Analysis of Union Budget for Fiscal Year 2017-18 of India Reinforcing the Intent

1. Union Budget 2017-18
Reinforcing the intent
Wednesday, 01 February 2017 OPINION
This report is not intended to provide personal investment advice and it does not take into account the specific investment objectives,
financial situation and the particular needs of any specific person. Readers should seek financial advice regarding the appropriateness
of investing in financial instruments and implementing investment strategies discussed or recommended in this report and should
understand that statements regarding future prospects may not be realized. InvesTrekk Global Research (P) Limited does not provide
portfolio management, stock broking or any other fund based service. The model portfolios mentioned in this report are merely to
illustrate the investment style and strategy recommended in the present times.
Please refer to the important disclosures at the end of this report.
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Brave and defiant
The finance minister has sustained the forces of change catalyzed by the
move to replace high denomination notes. Given, the political environment
in the country, and pressures from the external environment, continuing with
the effort to cleanse the system of black money, the effort can only be
termed as defiant.
Restrictions on cash transactions of large values and political funding are
noteworthy. Abolition of FIPB, after doing away with Planning commission, is
also a brave move. Law on contract forming could be transformational.
Raising excise duty on Bidi by from 30% (handmade) to over 200% (machine
made) while elections in UP are on, is a brave thing to do.
Focus on quality of growth
The budget speech makes it clear that the focus of government is to improve
the quality of growth, rather than just the statistics. In words of the finance
minister the basic idea is to:
• Transform the quality of governance and quality of life of our people;
• Energise various sections of society, especially the youth and the
vulnerable, and enable them to unleash their true potential; and
• Clean the country from the evils of corruption, black money and non-
transparent political funding.
Predictability, transparency and conciliation in tax regime
The effort to bring predictability, transparency and conciliation in the tax
regime of the country that started with last year's budget, has been
reinforced further.
Clarifications provided for many areas with potential for different
interpretations and disputes.
Prevention of abuse of tax provisions
Provisions have been made to plug loop holes that allowed misuse of
provisions relating to LTCG, HRA etc.
.
Union Budget 2017-18
Brave. Strong focus on
quality of life and probity
in the given climate is
brave.
Pragmatic. Avoiding
undue populism and
conceding ground where
it is due.
Routine. The budget is
made and presented in a
routine businesslike
manner, without trying to
create any euphoria or
tall claims.
Execution still remains the
key.
Team InvesTrekk
investrekk@gmail.com

2. 01 February 2017
2
FM toes the Modi line, stays defiant
No apologies or regret on demonetization
The finance minister stayed defiant on the move to replace 86% of the
country's currency in one stroke. Contrary to popular expectations, he
refused to be apologetic or remorseful about it. He rather pledged to
reinforce the effort by making further provisions to minimize cash transactions
in the economy, and plug the loopholes used for generating black money.
Provisions to prevent misuse of LTCG in listed securities, limit the amount of
political funding in cash, restricting large value cash transaction, providing
tax incentives to import/production of equipment needed for digital
payment networks etc. are some notable steps.
No Robinhood like approach
FM resisted the temptation to don the hat of Robinhood. though there are
few provisions based on the size of the assesses, these do not appear to be
aimed at redistribution of wealth.
Cess of 10% on the individuals with taxable income in the range of Rs50-
100lacs, tax on dividend in excess of rs10lacs received by corporate assesses
are two instances of higher taxability of larger assesses.
But, no change in excise for automobiles, liquor etc. would have relieved the
richer people.
Lower tax rate (25%) for smaller companies (turnover less than Rs50cr) covers
more than 95% of companies in the country.
Letting go
There are number of indications in the budget speech that the government is
willing to let go many of its controls, in the interest of professionalization,
transparency and ease of doing business. For example,
• Abolition of FIPB.
• Listing of most CPSEs to make them professional, accountable and
transparent.
• Sharing the GST administration with States.
• Greater autonomy to educational institutions and centers of higher
learning.
Commitment of fiscal discipline
One of the key feature of policy framework of this government has been the
sensitivity to the statistical vanity. Even the Economic Survey went to a great
length to make a case for rating upgrade.
• Staying with the fiscal deficit target, improving revenue deficit and
limiting the borrowings with a commitment to bringing Debt/GDP to 60%
in five years clearly points to that.

3. 01 February 2017
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Key highlights - Union Budget FY18
Ten key themes of the budget
 Farmers : committed to double the income in 5 years
 Rural Population : providing employment¬ & basic infrastructure;
 Youth : energising them through education, skills and jobs;
 The Poor and the Underprivileged: strengthening the systems of social
security, health care and affordable housing;
 Infrastructure: for efficiency, productivity and quality of life¬
 Financial Sector: growth¬ & stability by stronger institutions;
 Digital Economy: for speed, accountability and transparency;
 Public Service: effective governance and efficient service delivery
through people’s participation;
 Prudent Fiscal Management: to ensure optimal deployment of¬ resources
and preserve fiscal stability;
 Tax Administration: honouring the honest
1. Farmers
 Farm credit for FY18 set at record rs10lakh crores.
 Coverage under Fasal Bima Yojana scheme to be increased from 30% of
cropped area in 2016-17 to 40% in 2017-18 and 50% in 2018-19.
 The Long Term Irrigation Fund already set up in NABARD to be
augmented by 100% to take the total corpus of this Fund to ` 40,000
crores.
 Dedicated Micro Irrigation Fund in NABARD to achieve ‘per drop more
crop’ with an initial corpus of ` 5,000 crores.
 Coverage of National Agricultural Market (e-NAM) to be expanded from
250 markets to 585 APMCs.
 A model law on contract farming to be prepared and circulated among
the States for adoption
 Dairy Processing and Infrastructure Development Fund to be set up in♣
NABARD with a corpus of ` 2000 crores and will be increased to ` 8000
crores over 3 years.
 To support NABARD for computerisation and integration of all 63,000
functional Primary Agriculture Credit Societies with the Core Banking
System of District Central Cooperative Banks.
 New mini labs in Krishi Vigyan Kendras (KVKs) and ensure 100% coverage
of all 648 KVKs in the country for soil sample testing

4. 01 February 2017
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2. Rural Population
 Aim to bring one crore households out of poverty and to make 50,000
Gram Panchayats poverty free by 2019
 10 lakh farm ponds to be completed by March 2017. During 2017-18,
another 5 lakh farm ponds will be taken up.
 MGNREGA allocation to be the highest ever at ` 48,000 crores in 2017-18.
 Allocation for Pradhan Mantri Gramin Awaas Yojana increased to
Rs23,000 crores in 2017-18 with a target to complete 1 crore houses by
2019 for the houseless and those living in kutcha houses.
 100% village electrification by 1st May 2018.
 Open Defecation Free villages to get priority for piped water supply.
 Provide safe drinking water to over 28,000 arsenic and fluoride affected
habitations in the next four years.
 For imparting new skills to people in rural areas, mason training will be
provided to 5 lakh persons by 2022.
3. Youth
 To introduce a system of measuring annual learning outcomes in our
schools.
 Innovation Fund for Secondary Education proposed to encourage local
innovation for ensuring universal access, gender parity and quality
improvement to be introduced in 3479 educationally backward districts.
 Good quality higher education institutions to have greater administrative
and academic autonomy.
 SWAYAM platform, leveraging IT, to be launched with at least 350 online
courses. This would enable students to virtually attend courses taught by
the best faculty.
 National Testing Agency to be set-up as an autonomous and self-
sustained premier testing organisation to conduct all entrance
examinations for higher education institutions.
 Skill Acquisition and Knowledge Awareness for Livelihood Promotion
programme (SANKALP) to be launched at a cost of ` 4000 crores.
SANKALP will provide market relevant training to 3.5 crore youth
 Next phase of Skill Strengthening for Industrial Value Enhancement
(STRIVE) will also be launched in 2017-18 at a cost of ` 2,200 crores.
 A scheme for creating employment in the leather and footwear industries
along the lines in Textiles Sector to be launched.
 Incredible India 2.0 Campaign will be launched across the world to♣
promote tourism and employment. Five special tourism zones to be
promoted.

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4. The Poor and Underprivileged
 Mahila Shakti Kendra will be set up with an allocation of ` 500 crores in 14
lakh ICDS Anganwadi Centres. This will provide one stop convergent
support services for empowering rural women with opportunities for skill
development, employment, digital literacy, health and nutrition
 Under Maternity Benefit Scheme ` 6,000 each will be transferred directly
to the bank accounts of pregnant women who undergo institutional
delivery and vaccinate their children.
 Affordable housing to be given infrastructure status.National Housing
Bank will refinance individual housing loans of about ` 20,000 crore in
2017-18.
 To create additional 5,000 Post Graduate seats per annum to ensure
adequate availability of specialist doctors to strengthen Secondary and
Tertiary levels of health care. Two new All India Institutes of Medical
Sciences to be set up in Jharkhand and Gujarat.
 To foster a conducive labour environment, legislative reforms will be
undertaken to simplify, rationalise and amalgamate the existing labour
laws into 4 Codes on (i) wages; (ii) industrial relations; (iii) social security
and welfare; and (iv) safety and working conditions.
 Propose to amend the Drugs and Cosmetics Rules to ensure availability of
drugs at reasonable prices and promote use of generic medicines.
 For senior citizens, Aadhar based Smart Cards containing their health
details will be introduced.
5. Infrastructure
 Railway lines of 3,500 kms will be commissioned in 2017-18. During 2017-18,
at least 25 stations are expected to be awarded for station
redevelopment.
 A new Metro Rail Policy will be announced with focus on innovative
models of implementation and financing, as well as standardisation and
indigenisation of hardware and software.
 In the road sector, Budget allocation for highways increased from ` 57,976
crores in BE 2016-17 to ` 64,900 crores in 2017-18.
 Select airports in Tier 2 cities will be taken up for operation and
maintenance in the PPP mode.
 By the end of 2017-18, high speed broadband connectivity on optical
fibre will be available in more than 1,50,000 gram panchayats, under
BharatNet. A DigiGaon initiative will be launched to provide tele-
medicine, education and skills through digital technology
 Proposed to set up strategic crude oil reserves at 2 more locations,
namely, Chandikhole in Odisha and Bikaner in Rajasthan. This will take our
strategic reserve capacity to 15.33 MMT

6. 01 February 2017
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6. Financial Sector
 Foreign Investment Promotion Board to be abolished in 2017-18 and
further liberalisation of FDI policy is under consideration.
 An expert committee will be constituted to study and promote creation
of an operational and legal framework to integrate spot market and
derivatives market in the agricultural sector, for commodities trading. e-
NAM to be an integral part of the framework.
 Bill relating to curtail the menace of illicit deposit schemes will be
introduced. A bill relating to resolution of financial firms will be introduced
in the current Budget Session of Parliament. This will contribute to stability
and resilience of our financial system.
 A mechanism to streamline institutional arrangements for resolution of
disputes in infrastructure related construction contracts, PPP and public
utility contracts will be introduced as an amendment to the Arbitration
and Conciliation Act 1996.
 Government will put in place a revised mechanism and procedure to
ensure time bound listing of identified CPSEs on stock exchanges. The
shares of Railway PSEs like IRCTC, IRFC and IRCON will be listed in stock
exchanges.
 Propose to create an integrated public sector ‘oil major’ which will be
able to match the performance of international and domestic private
sector oil and gas companies
 A new ETF with diversified CPSE stocks and other Government holdings will
be launched in 2017-18.
 In line with the ‘Indradhanush’ roadmap, ` 10,000 crores for
recapitalisation of Banks provided in 2017-18.
 Lending target under Pradhan Mantri Mudra Yojana to be set at ` 2.44
lakh crores. Priority will be given to Dalits, Tribals, Backward Classes and
Women.
7. Digital Economy
 Aadhar Pay, a merchant version of Aadhar Enabled Payment System, will
be launched shortly A Mission will be set up with a target of 2,500 crore
digital transactions for 2017-18 through UPI, USSD, Aadhar Pay, IMPS and
debit cards
 A proposal to mandate all Government receipts through digital means,
beyond a prescribed limit, is under consideration.
 Banks have targeted to introduce additional 10 lakh new POS terminals
by March 2017. They will be encouraged to introduce 20 lakh Aadhar
based POS by September 2017.
 Proposed to create a Payments Regulatory Board in the Reserve Bank of
India by replacing the existing Board for Regulation and Supervision of
Payment and Settlement Systems

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8. Public Service
 The Government e-market place which is now functional for procurement
of goods and services.
 To utilise the Head Post Offices as front offices for rendering passport
services.
 To rationalise the number of tribunals and merge tribunals wherever
appropriate.
9. Prudent Fiscal Management
 Stepped up allocation for Capital expenditure by 25.4% over the previous
year.
 Fiscal deficit for 2017-18 is targeted at 3.2% of GDP and Government
remains committed to achieve 3% in the following year.
 Net market borrowing of Government restricted to ` 3.48 lakh crores after
buyback in 2017-18, much lower than ` 4.25 lakh crores of the previous
year.
 Revenue Deficit of 2.3% in BE 2016-17 stands reduced to 2.1% in the
Revised Estimates. The Revenue Deficit for next year is pegged at 1.9% ,
against 2% mandated by the FRBM Act.
10. Tax Administration
 Maximise efforts for e-assessment in the coming year.
 Enforcing greater accountability of officers of Tax Department for
specific act of commission and omission.

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Promoting Affordable Housing and Real estate Sector
 Under the scheme for profit-linked income tax deduction for promotion of
affordable housing, carpet area instead of built up area of 30 and 60
Sq.mtr. will be counted.
 The 30 Sq.mtr. limit will apply only in case of municipal limits of 4
metropolitan cities while for the rest of the country including in the
peripheral areas of metros, limit of 60 Sq.mtr. will apply
 For builders for whom constructed buildings are stock-in-trade, tax on
notional rental income will only apply after one year of the end of the
year in which completion certificate is received
 Reduction in the holding period for computing long term capital gains
from transfer of immovable property from 3 years to 2 years. Also, the
base year for indexation is proposed to be shifted from 1.4.1981 to
1.4.2001 for all classes of assets including immovable property
 For Joint Development Agreement signed for development of property,
the liability to pay capital gain tax will arise in the year the project is
completed.
 Exemption from capital gain tax for persons holding land on 2.6.2014, the
date on which the State of Andhra Pradesh was reorganised, and whose
land is being pooled for creation of capital city of Andhra Pradesh under
the Government scheme.
Transparency in Electoral Funding
 Maximum amount of cash donation, a political party can receive, will be
` 2000/- from one person.
 Political parties will be entitled to receive donations by cheque or digital
mode from their donors.
 Amendment to the Reserve Bank of India Act to enable the issuance of
electoral bonds in accordance with a scheme that the Government of
India would frame in this regard.
 Every political party would have to file its return within the time prescribed
in accordance with the provision of the Income-tax Act
 Existing exemption to the political parties from payment of income-tax
would be available only subject to the fulfilment of these conditions

9. 01 February 2017
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Key tax proposals
Businesses
 For companies whose total turnover or gross receipts did not exceed
Rs50cr in FY16, the rate income tax reduced to 25%.
 Section 115BBDA amended to provide for dividend in excess of rs10lakhs
to be taxable for all assesses, except domestic companies and certain
funds and institutions.
 Threshold limit for audit of business entities who opt for presumptive
income scheme increased from ` 1 crore to ` 2 crores.
 The threshold for maintenance of books for individuals and HUF increased
from turnover of 10 lakhs to 25 lakhs or income from 1.2 lakhs to 2.5 lakhs.
 Under scheme for presumptive taxation for professionals with receipt upto
` 50 lakhs p.a. advance tax can be paid in one instalment instead of four.
 The tax breaks for Start ups u/s 80IAC liberalized to 3/7 yrs from exisitng 3/5
years.
 MAT credit can now be availed for upto 15yrs instead of present 10yrs.
 Deduction u/s80G for cash donation eligible only upto Rs2000.
 Concessional TDS @5% u/s194LC and 194LD on interest payment in
respect of foreign borrowing, including Masala Bonds, extended to July
2020.
 No depreciation or 35AD benefits if asset costing more than Rs10,000
acquired in cash.
 No deduction for payments exceeding rs10,000 in cash u/s 40A.
 Limit for presumptive taxation u/s44AD enhanced to Rs2cr.
 Cash payments of more than Rs3,00,000 in a day or in relation to a single
transaction prohibited.
 Tax collection at Source in respect of cash sale of jewellery in excess of
Rs5,00,000 abolished.
 TDS u/s 194J in respect of technical services reduced to 2% from 10%.
 Conversion of preference shares into equity shares not to be regarded as
"transfer" for taxation purposes.
 Carbon credits to be taxed at a flat rate of 10%.
 Foreign Portfolio Investor (FPI) Category I & II exempted from indirect
transfer provision. Indirect transfer provision shall not apply in case of
redemption of shares or interests outside India as a result of or arising out
of redemption or sale of investment in India which is chargeable to tax in
India.
 Section 115JB amended to include certain items for calculating MAT on
the accounting reclassification under Ind-AS.

10. 01 February 2017
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Personal income-tax
 Tax rate for income between Rs2.5-5.00 lacs reduced to 5% from the
existing 10%.
 Surcharge of 10% of tax payable on categories of individuals whose
annual taxable income is between `50 lakhs and ` 1 crore.
 Individuals and HUF assesses, not liable for tax audit u/s44AB, to deduct
TDS @5% on payment of rent in excess of Rs50,000/month.
 Reduction in the holding period for computing long term capital gains
from transfer of immovable property from 3 years to 2 years. Also, the
base year for indexation is proposed to be shifted from 1.4.1981 to
1.4.2001 for all classes of assets including immovable property.
 In case of joint development of property, the capital gain to arise in the
hands of the owner of the property in the year when the completion
certificate in respect of the redeveloped property is issued.
 More bonds to be added in the list of bonds qualifying for 54EC
exemption.
 No exemption u/s 10(38) in respect of LTCG on sale of listed equity shares
or units of eligible mutual funds shall be available if the security was
acquired after 1 October 2004 and no STT was paid at the time of
acquisition. However, to protect the exemption for genuine cases where
the Securities Transactions Tax could not have been paid like acquisition
of share in IPO, FPO, bonus or right issue by a listed company acquisition
by non-resident in accordance with FDI policy of the Government etc., it
is also proposed to notify transfers for which the condition of chargeability
to Securities Transactions Tax on acquisition shall not be applicable.
 In case of transfer of unlisted equity shares, for computation of capital
gains, the higher of fair value or net consideration received to be
considered.
 Simple one-page form to be filed as Income Tax Return for the category
of individuals having taxable income upto ` 5 lakhs other than business
income.
 Rebate u/s87A reduced to Rs2500 and will now be available only to
assesses with taxable income upto Rs3,50,000.
 Deduction u/s80CCG abolished wef FY18.
 Loss under head 'Income from house Property" could be set off against
income from other heads only to the extent of Rs2,00,000. Any excess loss
could be carried forward to subsequent years.
 Withdrawal upto 25% of the contribution made to NPS expempted from
tax.
 For self employed individuals, the contribution limit to NPS u/s 80CCD
increased to 20% of gross total income.

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Budget Estimates

12. 01 February 2017
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Deficit and Debt statistics

13. 01 February 2017
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14. 01 February 2017
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Major Expenditure Items

15. 01 February 2017
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Receipt Budget

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