Category: Investment Management

Budget 2016


The Indian Economy's Progress: In the fiscal year 2015-16, India experienced a growth rate of 7.6%, despite challenging global conditions and two consecutive years of 13% monsoon shortfalls. The government maintained fiscal discipline with a fiscal deficit of 3.9% in 2015-16 and aims to achieve 3.5% in 2016-17 and 3% in 2017-18. The revenue deficit also improved from 2.8% to 2.5% in 2015-16. On the expenditure front, the classification of plan and non-plan will be eliminated starting from 2017-18, as these categories were not meaningful for capital expenditure growth. Aadhar will receive statutory backing to ensure that government benefits reach the deserving recipients. Reforms in foreign investment, allowing up to 49% in insurance and pension under the automatic route, were introduced. The financial sector received a boost with an allocation of Rs. 25,000 crore for the recapitalization of Public Sector Banks. Tax proposals included no change in the personal income tax rate, but an additional tax of 10% on the gross amount of dividends declared by companies exceeding Rs. 10 lakh per annum. The surcharge was raised from 12% to 15% on individuals with incomes over Rs. 1 crore. The Securities Transaction Tax for 'Options' was increased from 0.017% to 0.050%. The introduction of the Krishi Kalyan Cess at 0.5% on taxable services was aimed at financing agricultural improvement and farmer welfare initiatives. This increased the effective Service Tax to 15% as of June 2016. The budget also removed the Dividend Distribution Tax on REITs, provided the distribution was made out of the SPV's income. The withdrawal of up to 40% of the corpus on retirement was made tax-exempt for NPS and EPF contributions from April 1, 2016. Furthermore, Section 80GG deduction limits were raised from Rs. 24,000 to Rs. 60,000, benefiting individuals who do not own a home and cannot claim HRA deductions, such as the self-employed. In the equity markets, there was a cautious response to the budget, as investors had anticipated significant reforms. Although broader indices recovered from the initial fall, they closed marginally negative. PSU banks declined as the Rs. 250 billion recapitalization for FY17 fell below market expectations.