CII Union Budget Analysis 2014

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Union Budget 2014-15 An Analysis

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Analysis of the Union Budget 2014 by CII

Transcript of CII Union Budget Analysis 2014

Union Budget 2014-15

An Analysis

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Union Budget 2014-15

An analysis

10 July, 2014

Copyright © 2014 Confederation of Indian Industry (CII). All rights reserved.

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Published by Confederation of Indian Industry (CII), The Mantosh Sondhi Centre; 23, Institutional Area,

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Web: www.cii.in

Contents

Chapter Title Page No.

Foreword

1 Key Features of the Union Budget 2014-15 3-11

2 Key Budget Trends 15-21

3 Analysis of the Budgetary Proposals 25-36

4 Analysis of Fiscal Trends 39-44

5 Direct Taxes 47-56

6 Indirect Taxes Sector & Industry Specific Analysis 59-93

7 Annexure-Key Indicators: Economic Survey 2013-14 97

FOREWORD

In its first Budget, the new Government has activated a number of directional changes that would

stabilize the economy, boost investments, and encourage savings with a view to reviving GDP growth

to 7-8% in the near term. The Budget lays out a medium term vision for the economy and meets

industry expectations on growth and employment creation. A roadmap for fiscal consolidation and

fiscal prudence has been defined to bring fiscal deficit to 3% by 2016-17, with stress on reviving all

sectors of the economy including agriculture, power and infrastructure, manufacturing, and services.

Tax stability and rationalization is addressed widely, according high importance to restoring investor

confidence and boosting sentiments.

CII is happy to note the encouragement to manufacturing through various measures such as correcting

inverted duty structures, setting up of industrial clusters and promoting entrepreneurship. The

provision of a fund of Rs 10,000 crore the Budget to provide equity to start-ups is most encouraging.

Many CII suggestions such as reducing investment allowance, changing definition of MSME, setting up

a start-up fund, and overhaul of the subsidy regime have found mention in the Budget.

The promise of maintaining a stable and predictable tax regime will be a boost for investors’

confidence which had taken a hit due to issues such as the retrospective changes in tax laws. A key

measure has been to reassure foreign investors that India remains an attractive destination.

Expanding FDI in defense and insurance to 49% and allowing FDI in e-commerce as well as

liberalisation of urban development would bring in vital funds to these sectors. Investment promotion

and boosting business confidence has received high attention and is greatly welcomed by industry.

We believe that the Budget would set the tone for quick recovery of GDP growth and generation of

new jobs and hope that it will be followed up by close monitoring and implementation of

announcements.

Chandrajit Banerjee Director General

Confederation of Indian Industry

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Chapter 1

Key Features of the Union Budget

2014-15

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Chapter 1

Key Features of the Union Budget 2014-15

First budget of the new government lays down broad policy directions for achieving a sustainedgrowth of 7-8 per cent or above within the next 3-4 years along with macro-economicstabilization.

Fiscal Deficit

The government is committed to achieve fiscal deficit targets of 4.1 per cent in FY15, 3.6 per centin FY16 and 3 per cent in FY17.

ECONOMIC INITIATIVES

AGRICULTURE SECTOR

Achieve a sustainable growth of 4 per cent in agriculture.

Central Government to work closely with the state governments to re-orient their respectiveAPMC Acts.

Technology driven second green revolution with focus on higher productivity and including“Protein revolution” to be the area of major focus.

Two more Agricultural Research Institutes of excellence to be established in Assam and Jharkhandwith an initial sum of Rs 100 crore.

Rs 100 crores set aside for “Agri-tech Infrastructure Fund”.

Rs 200 crore provided to open Agriculture Universities in Andhra Pradesh and Rajasthan andHorticulture Universities in Telangana and Haryana.

To launch a scheme to provide every farmer a soil health card in a Mission mode. Rs 100 croreprovided for this purpose and additional Rs 56 crore to set up 100 Mobile Soil Testing Laboratoriesacross the country.

A “National Adaptation Fund” with an initial sum of Rs 100 crore to be set up.

Rs 500 crore to be provided for establishing a “Price Stabilization Fund”.

Sum of Rs 50 crore to be provided for the development of indigenous cattle breeds and an equalamount for starting a blue revolution in inland fisheries.

Transformation plan to invigorate the warehousing sector and significantly improve post-harvestlending to farmers.

To provide institutional finance to landless farmers. It is proposed to provide finance to 5 lakh jointfarming groups of “Bhoomi Heen Kisan” through NABARD.

A target of Rs 8 lakh crore has been set for agriculture credit during 2014-15.

Corpus of Rural Infrastructure Development Fund (RIDF) to be raised to Rs 25,000 crore.

Allocation of Rs 5,000 crore provided for the Warehouse Infrastructure Fund.

To set up “Long Term Rural Credit Fund” for the purpose of providing refinance support toCooperative Banks and Regional Rural Banks with an initial corpus of Rs 5,000 crore.

Rs 50,000 crore allocated for Short Term Cooperative Rural Credit.

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Sum of Rs 200 crore for NABARD’s Producers Development and Upliftment Corpus (PRODUCE) for building 2,000 producers organizations over the next two years.

Proposal to reduce the excise duty on specified food processing and packaging machinery from 10 per cent to 6 per cent.

Service tax on loading, unloading, storage, warehousing and transportation of cotton, whether ginned or baled, is being exempted to bring it on par with certain other agricultural produce.

Services provided by the Employees’ State Insurance Corporation for the period prior to 1st July 2012 is being exempted.

Rs 1000 crore provided for “Pradhan Mantri Krishi Sinchayee Yojna” for assured irrigation.

INVESTMENT, INFRASTRUCTURE AND INDUSTRY

Foreign Direct Investment

Government to promote FDI selectively in sectors.

The composite cap of foreign investment to be raised to 49 per cent with full Indian management and control through the FIPB route.

The composite cap in the insurance sector to be increased up to 49 per cent from 26 per cent with full Indian management and control through the FIPB route.

Requirement of the built up area and capital conditions for FDI to be reduced from 50,000 square metres to 20,000 square metres and from USD 10 million to USD 5 million, respectively for development of smart cities.

The manufacturing units to be allowed to sell its products through retail including Ecommerce platforms.

Infrastructure

Rs 100 crore to be provided for setting up a National Industrial Corridor Authority.

An institution to provide support to mainstreaming PPPPs called 4PIndia to be set up with a corpus of Rs 500 crores.

SEZs to be developed in Kandla and JNPT.

An investment of Rs 37,880 crores proposed in NHAI.

Scheme for development of new airports in Tier I and Tier II Cities to be launched.

Comprehensive policy to be announced to promote Indian ship building industry.

Incentives for Real Estate Investment Trusts (REITS). Complete pass through for the purpose of taxation.

A modified REITS type structure for infrastructure projects.

Investment Trusts (INVITS) to attract long term finance from foreign and domestic sources including the NRIs.

Mission on Low Cost Affordable Housing anchored in the National Housing Bank to be set up.

National Housing Bank (NHB) to get additional corpus of Rs 4000 crore.

Slum development to be included in the list of Corporate Social Responsibility (CSR) activities to encourage the private sector to contribute more.

Rs 100 crore is allocated for a new scheme “Ultra-Modern Super Critical Coal Based Thermal Power Technology.”

Comprehensive measures for enhancing domestic coal production.

Adequate quantity of coal will be provided to power plants which are already commissioned or would be commissioned by March 2015.

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An exercise to rationalize coal linkages to optimize transport of coal and reduce cost of power is underway.

Rs 500 crores provided for Ultra Mega Solar Power Projects in Rajasthan, Gujarat,Tamil Nadu, Andhra Pradesh and Laddakh.

Rs 400 crores provided for a scheme for solar power driven agricultural pump sets and water pumping stations.

Rs 100 crore provided for the development of 1 MW Solar Parks on the banks of canals.

A sum of Rs 7060 crore has been provided in the current fiscal for the project of developing one hundred Smart Cities.

500 urban habitations to be provided support for renewal of infrastructure and services in next 10 years through PPPs.

Present corpus of Pooled Municipal Debt Obligation Facility to be enlarged to Rs 50,000 crore from Rs 5000 crore.

Rs 100 crore provided for Metro Projects in Lucknow and Ahemdabad.

Manufacturing and MSME

A fund with a corpus of Rs.10,000 crore to be created for providing equity through venture capital funds, quasi equity, soft loans and other risk capital, to encourage new start ups by youth.

Corpus of Rs 200 crore to be set up to establish Technology Centre Network.

Definition of MSME to be reviewed to provide for a higher capital ceiling.

Programme to facilitate forward and backward linkages with multiple value chain of manufacturing and service delivery.

Entrepreneur friendly legal bankruptcy framework will be developed for SMEs to enable easy exit.

A nationwide “District level Incubation and Accelerator Programme” to be taken up for incubation of new ideas and necessary support for accelerating entrepreneurship.

Rs 50 crore is provided to set up a Trade Facilitation Centre and a Crafts Museum to develop and promote handloom products and carry forward the rich tradition of handlooms of Varanasi.

Sum of Rs 500 crore for developing a Textile mega-cluster at Varanasi and six more at Bareilly, Lucknow, Surat, Kutch, Bhagalpur and Mysore.

Rs 20 crore to set up a Hastkala Academy for the preservation, revival, and documentation of the handloom/handicraft sector in PPP mode in Delhi.

Rs 50 crore provided to start a Pashmina Promotion Programme (P-3) and development of other crafts of Jammu & Kashmir.

TAXATION ADMINISTRATION AND BUSINESS ENVIRONMENT

To promote a stable and predictable and investor friendly taxation regime to spur growth.

Exercise Retrospective legislation with extreme caution and judiciousness, keeping in mind the impact of each such measure on the economy and the overall investment climate.

Bring Legislative and administrative changes to sort out pending tax demands of more than Rs 4 lakh crore under dispute and litigation.

Resident tax payers enabled to obtain on advance ruling in respect of their income-tax liability above a defined threshold.

Take measures for strengthening the Authority for Advance Rulings.

Income-tax Settlement Commission scope to be enlarged.

National Academy for Customs & Excise at Hindupur in Andhra Pradesh.

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The subsidy regime to be made more targeted for full protection to the marginalized, poor and SC/ST.

High level committee to interact with trade and industry on regular basis to ascertain areas requiring clarity in tax laws to be set up.

Central Government Departments and Ministries to integrate their services with the e-Biz -a single window IT platform- for services on priority by 31 December this year.

GST

Find a solution in the course of this year and approve the legislative scheme, which enables the introduction of GST

EXPENDITURE REFORMS

Setting up of Expenditure Management Commission to look into expenditure reforms.

New Urea Policy would be formulated.

FINANCIAL SECTOR

Convergence with International Financial Reporting Standard (IFRS) by Adoption of the new Indian Accounting Standards (2nd AS) by Indian Companies.

Financial Inclusion Mission to be launched on 15 August this year with focus on the weaker sections of the society.

Banks to be encouraged to extend long term loans to infrastructure sector with flexible structuring.

Banks to be permitted to raise long term funds for lending to infrastructure sector with minimum regulatory pre-emption such as CRR, SLR and Priority Sector Lending (PSL).

Six new Debt Recovery Tribunals to be set up.

Ongoing process of consultations with all the stakeholders on the enactment of the Indian Financial Code and reports of the Financial Sector Legislative Reforms Commission (FSLRC) to be completed.

To infuse Rs 2,40,000 crore as equity by 2018 in banks to be in line with Basel-III norms.

Capital of banks to be raised by increasing the shareholding of the people in a phased manner.

Capital Markets

Introduce uniform KYC norms and inter-usability of the KYC records across the entire financial sector.

Introduce one single operating demat account.

Small Savings

Kissan Vikas Patra (KVP) to be reintroduced.

A special small savings instrument to cater to the requirements of educating and marriage of the Girl Child to be introduced.

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A National Savings Certificate with insurance cover to provide additional benefits for the small saver.

In the PPF Scheme, annual ceiling will be enhanced to Rs.1.5 lakh p.a. from Rs.1 lakh at present.

EDUCATION, SKILLS AND HEALTH

An amount of Rs 28635 crore is being funded for Sarv Shiksha Abhiyan(SSA) and Rs 4966 crore for Rashtriya madhyamic Shiksha Abhiyan (RMSA).

Provide toilets and drinking water in all the girls’ schools.

Initiate a School Assessment Programme at a cost of Rs 30 crore.

Provide Rs 500 crore under “Pandit Madan Mohan Malviya New Teachers Training Programme” to infuse new training tools and motivate teachers.

“Skill India” to be launched to skill the youth with an emphasis on employability and entrepreneur skills.

Strengthen at least five institutions as Technical Research Centres.

Development of Biotech clusters in Faridabad and Bengaluru.

Nascent agri-biotech cluster in Mohali to be scaled up. Two new clusters in Pune and Kolkata to be established.

Global partnerships to be developed under India’s leadership to transform the Delhi component of the International Centre for Genetic Engineering and Biotechnology (ICGEB) into a world-leader in life sciences and biotechnology.

Major space missions planned for 2014-15.

Employment exchanges to be transformed into career centres. A sum of Rs 100 crore provided.

Two National Institutes of Ageing to be set up at AIIMS, New Delhi and Madras Medical College, Chennai.

A national level research and referral Institute for higher dental studies to be set up.

To set up AIIMS like institutions in Andhra Pradesh, West Bengal, Vidarbha in Maharashtra and Poorvanchal in UP. A provision of Rs 500 crores made.

12 new government medical colleges to be set up.

States Drug Regulatory and Food Regulatory Systems to be strengthened by creating new drug testing laboratories and strengthening the 31 existing State laboratories.

15 Model Rural Health Research Centres to be set up for research on local health issues concerning rural population.

A national programme in Mission Mode to halt the deteriorating malnutrition situation in India to be put in place within six months.

RURAL DEVELOPMENT

Shyama Prasad Mukherji Rurban Mission for integrated project based infrastructure in the rural areas.

Rs 500 crore for “Deen Dayal Upadhyaya Gram Jyoti Yojana” for feeder separation to augment power supply to the rural areas.

Rs 14,389 crore provided for Pradhan Mantri Gram Sadak Yojna(PMGSY).

More productive, asset creating and with linkages to agriculture and allied activities wage employment to be provided under MGNREGA.

Under Ajeevika, the provision of bank loan for women SHGs at 4 per cent to be extended to another 100 districts.

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Initial sum of Rs 100 crore for “Start Up Village Entrepreneurship Programme” for encouraging rural youth to take up local entrepreneurship programs.

Allocation for National Housing Bank increased to Rs 8000 crore to support Rural housing.

New programme “Neeranchal” to give impetus to watershed development in the country with an initial outlay of Rs 2142 crore.

TOURISM

Rs 200 crore provided to build the Statue of unity (National project).

Facility of Electronic Travel Authorization (e-Visa) to be introduced in phased manner at nine airports in India.

Countries to which the Electronic Travel authorisation facility would be extended would be identified in a phased manner.

Rs 500 crore provided for developing 5 tourist circuits around specific themes.

Rs 100 crore provided for National Mission on Pilgrimage Rejuvenation and Spiritual Augmentation Drive (PRASAD).

Rs 200 crore provided for National Heritage City Development and Augmentation Yojana (HRIDAY).

Rs 100 crore provided for Archaeological sites preservation.

OTHER PROPOSALS

Exemptions are being withdrawn, including those extended to services by air-conditioned contract carriages and technical testing of newly developed drugs on human participants.

A further sum of Rs 1000 crore to meet requirement for “One Rank One Pension”.

Capital outlay for Defence increased by Rs 5000 crore including a sum of Rs 1000 crore for accelerating the development of the Railway system in the border areas.

Urgent steps would be taken to streamline the procurement process to make it speedy and more efficient.

Rs 100 crore provided for construction of a war memorial in the Princes Park, which will be supplemented by a War Museum.

Rs 100 crore provided to set up a Technology Development Fund for Defence.

Pan India programme “Digital India” with an outlay of Rs 500 crore to be launched.

Programme for promoting “Good Governance” to be launched .A sum of Rs 100 crore provided.

BUDGET ESTIMATES

Non-Plan expenditure estimates for FY15 are Rs 12,19,892 crore.

Plan allocation of Rs 5,75,000 crore mark an increase of 26.9% in 2014-15 over actuals for 2013-14.

Total expenditure estimates stand at Rs 17,94,892 crore.

Gross Tax receipts will be Rs 13,64,524 crore.

Non Tax Revenues for the current Financial Year will be Rs 2,12,505 crore and capital receipts other than borrowings will be Rs 73,952 crore.

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DIRECT TAXES PROPOSALS

Personal Income-tax exemption limit raised by Rs.50,000/- that is, from Rs.2 lakh to Rs.2.5 lakh in the case of individual taxpayers, below the age of 60 years. Exemption limit raised from Rs.2.5 lakh to Rs.3 lakh in the case of senior citizens.

No change in rate of surcharge either for the corporates or the individuals, HUFs, firms etc.

Education cess to continue at 3 percent.

Investment limit under section 80C of the Income-tax Act raised from Rs.1 lakh to Rs.1.5 lakh.

Deduction limit on account of interest on loan in respect of self occupied house property raised from Rs.1.5 lakh to Rs.2 lakh.

In PPF scheme, annual ceiling will be enhanced to Rs.1.5 lakh p.a. from Rs.1 lakh at present.

Income arising to foreign portfolio investors from transaction in securities to be treated as capital gains.

Concessional rate of 15 percent on foreign dividends without any sunset date to be continued.

Eligible date of borrowing in foreign currency extended from 30.06.2015 to 30.06.2017 for a concessional tax rate of 5 percent on interest payments. Tax incentive extended to all types of bonds instead of only infrastructure bonds.

To remove tax arbitrage, rate of tax on long term capital gains increased from 10 percent to 20 percent on transfer of units of Mutual Funds, other than equity oriented funds. Further, period of holding in respect of such units increased from 12 months to 36 months for this purpose.

Income and dividend distribution tax to be levied on gross amount instead of amount paid net of taxes.

In case of non deduction of tax on payments, 30% of such payments will be disallowed instead of 100 percent.

Conducive tax regime to Infrastructure Investment Trusts and Real Estate Investment Trusts to be set up in accordance with regulations of the Securities and Exchange Board of India.

Investment allowance at the rate of 15 percent to a manufacturing company that invests more than Rs. 25 crore in any year in new plant and machinery. The benefit to be available for three years i.e. for investments upto 31.03.2017.

Investment linked deduction extended to two new sectors, namely, slurry pipelines for the transportation of iron ore, and semi-conductor wafer fabrication manufacturing units.

10 year tax holiday extended to the undertakings which begin generation, distribution and transmission of power by 31.03.2017.

Introduction of a “Roll Back” provision in the Advanced Pricing Agreement (APA) scheme so that an APA entered into for future transactions is also applicable to international transactions undertaken in previous four years in specified circumstances.

Introduction of range concept for determination of arm’s length price in transfer pricing regulations.

To allow use of multiple year data for comparability analysis under transfer pricing regulations.

Provision of section 115JC of the Act has been amended so as to determine the adjusted total income for the incidence of Alternate Minimum Tax (AMT).

It is proposed to tax under the head income from other sources any sum of money received in advance which is forfeited without resulting in any transfer of capital asset.

Expenses incurred for the purpose of CSR activities shall not be considered for deduction under section 37(1) of the Act.

Where a trust or an institution has been granted registration for purposes of availing exemption under section 11 of the Act, then such trust or institution cannot claim any exemption under any provision of section 10 of the Act.

In order to rationalize the provisions relating to cancellation of registration of a trust, the existing provisions under section 12 (AA) of the Act have been amended.

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Scope of Section 40(a) (ia) of the Act has been broadened to cover the payment of salary and director fees.

Section 54F of the Act has been amended so as to provide that the exemption is available if the investment is made in one residential house situated in India.

Mutual Fund referred to in clause (23D) of section 10 of the Act, securitization trust referred to in clause (23DA) of section 10 of the Act and Venture Capital Company or Venture Capital Fund referred to in clause (23FB) of Section 10 of the Act are required to furnish the income tax return instead of furnishing a statement giving the details of income if their income exceeds maximum amounts which is not chargeable to tax.

Transfer of government securities by a non-resident to another non-resident shall not be considered as transfer for the purpose of charging capital gains.

It has been proposed to exclude the company having principal business of trading in shares from purview of Speculation Business u/s 73 of the Act.

New clause to be introduced under Section 220 of the Act, wherein notice of demand deemed to be valid till disposal of appeal by last appellate authority.

Existing provision of section 92B of the Act has been amended to cover unrelated parties in certain situations.

Central Government shall notify in the Official Gazette from time to time the income computation and disclosure standards to be followed by any class of or in respect of any class of income.

Government to review DTC in its present shape and take a view in the whole matter.

INDIRECT TAXES PROPOSALS

Tax proposals on the indirect taxes side are estimated to yield Rs 7525 crore.

To boost domestic manufacture and to address the issue of inverted duties, basic customs duty (BCD) reduced on certain items.

To encourage new investment and capacity addition in the chemicals and petrochemicals sectors, basic customs duty reduced on certain items.

Steps taken to boost domestic production of electronic items and reduce our dependence on imports. These include:

o imposition of basic customs duty on certain items falling outside the purview of IT Agreement,

o exemption from SAD on inputs/ components for PC manufacturing, o imposition of education cess on imported electronic products for parity etc.

Colour picture tubes exempted from basic customs duty to make cathode ray TVs cheaper and more affordable to weaker sections.

Service tax

To broaden the tax base in Service Tax, sale of space or time for advertisements in broadcast media extended to cover such sales on other segments like online and mobile advertising. Sale of space for advertisements in print media remain excluded from service tax.

Service provided by radio-taxis brought under service tax.

Services by air-conditioned contract carriages and technical testing of newly developed drugs on human participants brought under service tax.

Provision of services rules to be amended and tax incidence to be reduced on transport of goods through coastal vessels to promote Indian Shipping industry.

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Services provided by Indian tour operators to foreign tourists in relation to a tour wholly conducted outside India to be taken out of the tax net and Cenvat credit for services of rent-a-cab and tour operators to be allowed to promote tourism.

Service tax exempted on loading, unloading, storage, warehousing and transportation of cotton, whether ginned or baled.

Services provided by the Employees’ State Insurance Corporation for the period prior to 1st July 2012 exempted from service tax.

Exemption available for specified micro insurance schemes expanded to cover all life micro-insurance schemes where the sum assured does not exceed Rs 50,000 per life insured.

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Chapter 2

Key Budget Trends

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Chapter 2

Key Budget Trends

Sources of Revenue - contribution of borrowings & other liabilities goes

down

Sources of Expenditure - share of Central Plan Expenditure declines

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Fiscal consolidation on track

T: Target

Moderation in Deficits as percent of GDP

Revenue receipts on the rise

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Tax-GDP ratio increases marginally

Disinvestment target rises significantly

Debt Receipts move up

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Debt servicing shows sign of moderation

Expenditure - GDP ratio remains stable

Plan exp. (as % of GDP) moves up while non-plan exp. falls

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Capital expenditure as % of total expenditure remains low

Major components of non-plan expenditure continue to rise

Subsidies as percent of total expenditure decline

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Subsidy on food & fertilizer increases whereas that on petroleum declines

Central Plan Outlay on various sectors of economy declines

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Central plan outlay on Agri, Rural Dev & Social Services Slashed

*Includes the provision for rural housing but excludes provision for rural roads. ** Includes the provision for rural roads. ***Excludes provision for rural housing. **** Includes Communications, Irrigation and Flood Control and General Economic Services.

Infrastructure spending to increase

Net transfers to states go up significantly

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Chapter 3

Analysis of the Budgetary

Proposals

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Chapter 3

Analysis of the Budgetary Proposals

Prelude The Union Budget 2014-15, the maiden budget of the newly elected government, has been announced at a time when the macro-economic milieu continues to be domestically and globally challenging. As a result, the year 2013-14, was primarily marked by slowdown in GDP growth and persistent inflationary pressures. At the same time, declining industrial and manufacturing production, subdued consumption, stalled investments and high fiscal deficit indicates that recovery is still some distance away. What is more, the government has had to contend with elevated expectations from citizens who were anticipating the revival of 'Achche Din' from this government. Under these circumstances, the Finance Minister has attempted a fine balancing act by taking steps to provide an impetus to economy and industry, reignite investment demand even while enforcing fiscal prudence and intending to contain food inflation through appropriate fiscal and supply side initiatives. The Union Budget 2014-15 stands out for the pragmatic and bold approach adopted by the Finance Minister to lift growth, reignite investment, boost savings and provide a fillip to employment generation. A bold and reformist budget, it has rightly focused on the priority areas which would boost business confidence by providing an impetus to growth. The vision articulated in the Budget shows that the government means business. Some of the announcements made by the Finance Minister in the speech which deserve special mention are given below.

Fiscal Consolidation The initiative taken by the Finance Minister to adhere to the path of fiscal prudence as well as present a credible medium term plan to bring down fiscal and revenue deficit is indeed laudable. The Budget has rightly spelt out a roadmap of gradually reducing the fiscal deficit to 3 per cent of GDP by 2016-17 which would bring in the much needed efficiency and certainty in government finances. This singular measure, if effectively implemented, has the potential to be a game-changer for lifting business sentiment, bolstering our credibility among foreign investors and rating agencies and would send a strong signal that the government is committed to reforms.

Besides, the revenue deficit is estimated to be contained at 2.9 per cent of GDP as against 3.3 per cent in 2013-14. As a result, borrowings are expected to rise by a mere one per cent in 2014-15 over the revised estimates of last year.

As per the data provided in the Budget 2014-15, total receipts have been budgeted at Rs. 1,794,892 crore in 2014-15, which is around 13 per cent higher than the revised estimates of 2013-14. Similarly, Plan expenditure has been estimated at Rs. 575,000 crore, which is 21per cent higher than the revised estimates of last year. And non-Plan expenditure is budgeted at 8 per cent higher than the revised estimates of last year.

The amount set aside in the Budget for capital expenditure has gone up by around 19 per cent in 2014-15 which is higher than 15 per cent Budget rise in 2013-14 but as share of total expenditure, at 12.6 per cent is lower than the 13.7 per cent achieved in the previous year which indicates that the quality of fiscal deficit is still a cause for concern.

Hopefully the disinvestment target of Rs.63,425 crore for 2014-15 would materialise considering that only Rs. 25,841 crore worth of disinvestment was achieved last year.

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Rationalising Subsidies

Another creditable feature of the Budget is the intent towards better targeting of subsidies so that the amount reaches the intended beneficiary. What is significant is the decision to announce an Expenditure Management Commission to look into expenditure reforms. The move would bring in certainty and efficiency in expenditure management. The formulation of a new urea policy is noteworthy and would serve to restore the soil nutrient balance. The decision to curtail subsidies such as that on fuel and fertilizers is noteworthy as it neither promotes efficient utilization of resources nor does it have significant positive externalities. The linking of MNREGA with asset creation would help build productive assets and help regenerate the village economy.

Tax Reforms

The most striking feature of the Budget has been the attempt to rekindle business confidence and make India an attractive place for doing business for the domestic and foreign investor. The Budget has announced a stable, transparent and non-adversarial tax environment with a focus to re-engineer tax administration and overhaul the dispute settlement mechanism so as to improve the ease of doing business in India. The announcement that the government would not ordinarily change policies retrospectively is noteworthy. The creation of a high level Committee by CBDT to scrutinize all cases arising out of past amendments, changes in transfer pricing regulation, widening the scope of authority of advance rulings are all steps in the right direction. The Finance Minister has also given an assurance that the concerns of the States about loss of autonomy and compensation for loss of revenue will be resolved by end of this financial year which in turn would pave the way for the implementation of GST. This is a sure way of strengthening business sentiment and restore faith of the foreign investor in the India growth story.

Rejuvenating the projects pipeline: Infrastructure Development of adequate infrastructure is a critical pre-requisite for sustaining the momentum of economic growth while at the same time ensuring inclusiveness in the growth process. As the country aspires to resume the journey towards a path of sustained growth of 7-8 per cent or above within the next 3-4 years it is imperative to put in place policies and programmes which would provide a fillip to infrastructure development.

With a view to incentivise development of infrastructure, the Budget has proposed a number of welcome measures which would make investment in infrastructure a viable business proposition. Some of the key measures announced for the infrastructure sector are as under:

Rural infrastructure to be promoted via PPP through Shyamaprasad Mukherjee Rurban Mission for which a grant of Rs. 500 Crores has been set aside. The scheme would serve to strengthen rural infrastructure and prevent rapid pace of urban migration.

An institution to provide support to mainstreaming PPPs called 3P India will be set up with a corpus of Rs.500 Crores.

Priority would be accorded to quick Dispute Resolution

Banks will be permitted to raise long term funds for lending to infrastructure sector with minimum regulatory pre-emption such as CRR, SLR and Priority Sector Lending (PSL)

Infrastructure Investment Trusts to be set up with tax incentives. This would provide long term affordable finance to the Sector and hopefully these steps would provide incentive to Banks for lending.

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Roads & Highways

A grant of Rs. 14,389 crore provided to Pradhan Mantri Gram Sadak Yojna (PMGSY)

Allocation to National Highway Authority of India (NHAI) enhanced to Rs 37, 850 Crores, including Rs 3,000 Crores to North East

Ports

16 New Ports to be announced this fiscal

Comprehensive Policy to be announced for Ship Building Industry this fiscal

Ship Building Industry is looking for impetus at par with other developing countries

Shipping

A comprehensive policy will be announced to promote Indian ship building industry in the current financial year.

Inland Waterways

The waterway from Allahabad to Haldia to be created (1620 Km) over the next 6 years with an investment of Rs 4,200 Crores. Hopefully, the development of this waterway would revive the traditional, cost effective and faster means of freight transport in the country.

Airports

Launch of new airports in Tier I and Tier II cities through Airport Authority of India or PPP to ensure connectivity amongst Tier I & II Cities.

However, while regional connectivity has always been a focus area, greater clarity is required on controversial issues in the Concession Agreements to attract private investment.

Real Estate & Housing

Low Cost Affordable Housing

Limit for attracting FDI lowered from 50,000 sq.m to 20,000 sq. m. Capital Requirement reduced from Rs 10 million to Rs.5 million with 3 year lock in period. This would help provide low cost finance for affordable housi

National Housing Bank (NHB) to get additional corpus of Rs 4000 Crore. Hopefully, this would motivate the National Housing Bank (NHB) to come out with innovative financing mechanisms for this crucial sector of the economy.

Financing Real Estate & Housing

Tax Incentives provided for Real Estate Investment (REITs). This would provide a fillip to Real Estate & Housing Sector as REITs have been proven global instruments for bringing investment in this Sector.

Urbanization & Future Cities

Smart & New Cities

A budgetary Allocation of INR 7,060 Crore proposed for creation of 100 New Smart Cities. This would result in the creation of new and smart cities to manage the burgeoning urban population in the country that is expected to reach 600 million by 2031.

Industrial Corridor Headquarter to be established in Pune, which would also focus on Smart Cities across Industrial Corridors in the country with grant of INR 100 Crore

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Financing Urbanization

Special focus on water, Sewage and Transport for Urban Renewal.

Budget allocation proposed to increase from Rs 5,000 Crore at present to Rs 50,000 Crore by 2019 for pooled Municipal Debt Obligation Facility. This will not only take care of the crumbling city infrastructure but would also provide greater financial powers at municipal levels.

Power Sector

Rs 100 crores set aside for preparation work for a new scheme “Ultra-Modern Super Critical Coal Based Thermal Power Technology”. This will lead to the adoption of cleaner and more efficient technologies.

Comprehensive measures are underway to increase domestic coal production, which includes supply of crushed coal and setting up of washeries. Exercise to rationalize coal linkages which will optimize transport of coal is also underway

Easing supply of coal for power producers. This will help curb coal imports significantly thereby easing pressure on current account deficit. A detailed roadmap on increasing coal production is awaited.

A budgetary allocation of Rs 200 crores for power reforms in Delhi. Hopefully, this will improve the power supply in Delhi

Harnessing Agriculture Production

Contributing around 15% of India’s Gross Domestic Product (GDP), the sector provides employment to 52% of the country’s work force and livelihood security to more than 620 million people. Hence, a vibrant and robust agriculture sector is critical for promoting inclusive growth in the country. However, the sector finds itself constrained on account of structural bottlenecks which gets reflected in low agriculture yields, poor agriculture productivity and weak agriculture supply chain and has resulted in persistently high inflation.

With a view to provide an impetus to growth in agriculture, the Budget has proposed wide-ranging initiatives to reinvigorate the sector.

General

New urea policy will be formulated which will bring in efficiency in nutrient use

MNREGA will be linked to agriculture, focusing on works that are more productive, asset creating and substantially linked to agriculture and allied activities.

Setting up of national market and farmer markets with state level

Allocation of Rs 100 crore for agri tech infrastructure fund

Allocation of Rs 5,000 crore to increase warehousing capacity

Development of integrated marketing infrastructure

Water management

Pradhan Mantri Krishi Sichayin Yojna announced with allocation of Rs 1,000 crore

National adaptation fund for climate change with Rs100 crore

Assured irrigation and risk mitigation

A new program called “Neeranchal” with an initial outlay of Rs2,142 crores.

Added impetus to watershed development in the country

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Research and Development

Agri research center in Assam & Jharkhand with allocation of Rs100 crore

Agri university in Andhra Pradesh and Rajasthan and Horticulture University in Telangana and Haryana with allocation of Rs 200 crore

Renewed focus on agri education and R&D

Announcement of scheme to provide soil health card to farmers allocated Rs100 crore

Scheme for establishing 100 mobile soil testing labs with allocation of Rs56 crore

Better soil health management by efficiency in nutrient use Agri-credit

Target for agri lending set up at Rs 8 lakh crore

Under the Interest Subvention Scheme for short term crop loans, the banks are extending loans to farmers at a concessional rate of 7%. The farmers get a further incentive of 3% for timely repayment. The scheme to be continued in 2014-15.

Finance to 5 lakh joint farming groups of bhoomi heen kisan through NABARD

Price stabilization fund with allocation of Rs 500 crore

Improved credit availability to farmers

Corpus of RIDF raised by an additional Rs 5,000 crores from the target given in the Interim Budget to Rs 25,000 crores

Help in creation of infrastructure in agriculture and rural sectors across the country.

NABARD allocated Rs 200 crore for setting up 2000 producer organizations

To ensure profitability of small holding based agriculture

Allocation of Rs 50,000 crore for Short Term Cooperative Rural Credit (STCRC) – Refinance Fund during 2014-15.

Ensure increased and uninterrupted credit flow to farmers and to avoid high cost market borrowings by NABARD

Setting up “Long Term Rural Credit Fund” in NABARD for the purpose of providing refinance support to Cooperative Banks and Regional Rural Banks with an initial corpus of Rs 5,000 crore.

Boost to long term investment credit in agriculture Allied sectors

Allocation of Rs 50 crore for indigenous cattle breeding and blue revolution in inland fisheries

Development of agri allied sectors

Kisan television launched with Rs100 crore

Efficient real time information dissemination to farmers on various farming and agriculture issues

Energy efficiency

Solar power driven agricultural pump sets and water pumping stations for energizing one lakh pumps with an allocation of Rs 400 crores

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Manufacturing: A Fresh Deal

If the Indian growth story has to be sustained and adequate employment is to be generated then it is imperative that the share of manufacturing in GDP increases to upwards of 25 per cent from the present share of around 15 per cent of GDP.

The Budget recognizes that the contribution made by the sector, at around 15 per cent of GDP is not enough to fulfil the developmental priorities of a country with a large population like India. Hence, a number of measures have been announced in the Budget to provide an impetus to the manufacturing sector. Some such measures are as under:

General

Setting up of 20 industrial clusters, a National Industrial Corridor Authority, linking of smart cities with industrial corridors, reviving SEZs, etc are steps that provide support to the manufacturing sector and attract employment.

Capital Goods

A decrease in the threshold limit of investment allowance on plant and machinery from Rs 100 Cr to Rs 25 Cr will promote investment in plant and machinery. This will also give boost to capital goods industry. CII had strongly called for this provision

Infrastructure Investments Announced: Development of 16 new port projects, allocation of Rs 11,635 crores for port connectivity, development of new airports in Tier 1 and Tier II cities, investment in National Highway Authority of India, Ultra Mega Solar Power Projects and additional 15,000 km of gas pipelines via PPP would give a huge boost to capital goods industry.

Reduction of Basic Custom Duty from 10% to 5% on forged steel rings for manufacture of bearings of wind operated electricity generators will lead to reduction in input cost for bearing manufacturers, used in wind operated electricity generators.

Continuation of reduction in excise duty on capital goods from 12% to 10% promises to spur growth in capital goods industry. PSU capital investment of sum of Rs 2.47 lakh crore in 2014-15 also fosters demand for capital goods

Steel

Increase in the custom duty on imported flat rolled steel for stainless steel from 5% to 7.5% is a welcome step

Mining sector welcomes the announcement on changes in the MMDR Act This will help in facilitating the mining of iron ore, promote investments and encourage sustainable best practices.

Royalty on minerals to be reviewed to enhance revenue for steel is a negative step as it will affect prices

Customs duty on metallurgical coal increased from nil to 2.5% Chemicals

Reduction of the Basic Customs Duty (BCD) on fatty acids, crude palm stearin, RBD and other palm stearin, specified industrial grade crude oils from 7.5% to nil for manufacture of soaps and oleo chemicals will boost domestic manufacturing and help bring prices of consumables like soaps down

Reduction of the Basic Customs Duty (BCD) on crude glycerin from 12.5% to 7.5% and crude glycerin used in manufacture of soaps from 12.5% to nil would require further correction as it is

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not crude glycerin that is used in manufacture of soaps but refined glycerin. A clarification will have to be issued in this regard.

Reduction of the Basic Customs Duty (BCD) on fatty acids from 7.5% to nil is a positive move Textiles

6 new textile clusters are proposed. A handloom and pashmina promotion programme will go a long way in creating Brand India

ICTE Manufacturing

Reduction in Customs Duty on LCD panels under 19 inches would make the end products more affordable and generate additional demand.

SAD exemption on input component parts for computers addresses the issue of CENVAT overflow and makes the products cheaper.

Increase in customs duty on Non-STA telecom products would make the domestic manufacturers of such products competitive.

Exemption of CPTs from custom duty - The domestic production of CPTs is being phased out. The CRT based CTV sets would become cheaper as a result of this reduction in customs duty.

Raising the excise duty on Smart Cards to 12% (implies CVD of 12% on imports) would make the domestic manufacturers competitive

Expansion of broadband connectivity and project of 100 Smart Cities would generate demand for IT and Telecom products.

Cement

Highway development and state roads, rural housing and infrastructure projects will boost demand for Cement.

Food Processing

Reduction of the excise duty on specified food processing and packaging machinery from 10 percent to 6 percent would incentivize expansion of processing capacity and boost investment by small and medium enterprises.

MSME Sector: Harnessing the Growth Engine The MSME segment, by contributing over 40 per cent to production and 30 per cent to exports, has emerged as an engine of growth for the economy. The segment has created more than 100 million jobs through 46 million units from rural and urban areas across the country. However, the slow pace of economic reforms has adversely affected the confidence of MSMEs. The sector is afflicted by problems relating to finance, marketing, technology, among others which is preventing the sector from utilizing its full potential. Recognising the immense potential of this sector towards inclusive growth, the government has announced wide-ranging measures in the Budget for accelerating growth in the MSME sector.

Definition of MSME will be revised which is a major CII recommendation. The present definition of MSME based on Investment is not in consonance with inflation rate and exchange rates which have changed over time.

Fund of Rs Rs 10,000 Crore for equity support for MSME and supported with Rs 200 crore corpus fund for technology is a much-awaited move and meets CII recommendations

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New Committee will be formed comprising of representation from Ministry of MSME and RBI to address financing problems of MSME, also included in CII recommendations.

Bankruptcy issue of MSME will be addressed, helping viable companies to survive. This is a major CII recommendation.

National Skill India Programme will be started. It will bring in new entrepreneurs and will help existing entrepreneurs running business under SME setup to run their entities in an efficient and cost effective manner.

FDI in defence increased from existing 26% to 49% will boost the business of SME’s in manufacturing defence related products.

A Trade Facilitation Centre for Handloom Industry will be established. It will benefit SME's operating in Handloom Industry and is a major CII recommendation

Rs 100 Crore Fund for Technology Development.

Defence & Aerospace Sector A major concern in the defence sector is the dependence on imports for supply of defence equipments and systems. India’s target of achieving 70 per cent indigenization is still a long way off. Besides, the participation of the Indian private sector in defence production is below potential. The Budget has announced the following set of measures to attract domestic investment in the defence sector.

Defence budget has been increased to Rs 2,29,000 crore. This includes modernisation of arms and increased capital outlay by Rs 5,000 crore including Rs 1,000 crore of development of railway in border areas.

This will increase avenues for participation of Indian Industry in Defence Production.

Composite FDI in defence is raised to 49% (The ownership of such joint ventures will stay with Indian companies)

These proposals will have positive impact on private defense industry and will speed up indigenization. These provide a huge employment opportunity.

Financial sector: The Reforms Agenda

The Union Budget FY15 has struck a positive balance between the prudential regulatory and policy reforms and a focused growth oriented strategy for financial inclusion. CII welcomes the government’s decision to increase the composite FDI in insurance to 49%. It is a significant step in the right direction. The Budget addresses the key challenges of banks like growing NPAs, capital infusion and infrastructure financing, and goes a long way in strengthening the financial inclusion agenda. Among the key provisions announced:

Banking

Adoption of the new Indian Accounting Standards (Ind AS) for Financial Sector will bring convergence in Indian financial sector reporting standards with internationally accepted norms while also bringing advantages of global best practices for greater transparency and better governance framework.

Launching of Financial Inclusion Mission on 15 August this year with focus on the weaker sections of the society would be critical in extending banking services to the unbanked masses.

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This would help bring the targeted financially excluded weaker sections of the society, including women, small and marginal farmers and labourers, under the coverage of formal financial services network.

To encourage banks to extend long term loans to infrastructure sector, the Budget proposes to permit them to raise long term funds for lending to infrastructure sector with minimum regulatory pre-emption such as CRR, SLR and Priority Sector Lending (PSL). On the asset side, banks will be encouraged to extend long term loans to infrastructure sector with flexible structuring to absorb potential adverse contingencies, sometimes known as the 5/25 structure. On the liability side, banks will be permitted to raise long term funds for lending to infrastructure sector with minimum regulatory pre-emption such as CRR, SLR and Priority Sector Lending (PSL).

To address the issue of Non-Performing Assets (NPA’s) of Public Sector Banks, six new Debt Recovery Tribunals would be set up at Chandigarh, Bengaluru, Ernakulum, Dehradun, Siliguri and Hyderabad.

Ongoing process of consultations with all the stakeholders on the enactment of the Indian Financial Code and reports of the Financial Sector Legislative Reforms Commission (FSLRC) to be completed.

Requirement to infuse Rs 2,40,000 crore as equity by 2018 in banks is in line with Basel-III norms.

Capital of banks to be raised by increasing the shareholding of the people in a phased manner. The measure will reduce the pressure on the Government finances whereas greater public shareholding along with autonomy and accountability for Public Sector Banks would help bring necessary reforms in their governance framework.

Capital markets

Introduction of uniform KYC norms and inter-usability of the KYC records across the entire financial sector leads to simplification and easier access of financial markets by retail investors. Uniform KYC, approved by one regulator would be accepted by other regulators. This will do away with the requirement to perform multiple KYC for investing in products regulated by different regulators

Single operating demat account will reduce operation difficulties for most retail investors and may help investors and intermediaries to seamlessly transact across all financial instruments

Pass-through status for Real Estate Investment Trusts and Infrastructure Investment Trusts will avoid double taxation and bring in tax clarity beneficial for cash-strapped and highly leveraged developers. REITs are expected to attract more global investment and bring transparency into the sector.

Tax rebate on dividend remitted by foreign companies will encourage receipts by companies in India

The holding period for debt mutual funds to be increased from 12 months to 36 months

Long term capital gain tax rate increased from 10% to 20% on debt MFs.

The rise in the lock-in period may provide long term stable funds to the mutual fund industry and to the economy. Also this would bring parity with other asset classes. This may allow fund managers to manage funds in a much better way as they will get access to funds for a longer time.

The increase in the LTCG for debt funds is intended to give level playing field to fixed income mutual funds vis-à-vis banks deposits

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Income from FPIs to be characterized as Capital Gains will give tax certainty to foreign portfolio investors and may pave the way for foreign fund managers to set-up their base in India.

Boost to borrowing through corporate bond market. Extend a liberalized facility of 5% withholding tax to all bonds issued by Indian corporates abroad for all sectors and extend the validity of the scheme to 30.06.2017. This will incentivize FPIs to invest in this class and will give a boost to the corporate bond market.

Small Savings

Kissan Vikas Patra (KVP) to be reintroduced.

A special small savings instrument to cater to the requirements of educating and marriage of the Girl Child to be introduced.

A National Savings Certificate with insurance cover to provide additional benefits for the small saver.

In the PPF Scheme, annual ceiling will be enhanced to Rs.1.5 lakh p.a. from Rs.1 lakh at present.

Reinvigorating the Healthcare Sector

Our healthcare system continues to be in need of a makeover. The demand far outstrips the supply. There are systemic distortions which lead to inefficiencies in the sector and investment in health is inadequate to meet the growing needs of the system.

The major provisions announced in the Budget for the healthcare sector are as under:

The Budget has recognized the long standing need for enabling access to “healthcare services for all” through provision of free medicines and free diagnostic services which will benefit a vast number of the underprivileged population in a big way.

The twin benefits of improved sanitation facilities through the “Swatch Bharat Abhiyan” and provision of free diagnostic services and free medicines should enable a significant lowering of the disease burden through preventive and early remedial measures resulting in lesser healthcare costs and an improvement of the health indices over time.

The Budget has also recognized the need for reducing the burden of tertiary care on only a few Metro based institutions. The setting up the additional AIIMS like institutions at the State levels will help to bridge the much needed gap of decentralizing tertiary care facilities and providing healthcare delivery for the population at large closer to their homes.

The proposed setting up of the 12 Government medical colleges is expected to address the problem of the acute shortages of Doctors and Specialists that the country is facing in expanding healthcare delivery, especially in Tier I and III cities and rural areas.

The underlying thrust of the Budgetary provisions for large scale disease prevention, expanded and decentralized infrastructure and build up of Medical talent in a big way are steps in the right direction which should serve the growing healthcare needs of the vast population of India. The proposed 15 Model rural Health Research Centres should be able to facilitate identifying incidence of local health issues and, therefore, targeting interventions better.

The private sector can complement the Government in a significant way in this massive exercise through appropriately structured PPP models and CII looks forward to working with the Government in implementing this mammoth agenda. A higher integration of Health Insurance in the Healthcare delivery agenda will also help in leveraging available resources for public health for higher returns.

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Higher Education Sector Among the steps related to higher education, Budget 2014 focuses largely on health education and sports education. Both are areas which have been neglected for long, the latter having had virtually no national focus so far.

4 more AIIMS like institutions in Andhra Pradesh, West Bengal, Vidarbha and Poorvanchal for Rs 500 crore. 12 more government medical colleges with dental facilities.

Agriculture universities in Andhra Pradesh and Rajasthan and Horticulture Universities in Telengana and Haryana for Rs 200 crore.

National Center for Himalayan Studies with Rs 100 crore

Sports University in Manipur with Rs 100 crore

Finance minister’s announcement on setting up of new institutes is welcome as it will address the larger agenda of increasing access to higher education but the core issue of faculty shortages in existing institutes and ways to strengthen the system has been left untouched. The more fundamental questions of autonomy for these institutes so that they have the flexibility to recruit the faculty they want and are encouraged to go for the right kind of accreditation, have not been addressed.

Focus on Skill Development National Multi Skill programme - Skill India constituted to skill the youth with emphasis on employability and entrepreneurial skills. The FM’s announcement on the convergence of various schemes reiterates the government’s commitment to developing a robust and sustainable skilling ecosystem with the Prime Minister's vision for building India a skilled India with scale and speed.

Apprenticeship Act 1961 to be amended. Such a move would make it easier for apprentices to be trained to become skilled workers, which will benefit industry in the long run.

Media & Entertainment Sector The budget announcements of setting up a “National Centre for Excellence in Animation, Gaming and Special Effects would help in harnessing the huge potential in the gaming industry, While it will help the M&E sector become globally competitive and attract students from across the globe it will also help the India M&E industry capitalize in the sector of gaming. To boost community radio stations the budget has allocated Rs 100 cr allocated for the set up of new Community Radio stations.

The announcement of according status of Institutes of national Importance to Film & Television Institute, Pune and Satyajit Ray Film & Television Kolkata Institute is a welcome step .

Realising the Tourism Potential

The initatives announced in the budget will boost the development of tourism infrastructure and tourism industry in india which has a significant potential to attract foreign tourists. The following proposal of

Introduction of facility of E-visas in a phased manner at 9 airports

Development of Sarnath-Gaya-Varanasi Buddhist circuit with world class tourist amenities

Allocation of Rs 100 cr allocated for development of archaeological sites

Allocation of Rs 500 cr allocated for setting up five tourist circuits

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Allocation of Rs 200 cr allocated for heritage conservation. Mathura, Amritsar, Gaya, Kanchipuram, Vellankani and Ajmer identified for heritage conservation

Development of Convention Centers and New airports in tier I and tier II cities to be developed on a PPP model

Exemption of Services provided by Indian tour operators to foreign tourists for a tour conducted outside India and provision of Cenvat credit for services of renting a cab.

Will help in improving connectivity, preserving our ancient heritage and attract tourists, which in turn will promote job creation within the industry and boost tourism industry

IT & Telecom Sector While the provisions of Budgetary Allocation of Rs 100 Crores towards delivery of elementary learning would support in delivery of basic services and augment elementary learning. The proposal of National Rural Internet and Technology Mission for services in villages and schools, training in IT skills and E-Kranti for government service delivery and governance scheme with sum of `500 crore would improve broadband connectivity in rural areas. The rural broadband scheme will help to push IT penetration in rural areas for financial inclusion.

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Chapter 4

Analysis of Fiscal Trends

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Chapter 4

Analysis of Fiscal Trends

A Pragmatic and Extensive Budget

Presenting the first budget of the newly elected NDA government, Finance Minister, Mr Arun Jaitley laid stress on fiscal prudence, retaining the fiscal deficit target of 4.1 per cent of GDP for 2014-15, while aiming to progressively reduce it to 3.6 per cent in 2015-16 and 3.0 per cent in 2016-17. To be sure, the revised fiscal deficit for 2013-14 stood at 4.6 per cent of GDP as compared to 4.8 per cent in 2012-13. To lower the fiscal deficit to 4.1 per cent of GDP in 2014-15, the government is betting on revenue and expenditure growth both to the tune of 12.9 per cent as compared to the revised estimates for 2013-14. Faced with an economy struggling with low growth rates over the last two years and given the fact that the government’s revenue collection has been falling below the budgeted revenue in five of the past six years including the last fiscal year, the revenue targets for 2014-15 look ambitious.

Revenue deficit is budgeted to decline to 2.9 per cent of GDP in the current fiscal as compared to 3.3 per cent in the previous year. In the Union Budget 2012-13, government had introduced a new fiscal indicator-effective revenue deficit- which is calculated after excluding the expenditure on grants for creation of capital assets. The effective revenue deficit will decline to 1.6 per cent in 2014-15, from 2.0 per cent in the previous year. As per the medium-term policy statement, revenue deficit will moderate to 2.0 per cent in 2015-16 and 1.5 per cent in 2016-17, while effective revenue deficit is budgeted to be eliminated from 2015-16.

Figure 1: Trend in Deficits) Table 1: Government Market Borrowings (as a % of GDP (Rs crore)

2012-13 2013-14 (RE) 2014-15 (BE)

Fiscal Deficit 4,90,190 5,24,539 5,31,177

% financed through market loans

95.3 86.5 86.8

Gross Market Borrowings

5,58,000 5,63,911 6,00,000

Less repayments 90,644 1,10,009 1,38,795

Net Market Borrowings

4,67,356 4,53,902 4,61,205

Source: Union Budget 2014-15 Note: BE- Budget Estimates, RE – Revised Estimates

Though the fiscal deficit has been targeted at 4.1 per cent of GDP in the current fiscal, lower than 4.6 per cent achieved in the last year, net market borrowings have been pegged marginally higher by 1.6 per cent in 2014-15 over 2013-14. This is expected to put slight upward pressure on yield for the 10-year benchmark government security. Additionally, and perhaps more importantly, the FM has reduced his dependence on market loans for financing the deficit in

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2014-15. As a result, the proportion of funding provided through market borrowings is expected to be 86.8 per cent in 2014-15 against a substantially higher share of 95.3 per cent in 2012-13.

Economic activity is positively related to tax revenues. Empirical evidence from India clearly reveals that government revenues plummet during downturns and spike up during upturns. In the coming fiscal, we expect some improvement in the growth prospects, propelled by pick-up in investment and consumption demand, which will in turn provide a fillip to the tax collections for the government. Additionally, in order to achieve fiscal consolidation, the FM hopes to implement Goods and Service tax (GST) as soon as possible to improve tax buoyancy.

The following table presents the key budgetary arithmetic for 2014-15.

Table 2: Budget at a Glance 2014-15

(Rs crores) 2012-13 2013-14 2013-14 2014-15 % Change

Actuals BE RE BE

(FY15 BE over FY14

RE)

1. Revenue Receipts 879232 1056331 1029252 1189763 15.6

2. Tax Revenue (net to centre) 741877 884078 836026 977258 16.9

3. Non-Tax Revenue 137355 172252 193226 212505 10.0

4. Capital Receipts (5+6+7) 531140 608967 561182 605129 7.8

5. Recoveries of Loans 15060 10654 10802 10527 -2.5

6. Other Receipts 25890 55814 25841 63425 145.4

7. Borrowings and other liabilities 490190 542499 524539 531177 1.3

8. Total Receipts (1+4) 1410372 1665297 1590434 1794892 12.9

9. Non-Plan Expenditure 996747 1109975 1114902 1219892 9.4

10. On Revenue Account, of which 914306 992908 1027689 1114609 8.5

11. Interest Payments 313170 370684 380066 427011 12.4

12. On Capital Account 82441 117067 87214 105283 20.7

13. Plan Expenditure 413625 555322 475532 575000 20.9

14. On Revenue Account 329208 443260 371851 453503 22.0

15. On Capital Account 84417 112062 103681 121497 17.2

16. Total Expenditure 1410372 1665297 1590434 1794892 12.9

17. Revenue Expenditure 1243514 1436169 1399540 1568111 12.0

18. Capital Expenditure 166858 229129 190894 226781 18.8

19. Revenue Deficit 364282 379838 370288 378348 2.2

As a percentage of GDP 3.6 3.3 3.3 2.9 -

20. Effective Revenue Deficit 248572 205205 232060 210244 -9.4

As a percentage of GDP 2.5 1.8 2.0 1.6 -

21. Fiscal Deficit 490190 542499 524539 531177 1.3

As a percentage of GDP 4.8 4.8 4.6 4.1 -

22. Primary Deficit 177020 171814 144473 104166 -27.9

As a percentage of GDP 1.8 1.5 1.3 0.8 -

Source: Union Budget 2014-15

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The Revenue Arithmetic

The sharp jump in disinvestment receipts budgeted in 2014-15 is a heartening sign. Gross tax receipts are expected to register an impressive growth in the current year too. Coupled with insipid performance on the non-tax receipts front, total receipts are estimated to grow by only 12.9 per cent in 2014-15.

The sub-five per cent growth in the last two years had a negative impact on the industrial performance, with the sector’s growth languishing at an average 0.7 per cent in the same period. This, in turn, severely dented government revenue stream. However, given only a marginal improvement of economic growth in the current fiscal, total receipts are budgeted to increase by 12.9 per cent in 2014-15 as compared to 12.8 per cent growth in 2013-14, underpinned by 17.7 per cent expansion in tax receipts. Positively, disinvestment receipts are budgeted to grow sharply this year, turning around the dismal state of affairs prevalent in the last couple of years. Moreover, the budget makes a mention of the likelihood of finding a resolution to the problems many states are having in implementation of the GST. The latter is expected to streamline the tax administration, avoid harassment of the business and result in higher revenue collection, both for the Centre and the States.

Tax Revenue

During 2013-14, growth in gross tax receipts had dipped to 11.8 per cent mainly on account of slower growth in indirect taxes. However, in 2014-15, gross tax receipts are budgeted to grow by 17.7 per cent. Consequently, gross tax revenue to GDP ratio is expected to rise to 10.6 per cent for 2014-15 from 10.2 per cent in the previous year. Under gross tax revenue, corporate and income tax collections are budgeted to grow by 14.6 and 17.6 per cent in 2014-15, respectively over the revised estimates of 2013-14. Amongst the indirect taxes, service tax is expected to retain its robust growth in 2014-15 too. Extension of excise duty concessions for capital goods, consumer durables and automobile sectors for a period of 6 more months may help in boosting growth of the beleaguered manufacturing sector. One important change in the structure of tax revenues in the last couple of years has been the emergence of corporate taxes as the single largest component of overall tax collections since FY07. Prior to that, union excise duty was the single biggest source of tax revenue for the government.

Non-Tax Revenue

Non-tax revenue receipts are expected to increase by 10.0 per cent in 2014-15 as compared to a high growth of 40.7 per cent in 2013-14. However, capital receipts growth is budgeted to move to the positive territory in the current year after declining in the last year. Under capital receipts, non-debt receipts, which has disinvestment, as one of its major components, is expected to grow at an exponential rate of 101.8 per cent in 2014-15 from -10.5 per cent in the previous year. During 2013-14, due to the weak equity market and limited investor appetite in PSU disinvestment, the government was only able to raise about Rs 25,841 crore against the budgeted figure of Rs 55,814 crore. Even though, disinvestment receipts are estimated to increase sharply this year, the disinvestment to GDP ratio still remains abysmally low (budgeted at 0.5 per cent in 2014-15). Going forward, given the limited leg-room available to increase tax revenue in an environment of sluggish growth, boosting disinvestment might prove to be the panacea for curing the fiscal problems plaguing the country currently.

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Table 3: Growth in Government Receipts (%) Figure 2: Tax/GDP Ratio (in %)

2013-14 (RE) over 2012-13 (Actual)

2014-15 (BE) over 2013-14

(RE)

Revenue Receipts 17.3 13.4

-Tax Revenue 11.8 17.7

Corporate Tax 10.5 14.6

Income Tax 20.0 17.6

Customs Duty 5.9 15.3

Union Excise Duties 1.7 15.4

Service Tax 24.4 31.0

- Non-Tax Revenue 40.7 10.0

Capital Receipts -6.2 7.7

- Non-Debt Receipts -10.5 101.8

- Debt Receipts -5.9 0.9

Total Receipts 12.8 12.6

Source: Union Budget 2014-15 & CSO

The Expenditure Arithmetic

The increase in Plan expenditure bodes well for pursuing the inclusive agenda of the government. However, on the flip side, the quality of government expenditure as measured by the ratio of capital to revenue expenditure continues to remain dismal over the years.

According to the budget estimates of 2014-15, total expenditure is budgeted to grow by 12.9 per cent in 2014-15 as compared to 12.8 per cent growth in 2013-14. Encouragingly, non-plan expenditure is budgeted to moderate to 9.4 per cent in the current year as against 11.9 per cent in the previous year. Plan expenditure is estimated to increase by 20.9 per cent as compared to 15.0 per cent over the comparable period. However, on the flip side, the quality of government expenditure, as measured by the ratio of capital to revenue expenditure, continues to remain dismal over the years. Capital expenditure has been indiscriminately cut whenever the government has had to trim spending.

As per the budget estimates for 2014-15, capital expenditure as a per cent of GDP is expected to grow marginally by 1.8 per cent in the current year as compared to 12.2 per cent growth in the revenue expenditure. The share of revenue expenditure in total expenditure is still dominant as compared to that of capital expenditure. This needs to reverse quickly as India needs more capital

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spending by the government to improve its creaking infrastructure. Hence, there has to be a shift from subsidies to asset creation. In the Union Budget 2014-15, the move to encourage PSUs to invest through capital investment a total sum of Rs 2,47,941 crores in the current financial year is indeed a heartening sign for creating a virtuous investment cycle.

Figure 3: Capex Spending Remains Dismal

Source: Union Budget 2014-15

Plan Expenditure

Plan expenditure is budgeted to rise by 20.9 per cent in 2014-15, led by increase in plan revenue component. The latter is expected to grow by 22.0 per cent whereas plan capital expenditure growth will moderate to 17.2 per cent in 2014-15 over the revised estimates of 2013-14. We are heartened by the fact that the government has not trimmed the Plan expenditure in 2014-15 as it is crucial for achieving inclusive growth. The axe should fall on non-plan expenditure, the bulk of which are subsidies payments.

Plan Outlay to Major Social Sector Schemes

Inclusive growth is critical for India to sustain its current growth momentum and overall economic development in the long run. Efforts have been made in the budget to accord due importance to inclusion so that benefits of growth trickle down to the ‘haves not’. The Budget 2014-15 expands it further introducing new schemes in addition to the existing ones. However, the budgetary allocation for the flagship scheme, MGNREGA, which has created legal entitlements for an individual’s right to work in the rural economy, has been cut in 2014-15 over last year’s revised estimates. Moreover, FM has stressed that wage employment would be provided under MGNREGA through works that are more productive, asset creating and substantially linked to agriculture and allied activities. The budgetary outlay for another flagship scheme, Pradhan Mantri Gram Sadak Yojana, which has had a massive impact in improvement of access for rural population, stands at Rs 14,389 crore. Elementary education is one of the major priorities of the government. An amount of Rs 28,635 crore is being funded for Sarva Shiksha Abhiyan and Rs 4,966 crore for Rashtriya Madhyamik Shiksha Abhiyan in 2014-15. To infuse new training tools and motivate teachers, launching of “Pandit Madan Mohan Malviya New Teachers Training Programme” was announced in the budget too.

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Non-Plan Expenditure

Non-plan expenditure growth is budgeted to moderate by 9.4 per cent in 2014-15 as compared to 11.9 per cent in 2013-14 underpinned by moderation in non-plan revenue expenditure. Subsidies are one of the most important components of non-plan revenue expenditure. In 2014-15, the budget envisages subsidies to decelerate to 2.0 per cent of GDP as compared to 2.3 per cent in 2013-14. However in growth terms, subsidies are budgeted to increase by 2.0 per cent in the current year as compared to decline in the previous year. Under various sub-headings of subsides, interestingly, petroleum subsidy is expected to decline by 25.8 per cent in 2014-15 as compared to the revised estimates of 2013-14, due to less requirement of compensation to oil companies for under-recoveries in the wake of movement to market linked prices oil prices. There is, however, a danger of overshooting of the petroleum subsidy this year as the ongoing Iraq crisis has lent uncertainty to the movement of global crude prices going forward. Food subsidy has the highest outgo of Rs 1,15,000 crore in 2014-15, while fertiliser subsidy outgo stands at Rs 7,29,70 crore.

Table 4: Expenditure of Government (in %) Table 5: Subsidy Expenditure (in %)

2013-14 (RE) over 2012-13 (Actual)

2014-15 (BE) over 2013-

14 (RE)

NON-PLAN EXPENDITURE 11.9 9.4

Revenue Account 12.4 8.5

Capital Account 5.8 20.7

PLAN EXPENDITURE 15.0 20.9

On Revenue Account 13.0 22.0

On Capital Account 22.8 17.2

Total Capital Expenditure 14.4 18.8

Total Revenue Expenditure 12.5 12.0

Total Expenditure 12.8 12.9

2013-14 (RE) over 2012-13 (Actual)

2014-15 (BE) over 2013-

14 (RE)

Food Subsidy 8.2 25.0

Fertiliser Subsidy 3.6 7.4

Petroleum Subsidy -11.8 -25.8

Interest Subsidy 12.4 1.7

Other Subsidies -18.4 -49.9

Total -0.6 2.0

Source: Union Budget 2014-15

Summing up

To lower the fiscal deficit to 4.1 per cent of GDP in 2014-15, the government is betting on both revenue and expenditure growth of 12.9 per cent as compared to the revised estimates for 2013-14. In order to achieve the revenue growth target, tax revenues, which form around 80 per cent of total revenues, need to prop up. Moreover, the nature of expenditure compression needs to be kept in mind as trimming of capital expenditure will further slow down the economic recovery process.

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Chapter 5

Direct Taxes

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Chapter 5

Direct Taxes

1. Personal Income Tax: Revision of income tax rates / slabs

For Individuals below 60 years of age

Income Rate

Upto Rs.2,50,000 NIL

Rs. 2,50,001 to Rs. 5,00,000 10%

Rs. 5,00,001 to Rs. 10,00,000 20%

Above Rs. 10,00,000 30%

For Senior citizens 60 or more years of age and below 80 years of age

Income Rate

Upto Rs.3,00,000 NIL

Rs. 3,00,001 to Rs. 5,00,000 10%

Rs. 5,00,001 to Rs. 10,00,000 20%

Above Rs. 10,00,000 30%

For Senior citizens above 80 years of age

Income Rate

Upto Rs.5,00,000 NIL

Rs. 5,00,001 to Rs. 10,00,000 20%

Above Rs. 10,00,000 30%

2. Personal Income Tax

A. Raising the limit of deduction under section 80C

In order to encourage household savings, it is proposed to raise the limit of deduction allowed under section 80C from the existing Rs. 1 lakh to Rs.1.5 lakh. In view of the same, consequential amendments are proposed in sections 80CCE and 80CCD of the Act.

B. Deduction on interest on housing loan from income from house property

Deduction on account of interest in respect of housing loan taken for self-occupied property has been increased from Rs. 1.5 lacs to Rs. 2 lacs.

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3. Corporate Tax A. Grossing up of Dividend amount distributed for computing DDT

After the introduction of the DDT, a lower rate of 15% is currently applicable but this rate is being applied on the amount paid as dividend after reduction of distribution tax by the company. Therefore, the tax is computed with reference to the net amount. Similar case is there when income is distributed by mutual funds.

To establish a base in alignment to the tax to be paid it is proposed to amend section 115-O and section 115-R to provide that distributed income will be increased by amount of tax to be payable so that dividend after tax be equal to the net distributed profits.

Thus, where the amount of dividend paid or distributed by a company is Rs. 85, then DDT under the amended provision would be calculated as follows:

Dividend amount distributed = Rs. 85

Increase by Rs. 15 [i.e. (85*0.15)/(1-0.15)]

Increased amount = Rs. 100

DDT @ 15% of Rs. 100 = Rs. 15

Tax payable u/s 115-O is Rs. 15

Dividend distributed to shareholders = Rs. 85

These amendments will take effect from 1st October, 2014.

B. Qualification of long-term Capital Gains on debt oriented Mutual Fund as Short-term

capital asset

It is proposed to amend clause (42A) of section 2 so as to provide that an unlisted security and a unit of a mutual fund (other than an equity oriented mutual fund) shall be a short-term capital asset if it is held for not more than thirty-six months.

C. Tax on long-term capital gains on units

Under the existing provisions of section 112 of the Act, where tax payable on long-term capital gains arising on transfer of a capital asset, being listed securities or unit or zero coupon bond exceeds ten per cent of the amount of capital gains before allowing for indexation adjustment, then such excess shall be ignored. It is now proposed to amend the provisions of section 112 so as to allow the concessional rate of tax of ten per cent on long term capital gain to listed securities (other than unit) and zero coupon bonds.

D. Taxation Regime for Real Estate Investment Trust (REIT) and Infrastructure Investment Trust

It is proposed to amend the Act to put in place a specific taxation regime for providing the way the income in the hands of such trusts is to be taxed and the taxability of the income distributed by such business trusts in the hands of the unit holders of such trusts. Such regime has the following main features:–

The listed units of a business trust, when traded on a recognized stock exchange, would attract same levy of securities transaction tax (STT), and would be given the same tax benefits in respect of taxability of capital gains as equity shares of a

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company i.e., long term capital gains, would be exempt and short term capital gains would be taxable at the rate of 15%.

In case of capital gains arising to the sponsor at the time of exchange of shares in SPVs with units of the business trust, the taxation of gains shall be deferred and taxed at the time of disposal of units by the sponsor. However, the preferential capital gains regime (consequential to levy of STT) available in respect of units of business trust will not be available to the sponsor in respect of these units at the time of disposal. Further, for the purpose of computing capital gain, the cost of these units shall be considered as cost of the shares to the sponsor. The holding period of shares shall also be included in the holding period of such units.

The income by way of interest received by the business trust from SPV is accorded pass through treatment i.e., there is no taxation of such interest income in the hands of the trust and no withholding tax at the level of SPV. However, withholding tax at the rate of 5 per cent in case of payment of interest component of income distributed to non-resident unit holders, at the rate of 10 per cent in respect of payment of interest component of distributed income to a resident unit holder shall be effected by the trust.

In case of external commercial borrowings by the business trust, the benefit of reduced rate of 5 per cent tax on interest payments to non-resident lenders shall be available on similar conditions, for such period as is provided in section 194LC of the Act.

The dividend received by the trust shall be subject to dividend distribution tax at the level of SPV but will be exempt in the hands of the trust, and the dividend component of the income distributed by the trust to unit holders will also be exempt.

The income by way of capital gains on disposal of assets by the trust shall be taxable in the hands of the trust at the applicable rate. However, if such capital gains are distributed, then the component of distributed income attributable to capital gains would be exempt in the hands of the unit holder. Any other income of the trust shall be taxable at the maximum marginal rate.

The business trust is required to furnish its return of income.

This amendment will take effect from 1st October, 2014.

E. Investment Allowance to a Manufacturing Company

In order to encourage the companies engaged in the business of manufacture or production of an article or thing to invest substantial amount in acquisition and installation of new plant and machinery, it is proposed that the deduction under section 32AC of the Act shall be allowed if the company on or after 1st April, 2014 invests more than Rs. 25 crore in plant and machinery in a previous year.

As growth of the manufacturing sector is crucial for employment generation and development of an economy, it is proposed to extend the deduction available under section 32AC of the Act for investment made in plant and machinery up to 31.03.2017.

The aforesaid investment allowance would be available for investment made in plant and machinery upto 31 March 2017.

F. Tax holiday to the power sector is extended

With a view to provide further time to the power sector undertakings to commence the eligible activity to avail the tax incentive, it is proposed to amend the above provisions to

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extend the terminal date for a further period up to 31st March, 2017 i.e. till the end of the 12th Five Year Plan.

These amendments will take effect from assessment year 2015-16 and subsequent assessment years.

G. Deduction in respect of capital expenditure on specified business

It is proposed to include two new businesses as “specified business” for the purposes of the investment-linked deduction under section 35AD so as to promote investment in these sectors, which are :- laying and operating a slurry pipeline for the transportation of iron ore; setting up and operating a semiconductor wafer fabrication manufacturing unit, if

such unit is notified by the Board in accordance with the prescribed guidelines.

With a view to ensure that the capital asset on which investment linked deduction has been claimed is used for the purposes of the specified business, it is proposed to insert sub-section (7A) in section 35AD to provide that any asset in respect of which a deduction is claimed and allowed under section 35AD, shall be used only for the specified business for a period of eight years beginning with the previous year in which such asset is acquired or constructed.

It is further proposed to amend section 35AD so as to provide that where any deduction has been availed of by the assesse on account of capital expenditure incurred for the purposes of specified business in any assessment year, no deduction under section 10AA shall be available to the assesse in the same or any other assessment year in respect of such specified business. As a consequence of this amendment, section 10AA is also proposed to be amended.

These amendments will take effect from assessment year 2015-16 and subsequent assessment years.

H. Concessional rate of tax on overseas borrowing

In order to encourage low cost long-term foreign borrowings by Indian companies, it is proposed to amend section 194LC to extend the benefit of lower withholding tax @ 5% towards borrowings by way of issue of any long-term bond, and not limited to a long term infrastructure bond.

Consequential amendment is also proposed in section 206AA to ensure that this benefit of exemption is extended to payment of interest on any long-term bond referred to in section 194LC.

These amendments will take effect from 1st October, 2014.

I. Reduction in tax rate on certain dividends received from foreign companies

With a view to encourage Indian companies to repatriate foreign dividends into the country, it is proposed to amend the Act to extend the benefit of lower rate of taxation without limiting it to a particular assessment year. Thus, such foreign dividends received in financial year 2014-15 and subsequent financial years shall continue to be taxed at the lower rate of 15%.

These amendments will take effect from assessment year 2015-16 and subsequent assessment years.

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J. Roll back provision in Advance Pricing Agreement Scheme In many countries the APA scheme provides for “roll back” mechanism for dealing with

arm’s length price (ALP) issues relating to transactions entered into during the period prior to APA. The “roll back” provisions refers to the applicability of the methodology of determination of ALP, or the ALP to be applied to the international transactions which had already been entered into in a period prior to the period covered under an APA. However, the “roll back” relief is provided on case to case basis subject to certain conditions. Providing of such a mechanism in Indian legislation would also lead to reduction in large scale litigation which is currently pending or may arise in future in respect of the transfer pricing matters.

Therefore, it is proposed to amend the Act to provide roll back mechanism in the APA scheme. The APA may, subject to such prescribed conditions, procedure and manner, provide for determining the arm’s length price or for specifying the manner in which arm’s length price is to be determined in relation to an international transaction entered into by a person during any period not exceeding four previous years preceding the first of the previous years for which the advance pricing agreement applies in respect of the international transaction to be undertaken in future.

This amendment will take effect from 1st October, 2014.

K. Characterization of Income in case of Foreign Institutional Investors

Foreign institutional investors currently facing difficulty in characterization of their income arising from transaction in securities as to whether it is capital gain or business income.

It is therefore proposed to amend the Act to provide that any security held by foreign institutional investor which has invested in such security in accordance with the regulations made under the Securities and Exchange Board of India Act, 1992 would be treated as capital asset only so that any income arising from transfer of such security by a Foreign Portfolio Investor (FPI) would be in the nature of capital gain.

These amendments will take effect from assessment year 2015-16 and subsequent assessment years.

L. Alternate Minimum Tax Under the Act, the investment linked deductions have been provided in place of profit linked

deductions. These profit linked deductions are subject to alternate minimum tax (AMT).

Accordingly, with a view to include the investment linked deduction claimed under section

35AD in computing adjusted total income for the purpose of calculating alternate minimum

tax, it is proposed to amend the section so as to provide that total income shall be increased

by the deduction claimed under section 35AD for purpose of computation of adjusted total

income. The amount of depreciation allowable under section 32 shall, however, be reduced

in computing the adjusted total income.

These amendments will take effect from assessment year 2015-16 and subsequent assessment years.

M. Taxability of advance receipt for transfer of a capital asset

It is proposed to insert a new clause (ix) in sub-section (2) of section 56 to provide for the taxability of any sum of money received as an advance or otherwise in the course of negotiations for transfer of a capital asset. Such sum shall be chargeable to income-tax under

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the head ‘income from other sources’ if such sum is forfeited and the negotiations do not result in transfer of such capital asset. A consequential amendment in clause (24) of section (2) is also being made to include such sum in the definition of the term 'income'.

Further, In order to avoid double taxation of the advance received and retained, section 51 is also proposed to be amended to provide that where any sum of money received as an advance or otherwise in the course of negotiations for transfer of a capital asset , has been included in the total income of the assesse for any previous year, in accordance with the provisions of clause (ix) of sub-section (2) of section 56, such amount shall not be deducted from the cost for which the asset was acquired or the written down value or the fair market value, as the case may be, in computing the cost of acquisition.

These amendments will take effect from assessment year 2015-16 and subsequent assessment years.

N. Rationalization of taxation regime in the case of charitable trusts and institutions

Sections 11, 12 and 13 are special provisions governing institutions which are being given benefit of tax exemption, it is therefore imperative that once a person voluntarily opts for the special dispensation it should be governed by these specific provisions and should not be allowed flexibility of being governed by other general provisions or specific provisions at will. Allowing such flexibility has undesirable effects on the objects of the regulations and leads to litigations.

Similar situation exists in the context of section 10(23C) which provides for exemption to funds, institution, hospitals, etc. which have been granted approval by the prescribed authority. The provision of section 10(23C) also have similar conditions of accumulation and application of income, investment of funds in prescribed modes etc.

Therefore, it is now proposed to amend the Act to provide specifically that where a trust or an institution has been granted registration for purposes of availing exemption under section 11, and the registration is in force for a previous year, then such trust or institution cannot claim any exemption under any provision of section 10 [other than that relating to exemption of agricultural income and income exempt under section 10(23C)]. Similarly, entities which have been approved or notified for claiming benefit of exemption under section 10(23C).

These amendments will take effect from assessment year 2015-16 and subsequent assessment years.

O. Cancellation of registration of the trust or institution in certain cases

The existing provisions of section 12AA of the Act provide that the registration once granted to a trust or institution shall remain in force till it is cancelled by the Commissioner. The Commissioner can cancel the registration under two circumstances: the activities of a trust or institution are not genuine, or; the activities are not being carried out in accordance with the objects of the trust or

Institution

In order to rationalize the provisions relating to cancellation of registration of a trust, it is proposed to amend section 12AA of the Act to provide that where a trust or an institution has been granted registration, and subsequently it is noticed that its activities are being carried out in such a manner that,— its income does not ensure for the benefit of general public; it is for benefit of any particular religious community or caste (in case it is established after commencement of the Act);

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any income or property of the trust is applied for benefit of specified persons like author of trust, trustees etc.; or its funds are invested in prohibited modes, then the Principal Commissioner or the

Commissioner may cancel the registration if such trust or institution does not prove that there was a reasonable cause for the activities to be carried out in the above manner.

This amendment will take effect from 1st October, 2014.

P. Anonymous donations under section 115BBC

It is proposed to amend section 115BBC to provide that the income-tax payable shall be the aggregate of the amount of income-tax calculated @ 30% on the aggregate of anonymous donations received in excess of five per cent of the total donations received by the assesse or one lakh rupees, whichever is higher, and the amount of income-tax with which the assesse would have been chargeable had his total income been reduced by the aggregate of the anonymous donations which is in excess of the five per cent of the total donations received by the assesse or one lakh rupees, as the case may be.

This amendment will take effect from the assessment year 2015-16 and subsequent assessment years.

Q. Rationalization of the Definition of International Transaction

The sub-section (2) of section 92B as presently worded has led to a doubt whether or not, for the transaction to be treated as an international transaction, the unrelated person should also be a non-resident.

Therefore, it is proposed to amend section 92B of the Act to provide that where, in respect of a transaction entered into by an enterprise with a person other than an associated enterprise, there exists a prior agreement in relation to the relevant transaction between the other person and the associated enterprise or, where the terms of the relevant transaction are determined in substance between such other person and the associated enterprise, and either the enterprise or the associated enterprise or both of them are non-resident, then such transaction shall be deemed to be an international transaction entered into between two associated enterprises, whether or not such other person is a non-resident.

This amendment will take effect from the assessment year 2015-16 and subsequent assessment years.

R. Applicability to earlier years of the registration granted to a trust or institution

Non-application of registration for the period prior to the year of registration causes genuine hardship to charitable organizations. Due to absence of registration, tax liability gets attached even though they may otherwise be eligible for exemption and fulfil other substantive conditions. The power of condonation of delay in seeking registration is not available under the section.

In order to provide relief to such trusts and remove hardship in genuine cases, it is proposed to amend section 12 A of the Act to provide that in case where a trust or institution has been granted registration under section 12AA of the Act, the benefit of sections 11 and 12 shall be available in respect of any income derived from property held under trust in any assessment proceeding for an earlier assessment year which is pending before the Assessing Officer as on the date of such registration, if the objects and activities of such trust or institution in the relevant earlier assessment year are the same as those on the basis of which such registration has been granted.

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Further, it is proposed that no action for reopening of an assessment under section 147 shall be taken by the Assessing Officer in the case of such trust or institution for any assessment year preceding the first assessment year for which the registration applies, merely for the reason that such trust or institution has not obtained the registration under section 12AA for the said assessment year.

However, the above benefits would not be available in case of any trust or institution which at any time had applied for registration and the same was refused under section 12AA or a registration once granted was cancelled.

These amendments will take effect from 1st October, 2014.

S. Corporate Social Responsibility (CSR)

The objective of CSR is to share burden of the Government in providing social services by companies having net worth/turnover/profit above a threshold. If such expenses are allowed as tax deduction, this would result in subsidizing of around one-third of such expenses by the Government by way of tax expenditure.

As the CSR expenditure (being an application of income) is not incurred for the purposes of carrying on business, such expenditures cannot be allowed under the existing provisions of section 37 of the Income-tax Act. Therefore, in order to provide certainty on this issue, it is proposed to clarify that for the purposes of section 37(1) any expenditure incurred by an assesse on the activities relating to CSR shall not be deemed to have been incurred for the purpose of business and hence shall not be allowed as deduction under section 37.

However, the CSR expenditure which is of the nature described in section 30 to section 36 of the Act shall be allowed deduction under those sections subject to fulfillment of conditions, if any, specified therein.

T. Disallowance of expenditure for non- deduction of tax at source

In order to provide extended time limit for payment of tax deducted from payments made to non-residents, it is proposed that the deductor shall be allowed to claim deduction for payments made to non-residents in the previous year of payment, if tax is deducted during the previous year and the same is paid on or before the due date specified for filing of return under section 139(1) of the Act.

It is proposed that in case of non-deduction or non-payment of TDS on payments made to residents as specified in section 40(a) (ia) of the Act, the disallowance shall be restricted to 30% of the amount of expenditure claimed as disallowance of whole of the amount of expenditure results into undue hardship.

In order to improve the TDS compliance in respect of payments to residents which are currently not specified in section 40(a) (ia), it is proposed that the disallowance under section 40(a) (ia) of the Act shall extend to all expenditure on which tax is deductible under Chapter XVII-B of the Act. Therefore the scope of section 40(a) (ia) of the Act has been broaden to cover the payment of salary and director fees.

These amendments will take effect from assessment year 2015-16 and subsequent assessment years.

U. Transfer of Government Security by one non-resident to another non-resident

With a view to facilitate listing and trading of Government securities outside India, it is proposed to new clause to provide that any transfer of a capital asset, being a Government Security made outside India through an intermediary dealing in settlement

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of securities, by a non-resident to another non-resident shall not be considered as transfer for the purpose of charging capital gains.

These amendments will take effect from assessment year 2015-16 and subsequent assessment years.

V. Speculative transaction in respect of commodity derivatives

Eligible transaction in respect of trading in commodity derivatives carried out in a recognized association and chargeable to commodities transaction tax under Chapter VII of the Finance Act, 2013 shall not be considered to be a speculative transaction.

These amendments will take effect from assessment year 2014-15 and subsequent assessment years.

W. Capital gains arising from transfer of an asset by way of compulsory acquisition

Due to uncertainty about the year in which the amount of compensation received in pursuance of an interim order of the court is to be charged to tax, due to court order it is proposed to provide that the amount of compensation received in pursuance of an interim order of the court shall be deemed to be income chargeable under the head ‘Capital gains’ in the previous year in which the final order of such court.

These amendments will take effect from assessment year 2015-16 and subsequent assessment years.

X. Losses in Speculation Business

Explanation to section 73 currently explains which businesses are deemed to be speculation business for the purpose of this section. It is now proposed to amend the aforesaid Explanation so as to provide that the provision of the Explanation shall also not be applicable to a company the principal business of which is the business of trading in shares.

These amendments will take effect from assessment year 2015-16 and subsequent assessment years.

Y. Mutual Funds, Securitization Trusts and Venture Capital Companies or Venture Capital Funds to file return of income

Mutual Fund referred to in clause (23D) of section 10, securitization trust referred to in clause (23DA) of section 10 and Venture Capital Company or Venture Capital Fund referred to in clause (23FB) of section 10 are required to furnish the income tax return instead of furnishing a statement giving the details of income if their income exceeds maximum amounts which is not chargeable to tax.

Z. Capital gains exemption in case of investment in a residential house property

The existing provisions contained in sub-section (1) of section 54, inter alia, provide that where capital gain arises from the transfer of a long-term capital asset, being buildings or lands appurtenant thereto, and being a residential house, and the assesse within a period of one year before or two years after the date of transfer, purchases, or within a period of three years after the date of transfer constructs, a residential house then the amount of capital gains to the extent invested in the new residential house is not chargeable to tax under section 45 of the Act.

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Since this benefit was intended for investment in one residential house within India, it is proposed to amend the aforesaid sub-section (1) of section 54 so as to provide that the rollover relief under the said section is available if the investment is made in one residential house situated in India.

It is further proposed to amend the sub-section (1) of section 54F so as to provide that the exemption is available if the investment is made in one residential house situated in India.

These amendments will take effect from assessment year 2015-16 and subsequent assessment years.

Za. Interest payable by the assesse under section 220

It is proposed to insert a new sub-section in section 220 so as to provide that where any notice of demand has been served upon an assesse and any appeal or other proceeding is filed or initiated in respect of the amount specified in the said notice of demand, then such demand shall be deemed to be valid till the disposal of appeal by the last appellate authority or disposal of proceedings.

These amendments will take effect from 1 October 2014

Note: ‘Act’ refers to The Income Tax Act, 1961

© Confederation of Indian Industry 57

Chapter 6

Indirect Taxes

Sector & Industry Specific Analysis

© Confederation of Indian Industry 58

© Confederation of Indian Industry 59

Air-conditioning & Refrigeration

Industry Issues

Window/wall type self contained air-conditioners and household compression type refrigerators are included in the list of India-Thailand Agreement and attract NIL customs duty since 1st September 2006. However, there is no provisions to import inputs at NIL customs duty.

Parts of air-conditioners falling under tariff heading 8415 90 00 attract customs duty of 10%. This needs to be brought down to 7.5%.

Excise duty is exempted on 22 specified equipment mentioned in list 7 of central excise notification 12/2012– sl no. 232 when used for installation of cold storage, cold room or refrigerated vehicles for preservation, storage or transport of agricultural produce etc. This list needs to be expanded to include insulated composite panels and cold store door.

Excise duty has been reduced from 12% to 10% on goods falling under chapter 84 and 85 in the interim budget 2014-15 presented on 17.02.2014 which includes air-conditioning and refrigeration equipment. This reduction is applicable upto 30.06.2014 which needs to be extended.

What CII Wanted

Reduce customs duty from 10% to 7.5% on parts of air-conditioners.

Extend excise exemption to insulated compositive panels and cold store door.

Extend 10% excise duty on goods of chapter 84 and 85 upto 31.03.2015.

What the Government Gave

Item Excise Duty (%) Customs Duty (%)

17.02.2014 What CII wanted

Budget 2014-15

2013-14 What CII wanted

Budget 2014-15

Window / wall type self contained or split air-conditioners (8415 10)

10 10 10 10 10 10

Household refrigerators (8418 21 00, 8418 29 00)

10 10 10 10 10 10

Inputs

Compressors (8414 30 00, 8414 80 11)

10 10 10 7.5 7.5 7.5

Thermostats (9032 10 10) 12 10 7.5 7.5 7.5

Electronic Controls (8537 10 10) 10 10 10 7.5 7.5 7.5

Copper/copper alloys tubes and fittings (7411, 7412)

12 10 10 7.5 7.5 7.5

Parts of air-conditioners (8415 90 00) 10 10 10 10 7.5 10

Parts of refrigerators (8418 99 00) 10 10 10 7.5 7.5 7.5

Impact of Budget 2014-15

10% excise duty on air-conditioning and refrigeration equipment as well as their inputs and parts falling under chapter 84 and 85 has been extended upto 31.12.2014 by excise notification issued on 25.06.2014.

There is no other change in customs and excise duties.

© Confederation of Indian Industry 60

Alcoholic Beverages

Industry Issues

The import of distilled spirits is either in the form of bottled in origin (BIO) or in bulk and then bottled in India. Customs duty on both forms of distilled spirits is 150% since long and is equal to the WTO bound rate of duty. Present basic customs duty of 150% is higher than duty rates prevalent in most countries within the Asia – Pacific Region.

Reduction of customs duty on distilled spirits from 150% to 100% needs consideration. There can be a minimum benchmark customs duty payable to ensure some ongoing protection for lower value domestic distilled spirits and wine products.

What CII Wanted

Reduce customs duty from 150% to 100% on distilled spirits (BIO and Bulk) and wine.

What the Government Gave

Item

Excise Duty (%) Customs Duty (%)

2013-14 What CII wanted

Budget 2014-15

2013-14 What CII wanted

Budget 2014-15

Beer made from malt (2203) NIL CVD NIL CVD NIL CVD 100 100 100

Wine and liquor (2204, 2208) NIL CVD NIL CVD NIL CVD 150 100 150

Inputs

Cane molasses (1703 10 00) Rs. 750 per

MT Rs. 750 per

MT Rs. 750 per

MT 10

10

10

Glass bottles (7010 90 00) 12 10 10 10 10 10

Impact of Budget 2014-15

There is no change in customs, CVD and excise duties for this sector.

© Confederation of Indian Industry 61

Alkalies

Industry Issues

Electric power is the major input required for manufacture of caustic soda and accounts for almost 60% of the cost of production. The higher cost of power in India is the main factor which increases the cost of manufacture.

Customs duty on mono or bipolar membrane electrolysers and its parts as well as membranes for replacement and parts thereof is 5%. However, spare parts, other than membranes and parts thereof, required for the existing membrane cell plants attract customs duty of 7.5%. The concessional duty rate of 5% needs to be extended to such spare parts also.

What CII Wanted

Allow import of spares (other than membranes and parts thereof) for existing membrane cell caustic soda / caustic potash plants at 5% customs duty.

What the Government Gave

Item

Excise Duty (%) Customs Duty (%)

17.02.2014 What CII wanted

Budget 2014-15

2013-14 What CII wanted

Budget 2014-15

Caustic Soda (Sodium Hydroxide) (2815 11 & 2815 12)

12 10 12 7.5 7.5 7.5

Soda Ash (Disodium Carbonate) (2836 20) 12 10 12 7.5 7.5 7.5

Spare parts for caustic soda and caustic potash Membranes and parts thereof for replacement of worn out membranes of a caustic soda/caustic potash unit (85 or any other chapter)

10/12 10 10/12 5 5 2.5

Other spare parts falling under chapter 84,85 or 90

10/12 10 10 7.5 5 2.5

Steam coal (2701 90 20) 2 CVD 2 CVD 2 CVD 2 2 2.5

Impact of Budget 2014-15

Customs duty reduced from 5% to 2.5% on electrolysers and their parts/spares as well as on membranes and their parts/spares on caustic/potash plants based on membrane cell technology.

Customs duty on other parts (other than membranes and parts thereof) has also been reduced from 7.5% to 2.5%.

Customs duty increased from 2% to 2.5% on steam coal.

Clean Energy cess increased from Rs. 50 to Rs. 100 per metric tonne on coal.

© Confederation of Indian Industry 62

Aluminium

Industry Issues

Unwrought aluminium and primary aluminium in the form of bars, rods, propiles, wire, plates, sheets and foils falling under tariff heading 7601 to 7607 attract customs duty of 5% where as some of the inputs attract higher rate of customs duty.

Coal tar pitch is one such input which attracts customs duty of 10% which is two times the 5% duty on aluminuium.

Aluminium scrap is recycled in oil/gas fired furnaces for manufacture of aluminium alloy ingots which are mainly used for manufacture of auto components. The imported aluminium scrap attracts 12% CVD and 4% SAD. The manufacturers of aluminium alloy ingots from scrap are unable to utilize the CENVAT credit of CVD and SAD due to low value addition in conversion of scrap into ingots.

What CII Wanted

Reduce customs duty from 10% to 5% on coal tar pitch.

Exempt 4% Special Additional Duty on aluminium scrap falling under CTH 7602 00 10.

What the Government Gave

Item

Excise Duty (%) Customs Duty (%)

2013-14 What CII wanted

Budget 2014-15

2013-14 What CII wanted

Budget 2014-15

Aluminium in various forms (7602 to 7607) 12 10 12 5 5 5

Aluminium products (7610 to 7616) 12 10 12 10 10 10

Inputs

Aluminium ore (bauxite) (2606) NIL NIL NIL 2.5 2.5 2.5

Calcined petroleum coke (2713 12 00) 14 12 14 2.5 2.5 2.5

Calcined alumina (2818 20 10) 12 10 12 5 5 5

Caustic soda (2815 11 10, 2815 12 00) 12 10 12 7.5 7.5 7.5

Coal tar pitch (2708 10 10) 14 12 14 10 5 5

Impact of Budget 2014-15

Customs duty reduced from 10% to 5% on coal tar pitch.

Export duty increased from 10% to 20% on aluminium ore (bauxite) whether calcined or not calcined.

© Confederation of Indian Industry 63

Auto Components

Industry Issues

Aluminium is one of the major input for auto components. Presently, customs duty on unwrought aluminium falling under tariff heading 7601 10 is 5% which is at par with customs duty on aluminium powder, bars, rods, wires, plates sheets, foils falling under tariff heading 7602 to 7607. Therefore, customs duty on unwrought aluminium under tariff heading 7601 10 needs to be reduced to 2.5%.

Aluminium scrap is used by the secondary manufacturers of aluminium and foundry. Increase in customs duty on aluminium scrap from NIL to 2.5% with effect from 8 May 2013 has adversely affected the auto component industry. Restoration of NIL customs duty on aluminium scrap will help the auto component industry.

Excise duty has been reduced from 12% to 10% on goods falling under chapter 84 and 85 in the interim budget presented on 17.02.2014 which includes auto components. This reduction is applicable upto 30.06.2014 which needs to be extended.

What CII Wanted

Reduce customs duty on unwrought aluminium from 5% to 2.5%.

Reduce customs duty on aluminium scrap from 2.5% to NIL.

Extend 10% excise duty on goods of chapter 84 and 85 upto 31.03.2015

What the Government Gave

Item

Excise Duty (%) Customs Duty (%)

17.02.2014 What CII wanted

Budget 2014-15

2013-14 What CII wanted

Budget 2014-15

Engine for vehicles (8407 31, 8407 32, 8407 33, 8407 34, 8408 20)

10 10 10 7.5 7.5 7.5

Gear boxes for vehicles (8708 40 00) 12 10 12 10 10 10

Parts suitable for use principally with vehicle engines (8409 91 and 8409 99)

10 10 10 7.5 7.5 7.5

Inputs

Unwrought aluminium (7601 10) 12 10 12 5 2.5 5

Aluminium Scrap (7602) 12 10 12 2.5 NIL 2.5

Impact of Budget 2014-15

10% excise duty on auto components falling under chapter 84 and 85 has been extended for a further period of 6 months from 01.07.2014 to 31.12.2014 vide central excise notification 6/2014 issued on 25.06.2014.

Customs duty increased from 5% to 7.5% on flat rolled products of stainless steel.

© Confederation of Indian Industry 64

Automobiles

Industry Issues

In the interim budget 2014-15 presented on 17.02.2014, excise duty ranging from 4% to 6% was reduced on all categories of personal vehicles as well as commercial vehicles upto 30.06.2014 which needs to be extended till 31.03.2015. Excise duty rate for inputs used in manufacture of commercial vehicles should also be reduced and pegged at the rate applicable to vehicles and reduced rate should be made applicable till 31.3.2015 to avoid excess CENVAT Credit.

To encourage manufacture of electric hybrid vehicles, basic customs duty on specified inputs has been reduced to NIL and CVD to 6% vide sl. no. 439 and 440 of customs notification 12/2012 upto 31 March 2015. This concession needs to be extended till 2020 i.e entire tenure of National Electric Mobility Mission Plan (NEMMP).

1% National Calamity Contingent duty (NCCD) on motor cars, multi-utility vehicles and two-wheelers needs to be withdrawn to reduce the impact of taxation.

What CII Wanted

Extend the excise duty reduction on vehicles upto 31.03.2015.

Excise duty on inputs for manufacture of commercial vehicles should be fixed at the reduced rate applicable for such vehicles till 31.3.2015.

Extend benefit of NIL customs duty and 6% CVD on specified inputs of electric as well as hybrid vehicles upto 2020.

Withdraw 1% NCCD on motor vehicles.

What the Government Gave

Item

Excise Duty (%) Customs Duty (%)

17.02.2014 What CII wanted

Budget 2014-15

2013-14 What CII wanted

Budget 2014-15

Motor cycles (including mopeds) less than 800 cc in assembled condition (8711)

8 8 8 60 60 60

Small cars of length not exceeding 4000 mm and engine capacity not exceeding 1200 CC in case of petrol, LPG and CNG/1500 CC in case of diesel (8702, 8703)

8 8 8 60 60 60

Motor vehicles of engine capacity not exceeding 1500 cc (8702, 8703)

20 20 20 60 60 60

Motor vehicles of engine capacity exceeding 1500 cc (8702, 8703)

24 24 24 60 60 60

Motor vehicles for the transport of goods other than petrol driven dumpers (8704)

8 8 8 10 10 10

Impact of Budget 2014-15

Excise duty reduction on various categories of automobiles given on 17.02.2014 has been been extended upto 31.12.2014 vide central excise notification 6/2014 issued on 25.06.2014.

There is no other change in customs and excise duties.

© Confederation of Indian Industry 65

Bearings

Industry Issues

Special type of slewing bearings are used in wind operated electricity generators. Import of such bearings is allowed at 5% customs duty as per sl. no. 362 of customs notification 12/2012 when imported for the manufacture or the maintenance of wind operated electricity generators. CVD is also exempted on such bearings due to excise exemption as per item no. 13 of list 8 attached to excise notification 12/2012-sl. no. 332.

Bearings for wind mills are custom made and designed to take very heavy load. The diameter of such bearings ranges from 1 meter to 3.5 meter. These bearings are now manufactured in India.

The main input for these bearings is forged steel rings falling under tariff heading 7326 90 99 and accounts for 60% of the total material cost. Customs duty on such forged steel rings is 10% plus 12% CVD compared to 5% plus NIL CVD on the bearings. Excise duty of 12% is also payable if the inputs are procured indigenously. It creates imbalance and makes difficult for the indigenous manufacturer to compete with the imported bearings.

The reduced rate of excise duty of 10% on bearings for the period 17.02.2014 to 30.06.2014 in the interim budget 2014-15 needs to be extended.

What CII Wanted

Reduce customs duty form 10% to 5% and CVD from 12% to NIL on forged steel rings when imported for manufacture of bearings of wind operated electricity generators.

Include supplies of components and parts including special bearings of wind electricity generators in Rule 6 (6) of CENVAT Credit Rules 2004.

Extend 10% excise duty on goods falling under chapter 84 upto 31.03.2015.

What the Government Gave

Item

Excise Duty (%) Customs Duty (%)

17.02.2014 What CII wanted

Budget 2014-15

2013-14 What CII wanted

Budget 2014-15

Ball and roller bearings (8482) 10 10 10 7.5 7.5 7.5

Special bearings for wind operated electricity generated upto 30 KW (8482)

NIL NIL NIL 5 5 5

Input for Special Bearings

Forged rings (7326 90 99) 12 NIL CVD NIL 10 5 5

Impact of Budget 2014-15

10% excise duty on bearings has been extended upto 31.12.2014 vide central excise notification 6/2014 issued on 25.06.2014.

Anomaly in duty structure has been removed by reducing customs duty on forged steel rings from 10% to 5% and excise duty from 12% to NIL.

4% SAD has been exempted on parts and raw materials required for use in the manufacture of wind electricity generators.

© Confederation of Indian Industry 66

Capital Goods / Projects Imports

Industry Issues

Goods supplied to ultra mega power projects are exempted from excise duty as per sl. no. 337 and 338 of excise notification 12/2012. However, in case of goods supplied to nuclear power projects, excise duty has to be paid and subsequently claimed as refund under deemed export benefits. This results in blockage of funds of the supplier which adds to the cost. The excise exemption needs to be extended to nuclear power projects having NIL customs duties as per sl. no. 511 of customs notification 12/2012.

Exemption of 4% SAD includes various types of projects and certain capital goods. This erodes competitiveness of the domestic industry as CST/VAT is applicable on indigenously manufactured goods.

The reduced rate of excise duty of 10% for the period 17.02.2014 to 30.06.2014 in the interim budget 2014-15 needs to be extended.

What CII Wanted

Exempt excise duty on nuclear power projects and also include these in Rule 6(6) of CENVAT Credit Rules 2004.

Impose 4% SAD on all types of projects and others which involve import of capital goods.

Extend 10% excise duty on goods falling under chapter 84 and 85 upto 31.03.2015.

What the Government Gave

Item Excise Duty (%) Customs Duty +CVD +Spl. CVD (%)

17.02.2014 What CII wanted

Budget 2014-15

2013-14 What CII wanted

Budget 2014-15

Nuclear Power specified projects of capacity 440 MW or more (9801)

10/12 NIL 10/12 NIL+NIL+NIL NIL+NIL+NIL NIL+NIL+NIL

Project Imports (9801) 10/12 10 10/12 5+12+4 5+12+4 5+12+4

General Machinery not covered by any notification (84, 85)

10 10 10 7.5+12+4 7.5+12+4 7.5+12+4

Impact of Budget 2014-15

10% excise duty on capital goods as well as other goods falling under chapter 84 and 85 has been extended upto 31.12.2014 vide central excise notification 6/2014 issued on 25.06.2014.

Customs duty at a concessional rate of 5% provided on machinery, equipment required for initial setting up of compressed bio-gas plant (Bio-CNG).

Basic customs duty and CVD on machinery equipment required for initial setting up of solar energy production projects has been reduced to 5% and NIL respectively.

4% SAD has been exempted on parts and raw materials required for use in the manufacture of wind operated electricity generators.

Excise duty increased from 10% to 12% on winding wires of copper.

© Confederation of Indian Industry 67

Castings for Wind Operated Electricity Generators

Industry Issues

Wind operated electricity generators are non-conventional energy devices. These attract 5% customs duty and NIL excise duty. Due to excise exemption, CVD is also NIL on imported wind operated electricity generator as well as its components and parts. This puts the indigenous manufacturers of components and parts in a disadvantageous position.

One of the sectors affected is foundries which produce the castings for hub, base frame, bearing housing and main shaft which are supplied in unmachined or machined condition. They pay CVD of 12% on imported inputs. Excise duty of 12% is also payable if the inputs are procured indigenously. They cannot take CENVAT credit due to NIL excise duty on parts of wind operated electricity generators. If they avail credit of CVD and excise duty, they have to pay 6% of the value of goods supplied as per Rule 6 (3) (i) of CENVAT Credit Rules, 2004.

What CII Wanted

Reduce CVD on the main inputs of casting viz pig iron SG grade and ferro-silicon-magnesium from 12% to NIL when imported for manufacture of cast components of wind operated electricity generators.

Include supplies of components and parts of wind operated electricity generators in Rule 6(6) of CENVAT Credit Rules 2004.

What the Government Gave

Item Excise Duty (%) Customs Duty (%)

2013-14 What CII wanted

Budget 2014-15

2013-14 What CII wanted

Budget 2014-15

Hub, base frame, bearing housing, main shaft of wind operated electricity generator (8503 00 10, 8503 00 90)

NIL NIL NIL 5 5 5

Inputs

Pig iron SG Grade (7201 10 00) 12 NIL CVD 12 5 5 5

Ferro–silicon – magnesium (7202 29 00) 12 NIL CVD 12 5 5 5

Impact of Budget 2014-15

4% SAD has been exempted on parts and raw materials required for use in the manufacture of wind operated electricity generators.

© Confederation of Indian Industry 68

Cement

Industry Issues

In the budget 2012, excise duty rates were revised and presently packaged cement attracts 12% excise duty based on retail sale price with abatement of 30% plus specific excise duty of Rs 120 per tonne. Excise duty on cement is higher than other inputs used in infrastructure and housing. Therefore, specific duty component on cement needs to be withdrawn.

Due to inadequate supplies of domestic coal, cement manufacturers have to resort to usage of expensive imported coal. The industry is trying alternative fuel sources like tyre chips. These attract customs duty of 10% which needs to be reduced to 5%.

What CII Wanted

Remove specific component of excise duty of Rs 120 per tonne on cement and reduce adalorem rate of excise duty from 12% to 10%.

Reduce customs duty form 10% to 5% on rubber tyre chips.

What the Government Gave

Item Excise Duty Customs Duty%

2013-14 What CII wanted

Budget 2014-15

2013-14 What CII wanted

Budget 2014-15

Cement manufactured and cleared in packaged form from other than a mini cement plant (2523 29)

12%+Rs 120 PMT

10% 12%+Rs 120

PMT NIL NIL NIL

Cement cleared in other than packaged form (2523 29)

12% 10% 12% NIL NIL NIL

Inputs

Tyre chips (4004 00 00) 12% 10% 12% 10 5 10

Steam coal (2701 19 20) 2% CVD 2% CVD 2% CVD 2 2 2.5

Petroleum Coke (2713 11 00) 14% 12% 14% 2.5 2.5 2.5

Impact of Budget 2014-15

Custom duty on all types of non-agglomerated coal has been rationalized at 2.5%. Consequently customs duty on steam coal and bituminous coal has been increased from 2% to 2.5%. Customs duty on anthracite coal has been reduced from 5% to 2.5%.

CVD on anthracite coal and other coal has been reduced from 6% to 2%. Steam coal already attract CVD of 2%.

© Confederation of Indian Industry 69

Chemicals

Industry Issues

The main input for manufacture of antimony trioxide is antimony. China is the main producer of antimony. During 2012-13, India imported antimony worth Rs. 5287 lac and 96% of import was from China as per data available on Ministry of Commerce website. China has imposed additional customs duty of 5% on export of antimony with effect from 1 July 2009 but there is no such duty on export of antimony trioxide. Consequently users prefer to import antimony trioxide from China. During 2012-13 India imported Rs. 10138 lac antimony oxides from China out of total imports of Rs. 11226 lac.

The combined effect of all these makes production of antimony trioxide from antimony unviable in India. This has resulted in under utilization of capacity of indigenous manufactures of antimony trioxide. Presently antimony attracts customs duty of 5% and its reduction to 2.5% can help the indigenous manufacturers of antimony trioxide.

What CII Wanted

Reduce customs duty from 5% to 2.5% on antimony.

What the Government Gave

Item

Excise Duty % Customs Duty%

2013-14 What CII wanted

Budget 2014-15

2013-14 What CII wanted

Budget 2014-15

Antimony oxides (2825 28 00) 12 10 12 7.5 7.5 7.5

Inputs

Antimony (8110 10 00) 12 10 12 5 2.5 5

Impact of Budget 2014-15

There is no change in customs duty on antimony.

© Confederation of Indian Industry 70

Cigarettes

Industry Issues

The current system of length based specific excise duty for cigarettes introduced in 1987 has avoided valuation disputes and resulted in growth in revenue collection. It needs to be continued at the current level of taxation in excise.

The new segment of filter cigarettes, length not exceeding 65 mm, with excise duty of Rs. 669 per thousand cigarettes introduced in the budget 2012, provided an opportunity to the legitimate cigarette industry to offer cigarettes at Rs. 2 per stick. However, it has not helped as illegal filter cigarettes are sold to consumers at Rs. 1 per stick and the organized cigarette industry cannot match that price. Reduction of excise duty on this segment to Rs. 200 per thousand cigarettes can facilitate industry to make viable offer to consumers.

What CII Wanted

Continue with the specific excise duty structure for cigarettes at current level of taxation.

Reduce excise duty from Rs. 669 to Rs. 200 per 1000 cigarettes of length not exceeding 65 mm.

What the Government Gave

Item

Excise +NCCD+Health Cess Rs. Per 1000 Cigarettes

Customs Duty (%)

2013-14 What CII wanted

Budget 2014-15

2013-14 What CII wanted

Budget 2014-15

Cigarettes non-filter (<=65mm) (2402 20 10) 669 200 1150

30 30 30

Cigarettes non-filter (>65-70mm) (2402 20 20) 2027 2027 2250

Cigarettes filter (<=65mm) (2402 20 30) 669 200 1150

Cigarettes filter (65-70mm) (2402 20 40) 1409 1409 1650

Cigarettes filter (70-75mm) (2402 20 50) 2027 2027 2250

Cigarettes filter (75-85mm) (2402 20 60) 2725 2725 3290

Cigarettes other (2402 20 90) 3290 3290 3290

Impact of Budget 2014-15

Specific Excise duty on various length of cigarettes has been increased by 11% to 72%.

Slab of filter cigarettes of length 75 – 85 mm (2402 20 60) has been merged into cigarettes other (2402 90 10).

There is no change in NCCD and Health Cess.

© Confederation of Indian Industry 71

Copper & Copper Scrap

Industry Issues

In India, the secondary producers of copper can be divided into two categories viz. the organized sector and unorganized sector. Unorganized sector procure copper scrap from Kabaris and mostly conduct their business without paying any taxes. The organized sector find itself in a disadvantageous position due to the following:

Customs duty on scrap of copper is 5% which is at par with customs duty on copper.

Unable to utilize the CENVAT credit of 12% CVD and 4% SAD paid on imported scrap due to low value addition in conversion of scrap into metal form.

Customs duty on copper scrap is 5% where as scrap of steel and aluminium attracts 2.5% duty.

There is need to encourage recycling of copper by reducing basic customs duty on scrap of copper to 2.5% and exempting 4% SAD.

What CII Wanted

Reduce customs duty from 5% to 2.5% on copper scrap.

Exempt 4% Special Addition Duty on copper scrap.

What the Government Gave

Item Excise Duty (%) Customs Duty (%)

2013-14 What CII wanted

Budget 2014-15

2013-14 What CII wanted

Budget 2014-15

Copper rods, copper wire-bars (7403) 12 10 12 5 5 5

Inputs

Copper ores and concentrates (2603) NIL NIL NIL 2.5 2.5 2.5

Copper scrap (7404) 12 10 12 5 2.5 5

Impact of Budget 2014-15

Customs duty as well as excise duty has been exempted on flat copper wire for use in the manufacture of PV ribbons (tinned copper interconnect) for solar PV cells or modules.

Excise duty has been increased from 10% to 12% on winding wires of copper.

© Confederation of Indian Industry 72

Drugs & Pharmaceuticals

Industry Issues

Medicines containing alcohol and narcotic drugs are levied excise duty under M & TP Act and Rules without any CENVAT credit on inputs. CENVAT Credit on inputs should be allowed.

Navelbine is a new medicine and is being imported for use in the therapy of treating Non-Small-Cell Lung Cancer (NSCLC). This needs to be included as a life saving drug in list 4 of customs notification 12/2012-sl. no. 148.

Radioisotope TI-201 and Technitium-99M are tracer molecules used in medical imaging appear at sl no. 92 and 111 of customs list 4 and attract NIL customs duty as per sl. no. 148 of customs notification 12/2012. Similar customs duty concession needs to be extended to Radioisotope-FDG 18 mainly used as medical imaging modality Positron Emission Tomography.

In list 3 of customs notification 12/2012, “Interferon alpha-2b/alpha-2a/interferon alpha-2a/Interferon NL (LNS)” appears at sl. no. 37. Likewise, “Interferon beta-1b” is a newly developed life saving drug akin to the medicine at sl. no. 37 and hence should also be allowed for import at concessional customs duty by adding in list 3.

List 3, also includes cancer drugs “Pegulated Liposomal Doxorubicin Hydrochloride injection” and “Doxorubicin” at sl. no. 89 and 128 respectively. Likewise, “Doxorubicin Hydrochloride Liposomal injection” is a medicine meant for treatment of cancer and needs to be included in list 3.

What CII Wanted

Extend CENVAT credit on inputs for medicines covered under M & TP Act.

Include Navelbine and Radioisotope-FDG 18 in list 4 of customs notification 12/2012 to bring down customs duty to NIL.

Allow import of Interferon beta-1b and Doxorubicin Hydrochloride Liposomal injection at concessional customs duty of 5% by including these in list 3 of customs notification 12/2012:

What the Government Gave

Item

Excise Duty (%) Customs Duty (%)

2013-14 What CII Wanted

Budget 2014-15

2013-14 What CII Wanted

Budget 2014-15

Drug formulations (3001, 3003, 3004, 3005, 3006)

6 6 6 10 10 10

126 specified life saving drugs / medicines including their salts and esters and diagnostic kits – list 4 of customs (28,29,30,38)

NIL NIL NIL NIL NIL NIL

181 specified drugs, medicines, diagnostic kits or equipment – list 3 of customs (28,29,30)

NIL NIL NIL 5 5 5

Impact of Budget 2014-15

Customs and excise duties have been exempted on specified HIV/AIDS drugs and diagnostic kits imported under National AIDS Central Programme funded by the Global Fund to Fight AIDS, TB and Malaria (GFATM).

© Confederation of Indian Industry 73

Electrical Insulators

Industry Issues

Metalic hardware is used in various types of insulators. High voltage transmissions lines usually use modular cap and pin insulators where in the conductors are suspended from a string of identical disc shaped insulators attached to each other with metal clevis pin or ball and socket links. Most of the metal parts for insulators fall under tariff heading 7325 which attracts customs duty of 10% as compared to 7.5% on imported insulators. This results in competitive disadvantageous position for the indigenous manufacturers as compared to import of insulators from the foreign vendors. This is an anomaly in customs duty structure and needs to be rectified.

Excise duty on goods falling under chapter 85 which includes electrical insulators has been reduced from 12% to 10% in the interim budget on 17.02.2014. This concession is upto 30.06.2014 which needs to be extended.

What CII Wanted

Reduce customs duty from 10% to 7.5% on metal parts of electrical insulators falling under tariff heading 7325.

Extend 10% excise duty on electrical insulators upto 31.03.2015

What the Government Gave

Item

Excise Duty (%) Customs Duty (%)

17.02.2014 What CII Wanted

Budget 2014-15

2013-14 What CII Wanted

Budget 2014-15

Electrical Insulators (8546) 10 10 10 7.5 7.5 7.5

Inputs

Metal Parts for insulators (7325) 12 10 12 10 7.5 10

Impact of Budget 2014-15

10% excise duty on electrical insulators has been extended upto 31.12.2014 vide central excise notification 6/2014 issued on 25.06.2014.

There is no change in customs and excise duties on metal parts of insulators.

© Confederation of Indian Industry 74

Fly Ash Products

Industry Issues

To encourage use of fly ash, government gave full excise exemption in the year 1991 vide excise notification 60/1991 on goods falling under chapter 68 in which not less than 25% by weight of fly-ash has been used. This exemption continued for a long time.

Subsequently the following changes in excise duty were made on goods of chapter 68, in which not less than 25% by weight of fly ash or phosphor-gypsum or both have been used.

Date Excise Duty Remarks

1.3.2006 8% Excise duty of 8% was levied when general rate was 16%

17.2.2008 4% Excise duty was reduced from 8% to 4% in the stimulus package

7.7.2009 8% Excise duty rate increased from 4% to 8%

27.2.2010 10% Excise duty rate increased from 8% to 10%

17.3.2012 12% Excise duty rate increased from 10% to 12%

Usage of fly ash for manufacture of fly ash bricks and asbestos cement products containing not less than 25% fly ash by weight needs to be encouraged by reducing excise duty to half the general rate.

What CII Wanted

Reduce excise duty from 12% to 6% on goods falling under chapter 68 in which not less than 25% by weight of fly ash has been used.

What the Government Gave

Item

Excise Duty (%) Customs Duty (%)

2013-14 What CII Wanted

Budget 2014-15

2013-14 What CII Wanted

Budget 2014-15

Fly ash bricks (6815 99 10) 12 6 12 10 10 10

Asbestos cement products containing minimum of 25% of fly ash by weight (6811)

12 6 12 10 10 10

Input

Fly ash (26 or any other chapter) 6/2* 6/2* 6/2* 5 5 5

*without CENVAT credit

Impact of Budget 2014-15

There is no change in excise duty on fly ash products.

© Confederation of Indian Industry 75

Food Processing & Agro-Based Products

Industry Issues

Even though excise duty on number of food products is 6%, option is there to pay 2% excise duty without availment of CENVAT credit. This facility needs to be continued.

The high rate of excise duty of 12% on packing materials used for processed food adds to the cost resulting in increase in prices. Therefore reduction of excise duty from 12% to 6% on packaging materials needs consideration.

Currently on packaged drinking water, excise duty of 12% is levied which needs to be brought down to 6%.

Though most of food products attract 6% excise duty, there are few items attracting excise duty of 12%. Such items are mainly those containing cocoa and instant coffee. This discrimination needs to be removed by reducing excise duty on all food products having 12% rate to 6%.

While most of the ready to serve beverages are subject to excise duty on MRP basis, iced tea falling under tariff tariff heading 2101 20 90 is still assessed to 12% excise duty on transaction value.

What CII Wanted

Continue with the existing exemptions either in the form of NIL excise duty or 2% excise duty without CENVAT credit.

Reduce excise duty form 12% to 6% on packing materials (printed laminates, pet jars and corrugated cartons) used by the food processing industry.

Reduce excise duty from 12% to 6% on packaged drinking water and processed food having excise duty of 12%.

Include iced tea under section 4A of the Central Excise Act for the purpose of valuation with abatement.

What the Government Gave

Item

Excise Duty (%) Customs Duty (%)

2013-14 What CII Wanted

Budget 2014-15

2013-14 What CII Wanted

Budget 2014-15

Sugar confectionery containing cocoa (1806 90 20) Chocolates & chocolate products (1806 90 10)

12 6 12 30 30 30

Malted food for other than infant use (1901 90)

12 6 12 30 30 30

Wafers having chocolate (1905 32 11) 12 6 12 30 30 30

Instant coffee (2101 11 10, 2101 11 20) 12 6 12 30 30 30

Mineral Water (2201, 2202) 12 6 12 30 30 30

Impact of Budget 2014-15

Excise duty has been reduced from 10% to 6% on machinery for the preparation of meat, poultry, fruits, nuts or vegetables, and on presses, crushers and similar machinery used in the manufacture of wine, cider, fruit juices or similar beverages and on packaging machinery.

5% Additional duty of excise has been levied on waters, including aerated waters, containing added sugar falling under tariff heading 2202 10 10, 2202 10 20 and 2202 10 90.

© Confederation of Indian Industry 76

Foundry

Industry Issues

Foundry industry produces castings of grey iron, spheroidol graphite (SG) iron, malleable iron, steel and aluminium. Metal scrap is important input for foundries. Earlier there was NIL customs duty on metal scrap of iron and steel, stainless steel and aluminium which was increased to 2.5% with effect from 8 May 2013. The increase in customs duty on the key input i.e scrap has resulted in erosion of cost competitiveness of industry specially the SMEs. Restoration of NIL customs duty on scrap will help the indigenous foundry industry.

4% SAD is applicable on imported scrap. Though the users of imported scrap are allowed to avail CENVAT credit, some of the foundries are not able to utilize the credit due to low value addition which adds to the cost.

What CII Wanted

Reduce customs duty from 2.5% to NIL on scrap of iron and steel, stainless steel and aluminium.

Exempt 4% additional duty of customs (SAD) on melting scrap of iron and steel, stainless steel and aluminium.

What the Government Gave

Item

Excise Duty (%) Customs Duty (%)

2013-14 What CII Wanted

Budget 2014-15

2013-14 What CII Wanted

Budget 2014-15

Castings of iron or steel (7325) 12 10 12 10 10 10

Castings of aluminium (76) 12 10 12 10 10 10

Inputs

Melting scrap of iron or steel (7204) 12 10 12 2.5 NIL 2.5

Scrap of stainless steel for melting (7204 21)

12 10 12 2.5 NIL 2.5

Aluminium Scrap (7602) 12 10 12 2.5 NIL 2.5

Impact of Budget 2014-15

There is no change in customs and excise duty rates.

© Confederation of Indian Industry 77

Hydrocarbons

Industry Issues

Natural gas, crude oil and coal are collectively known as hydrocarbons. Presently India is importing all the three varieties of hydrocarbons. Customs duty on crude oil and coking coal is NIL where as natural gas attracts customs duty of 5%. However, natural gas attracts NIL customs duty when imported for supply to electricity generating company as per sl. no. 139 of customs notification 12/2012.

Indigenous production of natural gas is not sufficient to meet the requirement of various users and to meet the shortfall, India imported 13.13 million tonnes of liquefied natural gas (LNG) worth Rs. 41,142 crores during 2012-13 as per the import data available on the Ministry of Commerce website.

Keeping in view the limited availability of indigenous natural gas, it is suggested that customs duty on natural gas and LNG is made NIL without mentioning any end use condition so that all users can avail the concessional duty benefit.

National Calamity Contingent Duty (NCCD) of Rs. 50 per tonne on crude oil was imposed vide Section 169 of the Finance Act 2003 for one year i.e upto 29.02.2004. Subsequently in the Finance Act 2005, NCCD was extended without any time limit. NCCD on crude oil needs to be withdrawn.

What CII Wanted

Reduce customs duty from 5% to NIL on LNG and natural gas without any end use condition.

Withdraw NCCD on crude oil.

What the Government Gave

Item

Excise Duty (%) Customs Duty (%)

2013-14 What CII Wanted

Budget 2014-15

2013-14 What CII Wanted

Budget 2014-15

Crude Oil (2709 00 00) Cess of

Rs. 4500 per tonne

Cess of Rs. 4500 per

tonne

Cess of Rs. 4500 per

tonne NIL NIL NIL

Natural Gas (2711 21 00) NIL NIL NIL 5 NIL 5

Liquefied Natural gas (LNG) (2711 11 00) NIL NIL NIL 5 NIL 5

Liquified natural gas (LNG) and natural gas imported by GAIL NTPC JV or Petronet LNG for supply to electricity generating company (2711 11 00, 2711 21 00)

NIL NIL NIL NIL NIL NIL

Impact of Budget 2014-15

There is no change in customs and excise duties on crude oil and natural gas.

© Confederation of Indian Industry 78

Information Technology Hardware

Industry Issues

Though certain components for computers have a reduced rate of 6% CVD as per sl. no. 255 and 256 of central excise notification 12/20112, several components such as motherboard, base units/cabinets, memory modules, graphic cards attract CVD of 10%.

Special additional duty (SAD) is exempted on seven inputs of computer (microprocessor for computer other than motherboard, floppy disc drive, hard disc drive, CD-ROM drive, DVD drive/DVD writer, flash memory, combo drive) vide sl. no. 85 of customs notification 21/2012 but on all other imported inputs 4% SAD is applicable. Whereas traders are allowed to claim refund of SAD paid on imports subject to payment of VAT to the state government as per customs notification 102/2007, manufacturers can claim only CENVAT credit for SAD paid.

In view of the low value addition, manufacturers of information technology hardware are unable to utilize the CENVAT credit of CVD and SAD resulting in excess credit which have to be added in the price of the goods. This make them uncompetitive when compared to imported IT hardware . To remove this disadvantage, SAD needs to be exempted on all inputs used by a manufacturer of IT hardware.

The reduced rate of excise duty of 10% on IT hardware for the period 17.02.2014 to 30.06.2014 in the interim budget 2014-15 needs to be extended.

What CII Wanted

Exempt 4% SAD on all inputs imported by IT hardware manufacturer.

Extend 10% excise duty on goods falling under chapter 84 upto 31.03.2015.

What the Government Gave

Item

Excise Duty (%) Customs Duty (%)

17.02.2014 What CII Wanted

Budget 2014-15

2013-14 What CII Wanted

Budget 2014-15

Automatic data processing machines and units thereof; magnetic or optical readers, machines for transcribing data on to data media in coaded from and machines for processing such data (8471)

10 10 10 NIL NIL NIL

Parts and accessories of the machines of heading 8471 (8473 30)

10 10 10 NIL NIL NIL

Microprocessor for computers other than motherboards, floppy disc drive, hard disc drive, CD-ROM drive, DVD drive/DVD writers, flash memory, combo drive (8471 70, 8473 30, 8523)

6 6 6 As

applicable As

applicable As

applicable

Impact of Budget 2014-15

Excise duty of 10% on IT hardware as well as its parts and accessories falling under chapter 84 has been extended upto 31.12.2014 as per excise notification 6/2014 issued on 25.06.2014.

4% SAD has been exempted on all inputs/components used in the manufacture of personal computers (laptop/desktop) and tablet computers.

Customs duty has been reduced from 7.5% to NIL on E-book readers.

Excise duty has been increased on smart cards from 2% without CENVAT Credit and 6% with CENVAT Credit to a uniform rate of 12%.

© Confederation of Indian Industry 79

Insulated Cables

Industry Issues

Electrical cables fall under HS Code 8544 and attract customs duty of 7.5%. In these cables the conductors used are produced from copper wire rod and aluminium wire rod which attract customs duty of 5%. The other main input for cables is insulating materials which attract higher rate of customs duty.

In case of rubber insulated cables, Ethylene Propylene Diene Monomer commonly known as EPDM (HS Code 4002 70 00) is widely used which attract customs duty of 10%.

In certain types of cables, water blocking tape (HS Code 3919 90 90) is used in addition to the insulating material to make the cables water penetration resistance. Customs duty on water blocking tape is 10%.

In case of fire resistance cables, the primary insulation is of mica glass fire resistance tape. This is used along with the secondary insulation of cross linked low smoke and fume material. Customs duty on mica glass tape (HS Code 6814 90 90) is 10%.

Higher customs duty of 10% on inputs compared to 7.5% on the electrical cables puts the indigenous manufacturers in a disadvantageous position.

Excise duty on insulated cables has been reduced from 12% to 10% upto 30.06.2014 in the interim budget 2014-15 which needs to be extended further.

What CII Wanted

Reduce customs duty from 10% to 7.5% on EPDM, water blocking tape and mica glass tape when imported for manufacture of insulated cables.

Extend excise duty of 10% on insulated cables upto 31.03.2015.

What the Government Gave

Item

Excise Duty (%) Customs Duty (%)

17.02.14 What CII Wanted

Budget 2014-15

2013-14 What CII Wanted

Budget 2014-15

Insulated wires and cables (8544) 10 10 10/12 7.5 7.5 7.5

Inputs

Ethylene – propylene – non-conjugated diene rubber (EPDM) (4002 70 00)

12 10 12 10 7.5 10

Water blocking tape (3919 90 90) 12 10 12 10 7.5 10

Mica glass tape (6814 90 90) 12 10 12 10 7.5 10

Impact of Budget 2014-15

10% Excise duty on insulated cables has been extended upto 31.12.2014 vide central excise notification 6/2014 issued on 25.06.2014.

Excise duty has been increased from 10% to 12% on winding wires of copper falling under tariff headings 8544 11 10 and 8544 11 90.

© Confederation of Indian Industry 80

Lead

Industry Issues

Lead acid batteries fall under HS Code 8507 10 00 and 8507 20 00 and attract customs duty of 10%.

Lead is the main input for lead battery plates and lugs. Customs duty on unwrought lead (HS Code 7801) is 5%. Lead waste and scrap (HS Code 7802) also attracts customs duty of 5%.

A considerable portion of demand of lead is met with secondary lead produced from recycling of battery scrap. About two tons of battery scrap is required for producing one ton of lead. Lead scrap from batteries falling under HS Code 8548 10 10 and 8548 10 20 attract customs duty of 10% which is more than 5% customs duty on lead.

What CII Wanted

Reduce customs duty from 10% to 5% on battery scrap and waste falling under HS code 8548 10 10 and 8548 10 20.

What the Government Gave

Item

Excise Duty (%) Customs Duty (%)

2013-14 What CII Wanted

Budget 2014-15

2013-14 What CII Wanted

Budget 2014-15

Unwrought lead (7801) 12 10 12 5 5 5

Inputs

Lead ores (2607 00 00) NIL NIL NIL 2.5 2.5 2.5

Lead waste and scrap (7802) 12 10 12 5 5 5

Waste and scrap of lead acid batteries (8548 10 10, 8548 10 20)

12 10 12 10 5 5

Impact of Budget 2014-15

Customs duty on battery waste and battery scrap has been reduced from 10% to 5%.

© Confederation of Indian Industry 81

Machine Tools

Industry Issues

The manufacture of CNC machines require specialised components of high precision which are manufactured by a select few companies in the world. These components contribute around 30 percent of the input cost to the manufacture of CNC machines.

The reduction of the customs duty on these critical parts for machine tools from the present rate of 7.5% to 2.5% would bring down the input costs and so the selling prices of these machines, thereby, spurring demand from the manufacturing sectors.

The reduction of excise duty from 12% to 10% on machine tools in the interim budget on 17.02.2014 will benefit their users in SSI sector who cannot avail CENVAT credit. However, this reduction in excise duty is applicable upto 30.06.2014 which needs to be extended.

What CII Wanted

Reduce customs duty from 7.5% to 2.5% on component parts not manufactured in India and used for manufacturer of CNC machine tools.

Extend excise duty of 10% upto 31.03.2015.

What the Government Gave

Item

Excise Duty (%) Customs Duty (%)

17.02.14 What CII Wanted

Budget 2014-15

2013-14 What CII Wanted

Budget 2014-15

Machine Tools (8456 to 8465) 10 10 10 7.5 7.5 7.5

Inputs

CNC systems (8537 10 00)) 10 10 10 7.5 7.5 7.5

Imported Component Parts for CNC Systems

Servo drives/motors (8501) Precision spindles (8466 93) Ball screws (8483 40 00) Linear motion guide ways (8482 80 00) Precision bearings (8482)

10 10 10 7.5 2.5 7.5

Precision gauging and balancing systems (9031 80 00)

12 10 12 7.5 2.5 7.5

Impact of Budget 2014-15

Excise duty of 10% has been extended upto 31.12.2014 as per excise notification 6/2014 dated 25.06.2014.

There is no other change in customs and excise duties on machine tools.

© Confederation of Indian Industry 82

Medical Equipments

Industry Issues

Parts and accessories required for manufacture of medical equipment falling under HS Code 9018, 9019 and 9022 are allowed for import at customs duty of 5% as per sl. no. 474 of customs notification 12/2012 which is at par with customs duty applicable on complete equipment. However, raw materials required for manufacture of such parts and accessories attract customs duty of 5% to 10% which needs to be reduced to 5%.

Endovascular stents are exempted from basic customs duty as per sl. no. 472 of customs notification 12/2012 but excise duty of 6% is applicable which needs to be exempted.

Nasal reconstructive surgery use Polydioxanore (PDS) plates attracting customs duty of 10% which needs to be reduced to NIL.

Continuous ambulatory peritoneal dialysis system with drain bags, tubings and connectors falling under tariff heading 9018 attract 5% basic customs duty, 6% CVD and NIL SAD. Medical grade PVC sheeting falling under tariff heading 3921 90 99 are used for manufacture of this equipment and attract customs duty of 10%+12%+4% which needs to be reduced to 2.5%+6%+NIL.

What CII Wanted

Reduce customs duty on raw materials required for manufacture of medical equipment, their parts

and accessories to 5%.

Reduce excise duty from 6% to NIL on endovascular stents.

Reduce customs duty from 10% to NIL on PDS Plates used for nasal reconstructive surgery.

Allow import of medical grade PVC sheeting for manufacture of continuous ambulatory peritoneal dialysis system at concessional 2.5% basic customs duty, 6% CVD and NIL SAD.

What the Government Gave

Item

Excise Duty (%) Customs Duty (%)

2013-14 What CII Wanted

Budget 2014-15

2013-14 What CII Wanted

Budget 2014-15

Medical Equipment (9018, 9019, 9022) 6 6 6 5 5 5

Endovascular stents (90) 6 NIL NIL NIL NIL NIL

Inputs

Polydioxanore (PDS) plates (3920 69 99) 12 10 12 10 NIL 10

Medical grade PVC sheeting (3921 90 99) 12 6 12 10 2.5 10

Impact of Budget 2014-15

There is no change in customs and excise duties on medical equipments.

© Confederation of Indian Industry 83

Microwave Ovens

Industry Issues

Magnetron which generates and transmits non-coherent microwaves is a major input for microwave ovens and it is not made in India. Customs duty on magnetron was reduced from 10% to 5% in the budget 2011 to encourage indigenous manufacture of microwave ovens.

Presently 5% customs duty on magnetron is subject to condition that the manufacturer follows the procedure set in the customs under Import of Goods at Concessional Rate of Duty for Manufacture of Excisable Goods Rules, 1996 (IGCR). Due to this condition, the manufacturers, who import magnetron and then get microwave ovens made through another equipment manufacture, are not able to avail benefit of duty concession and are liable to pay 10% basic customs duty which make them uncompetitive.

Excise duty on microwave oven and magnetron has been reduced from 12% to 10% upto 30.06.2014 in the interim budget on 17.02.2014. This needs to be extended further.

What CII Wanted

The facility of availing 5% customs duty on magnetron needs to be allowed without IGCR condition.

Extend 10% excise duty on chapter 84 and 85 upto 31.03.2015.

What the Government Gave

Item

Excise Duty (%) Customs Duty (%)

17.02.2014 What CII Wanted

Budget 2014-15

2013-14 What CII Wanted

Budget 2014-15

Microwave oven (8516 50 00) 10 10 10 10 10 10

Input

Magnetron of upto 1KW used for the manufacture of domestic microwave (8540 71 00)

10 10 10 5 5 without

IGCR 5 without

IGCR

Impact of Budget 2014-15

Excise duty of 10% on microwave oven and magnetron has been extended upto 31.12.2014 as per excise notification 6/2014 dated 25.06.2014.

There is no change in customs and excise duties.

© Confederation of Indian Industry 84

Newsprint

Industry Issues

The main input for newsprint is wood pulp. The comparative customs and excise duties on newsprint and wood pulp for newsprint are as under:

Duties Newsprint Wood pulp for newsprint

Basic customs duty NIL – 12/2012-264 NIL – 12/2012-260

CVD NIL – 12/2012-264 6% – as per Excise Tariff

SAD NIL – 21/2012-60 NIL – 21/2012–57

Excise NIL – 12/2012-164 6% – as per Excise Tariff

There is NIL CVD on newsprint and 6% CVD on imported wood pulp for newsprint. Newsprint industry cannot avail CENVAT credit for 6% CVD on wood pulp due to NIL excise duty on newsprint. This makes the indigenous newsprint industry uncompetitive.

What CII Wanted

Exempt 6% CVD on wood pulp for newsprint.

What the Government Gave

Item

Excise Duty (%) Customs Duty (%)

2013-14 What CII Wanted

Budget 2014-15

2013-14 What CII Wanted

Budget 2014-15

Newsprint in specified form and size (4801)

NIL NIL NIL NIL NIL NIL

Inputs

Wood pulp for newsprint (47) 6 NIL 6 NIL NIL NIL

Impact of Budget 2014-15

There is no change in duties for newsprint and wood pulp.

© Confederation of Indian Industry 85

Paints

Industry Issues

Manufacture of paint involves mixing of a wide variety of raw materials in various proportions. On an average raw materials account for 56% of the total expenditure in paint companies.

Titanium dioxide is the vital pigment used in paints. Pigments and preparations containing 80% or more of titanium dioxide are also used in paints.

In the budget 2012, customs duty on titanium dioxide under CTH 2823 00 10 was reduced from 10% to 7.5% to bring at par with other inputs vide sl. no. 150 of customs notification 12/2012. However, customs duty on this was again increased to 10% with effect from 08.05.2013. The concessional customs duty of 7.5% needs to be restored to create differential in duty between paints and this vital input.

Titanium dioxide also falls under CTH 3206 as pigments and preparations based on titanium dioxide. This is evident from Anti-dumping duty customs notification 85/2009 on titanium dioxide where in both CTH 2823 and 3206 are mentioned. Therefore customs duty on pigments and preparations of titanium dioxide under CTH 3206 11 also needs to be reduced from 10% to 7.5%.

What CII Wanted

Reduce customs duty from 10% to 7.5% on titanium dioxide as well as pigments and preparations based on titanium dioxide.

What the Government Gave

Item

Excise Duty (%) Customs Duty (%)

2013-14 What CII Wanted

Budget 2014-15

2013-14 What CII Wanted

Budget 2014-15

Paints (3208, 3209) 12 10 12 10 10 10

Inputs

Titanium dioxide (2823 00 10) 12 10 12 10 7.5 10

Pigments and preparations based on titanium dioxide containing 80% or more of titanium dioxide (3206 11)

12 10 12 10 7.5 10

Zinc oxide (2817 00 10) 12 10 12 7.5 7.5 7.5

Ethylene glycol (2905 31 00) 12 10 12 7.5 7.5 7.5

Impact of Budget 2014-15

No change in customs and excise duties.

© Confederation of Indian Industry 86

Polymers & Plastics

Industry Issues

Naptha is the main input used by most of the petrochemical manufacturers and attracts customs duty of 5% as per sl. no. 130 of customs notification 12/2012. Customs duty on naptha for manufacture of specified polymers falling under tariff headings 3901 to 3904 was reduced to NIL with effect from 1 July 2011 when imported by Haldia Petrochemicals Limited vide sl. no. 129 of Customs notification 12/2012. This concession needs to be extended for all users of naptha for petrochemical production. Naptha attracts excise duty of 14% where as its products have excise rate of 12% resulting in excess CENVAT credit in certain companies. This situation needs to be rectified by reducing excise duty on naptha from 14% to 12%.

Reformat (Aromatic naptha) is also used as feedstock by the petrochemical industry and attracts customs duty of 10% which needs to be reduced to 2.5%. Other feedstocks for petrochemicals industry are liquefied gases like natural gas, propane gas, butane gas and ethane and these attract customs duty of 5% which also needs to be reduced to 2.5%.

Ethylene, propylene and styrene are the main building blocks for polymers and attract customs duty of 2.5% to 5% which needs to be rationalized to uniform rate of 2.5%.

What CII Wanted Reduce customs duty on naptha to NIL and on other gaseous feedstocks for petrochemicals from

5% to 2.5%. Also reduce excise duty on naptha from 14% to 12%.

Reduce customs duty from 10% to 2.5% on reformat (aromatic naptha).

Reduce customs duty from 5% to 2.5% on ethylene and propylene.

What the Government Gave

Item

Excise Duty (%) Customs Duty (%)

2013-14 What CII Wanted

Budget 2014-15

2013-14 What CII Wanted

Budget 2014-15

Naptha (2710) 14 12 14 5 NIL 5

Reformate (Aromatic naptha) (2707 50 00) 14 12 14 10 2.5 2.5

Liquefied natural gas (LNG) (2711 11 00) NIL NIL NIL 5 2.5 5

Liquefied propane gas (2711 12 00) Liquefied Butane (2711 13 00)

8 8 8 5 2.5 NIL/5

Saturated acrylic hydrocarbon – Ethane (2901 10 00)

12 10 12 5 2.5 2.5

Polymer Building Blocks

Styrene (2902 50 00) 12 10 12 2.5 2.5 2.5

Ethylene (2901 21 00) Propylene (2901 22 00)

12 10 12 5 2.5 2.5

Impact of Budget 2014-15

Customs duty on Reformat has been reduced from 10% to 2.5%.

Customs duty has been reduced from 5% to 2.5% on saturated hydrocarbons, ethylene, propylene, butadiene, o-xylene, and propane.

NIL customs duty on liquefied propane and butane mixture has been extended for supply to Non-Domestic exempted category when imported by IOCL, HPCL and BPCL.

Customs duty on polystyrene (other than moulding powder) has been increased from 1.15% to 7.5% when imported from Singapore under Comprehensive Economic Co-operation Agreement (CECA).

© Confederation of Indian Industry 87

Safety & Security Equipment

Industry Issues

Tariff heading 8531 covers burglar alarm, fire alarm and other safety equipments. Customs duty on these as well as their parts is 10% whereas most of the goods under chapter 85 attract customs duty of 7.5%. Customs duty on goods falling under HS Code 8531 10, 8531 80 00 and 8531 90 00 needs to be reduced from 10% to 7.5% to make these more affordable.

As per sl. no. 490 of customs notification 12/2012 read with condition 89, X-Ray baggage inspection systems and parts thereof falling under tariff heading 9022 are allowed for import at NIL customs duty by the specified government agencies for the purposes mentioned there in. This concession needs to be extended to the security equipment which are used for bomb detection, explosive deduction etc.

Some of the major airports are now managed under PPP Model by joint venture companies and they are not able to avail the customs duty concession on X-Ray baggage inspection systems and parts thereof.

Excise duty on safety and security equipment has been reduced from 12% to 10% upto 30.06.2014 in the interim budget 2014 which needs to be extended.

What CII Wanted

Reduce customs duty from 10% to 7.5% on security and safety equipment as well as their parts.

The existing entry at sl. no. 490 in customs notification 12/2012 may be amended as “X-Ray Baggage Inspection systems and other airport security systems and parts thereof falling under chapter 84, 90 or any other chapter”.

Condition No. 89 of customs notification 12/2012 may be amended to include imports by airport operators subject to production of certificate from Ministry of Civil Aviation.

Extend 10% excise duty on chapter 85 upto 31.03.2015.

What the Government Gave

Item

Excise Duty (%) Customs Duty (%)

17.02.2014 What CII Wanted

Budget 2014-15

2013-14 What CII Wanted

Budget 2014-15

Burglar or fire alarms and similar apparatus (8531 10)

10 10 10 10 7.5 10

Other apparatus for security (8531 80 00) 10 10 10 10 7.5 10

Inputs

Parts (8531 90 00) 10 10 10 10 7.5 10

Impact of Budget 2014-15

Excise duty of 10% on safety and security equipment and their parts falling under chapter 85 has been extended upto 31.12.2014 vide excise notification 6/2014 dated 25.06.2014.

Customs duty has been made NIL on portable X-ray machine / system when imported by the Police Force of the States or Union Territories or Central Reserve Police Force or National Security Guard or Border Security Force or Indo-Tibetan Border Police or Assam Rifles or Railway Protection Force or Special Force for bomb detection or disposal purposes.

© Confederation of Indian Industry 88

Steel

Industry Issues

Customs duty on melting scrap of iron or steel and stainless steel was increased from NIL to 2.5% on 8 May 2013 which has adversely affected the secondary producers of non-alloy steel as well as alloy steel. Restoration of NIL customs duty needs consideration.

Induction furnaces owners using imported melting scrap of steel pay CVD of 12% and SAD of 4%. Their product attract excise duty of 12%. Consequently they are unable to utilize the CENVAT credit of CVD and SAD due to lower value addition in conversion of scrap into steel which adds to the cost.

The process of cutting and slitting of steel coils/sheets are not considered as manufacturing activity under Central Excise. Consequently, the steel manufacturers have to seek permission under Rule 16C of Central Excise Rules 2002 from the Commissioner of Excise for sending such goods for job work. The process of cutting, slitting and printing of aluminium foils are considered as manufacture as per note 3 of chapter 76. Similarly, cutting and slitting of steel coils/sheets may also be declared as manufacturing activity.

What CII Wanted

Reduce customs duty from 2.5% to NIL on melting scrap of iron or steel as well as stainless steel.

Exempt 4% additional duty of customs (SAD) on melting scrap of iron and steel imported by manufactures of steel.

Insert suitable note in chapter 72 of Excise Tariff to provide that cutting and slitting of steel coils/sheets shall amount to manufacture.

What the Government Gave

Item

Excise Duty (%) Customs Duty (%)

2013-14 What CII Wanted

Budget 2014-15

2013-14 What CII Wanted

Budget 2014-15

Iron and non-alloy steel Ingots, billets, blooms, slabs, hot/cold rolled flat products, bars, rods, angles, shapes, sections, wires etc. (7206 to 7217)

12 10 12 5 5 5

Flat rolled products of iron or non-alloy steel (7208 to 7212)

12 10 12 7.5 7.5 7.5

Stainless steel and other alloy steel Ingots, billets, hot/cold rolled flat products, bars, rods, angles, shapes, sections, wires etc. (7218 to 7229 except 7225 30 90, 7225 40 19, 7225 50, 7225 99 00)

12 10 12 5 5 5/7.5

Specified flat rolled products of alloy steel (7225 30 90, 7225 40 19, 7225 50, 7225 99 00)

12 10 12 7.5 7.5 7.5

Melting scrap of iron or steel (other than stainless steel) (7204)

12 10 12 2.5 NIL NIL

Scrap of stainless steel for melting (7204 21)

12 10 12 2.5 NIL 2.5

Limestone (2521 00 10) Dolomite (2518 10 00)

NIL NIL NIL 5 NIL 2.5

Impact of Budget 2014-15 Customs duty reduced from 5% to 2.5% on limestone and dolomite.

Customs duty increased from NIL to 2.5% on coking coal as well as metallurgical coke and from 2% to 2.5% on steam coal.

Customs duty increased from 5% to 7.5% on flat rolled products of stainless steel.

© Confederation of Indian Industry 89

Synthetic Fibres and Yarns

Industry Issues

P-Xylene is the base material used to produce intermediates PTA and MEG for synthetic fibres. P-Xylene attracts NIL customs duty where as its main feedstock naptha is having customs duty of 5%. Therefore, customs duty on naptha needs to be reduced to NIL.

Spin finish oil is a vital input in manufacture of synthetic fibres and filament yarns. Spin finish oil attracts customs duty of 7.5%. With customs duty on synthetic fibres at 5%, customs duty on spin finish oil needs to be reduced to 5% to remove the existing anomaly.

Customs duty on titanium dioxide was increased from 7.5% to 10% w.e.f 08.05.2013. Anatase grade titanium dioxide is used by synthetic fibres and yarn industry as dulling agent and customs duty on it needs to be again reduced from 10% to 7.5%.

Synthetic fibres attract excise duty of 12% while there is no excise duty on cotton fibre. The differential in excise duty rates on synthetic fibres and cotton fibre needs to be reduced by reducing excise duty from 12% to 8% across the value chain of synthetic fibres to avoid inverted duty structure and CENVAT credit accumulation.

What CII Wanted

Reduce customs duty from 5% to NIL on naptha.

Reduce customs duty from 7.5% to 5% on spin finish oil.

Reduce customs duty from 10% to 7.5% on titanium dioxide anatase grade.

Reduce excise duty from 12% to 8% on synthetic fibres and their inputs.

What the Government Gave

Item

Excise Duty (%) Customs Duty (%)

2013-14 What CII Wanted

Budget 2014-15

2013-14 What CII Wanted

Budget 2014-15

Fibres / Filaments

Polyester staple fibre (PSF) (5503 20 00, 5506 20 00)

12 8 12 5 5 5

Yarns

Polyester filament yarn (PFY) (5402, 5406) Polyester high tenacity yarn (5402 20)

12 or NIL* 8 or NIL* 12 or NIL* 5 5 5

Inputs

Spin finish oil (3403 11 00) 12 10 12 7.5 5 7.5

Naptha (2710) 14 12 14 5 NIL 5

Titanium dioxide anatase grade (2823 00 10)

12 10 12 10 7.5 10

*without CENVAT credit

Impact of Budget 2014-15

Excise duty has been increased from NIL to 2% (without CENVAT Credit) or 6% (with CENVAT) on Polyester Staple Fiber (PSF) and Polyester Filament Yarn (PFY) manufactured from plastic waste or scrap or plastic waste including PET bottles. Retrospective exemption of excise provided for the period 29.06.2010 to 07.05.2012 on PSF and PFY and on intermediate tow from 29.6.2010 to 10.07.2014.

© Confederation of Indian Industry 90

Textile Machinery

Industry Issues

Creation of modernization upgradation fund (TUF) similar to textile industry can benefit the textile engineering industry. This fund will help in acquisition of new technology, machinery innovation and R & D as well as joint ventures with leading textile machinery manufactures from abroad.

Excise duty on textile machinery has been reduced from 12% to 10% upto 30.06.2014 in the interim budget 2014 which needs to be further extended.

What CII Wanted

Introduce Technology Up-gradation Fund for the textile engineering industry.

Extend excise duty of 10% on chapter 84 upto 31.03.2015.

What the Government Gave

Item

Excise Duty (%) Customs Duty (%)

17.02.2014 What CII Wanted

Budget 2014-15

2013-14 What CII Wanted

Budget 2014-15

Textile machinery (8444 to 8447) 10 10 10 5 5 5

Inputs

Auxiliary machinery, parts and components for textile machinery of headings 8444 to 8447 (8448)

10 10 10 5 5 5

Impact of Budget 2014-15

Excise duty of 10% has been extended for 6 moths i.e upto 31.12.2014 vide excise notification 6/2014 dated 25.06.2014.

Earlier excise duty on sewing machines other than those with in-built motors was 2% without CENVAT credit and 6% with CENVAT. Now the description has been changed as under :

Sewing machines other than those operated with electric motors whether in-built or attachable to the body.

© Confederation of Indian Industry 91

Tiles

Industry Issues

Customs duty on ceramic tiles is 10%, whereas inputs attract customs duty of 5%, 7.5%, and 10%. China being a member of Bangkok Agreement (now known as Asia-Pacific Trade Agreement), customs duty rate on ceramic tiles from China is 4.3%. During 2012-13, import of tiles under tariff heading 6907 and 6908 from China was Rs. 77,410 lacs.

Import of ceramic and vitrified tiles from Sri Lanka attracts NIL customs duty under India-Sri Lanka Free Trade Agreement with effect from 18th March 2003. Customs duty on import of tiles from Malaysia is NIL under Comprehensive Economic Cooperation Agreement (CECA).

Taking these factors into account, it is imperative that the customs duty on the basic input for tiles i.e. clays should be reduced from 5% to 2.5% which will be at par with ores.

What CII Wanted

Reduce customs duty from 5% to 2.5% on clays.

What the Government Gave

Item

Excise Duty (%) Customs Duty (%)

2013-14 What CII Wanted

Budget 2014-15

2013-14 What CII Wanted

Budget 2014-15

Glazed ceramic tiles (6908) 12 10 12 10 10 10

Vitrified tiles, whether polished or not (6907 10 10, 6907 90 10))

12 10 12 10 10 10

Inputs

Clays (2508 40) NIL NIL NIL 5 2.5 5

Boric Acid (2810 00 20) 12 10 NIL 7.5 7.5 7.5

Impact of Budget 2014-15

There is no change in customs and excise duties.

© Confederation of Indian Industry 92

Tractors

Industry Issues

Excise duty on tractors is NIL as per excise notification 12/2012-sl.no. 277. Excise duty is also exempted vide excise notification 12/2012- sl.no. 340 on parts produced and used within the factory of manufacture of tractors. Most of the tractors manufactures are having multi locational units and parts manufactured in one unit are transferred to other units. Such manufacturers have to pay excise duty of 12% on parts so transferred for which no CENVAT credit can be availed. This adds to their cost. The exemption of excise duty on tractor parts vide sl.no. 340 of excise notification 12/2012 needs to be extended to such cases also.

The other preferable alternative is to increase the excise duty on tractors from NIL to 6% so that the manufacturers can avail CENVAT credit whether goods are sourced form other units of the same manufacturer or purchased from suppliers.

Excise duty has been reduced from 12% to 8% on road tractors of engine capacity more than 1800cc upto 30.06.2014 in the interim budget on 17.02.2014 which needs to be extended.

What CII Wanted

Extend the existing provision of NIL excise duty on parts of tractors when produced in any factory of the manufacturer OR

Increase the excise duty on tractors from NIL to 6%.

Extend excise duty of 8% on road tractors of more than 1800cc engine capacity upto 31.03.2015

What the Government Gave

Item

Excise Duty (%) Customs Duty (%)

17.02.2014 What CII Wanted

Budget 2014-15

2013-14 What CII Wanted

Budget 2014-15

Tractors (except road tractors for semi-trailers of engine capacity more than 1800 cc) (8701)

NIL 6 NIL 10 10 10

Road tractors for semi-trailers of engine capacity more than 1800 cc (8701)

8 8 8 10 10 10

Inputs

Parts of tractors (8708 or any other chapter) 12 10 12 As

applicable As

applicable As

applicable

Parts used within the factory of production for manufacture of tractors (any chapter)

NIL NIL NIL NA NA NA

Parts manufactured and transferred to other unit of same manufacturer (any chapter)

12 NIL 12 NA NA NA

Impact of Budget 2014-15

Excise duty of 8% on road tractors of engine capacity more than 1800 cc has been extended upto 31.12.2014 vide excise notification 6/2014 dated 25.06.2014.

Excise duty is has been exempted on parts of tractors removed from one or more factories of a tractor manufacturer to another factory of the same manufacturer of tractors.

© Confederation of Indian Industry 93

Tyres

Industry Issues

Tyre industry is raw material intensive and materials accounts for 72% of industry turnover. Natural rubber is the key raw material of the tyre industry with a cost of 45% of all raw materials.

Customs duty on tyres has been gradually reduced from 50% in 1996-97 to 10%, whereas, there has been no reduction in customs duty on natural rubber smoked sheets and technically specified natural rubber (TSNR) and duty on these continues at 20% since 23rd July 1996. The only relaxation given was that 20% customs duty would be limited to Rs.20 per kg which has been increased to Rs. 30 per kg on 20.12.2013. Now the customs duty is 20% or Rs.30 per kg whichever is less. This anomalous situation was partially corrected by reducing customs duty on these two inputs from 20% to 7.5% along with Tariff Rate Quota (TRQ) of 40,000 MT for the year 2011-12 as per sl. no. 252 of customs notification 12/2012. However, this concession was not extended in 2012-13 and 2013-14.

During the next fiscal (FY. 2014-15), the gap between domestic natural production and consumption is expected 100,000 MT. Therefore, at least 50,000 MT needs to be allowed at concessional duty of 7.5% in the year 2014-15.

What CII Wanted

Allow import of 50,000 MT of natural rubber under tariff headings 4001 21, 4001 22 and 4001 29 at 7.5% customs duty during 2014-15.

What the Government Gave

Item Excise Duty (%) Customs Duty (%)

2013-14 What CII Wanted

Budget 2014-15

2013-14 What CII Wanted

Budget 2014-15

Pneumatic tyres of truck, bus, car, LCV, tractor and two wheelers (4011)

12 10 12 10 10 10

Inputs

Natural rubber-smoked sheets (4001 21 00) Natural rubber – technically specified (4001 22 00)

Cess Rs. 1.50/kg

Cess Rs 1.50/kg

Cess Rs. 1.50/kg

20% or Rs. 30 per kg whichever is

less

20% or Rs. 30 per kg whichever is

less

20% or Rs. 30 per

kg whichever

is less

Nylon tyre cord fabric (NTCF) (5902 10) 12 10 12 10 10 10

Polyester tyre cord fabric (5902 20) 12 10 12 5 5 5

Impact of Budget 2014-15

There is no change in customs and excise duties.

© Confederation of Indian Industry 94

© Confederation of Indian Industry 95

Annexure

© Confederation of Indian Industry 96

© Confederation of Indian Industry 97

Annexure

Key Indicators: Economic Survey 2013-14

Data Categories & Components Unit 2009-10 2010-11 2011-12 2012-13 2013-14

1. GDP & Related Indicators

1.1 GDP at Current Market Price Rs. Crore 6477827 7784115 90097222R 101132811R 11355073PE

1.2 Growth Rate % 15.1 20.2 15.7 12.2 12.3

1.3 GDP at Factor Cost (2004-05 Price) Rs. Crore 4516071 4918533 52475302R 54821111R 5741791PE

1.4 Growth Rate % 8.6 8.9 6.7 4.5 4.7

1.5 Savings Rate % of GDP 33.7 33.7 31.3 30.1 n.a.

1.6 Capital Formation Rate % of GDP 36.5 36.5 35.5 34.8 n.a.

1.7 Per Capita Net National Income (Factor Cost at Current Prices)

Rs. 46249 54021 61855 67839 74380

2. Production

2.1 Food grains Mn Tonnes 218.1 244.5 259.3 257.1 264.4a

2.2 Index of Industrial Production b (Growth)

% 5.3 8.2 2.9 1.1 -0.1

2.3 Electricity Generation Growth % 6.1 5.5 8.2 4.0 6.1

3. Prices

3.1 Average Inflation (WPI) Growth % 3.8 9.6 8.9 7.4 6.0

3.2 Average Inflation (CPI) Growth % 12.4 10.4 8.4 10.4 9.7

4. External Sector

4.1 Export Growth (USD terms) % -3.5 40.5 21.8 -1.8 4.1

4.2 Import Growth (USD terms) % -5.0 28.2 32.3 0.3 -8.3

4.3 Current Account Balance % of GDP -2.8 -2.8 -4.2 -4.7 -1.7

4.4 Foreign Exchange Reserves c USD bn 279.1 304.8 294.4 292.0 304.2

4.5 Average Exchange Rate d Rs/USD 47.44 45.56 47.92 54.41 60.50

5. Money & Credit

5.1 Broad Money (M3) Supply Growth % 16.9 16.1 13.2 13.6 13.3

5.2 Bank Credit Growth % 16.9 21.5 17.0 14.1 13.9

6. Fiscal Indicators (Centre)

6.1 Gross Fiscal Deficit % of GDP 6.5 4.8 5.7 4.9 4.5e

6.2 Revenue Deficit % of GDP 5.2 3.2 4.4 3.6 3.2e

6.3 Primary Deficit % of GDP 3.2 1.8 2.7 1.8 1.2e

7. Population Million n.a. 1210f n.a. n.a. n.a.

Note: n.a.: not available. 1R: 1st Revised Estimates, 2R: 2nd Revised Estimates, PE: Provisional Estimates. a: Third advance estimates, b: The index of industrial production has been revised since 2005-06 on base (2004-05 =100), c: At end March, d: Average exchange rate (RBI’s reference rate), e:Fiscal indicators for 2013-14 are based on the provisional actuals, f: Census 2011

© Confederation of Indian Industry 96

© Confederation of Indian Industry 96

Union Budget 2014-15

An Analysis

The Confederation of Indian Industry (CII) works to create and sustain an environment conducive to the

development of India, partnering industry, Government, and civil society, through advisory and

consultative processes.

CII is a non-government, not-for-profit, industry-led and industry-managed organization, playing a

proactive role in India's development process. Founded in 1895, India's premier business association

has over 7200 members, from the private as well as public sectors, including SMEs and MNCs, and an

indirect membership of over 100,000 enterprises from around 242 national and regional sectoral

industry bodies.

CII charts change by working closely with Government on policy issues, interfacing with thought

leaders, and enhancing efficiency, competitiveness and business opportunities for industry through a

range of specialized services and strategic global linkages. It also provides a platform for consensus-

building and networking on key issues.

Extending its agenda beyond business, CII assists industry to identify and execute corporate

citizenship programmes. Partnerships with civil society organizations carry forward corporate

initiatives for integrated and inclusive development across diverse domains including affirmative action,

healthcare, education, livelihood, diversity management, skill development, empowerment of women,

and water, to name a few.

The CII theme of ‘Accelerating Growth, Creating Employment’ for 2014-15 aims to strengthen a growth

process that meets the aspirations of today’s India. During the year, CII will specially focus on economic

growth, education, skill development, manufacturing, investments, ease of doing business, export

competitiveness, legal and regulatory architecture, labour law reforms and entrepreneurship as growth

enablers.

With 64 offices, including 9 Centres of Excellence, in India, and 7 overseas offices in Australia, China,

Egypt, France, Singapore, UK, and USA, as well as institutional partnerships with 312 counterpart

organizations in 106 countries, CII serves as a reference point for Indian industry and the international

business community.

.

Confederation of Indian Industry

The Mantosh Sondhi Centre

23, Institutional Area, Lodi Road, New Delhi – 110 003 (India)

T: 91 11 45771000 / 24629994-7 | F: 91 11 24626149

E: [email protected] | W: www.cii.in

Reach us via our Membership Helpline: 00-91-11-435 46244 / 00-91-99104 46244CII Helpline Toll free No: 1800-103-1244

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