FISCAL POLICY

Presented by:Rinkal OzaDhimantVyasPriyank ShahMehul GadhiyaSachin Nandha

The FRBM Act

• Enacted by Parliament in 2003 to bring in fiscal discipline.

• Received the President’s assent in August the same year.

• UPA govt. had notified the FRBM Rules in July 2004.

FRBM Goals

Integrating FRBM Mandate in Budget Process

Budget Format

• Plan exp:-– The expenditure of the government can be broken up into Plan and

Non-Plan Expenditure.– Money given from the government’s account for the Central Plan is

called Plan Expenditure. – This is developmental in nature and is spent on schemes detailed in the

Plan.

• Non-plan exp: -– covers all expenditure of government not included in the Plan. – It includes both development and non-development expenditure. Part

of the expenditure is obligatory in nature, eg interest payments, pensionary charges, defence and internal security, transfers to States, etc.

– Expenditure on maintaining the assets created in previous Plans is also treated as Non-Plan Expenditure

Plan Expenditure

• FLAGSHIP PROGRAMMES:

• NREGS - Rs.16000 cr

• JNNURM – Rs. 5482 cr

• Rajiv Gandhi Drinking Water Mission-6500cr

• Sanitation programme -1200 cr

• Desalination Plant near Chennai provided Rs.300cr

• NER provided 16447 cr

• Scholarship SC-804 cr, ST-195 cr, OBC-164 cr, Minoroties-100 cr

• National Handicapped Development Corporation -9 cr

• Rajiv Gandhi National Fellowship Programme for SC & ST student pursuing M.Phil & Ph.D allocated 75 cr.

• Justice Rajindar Sanchar Committee -1000 cr

• GBS 2008-09 at 2,43,386 cr• Central Plan Allocation at 1,79, 954 cr• Bharat Nirman to get 31,280 cr• SSA - 13,100 cr• JNV – 130 cr • National Means cum Merit Scholarship -3000cr• Nehru Yuva Kendra – Rs.10 cr• Mid Day Meal Scheme extended to upper primary

classes in govt. and govt. aided school• 3 IIT, 16 Central University, 3 IISER

11th FIVE YEAR PLAN- the crucial second year

Contd……

• NRHM allocated 12050 cr

• The National Aids Control Programme 993 cr

• 1042 cr allocated for polio programme (mainly U.P & Bihar)

• RSBY – 205 cr

• National Programme for Elderly provided Rs.400cr

• ICDS provided 6300cr

Revenue Budget

• consists of the revenue receipts of Government (tax revenues and other revenues) and the expenditure met from these revenues.

• Tax revenues comprise proceeds of taxes and other duties levied by the Union.

• Other receipts of Government mainly consist of interest and dividend on investments made by Government, fees, and other receipts for services rendered by Government.

• Revenue expenditure is for the normal running of Government departments and various services, interest charges on debt incurred by Government, subsidies, etc.

• Broadly speaking, expenditure which does not result in creation of assets is treated as revenue expenditure.

• All grants given to State Governments and other parties are also treated as revenue expenditure even though some of the grants may be for creation of assets.

• Estimates of receipts included in the Annual Financial Statement are further analyzed in the document “Receipts Budget”.

• The document provides details of tax and non-tax revenue receipts and capital receipts and explains the estimates.

• Trend of receipts and expenditure along with deficit indicators, statement pertaining to National Small Savings Fund (NSSF), statement of revenues foregone, statement of liabilities, statement of guarantees given by the government, statements of assets and details of external assistance are also included in Receipts Budget.

• The document also provides the arrears of tax revenues and non-tax revenues, as mandated under the Fiscal Responsibility and Budget Management Rules, 2004.

Expenditure Budget

• Includes all types of expenditures performed b the government.

• It includes Interest Payments, Defence Expenditure, Grants to State & UT Govts., Grants to Foreign Govts., Grants to Foreign Govts., Loans & Advances to State &UT Govts., Plan Expenditure, Non-Plan Expenditure of UT without Legislature

Where the rupees comes from

2%10%

7%

15%

13%15%

24%

14%

Non debt capital receipts

Non-tax revenue

Service tax & other taxes

Excise

Customs

Income-tax

Corporation tax

Borrowings & otherliabilities

Where the rupees goes to

8%

11%

21%

19%

7%

5%

19%

10%

Subsidies

Defence

Interest

central plan

State & UT PlanAssistance

Non-Plan Assistance

State share of tax &duties

Other non plan exp.

TaxationDirect Taxes…..

• Personal Tax:-• It is the imposed on the

income of individual which is derived from a variety of sources

• The tax is progressive, proportional and regressive according of the tax rise, remains or falls with rise in income

• Corporation Tax:-• It is the tax imposed on

assemble profit of companies and unincorporated associations.

• Calculated after interest but before dividend distribution.

• Companies are also liable to pay tax on capital gains.

• Inheritance Tax:-• It is the tax levied on

transfer of wealth on death from the decreased individual to the other living

• It is also sometimes called Death duty or Estate Duty

• Wealth Tax: -• It is the tax imposed on

the specified stock of assets held by an economic unit that yields or has the potential to yield income in some form

Indirect Taxes…

• Excise Duty: -• It is the tax levied on

the production of goods for home consumption.

• It is generally central government at specified rates.

• Custom Duty: -• Impose on goods and

services crossing international borders between two countries.

• A country imposes tax on both import and export.

• It is distributed in tariffs.

• Value-Added Tax: -• It is the general tax applied

at each point of exchange of goods from primary production to final consumption

• The full chain extends from the produce of raw materials of final consumer and covers both producer and traders

• Value added at distribution, wholesaling and retailing.

• In this form the prices become higher and the final consumer bears the whole tax.

• Central Sales Tax: -• Tax imposed on retail prices

of goods at the point of sale.

• Basically represents tax on all expenditures.

Tax Reforms…………

Existing   Proposed  

Income Rate Income Rate

0-1,10,000 Nil 0-1,50,000 Nil

1,10,001-1,50,000 10 1,50,001-3,00,000 10

1,50,001-2,50,000 20 3,00,001-5,00,000 20

2,50,001-10,00,000 30 5,00,001-10,00,000 30

10,00,001 & above 30* 10,00,001 & above 30*

Personal Tax Rates

• The exemption limit is Rs.1,80,000 (earlier Rs.1,45,000) in case of resident women

• The exemption limit is Rs. 225000 (Earlier Rs.1,95,000) in case of residential individuals of the age of 65 year or more

• @ Education Cess of 3% is leviable on the amount of income tax and surcharge

• Surcharge of 10% of the total tax liability is applicable where the total income exceeds Rs.10,00,000

Corporate Tax Rate

• Rate of corporate tax remain unchanged for both domestic and foreign companies

• Domestic Company:-@• Regular Tax is 33.99%*, MAT is 11.33% (book

profit), DDT is 16.995%• Foreign Company:-#• Regular Tax is 42.23%*• @ 30.90% where the total income is less than or

equal to Rs.10 million• # 41.20% where the total income is equal to or less

than Rs.10 million

Change in Excise Rates

• Durgs formulation, cornflakes, breakfast cearels, MP4 Player, Water filtration and purification plant, marker pen & inks- the rate is reduced to 8% from 16%

• Small cars , Two wheelers & Passengers –the rate is reduced to 12% from 16%

• For the packaged software the duty is 12% (earlier 8%)

Contd………….

• Tea & Coffee pre-mixes , Wireless Data Modem cards, Printers- the duty is completely eliminated

• For clinker the duty is 450 per MT (earlier 350 Rs. MT)

• Cigarettes • Length not exceeding 60mm -819 per thousand• Length exceeding 60mm-1323 per thousand

Change in Custom duty

• Peak rate of basic custom duty remain unchanged• Effective rate of custom duty has been reduced from

34.13% to 31.70%• Specified power project and high voltage power

transmission projects to be liable to 4% SACD• NCCD will be imposed at 1% on mobile phones• Tariff rate for electrical energy has been introduced at

Rs.2000 per 1000 KWH (earlier it was exempted)

Rate Movement

• Completely eliminated from Aluminum scrap, Bactofuges, Helicopter simulators, Melting scrap Rough cubic ziracronia, set top box, Tuna bait,

• CST rate proposed to be reduced from 3% to 2% with effect from 1 APR ,2008

• Service tax remain unchanged at 12.36% • Threshold limit for service tax exemption will

be increased from 8 Lac to 10 Lac • STT paid in respect of taxable securities

transaction will now be allowed as a deductible exp.

• Levy of STT at the rate of 0.017% on option premium , payable by the seller and 0.125% on settlement price by the purchaser

• Short Term Capital Gains increased from 10% to 15%

• FBT rate remain unchanged • No BCTT (after 1st Apr,2009)• CTT will be charged from date that is to be

notified

• VAT has been introduced in Pondichery and Uttar Pradesh effective 1 July 2007 and 1 Jan 2008 respectively. With this, all states in India have shifted to the VAT regime

Thank You