in the form of 'significant economic presence' in the Double Taxation Avoidance Agreements. It may be clarified that the aforesaid conditions stated above are mutually exclusive. The threshold of “revenue” and the “users” in India will be decided after
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consultation with the stakeholders. Further, it is also clarified that unless corresponding modifications to PE rules are made in the DTAAs, the cross border business profits will continue to be taxed as per the existing treaty rules. This amendment will take effect from 1st April, 2019 and will, accordingly, apply in relation to assessment year 2019-20 and subsequent assessment years.
Taxability of compensation in connection to business or employment It is proposed to amend section 28 of the Act to provide that any compensation received or receivable, whether revenue or capital, in connection with the termination or the modification of the terms and conditions of any contract relating to its business shall be taxable as business income. It is further proposed that any compensation received or receivable, whether in the nature of revenue or capital, in connection with the termination or the modification of the terms and conditions of any contract relating to its employment shall be taxable under section 56 of the Act. These amendments will take effect from 1st April, 2019 and will, accordingly, apply in relation to assessment year 2019-20 and subsequent assessment years.
Presumptive income under section 44AE in case of goods carriage It is proposed to amend the section 44AE of the Act to provide that, in the case of heavy goods vehicle (more than 12MT gross vehicle weight), the income would deemed to be an amount equal to one thousand rupees per ton of gross vehicle weight or unladen weight, as the case may be, per month or part of a month for each goods vehicle or the amount claimed to be actually earned by the assessee, whichever is higher. The vehicles other than heavy goods vehicle will continue to be taxed as per the existing rates. These amendments will take effect 1st April, 2019 and will, accordingly, apply in relation to assessment year 2019-20 and subsequent assessment years.
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Tax Incentives Deduction in respect of income of Farm Producer Companies Section 80P provides for 100 percent deduction in respect of profit of cooperative society which provide assistance to its members engaged in primary agricultural activities. It is proposed to extend similar benefit to Farm Producer Companies (FPC), having a total turnover upto Rs 100 Crore, whose gross total income includes any income from(i) the marketing of agricultural produce grown by its members, or (ii) the purchase of agricultural implements, seeds, livestock or other articles intended for agriculture for the purpose of supplying them to its members, or (iii) the processing of the agricultural produce of its members The benefit shall be available for a period of five years from the financial year 2018-19. This amendment will take effect from 1st April, 2019 and will, accordingly, apply in relation to the assessment year 2019-20 and subsequent assessment years.
Measures to promote start-ups Section 80-IAC of the Act, inter alia, provides that deduction under this section shall be available to an eligible start-up for three consecutive assessment years out of seven years at the option of the assessee, if(i) it is incorporated on or after the 1st day of April, 2016 but before the 1st day of April, 2019; (ii) the total turnover of its business does not exceed twenty-five crore rupees in any of the previous years beginning on or after the 1st day of April, 2016 and ending on the 31st day of March, 2021; and (iii) it is engaged in the eligible business which involves innovation, development, deployment or commercialization of new products, processes or services driven by technology or intellectual property. In order to improve the effectiveness of the scheme for promoting start ups
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in India, it is proposed to make following changes in the taxation regime for the start ups:— (i) The benefit would also be available to start ups incorporated on or after the 1st day of April 2019 but before the 1st day of April, 2021; (ii) The requirement of the turnover not exceeding Rs 25 Crore would apply to seven previous years commencing from the date of incorporation; (iii) The definition of eligible business has been expanded to provide that the benefit would be available if it is engaged in innovation, development or improvement of products or processes or services, or a scalable business model with a high potential of employment generation or wealth creation. The amendment will take effect, from 1st April, 2018 and will, accordingly, apply in relation to the assessment year 2018-19 and subsequent assessment years.
Measures to promote International Financial Services Centre (IFSC) Section 47 of the Act provides for tax neutrality relating to certain transfer. In order to promote the development of world class financial infrastructure in India, it is proposed to amend the section 47 of the Act so as to provide that transactions in the following assets, by a non-resident on a recognized stock exchange located in any International Financial Services Centre shall not be regarded as transfer, if the consideration is paid or payable in foreign currency:— (i) bond or Global Depository Receipt, as referred to in sub-section (1) of section 115AC; or (ii) rupee denominated bond of an Indian company; or (iii) derivative. This amendment will take effect, from 1st April, 2019 and will, accordingly, apply in relation to the assessment year 2019-20 and subsequent assessment years. Section 115JC of the Act provides for alternate minimum tax at the rate of 18.50 percent. of adjusted total income in the case of a non-corporate person. In order to promote the development of world class financial infrastructure
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in India, it is further proposed to amend the section 115JC so as to provide that in case of a unit located in an International Financial Service Center, the alternate minimum tax under section 115JC shall be charged at the rate of 9 percent. Consequential amendment in section 115JF is also proposed to be made. This amendment will take effect, from 1st April, 2019 and will, accordingly, apply in relation to the assessment year 2019-20 and subsequent assessment years.
Incentive for employment generation At present, under section 80-JJAA of the Act, a deduction of 30% is allowed in addition to normal deduction of 100% in respect of emoluments paid to eligible new employees who have been employed for a minimum period of 240 days during the year. However, the minimum period of employment is relaxed to 150 days in the case of apparel industry. In order to encourage creation of new employment, it is proposed to extend this relaxation to footwear and leather industry. Further, it is also proposed to rationalize this deduction of 30% by allowing the benefit for a new employee who is employed for less than the minimum period during the first year but continues to remain employed for the minimum period in subsequent year. This amendment will take effect, from 1st April, 2019 and will, accordingly, apply in relation to the assessment year 2019-20 and subsequent assessment years.
Tax treatment of transactions in respect of trading in agricultural commodity derivatives In order to encourage participation in trading of agricultural commodity derivatives, it is proposed to amend the provisions of clause (5) of section 43 to provide that a transaction in respect of trading of agricultural commodity derivatives, which is not chargeable to CTT, in a registered stock exchange or registered association, will be treated as non-speculative transaction. These amendments will take effect from 1st April, 2019 and will,
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27
accordingly, apply in relation to assessment year 2019-20 and subsequent assessment years.
Exemption of income of Foreign Company from sale of leftover stock of crude oil on termination of agreement or arrangement Clause (48A) of section 10 provides that any income accruing or arising to a foreign company on account of storage of crude oil in a facility in India and sale of crude oil therefrom to any person resident in India shall be exempt, if(i) storage and sale is pursuant to an agreement or an arrangement entered into or approved, by the Central Government; and (ii) having regard to the national interest, the foreign company and the agreement or arrangement are notified by the Central Government. Further clause (48B) of section 10 provides that any income accruing or arising to a foreign company on account of sale of leftover stock of crude oil after the expiry of the agreement or arrangement shall be exempt subject to such conditions as may be notified by the Central Government. The benefit of exemption is presently not available on sale out of the leftover stock of crude in case of termination of the said agreement or the arrangement. Given the strategic nature of the project benefitting India to augment its strategic petroleum reserves, it is proposed to amend clause (48B) of section 10 to provide that the benefit of tax exemption in respect of income from left over stock will be available even if the agreement or the arrangement is terminated in accordance with the terms mentioned therein. This amendment will take effect from 1st of April, 2019 and will, accordingly, apply in relation to assessment year 2019-20 and subsequent years.
Royalty and FTS payment by NTRO to a non-resident to be tax-exempt
Facilitating Insolvency Resolution • •
28
Relief from liability of Minimum Alternate Tax (MAT) Benefit of carry forward and set off of losses
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Indirect Tax Customs Duty I. Amendments in the Customs Act, 1962: S. No.
Amendment
1.
Reference to import manifest and export manifest, wherever they occur in the Customs Act, to include Arrival Manifest and Departure Manifest respectively.
[54]
Section 1 is being amended so as to expand the scope of the Customs Act to any offence or contravention committed thereunder outside India by any person.
[55]
2.
3.
4.
Clause of the Finance Bill, 2018
Section 2 is being amended so as to: (a) substitute the definition of assessment in subsection (2); (b) to extend the limit of ‘Indian Customs Waters’ into the sea from the existing ‘Contiguous zone of India’ to the ‘Exclusive Economic Zone (EEZ)’ of India in sub- section (28); (c) provide that ‘notification’ would mean a ‘notification published in the Official Gazette’ and the word ‘notify’ would be construed accordingly (new sub-section 30AA refers). Section 11 is being amended so as to(a) insert sub-section (3) providing that prohibition or restriction or obligation relating to import or export of any goods or class of goods or clearance thereof provided in any other law for the time being in force, or any rule or regulation made or any order or notification thereunder shall be executed only if such prohibition or restriction or obligation is notified under the provisions of Customs Act subject to such exceptions, modifications or adaptations as the Central Government may deem fit. This change would come into force from a date to be notified.
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[56]
[57]
29
5.
6.
7.
8.
30
Section 17 is being amended so as to: (a) expand the scope of verification beyond selfassessment to all the entries made under section 46 or section 50 by amending sub-section (2) along with consequential changes in sub-section (3); (b) insert a new sub-section (2A) to provide legal backing for the risk-based selection of selfassessed Bill of Entry or Shipping Bill through appropriate selection criteria; (c) extend the scope of re-assessment by omitting specific reference to valuation, classification and exemption or concessions of duty availed consequent to any notification issued therefor under this Act from sub-section (5); (d) omit sub-section (6), in view of the new dedicated Chapter for Audit; Section 18 is being amended so as to: (a) cover export consignments under provisional assessment of duty by amending sub- section (1); (b) insert a new sub-section (1A) to empower the Board to issue regulation for providing timelimit for the importer or exporter to submit the documents and information, if required, for finalization of provisional assessments and for the proper officer to finalize the provisional assessment; (c) substitute the reference to section 28AB [which does not exist] with the reference to section 28AA retrospectively;
[58]
[59]
A new section 25A is being inserted, so as to empower the Central Government to exempt goods imported for repair, further processing or manufacture [‘Inward Processing of Goods’] from payment of whole or any part of duty of customs, leviable thereon subject to certain conditions.
[60]
A new section 25B is being inserted so as to empower Central Government to exempt goods re-imported after export for repair, further processing or manufacture [‘Outward Processing of Goods’] from payment of whole or any part of duty of customs, leviable thereon subject to certain conditions.
[60]
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9.
Section 28 is being amended so as to: (a) insert a proviso in clause (a) of sub-section (1) to provide pre-notice consultation in cases not involving collusion, willful mis-statement, suppression before issue of demand notice. The manner of pre-notice consultation shall be provided in the regulations; (b) insert a new sub-section (7A) to provide for issuance of supplementary show cause notice in circumstances and in such manner as may be prescribed through regulations within the existing time period; (c) amend the existing sub-section (9) to: a. provide a definite time frame of six months and one year for adjudication of demand notices depending upon whether charges of collusion, willful mis- statement, suppression have been invoked. These time periods shall be extendable by the officer senior to adjudicating authority for a further period of six months and one year respectively. b. provide that if the demand notice is not adjudicated even within the extended period, it would be deemed as if no demand had been issued. (d) insert a new sub-section (9A) to provide certain grounds on account of which the time limit of six months or one year shall remain suspended and that the proper officer shall inform the person concerned the reasons for non-determination of duty or interest under sub-section (8) and in such cases the time specified in sub-section (9) shall apply not from the date of notice, but from the date when such reasons cease to exist. (e) insert a new sub-section (10A) to provide that where an order for refund is modified in appeal and the amount of refund so determined is less than the amount refunded, the excess amount so refunded shall be recovered along with interest thereon at the applicable rate, from the date of refund up to the date of recovery, as a sum due to the Government. (f) insert a new sub-section (10B) to provide a safeguard whereby if a demand notice issued under sub-section (4) is held not sustainable in any proceeding, including at
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[61]
31
About EPCES Export Promo on Council for EOUs and SEZs (EPCES) is the only Export Promo on Council which is scheme specific and mul -product Export Promo on Council in the country. EPCES represents major industrial sectors, like tex les, garments & yarn, gem & jewellery, leather goods, food & agro products, electronics & so ware, pharmaceu cals & chemicals, engineering, minerals, granites & other stones, plas c & rubber goods etc. Keeping in view the importance of EOU/SEZ Sector, a need was felt in the Department of Commerce to establish an Export Promo on Council exclusively for EOUs & SEZs to service the export promo onal needs of Export Oriented Units and Special Economic Zones in the country. Hence, Export Promo on Council for EOUs and SEZs (EPCES) was set up in 2003 by Ministry of Commerce & Industry to service the export promo onal needs of EOUs, SEZs units and SEZ Developers in the country. EPCES has also been recognized by the Director General of Foreign Trade, Ministry of Commerce & Industry, Government of India. EPCES represents EOU/SEZ Sector which has approx. 7000 opera onal EOUs/SEZ Units/SEZ Developers spread all over the country. EPCES was established with the following objecƟves:•
To promote export of EOUs & SEZs from India and to earn more foreign exchange for the country.
•
To facilitate interac on between the EOU/SEZ community and Government both at the Central and State level.
•
To provide benefits of Market Access Ini a ve (MAI) Scheme rendered by the Central Govern-ment to Indian exporters for assis ng their export market development efforts.
•
To collaborate with other export promo on councils/ export promo on organiza ons in India and similar bodies in foreign countries as well as with interna onal organiza ons working in the field
•
The Objec ves of Special Economic Zone Scheme were genera on of addi onal economic ac vity, promo on of exports of goods and services, promo on of investment from domes c and foreign sources, crea on of employment opportuni es and development of infrastructure facili es.
Exports from EOUs/SEZ Sector during 2016-17 are approx.. Rs.5,63,049 crores. This sector is providing direct employment to more than 2 million people in different parts of the country. Government has formally approved 423 SEZs. Out of which, 357 SEZs have been no fied as on 31.01.2018 and 221 SEZs are in opera on as on 30.9.2017. The SEZ sector is providing employment to 18,23,451 persons in the country. Investments worth Rs.4,48,832 Crore have been made in SEZs as on 30.9.2017.
2
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For smooth func oning and strengthening of EPCES, Department of Commerce, Ministry of Commerce & Industry decided to give addi onal charge of Director General EPCES to the Director (EOU/SEZ). •
Below are some graphical evidence of SEZ progress in the last 10 years.
UNION BUDGET 2018-2019
10.
11.
12.
13.
34
Section 28E is being amended so as to, (a) omit clause (a) defining ‘activity’ as it is no longer relevant; (b) substitute the existing definition of advance ruling so as to cover subjects beyond mere determination of duty; (c) include a definition of ‘appellate authority’; (d) substitute the definition of ‘applicant’ in order to make it broad based; (e) define ‘authority’ as Customs Authority for Advance Ruling as referred to in section 28EA; (f) substitute “Appellate Authority” in place of “authority” in clause (f) and (g). A new section 28EA relating to ‘Customs Authority for Advance Rulings’ is being inserted, which empowers the Board to appoint officers of the rank of Principal Commissioner of Customs or Commissioner of Customs as Customs Authority for Advance Rulings by way of notification. Till such appointment by the Board, existing Authority shall continue to pronounce Advance Rulings. Section 28F is being amended so as to substitute the word “Authority” with the words “Appellate Authority” and to provide that on appointment of Customs Authority for Advance Rulings, the applications and proceedings pending before the erstwhile Authority shall stand transferred to Customs Authority for Advance Rulings. Section 28H is being amended so as to, (a) amend clause (d) of sub-section (2) to include the word “tax” in addition to “duty” mentioned therein; (b) insert clause (f) in sub-section (2) to enable Central Government to notify any other matter on which advance ruling can be sought by an applicant; (c) insert sub-section (5) to provide that an applicant may be represented by a duly authorized person who is a resident in India; (d) add an explanation stating that the definition of resident shall be same as provided in clause (42) of section 2 of Income Tax Act, 1961.
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[62]
[63]
[64]
[65]
14.
Sub-section (6) of section 28-I is being amended to reduce the time from six months to three months within which the authority shall pronounce its advance ruling.
15.
Section 28K is being amended so as to, (a) omit the expression ‘after excluding the period beginning with the date of such advance ruling and ending with the date of order under this subsection’ in sub-section (1); (b) insert a proviso to sub-section (1) so as to add a corresponding proviso to sub-section (7) of section 28 stating that the period beginning with the date of such advance ruling and ending with the date of order under this sub-section shall be excluded from the time period of two years and five years respectively specified in section 28.
16.
A new section 28KA [relating to Appeal provisions in respect of Advance Ruling] is being inserted so as to(a) provide for appeal by an officer duly authorized by Board by notification, or by an applicant against the ruling or an order passed by Customs Authority for Advance Rulings to the Appellate Authority constituted under Section 245-O of the Income Tax Act; (b) provide that the sections 28I and 28J shall apply mutatis mutandis to appeal proceedings. (c) provide that this section shall come into force only when customs authority for advance ruling is appointed under section 28EA.
17.
Section 28L is being amended so as to substitute the word “Authority” with the words “Authority or Appellate Authority”
18.
Section 28M is being substituted so as to, (a) provide that the procedure to be followed by the Authority shall be as prescribed. (b) provide that Appellate Authority shall, subject to provisions of this chapter, have power to regulate its own procedure in all matters arising out of the exercise of its powers under this act.
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[66]
[67]
[68]
[69]
[70]
35
19.
20.
21.
22.
36
Section 30 is being amended so as to: (a) include export goods in addition to imported goods as part of the information provided in the manifest; (b) provide for prescribing the manner of delivery of manifest through regulations.
[71]
Section 41 is being amended so as to: (a) include imported goods in addition to export goods as part of the information provided in the manifest; (b) provide penalty provisions for late filing of manifest; (c) provide for prescribing the manner of delivery of manifest through regulations.
[72]
Section 45 is being amended so as to provide for clearance of goods by other ways as may be prescribed in addition to existing system of clearance by the proper officer.
[73]
Section 46 is being amended so as to: (a) amend sub-section (1) to insert a reference to Customs Automated System and the manner of presentation of bill of entry; (b) amend the proviso to sub-section (1) to insert a reference to Customs Automated System; and (c) clarify the time limit for the prior presentation of bill of entry, by substituting the words, ‘within thirty days of’ with the words, ‘at any time not exceeding thirty days prior to’ in first proviso to sub-section (3); (d) provide for such other documents, as may be prescribed in addition to invoice, by necessary insertion to that effect in sub-section (4); (e) insert a new sub-section (4A) so as to provide for observance of the accuracy, authenticity, validity of the declarations made by the importer under this section and compliance to the prohibitions or restrictions under this act or any other law for the time being in force.
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[74]
23.
24.
25.
26.
27.
28.
29.
30.
Section 47 is being amended so as to have a provision for clearance of goods by Customs Automated System in addition to existing clearance by the proper officer.
[75]
Section 50 is being amended so as to: (a) amend sub-section (1) to insert a reference to Customs Automated System and the manner of presentation of shipping bill or bill of export; (b) amend the proviso to sub-section (1) to insert a reference to Customs Automated System; and (c) insert a new sub-section (2A) so as to provide for observance of the accuracy, authenticity, validity of the declarations made by the exporter under this section and compliance to the prohibitions or restrictions under this act or any other law for the time being in force.
[76]
Section 51 is being amended so as to have a provision for clearance of goods by Customs Automated System in addition to existing clearance by the proper officer.
[77]
To insert Chapter VIIA on payments through electronic cash ledger with governing provisions in Section 51A to have a provision for advance deposit which would enable payment of duties, taxes, fee, interest, and penalty through electronic cash ledger. It is also proposed to issue regulations in this regard.
[78]
Section 54 is being amended so as to empower the Board to make regulations providing manner of presenting a bill of transshipment and declaration for transshipment.
[79]
Section 60 is being amended so as to have a provision for clearance of goods by Customs Automated System in addition to existing clearance by the proper officer.
[80]
Section 68 is being amended so as to have a provision for clearance of goods by Customs Automated System in addition to existing clearance by the proper officer.
[81]
Section 69 is being amended so as to have a provision for clearance of goods by Customs Automated System in addition to existing clearance by the proper officer.
[82]
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37
31.
32.
Sub-section (1) of Section 75 is being amended so as to substitute the reference to section 82 with the reference to clause (a) of section 84, as section 82 stands omitted vide section 104 of Finance Act, 2017;
33.
Nomenclature of Chapter XI is being amended so as to include reference to courier.
34.
Section 83 is being amended so as to include reference to goods imported or exported by courier through the authorized courier. The extant provisions in the section relate to goods imported or exported by post only.
35.
36.
37.
38.
38
Clause (iii) of sub-section (1) of Section 74 is being amended so as to substitute the reference to section 82 with the reference to clause (a) of section 84, as section 82 stands omitted vide section 104 of Finance Act, 2017;
Section 84 is being amended so as to include a reference to goods imported or exported by courier and to empower the Board to make regulations in this regard. The extant provisions in the section relate to goods imported or exported by post only. A new Chapter XIIA and section 99A thereunder, is being inserted relating to Audit. The manner of conducting audit shall be provided in regulations. A new section 109A relating to ‘Controlled Delivery’ is being inserted, which seeks to authorize the proper officer or any other officer authorized by him to undertake Controlled Delivery of any consignment of goods to any destination in India or a foreign country. The section also provides, through an explanation, definition of controlled delivery. It also seeks to provide that controlled delivery shall be applicable on such consignment of goods and in such manner as may be prescribed in the regulations. Section 110 of the Customs Act, 1962 is being amended so as to: (a) substitute the existing proviso to sub-section (2) to provide that the Principal Commissioner of Customs or Commissioner of Customs may, for reasons to be recorded in writing, extend the six months period by a period not exceeding six months and inform the person from whom such goods have been seized before the expiry of the time mentioned in the said sub-section;
union budget 2018-2019
[83]
[84] [85]
[86]
[87]
[88]
[89]
[90]
(b) insert second proviso to sub-section (2) providing that where any order for provisional release of the seized goods has been passed under Section 110A, the aforesaid period of six months, mentioned in sub-section (2), shall not apply. 39.
40.
41.
Section 122 is being amended so as to substitute the existing clauses (b) and (c) to empower the Board to fix monetary limits for adjudication of cases by officers below the rank of Joint Commissioner by way of notification. Section 124 is being amended so as to insert a second proviso to provide for issuance of supplementary show cause notice under such circumstances and in such manner as may be prescribed through regulations.; Section 125 of the Customs Act is being amended so as to: (a) insert a proviso to sub-section (1) to provide that where the demand proceedings against a noticee/ co-noticees have been closed on grounds of having paid the dues mentioned in section 28, then the provisions of this section shall not be applicable if the goods are not prohibited or restricted; (b) insert sub-section (3) to provide that where redemption fine has not been paid within a period of one hundred and twenty days from the date of option given under sub- section (1), then such option shall become void, except in cases where any appeal against such order is pending.; (c) insert an explanation that for an order passed under sub-section (1) before the date on which the Finance Bill, 2018 receives the assent of the President, and no appeal against such order is pending, such option may be exercised within one hundred and twenty days from the date on which such assent is received.;
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[91]
[92]
[93]
39
42.
43.
44.
40
Section 128A is being amended to allow Commissioner (Appeals) to remand back the matters to original adjudicating authority in specified categories of cases, namely: i. where an order or decision has been passed without following the principles of natural justice; or ii. where no order or decision has been passed after re-assessment under section 17; or iii. where an order of refund under section 27 has been issued crediting the amount to the Fund without recording any finding on the evidence produced by the applicant.; A new section 143AA is being inserted to empower the Board to prescribe through regulations trade facilitation measures or separate procedure or documentation for a class of importers or exporters or for categories of goods or on the basis of the modes of transport of goods for: (a) maintenance of transparency in import and export documentation and procedure; or (b) expeditious clearance or release of goods entered for import or export; or (c) reduction in the transaction cost of clearance of importing or exporting goods; or (d) maintenance of balance between customs control and facilitation of legitimate trade.; A new section 151B on reciprocal arrangement for exchange of information is being inserted so as to: (a) authorize the Central Government to enter into an agreement or any other arrangement with the Government of any country or with such competent authorities of that country, as it deems fit, for facilitation of trade, enforcing the provisions of Customs Act and exchange of information for trade facilitation, effective risk analysis, verification of compliance and prevention, combating and investigation of offences under the provisions of this Act or under the corresponding laws in force in that country;
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[94]
[95]
[96]
(b) authorize the Central Government to provide by a notification that the application of this section in relation to a contracting state with which reciprocal agreement or arrangements have been made, shall be subject to such conditions, exceptions or qualifications as are specified in the said notification.; (c) utilize the information received under sub-section (1) as evidence in investigations and proceedings under this Act subject to provisions of sub-section (2).; (d) where the Central Government has entered into a multilateral agreement for exchange of information or documents for purposes of verification of compliance in identified cases, the Board shall specify the procedure for such exchange, the conditions subject to which such exchange shall be made and designation of the person through whom such information shall be exchanged.; (e) insert a deeming provision that any agreement entered into or any other arrangement made by the Central Government prior to the date on which the Finance Bill, 2018 receives the assent of the President, shall be deemed to have been done or taken under the provisions of this Section.; (f) insert a definition of “contracting state” and “corresponding law” referred to in this section.; 45.
Section 153 is being substituted so as to align it with the provisions of the section 169 of the CGST Act to include Speed Post, Courier, and registered email as valid modes of delivery and in case of non-service by such means, to also provide for affixing it at some conspicuous place at the last known place of business or residence in addition to affixing it on the notice board of the Customs House etc.
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[97]
41
46.
42
Section 157 is being amended so as to empower the Board to make regulations relating to: (a) manner to deliver or present, a bill of entry, shipping bill, bill of export, import manifest, import report, export manifest, export report, bill of transshipment, declaration for transshipment, boat note and bill of coastal goods; (b) time and manner of finalization of provisional assessment; (c) manner of conducting pre-notice consultation; (d) circumstances under which, and the manner of issuing supplementary notice; (e) form and manner in which an application for advance ruling or appeal shall be made, and the procedure for the authority, under Chapter VB; (f) manner of clearance or removal of imported or export goods; (g) documents to be furnished in relation to imported goods; (h) conditions, restrictions and the manner for deposits in electronic cash ledgers, the utilization and refund therefrom and the manner of maintaining such ledger; (i) manner of conducting audit; (j) goods for controlled delivery and the manner thereof; (k) measures and the simplified or different procedures or documentation for a class of importers or exporters or categories of goods or on the basis of the modes of transport of goods.
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[98]
II. Amendments in the Customs Tariff Act, 1975 S. No.
Amendment
1.
Section 3 is being amended so as to: (a) amend sub-section (7) to include reference to sub-section (8A); (b) insert a new sub-section (8A) to provide for value of goods when they are sold within the warehousing period for calculation of integrated tax; (c) amend the sub-section (9) to include reference to sub-section (10A); (d) insert a new sub-section (10A) to provide for value of goods when they are sold within the warehousing period for calculation of goods and services tax compensation cess.
Clause of the Finance Bill, 2018
[100]
III. Amendments in the First Schedule to the Customs Tariff Act, 1975 Rate of Duty Commodity
From
To
30%
50%
Perfumes and toilet waters
10%
20%
Beauty or make-up preparations and preparations for the care of the skin (other than medicaments), including sunscreen or suntan preparations; manicure or pedicure preparations
10%
20%
Preparations for use on the hair
10%
20%
Preparations for oral or dental hygiene, including denture fixative pastes and powders; yarn used to clean between the teeth (dental floss), in individual retail packages
10%
20%
Pre-shave, shaving or after-shave preparations, personal deodorants, bath preparations, depilatories and other perfumery, cosmetic or toilet preparations, not elsewhere specified or included, prepared room deodorizers, whether or not perfumed or having disinfectant properties
10%
20%
Food Processing Fruit juices and vegetable juices including cranberry juice Perfumes and toiletry preparations
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43
Automobile parts Truck and Bus radial tyres
10%
15%
Specified parts/accessories of motor vehicles, motor cars, motor cycles
7.5%/ 10%
15%
Footwear
10%
20%
Parts of footwear
10%
15%
15%
20%
Cellular mobile phones
15%
20%
Specified parts and accessories including lithium ion battery of cellular mobile phones
7.5%/ 10%
15%
Smart watches / wearable devices
10%
20%
LCD/LED/OLED panels and other parts of LCD/LED/OLED TVs
7.5%/ 10%
15%
Seats and parts of seats [other than aircraft seats and their parts]
10%
20%
Other furniture and parts
10%
20%
Mattresses supports; articles of bedding and similar furnishing
10%
20%
Lamps and lighting fitting, illuminated signs, illuminated name plates and the like [except solar lanterns or solar lamps]
10%
20%
Wrist watches, pocket watches and other watches, including stop watches
10%
20%
Clocks with watch movements
10%
20%
Other clocks, including alarm clocks
10%
20%
10%
20%
Footwear
Jewellery Imitation Jewellery Electronics / Hardware
Furniture
Watches and Clocks
Toys and Games Tricycles, scooters, pedal cars and similar wheeled toys; dolls’ carriages; dolls; other toys; puzzles of all kinds
44
union budget 2018-2019
Video game consoles and machines, articles for funfair, table or parlor games and automatic bowling alley equipment
10%
20%
Festive, carnival or other entertainment articles
10%
20%
Articles and equipment for sports or outdoor games, swimming pools and paddling pools [other than articles and equipment for general physical exercise, gymnastics or athletics]
10%
20%
Fishing rods, fishing-hooks and other line fishing tackle; fish landing nets, butter fly nets and similar nets; decoy birds and similar hunting or shooting requisites
10%
20%
Roundabouts, swings, shooting galleries and other fairground amusements; travelling circuses, traveling menageries and travelling theatres
10%
20%
Candles, tapers and the like
10%
25%
Kites
10%
20%
Sunglasses
10%
20%
Date, sealing or numbering stamps, and the like
10%
20%
Cigarette lighters and other lighters, whether or not mechanical or electrical, and parts thereof other than flints and wicks.
10%
20%
Scent sprays and similar toilet sprays, and mounts and heads therefor; powder-puffs and pads for the application of cosmetic or toilet preparations.
10%
20%
Tariff rate of BCD on Lithium-ion batteries [The effective rate of import duty on Lithium-ion batteries [except those for cellular mobile phones will, however, remain unchanged at 10%.]
10%
20%
Tariff rate of BCD on medical devices [The effective rates of BCD on such medical devices will, however, remain unchanged.]
10%
20%
Miscellaneous items
Bifurcate the tariff item 0713 31 00 to create separate tariff items each for Moong Dal and Urad Dal. Omit tariff item 0904 22 12 and entries relating thereto and create new tariff item 1209 91 70, in relation to chilly seed of genus capsicum. Amend the tariff item 2917 39 20 to specify the isomers it covers. *Will come into effect immediately owing to a declaration under the Provisional Collection of Taxes Act, 1931.
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IV. Amendment in the Second Schedule to the Customs Tariff Act, 1975 S. No. A
Amendment Amendments not affecting rates of Export duty
Rate of Duty From
To
1.
To insert a new Note to specify Nil rate of duty in respect of all other goods which are not covered under column (2) of the Schedule. [Clause 102 (a) of the Finance Bill, 2018]
–
–
2
Electrodes of a kind used for furnaces [Clause 102 (b) of the Finance Bill, 2018]*
–
20%
*Will come into effect immediately owing to a declaration under the Provisional Collection of Taxes Act, 1931.
V. Other Proposals Involving Changes in Basic Customs Duty Rates Commodity
From
To
Cashew nuts in shell [Raw cashew]
5%
2.5%
Orange fruit juice
30%
35%
Cranberry Juice
10%
50%
Miscellaneous Food preparations (other than soya protein)
30%
50%
10%
20%
Nil
10%
Food processing
Textiles Silk Fabrics Capital goods and Electronics Printed Circuit Board Assembly (PCBA) of charger/ adapter and moulded plastics of charger/adapter of cellular mobile phones
Inputs or parts for manufacture of: Applicable Inputs or parts for manufacture of: Rate a) PCBA, or b) moulded plastics of charger/adapter of cellular mobile phones of cellular mobile phones
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Nil
Ball screws, linear motion guides, CNC systems for manufacture of all types of CNC machine tools falling under headings 8456 to 8463
7.5%
2.5%
Solar tempered glass or solar tempered [anti-reflective coated] glass for manufacture of solar cells /panels/modules
5%
Nil
Preform of silica for use in the manufacture of telecommunication grade optical fibres or optical fibre cables
Nil
5%
12 specified parts for manufacture of LCD/LED TV panels
Nil
10%
CKD imports of motor vehicles, motor cars, motor cycles
10%
15%
CBU imports of motor vehicles
20%
25%
Cut and polished colored gemstones;
2.5%
5%
Diamonds including lab grown diamonds-semi processed, half-cut or broken; non-industrial diamonds including labgrown diamonds (other than rough diamonds), including cut and polished diamonds
2.5%
5%
2.5%
Nil
Crude edible vegetable oils like Ground nut oil, Olive oil, Cotton seed oil, Safflower seed oil, Saffola oil, Coconut oil, Palm Kernel/Babassu oil, Linseed oil, Maize corn oil, Castor oil, Sesame oil, other fixed vegetable fats and oils.
12.5%
30%
Refined edible vegetable oils, like Ground nut oil, Olive oil, Cotton seed oil, Safflower seed oil, Saffola oil, Coconut oil, Palm Kernel/Babassu oil, Linseed oil, Maize corn oil, Castor oil, Sesame oil, other fixed vegetable fats and oils, edible margarine of vegetable origin, Sal fat; specified goods of heading 1518
20%
35%
10%
7.5%
Automobile and automobile parts
Diamonds and Precious stones
Medical Devices Raw materials, parts or accessories for the manufacture of Cochlear Implants Rationalization in Customs duty rates Edible oils of vegetable origin
Refractory Items Other articles of stone containing magnesite, dolomite or chromite
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Bricks, blocks, tiles and other ceramic goods of siliceous fossil meals or of similar siliceous earths
10%
7.5%
Refractory bricks, blocks, tiles and similar refractory ceramic constructional goods, other than those of siliceous fossil meals or similar siliceous earths
5%
7.5%
Other refractory ceramic goods
5%
7.5%
VI. Levy of Social Welfare Surcharge, as a duty of Customs on imported goods [Clause 108 of the Finance Bill, 2018]:
48
Description
From
To
Levy of Social Welfare Surcharge on imported goods to finance education, housing and social security [clause 108 of Finance Bill, 2018]
--
10% of aggregate duties of customs
Abolition of Education Cess and Secondary and Higher Education Cess on imported goods [clause 106 of Finance Bill, 2018]
3% of aggregate duties of customs [2% + 1%]
Nil
Motor spirit commonly known as petrol and high speed diesel oil
--
3% of aggregate duties of customs
Silver (including silver plated with gold or platinum), unwrought or in semi-manufactured form, or in powder form
--
3% of aggregate duties of customs
Gold (including gold plated with platinum), unwrought or in semi-manufactured form, or in powder form
--
3% of aggregate duties of customs
Specified goods hitherto exempt from Education Cess and Secondary and Higher Education Cess on imported goods
--
Nil
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VII. Levy of the Road and Infrastructure Cess [Clause 109 of the Finance Bill, 2018] S. No.
Heading, sub-heading tariff item
Description
From
To
1
2710
Levy of Road and Infrastructure Cess on imported motor spirit commonly known as petrol and high speed diesel oil [clause 109 of Finance Bill, 2018]
--
Rs. 8 per litre
2
2710
Exemption from additional duty of customs leviable under section 3(1) of the Customs Tariff Act, 1975 in lieu of the proposed Road and Infrastructure cess on domestically produced motor spirit commonly known as petrol and high speed diesel oil
--
Nil
3
2710
Abolition of Additional Duty of Rs. 6 per Customs [Road Cess] on imported litre motor spirit commonly known as petrol and high speed diesel oil [Clause 106 of Finance Bill, 2018]
4
Nil
Additional duty of customs under sections 3(1) of the Customs Tariff Act, 1975 in lieu of basic excise duty 2710
(i) Motor spirit commonly known as petrol
Rs. 6.48 Rs. 4.48 per litre per litre
2710
(ii) High speed diesel oil
Rs. 8.33 Rs. 6.33 per litre per litre
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EXCISE Note: “Basic Excise Duty� means the excise duty set forth in the Fourth Schedule to the Central Excise Act, 1944.
I. Proposals Involving Change In Excise Duty Rates: Commodity
Rate of Duty
From I
50
To
Motor spirit commonly known as petrol and high speed diesel oil 1.
Levy of Road and Infrastructure Cess on motor spirit commonly known as petrol and high speed diesel oil [clause 110 of Finance Bill, 2018]
--
2.
Abolition of Additional Duty of Excise Rs. 6 per [Road Cess] on motor spirit commonly litre known as petrol and high speed diesel oil [clause 106 of Finance Bill, 2018]
3.
Basic excise duty on:
Rs. 8 per litre Nil
(i) Unbranded Petrol
Rs. 6.48 per litre
Rs. 4.48 per litre
(ii) Branded petrol
Rs. 7.66 per litre
Rs. 5.66 per litre
(iii) Unbranded diesel
Rs. 8.33 per litre
Rs. 6.33 per litre
(iv) Branded diesel
Rs. 10.69 Rs. 8.69 per litre per litre
4.
Road and Infrastructure Cess on (i) 5% ethanol blended petrol, (ii) 10% ethanol blended petrol and (iii) bio-diesel, up to 20% by volume, subject to the condition that appropriate excise duties have been paid on petrol or diesel and appropriate GST has been paid on ethanol or bio-diesel used for making such blends
--
Nil
5.
Road and Infrastructure Cess on petrol and diesel manufactured in and cleared from 4 specified refineries located in the North-East
--
Rs. 4 per litre
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SERVICE TAX A.
Retrospective exemptions
Clause of Finance Bill, 2018
1.
Services provided or agreed to be provided by the Naval Group Insurance Fund by way of life insurance to personnel of Coast Guard, under the Group Insurance Schemes of the Central Government, are proposed to be exempted from service tax for the period commencing from the 10th September, 2004 and ending with the 30th June, 2017
[ 103 ]
2.
Services provided or agreed to be provided by the Goods and Services Tax Network (GSTN) to the Central Government or State Governments or Union territories administration, are proposed to be exempted from service tax for the period commencing from 28th March, 2013 and ending with the 30th June, 2017.
3.
Consideration paid to the Government in the form of Government’s share of profit petroleum in respect of services provided or agreed to be provided by the Government by way of grant of license or lease to explore or mine petroleum crude or natural gas or both, is proposed to be exempted from service tax for the period commencing from 1st April, 2016 and ending with the 30th June, 2017.
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[ 104 ]
[105 ]
51
Fiscal Indicators
52
UNION BUDGET 2018-2019
Economic Performance, Prospects and Reforms Economic Survey reviews the developments in the Indian economy over the previous 12 months and highlights the policy initiatives of the government and the prospects of the economy in the short to medium term. The highlights of Economic Survey 2017-18 are as follows: Key Economic Indicators Unit 2013-14 2014-15 2015-16 2016-17 2017-18 GDP at Constant Price Rs. Lakh Crore 98.4 105.5 113.5 121.9 129.9 AE (2011-12 Base) Growth Rate % 6.6 7.2 7.6 7.1 6.5 AE GVA at Constant Price Rs. Lakh Crore 90.8 97.3 104.3 112.0 119.0 AE (2011-12 Base) Growth Rate % 6.3 7.1 7.2 6.6 6.1 AE PFCE % of GDP 57.7 57.6 58.0 58.8 58.8 AE GFCF % of GDP 31.6 30.8 29.3 27.1 26.4 AE Per Capita Net National Income (At current market Rs. 79412 86879 94130 103219 111782 AE prices) Food Grain Production Million tonnes 265.04 252.02 251.57 275.68 134.7 1st AE Index of Industrial % 3.3 4.0 3.5 5.0 3.2 (Apr-Nov) Production (Growth) Manufacturing % 3.6 3.8 3.1 4.9 3.1 (Apr-Nov) Electricity % 6.0 14.8 5.7 5.8 5.2 (Apr-Nov) Index of Eight Core Industries % 4.2 4.5 3.0 4.8 4.9 (Apr-Nov) (Growth) Inflation (WPI) (average) % 6.0 2 -3.7 1.7 2.9 (Apr-Dec) Core Inflation % 2.8 2.1 -2.0 -0.2 2.6 (Apr-Dec) Inflation CPI (Combined) % 9.5 5.9 4.9 5.7 3.3 (Apr-Dec) Export Growth ( US$) % 3.9 -0.6 -15.9 5.3 11.2 (Apr-Nov) Import Growth (US$) % -7.2 -1 -14.1 1.1 22.4 (Apr-Nov) Current Account Balance % of GDP -1.7 -1.3 -1.1 -0.68 -1.8 (Apr-Sep) Foreign Exchange Reserves US$ billion 304.2 341.6 360.176 369.955 414.8 (As on Jan*) Average Exchange Rate Rs/US $ 60.5 61.1 65.5 67.08 64.04 (As on Jan**) 129020 FPI/FII Net Investment Rs. Crore 51649 277461 -18176 48411 (Apr-Dec***) Tax Revenue Collection 11.2 N/A % of GDP 10.1 10 10.7 Source: ASSOCHAM Note: Compiled from various government sources, AE: Advance Estimate * As on 19th Jan 2018, ** As on 29th Jan 2018, *** Upto 22nd Dec 2017
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An Overview 2017-18 Against the backdrop of robust macro-economic stability, Goods and Services Tax (GST) was launched on July 1, 2017 and sending the major stressed companies for resolution under the new Indian Bankruptcy Code and implementing a major recapitalization package to strengthen the public sector banks. Against emerging macroeconomic concerns, policy vigiliance will be necessary in the coming year, especially if high international oil prices persist or elevated stock prices correct sharply, provoking a “sudden stall” in capital flows. The agenda for the next year consequently remains full: stablizing the GST, completing the TBS actions, privatizing Air India, and staving off threats to macro-economic stability. The TBS actions, noteworthy for cracking the long-standing “exit” problem, need complementary reforms to shrink unviable banks and allow greater private sector participation. The GST Council offers a model “technology” of cooperative federalism to apply to many other policy reforms. Over the medium term, three areas of policy focus stand out: Employment: finding good jobs for the young and burgeoning workforce, especially for women. Education: creating an educated and healthy labor force. Agriculture: raising farm productivity while strengthening agricultural resilience. Above all, India must continue improving the climate for rapid economic growth on the strength of the only two truly sustainable engines – private investment and exports.
GDP Real GDP growth to reach 6.75 percent this fiscal and will rise to 7.0 to 7.5 percent in 2018-19 projection in the Economic Survey 2017-18. The survey underlines that due to the launch of transformational Goods and Services Tax (GST) reform on July 1, 2017, resolution of the long-festering Twin Balance Sheet (TBS) problem by sending the major stressed companies for resolution under the new Indian Bankruptcy Code, implementing a major recapitalization package to strengthen the public sector banks, further liberalization of FDI and the export uplift from the global recovery, the economy began to accelerate in the second half of the year and can clock 6.75 percent growth this year.
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The survey points out that as per the quarterly estimates; there was a reversal of the declining trend of GDP growth in the second quarter of 201718, led by the industry sector. The Gross Value Added (GVA) at constant basic prices is expected to grow at the rate of 6.1 percent in 2017-18 as compared to 6.6 percent in 2016-17. Similarly, Agriculture, industry and services sectors are expected to grow at the rate of 2.1 percent, 4.4 percent, and 8.3 percent respectively in 2017-18 as compared to 2016-17. The survey adds that after remaining in negative territory for a couple of years, growth of exports rebounded into positive one during 2016-17 and expected to grow faster in 2017-18. However, due to higher expected increase in imports, net exports of goods and services are slated to decline in 2017-18. Similarly, despite the robust economic growth, the savings and investment as a ratio of GDP generally declined. The major reduction in investment rate occurred in 201314, although it declined even in 2015-16 . Within this the share of household sector declined, while that of private corporate sector increased.
Goods and Services Tax (GST) •
•
• • •
50% increase in the number of indirect taxpayers, besides a large increase in voluntary registrations, especially by small enterprises that buy from large enterprises and want to avail Input Tax Credits (ITC) for themselves. As on December 2017, there were 9.8 million unique GST registrants slightly more than the total Indirect Tax registrants under the old system (where many taxpayers were registered under several taxes). GST has increased the number of unique indirect taxpayers by more than 50 percent –a substantial 3.4 million. The profile of new filers is interesting of their total turnover, business-toconsumer (B2C) transactions account for only 17 percent of the total. The bulk of transactions are business-to-business (B2B) and exports, which account for 30-34 percent. There are about 1.7 million registrants who were below the threshold limit (and hence not obliged to register) who nevertheless chose to do so. Indeed, out of the total estimated 71 million non-agriculture enterprises, it is estimated that around 13 percent are registered under the GST.
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•
•
Maharashtra, UP, Tamil Nadu and Gujarat are the States with the greatest number of GST registrants. UP and West Bengal have been observed with large increase in the number of tax registrants compared to the old tax regime. Dwelling on the subject of International Trade, Inter-State Trade and Economic Prosperity, the Survey points-out that five States-Maharashtra, Gujarat, Karnataka, Tamil Nadu and Telangana account for 70 percent of India‘s exports.
Inflation Inflation in the country continued to moderate during 2017-18. Consumer Price Index (CPI) based headline inflation averaged 3.3 percent during the period of April to December 2017. Headline inflation measured by the CPI has remained under control; in fact the decline in the inflation in the first half of the current fiscal year was indicative of a benign food inflation which ranged between (-) 2.1 to 1.5 percent. However, the rise in food inflation in recent months is mainly due to factors driving prices of vegetables and fruits. In rural areas while food was main driver of CPI inflation during 2016-17, in urban areas housing sector has contributed the most to inflation in the current financial year. If we a look at state-wise inflation during 2017-18, many states have witnessed sharp fall in CPI inflation. Inflation in 17 states was below 4 percent, during the period.
External Sector International Developments The global economy is gathering pace and is expected to accelerate from 3.2 percent in 2016 to 3.6 percent in 2017 and 3.7 percent in 2018 which reflects an upward revision of the earlier projections by the International Monetary Fund (IMF). India‘s Balance of Payments situation, which has been benign and comfortable since 2013-14, continued to be so in the first half of 2017-18, despite some rise in the Current Account Deficit (CAD) in the first quarter, with a relatively lower CAD in the second quarter. India’s CAD stood at US$7.2
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billion (1.2 percent of GDP) in Q2 of 2017-18, narrowing sharply from US$ 15.0 billion (2.5 percent of GDP) in the preceding quarter.
Trade Deficit India‘s trade deficit (on custom basis) which had registered continuous decline since 2014-15, widened to US$ 74.5 billion in H1 of 2017-18 from US$ 43.4 billion in H1 of 2016-17. India‘s trade deficit was US$ 108.5 billion in 2016-17, with reduction in both POL deficit and non- POL deficit. In 201718 (April-December) trade deficit (on custom basis) shot up by 46.4 percent to US$ 114.9 billion with POL deficit growing by 27.4 percent and non-POL deficit by 65.0 percent.
Composition of Trade Export growth in 2016-17 was fairly broad based with positive growth in major categories except textiles & allied products and leather and leather manufactures. In 2017-18 (April-November) among the major sectors, there was good export growth in engineering goods and petroleum crude and products, moderate growth in chemicals & related products, and textiles & allied products; but negative growth in gems and jewellery. The prospects for India‘s External Sector in this and coming year looks bright with world trade projected to grow at 4.2 percent and 4 percent in 2017 and 2018 respectively from 2.4 percent in 2016; trade of major partner countries improving and above all India‘s export growth also picking up. The downside risks lie in the rise in oil prices. However, this could also lead to higher inflow of remittances which have started picking up. The supportive policies like GST, logistics and trade facilitation policies of the government could help further.
Services Exports and Services Imports India remained the eighth largest exporter in commercial services in the world in 2016 with share of 3.4 percent. This is double the share of India‘s merchandise exports in the world at 1.7 percent, as put forth in the Economic Survey 2017-18. India‘s services sector registered an export growth of 5.7 percent in 2016-17. During the period April-September 2017-18, growth in services exports and services imports were robust at 16.2 percent and 17.4
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57
percent respectively. Net services receipts rose by 14.6 percent during this period. Net surplus in the services financed, about 49 percent of India‘s merchandise deficit in H1 of 2017-18.
FDI Equity Inflows to the Services Sector FDI equity inflows to the services sector grew by 15.0 percent during 201718 (April-October). The survey states that combined FDI share of the top 10 service sectors such as financial and non-financial services falling under the Department of Industrial Policy & Promotion (DIPP)’s service sector definition; as well as telecommunications; trading; computer hardware & software; construction; hotels & tourism; hospital & diagnostic centers; consultancy services; sea transport; and information & broadcasting that can be taken as the best estimate of services FDI. However, these could include some nonservice elements. The share of these services is 56.6 percent of the cumulative FDI equity inflows during the period April 2000-October 2017 and 65.8 percent of FDI equity inflows during 2017-18 (April-October). If the shares of another 5 services or service related sectors like retail trading, agriculture services, education, book, printing and air transport are included, then the total share of FDI equity inflows to the services sector would increase to 58.5 percent and 69.6 percent respectively for the above two periods.
Fiscal The fiscal deficit for the first eight months of 2017-18 reached 112 percent of the total for the year, far above the 89 percent norm (average of last 5 years), largely because of a shortfall in non-tax revenue, reflecting reduced dividends from government agencies and enterprises. Expenditure also progressed at a fast pace, reflecting the advancing of the budget cycle by a month which gave considerable leeway to the spending agencies to plan in advance and start implementation early in the financial year. Partially offsetting these trends will be disinvestment receipts which are likely to exceed budget targets.
Outlook for 2018-19 The outlook for 2018-19 will be determined by economic policy in the run-up to the next national election. If macro-economic stability is kept under
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control, the ongoing reforms are stabilized, and the world economy remains buoyant as today, growth could start recovering towards its medium term economic potential of at least 8 percent. Consider the components of demand that will influence the growth outlook. The acceleration of global growth should in principle provide a solid boost to export demand. Certainly, it has done so in the past, particularly in the mid-2000s when the booming global economy allowed India to increase its exports by more than 26 percent per annum. This time, the exports response to the world growth has been in line with the long-term average, but below the response in the mid-2000s. Perhaps it is only a matter of time until exports starts to grow at a healthy rate. Remittances are already perking up, and may revive further due to higher oil prices. Private investment seems poised to rebound, as many of the factors exerting a drag on growth over the past year finally ease off. Translating this potential into an actual investment rebound will depend on the resolution and recapitalization process. If this process moves ahead expeditiously, stressed firms will be put in the hands of stronger ownership, allowing them to resume spending. But if resolution is delayed, so too will the return of the private capex cycle. And if this occurs public investment will not be able to step into the breach, since it will be constrained by the need to maintain a modicum of fiscal consolidation to head off market anxieties. Consumption demand, meanwhile, will encounter different tugs. On the positive side, it will be helped by the likely reduction in real interest rates in 2018-19 compared to the 2017-18 average. At the same time, average oil prices are forecast by the IMF to be about 12 percent higher in 2018-19, which will crimp real incomes and spending – assuming the increase is passed on into higher prices, rather than absorbed by the budget through excise tax reductions or by the oil marketing companies. And if higher oil prices requires tighter monetary policy to meet the inflation target, real interest rates could exert a drag on consumption. Putting all these factors together, a pick-up in growth to between 7 and 7.5 percent in 2018-19 can be forecasted, re-instating India as the world’s fastest growing major economy. This forecast is subject to upside potential and
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downside risks. The biggest source of upside potential will be exports. If the relationship between India’s exports and world growth returns to that in the boom phase, and if world growth in 2018 is as projected by the IMF, then that could add another ½ percentage point to growth. Another key determinant of growth will be the implementation of the IBC process. Here timeliness in resolution and acceptance of the IBC solutions must be a priority to kick-start private investment. The greater the delays in the early cases, the greater the risk that uncertainty will soon shroud the entire IBC process. It is also possible that expeditious resolution may require the government to provide more resources to PSBs, especially if the haircuts required are greater than previously expected, the ongoing process of asset quality recognition uncovers more stressed assets, and if new accounting standards are implemented. Persistently high oil prices (at current levels) remain a key risk. They would affect inflation, the current account, the fiscal position and growth, and force macroeconomic policies to be tighter than otherwise. A key policy question will be the fiscal path for the coming year. Given the imperative of establishing credibility after this year, given the improved outlook for growth (and hence narrowing of the output gap), and given the resurgence of price pressures, fiscal policy should ideally have targeted a reasonable fiscal consolidation. However, setting overly ambitious targets for consolidation – especially in a pre-election year – based on optimistic forecasts that carry a high risk of not being realized will not garner credibility either. Pragmatically steering between these extremes would suggest the following: a modest consolidation that credibly signals a return to the path of gradual but steady fiscal deficit reductions.
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Table 1: Ratio of Expenditure to GDP at current prices (Percent) GDP (Rs. in crore)
2011-12
2012-13
2013-14
8736329
9944013
11233522
GFCE PFCE GFCF CIS Valuables Exports of goods and services Less: Imports of goods and services Discrepancies GDP
2014-15
2015-16
2016-17 (PE)
H1 2016-17
H1 2017-18
12445128
13682035
15183709
7230726
7906117
11.7 58.8 27.1 2.2 1.1
13.0 57.4 28.1 2.2 1.1
13.4 57.3 26.9 2.2 2.4
Share of major Component 10.4 10.3 58.1 58.0 30.4 29.3 1.8 2.2 1.5 1.4
11.1 56.2 34.3 2.4 2.9
10.7 56.5 33.4 2.1 2.8
10.3 57.6 31.3 1.6 1.4
24.5
24.5
25.4
23.0
19.9
19.2
19.3
18.2
31.1
31.3
28.4
26.0
22.3
20.6
20.9
21.5
-0.3 100.0
0.8 100.0
0.4 100.0
0.4 100.0
1.1 100.0
0.6 100.0
-0.3
1.1
Source: MOSPI, Govt. of India PE: Provisional Estimate
Table 2: Sources of Tax Revenue (Rs. Crore) 2016-2017
2016-2017
2017-18
2018-19
Actual
Budget Estimates
Revised Estimates
Budget Estimates
Corporation Tax
484923.86
538744.73
563744.73
621000
Taxes on Income
364604.38
441255.27
441255.27
529000
185.14
...
...
...
Wealth Tax Customs
225370.34
245000
135242
112500
Union Excise Duties
381756.06
406900
276995
259600
Service Tax
254498.74
275000
79507
...
4145.53
4679.46
4744.15
5241.56
Taxes on Union Territories Goods and Services Tax (GST) Gross Tax Revenue
...
...
444631
743900
1715822.4
1911579.5
1946119.2
2271241.6
Source: Union Budget 2018-19
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Table 3: Source of Non Tax Revenue (Rs. Crore) 2016-2017
2016-2017
2017-18
2018-19
Actual
Budget Estimates
Revised Estimates
Budget Estimates
Interest receipts
16229
19021
13551
15162
Dividend and Profits
123017
142430
106433
107312
765
660
700
721
General Services
16091
20209
17258
18707
Total-Social and Community Services
11928
9624
3661
8875
Economic Services
101698
92235
88813
89583
Grants-in-aid and Contribution
1300
3060
3681
2667
Non Tax Revenue of Union Territories
1804
1518
1876
2062
272831
288757
235974
245089
Fiscal Services
Total Non-Tax Revenue
Source: Union Budget 2018-19
Table 4: Fiscal Indicators – Rolling Targets as Percentage of GDP (at current market prices)
Revenue Deficit
Revised Estimates
Budget Estimates
2017-18
2018-19
2019-20
2020-21
2.6
2.2
1.8
1.6
Target for
Fiscal Deficit
3.5
3.3
3.1
3
Gross Tax Revenue
11.6
12.1
12.4
12.7
Total outstanding liabilities at the end of the year
50.1
48.8
46.7
44.6
Source: Union Budget 2018-19
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Table 5: Budget Estimates for Expenditure 2018-19 (Rs. Crore) S.No.
Category
Revised 2017-18
Budget 2018-19
Variation
1
Grants and Loans to States
368585
420133
51548
2
Interest Payment
530842
575795
44953
Subsidy
264125
292825
44953
Food Subsidy
140282
169323
29041 5106
3 3.1 3.2
Fertiliser
64974
70080
3.3
Petroleum
24460
24933
472
3.4
Interest Subsidies
23635
20917
-2718
3.5
Other Subsidies
10774
7572
-3202
4
Pensions
147387
168466
21079
5
Capital Outlay Excluding Defence
164006
184681
20675
6
Defence
267108
282733
15625
7
Police
69704
74866
5162
8
Education
38649
40612
1963
9
Health and Family Welfare
17312
19163
1851
10
Grants and Loans to UT Governments
5272
6500
1228
11
Other Subsidies
123843
123502
341
12
Other Expenditure
344760
376439
31679
Total Expenditure
2217750
2442213
224463
Source: Union Budget 2018-19
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Table 6: Balance of Payment: Summary (US $ Billion) Year / Item
2012-13
2013-14
2014-15
2015-16
2016-17 (P)
Apr-Sep 2017( P)
Exports Imports Trade Balance Invisibles Services Transfers Income Current Account
306.6 502.2 -195.7 107.5 64.9 64 -21.5
318.6 466.2 -147.6 115.3 73.1 65.3 -23
Current Account 316.5 461.5 -144.9 118.1 76.5 65.7 -24.1
266.4 396.4 -130.1 107.9 69.7 62.6 -24.4
280.1 392.6 -112.4 97.1 67.5 56.0 -26.3
149.2 224.0 -74.8 52.5 36.7 30.1 -14.3
-88.2
-32.3
-26.9
-22.2
-15.3
-22.2
Capital Account Foreign Investment Loans Banking Capital Rupee Debt Service Other Capital Capital Account Errors and Omissions Overall Balance
46.7
26.4
73.5
31.9
43.2
34.1
31.1 16.6
7.8 25.4
3.2 11.6
-4.6 10.6
2.4 -16.6
3.8 6.3
-0.1
-0.1
-0.1
-0.1
-0.1
0.0
-5
-10.8
1.1
3.3
7.6
-2.0
89.3
48.8
89.3
41.1
36.5
42.1
2.7
-1
-1
-1.1
0.4
1.0
3.8
15.5
61.4
17.9
21.6
20.9
Source: ASSOCHAM Note: Compiled from RBI
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