Div B - Group No.

1
UNION BUDGET 2013-14 ANALYSIS
Group Members:Name
LORENA AFONSO

NIKUNJ BAFNA SIDDHI BOHRA NISHEET DAMANIA SANKET GALA AKSHAY JAIN SHRUTI KHAMBHEY SONAKSHI MALHOTRA YASHESH PAREKH SACHIN SINGH

Roll no. 201 209 217 225 233 241 249 257 265 273

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AUTOMOBILE INDUSTRY
Duty Structure:-

Customs duty (%)

Passenger cars Two wheelers Excise duty (SUV) (%)

Before

After

75 60 27

100 75 30

With a hike on import duty for high end cars and motorcycles above 800cc, plus a 3 per cent increase in excise duty for SUVs, the 2013 Budget has not provided the required impetus to the auto industry. The industry had some major expectations from the budget however they have been let down. INDIRECT IMPACT:Budget proposal:Proposed sanction of Rs.14,983 crore under JNNURM Scheme Impact on the industry:This move provides a relief on the backdrop of sluggish demand in the bus segment of CV industry. The sanctioned amount will be utilized to purchase upto 10,000 buses in FY14. Budget proposal:Hike in agriculture credit from Rs.5,75,000 crore to Rs.7,00,000 crore and extension of interest rate subvention scheme for crop loans & extension of the scheme to private sector banks. Impact on the industry:Improved rural liquidity, thereby push demand for Tractors and Two-wheelers northwards. Budget proposal:Increased allocation for MNREGS at Rs.33,000 crore from Rs.31,000 crore. Impact on the industry:Improve employment levels in rural areas, thereby push demand for two-wheelers.

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BANKING SECTOR
Proposal and Impact Budget proposals Proposed capital infusion of Rs.14,000 crore in Public Sector Banks in 2013-14. Impact on the industry Expected to help Public Sector Banks achieve the Basel III capital adequacy levels. Budget proposals Infrastructure tax-free bonds allowed upto Rs.50,000 crore to be issued. Impact on the industry Boost to the infrastructure segment as well as the companies eligible to issue such bonds as the same would help reduce cost of funding.

Budget proposals The Rajiv Gandhi Equity Savings Scheme liberalised to enable the first-time investor to avail tax benefits by investing in mutual funds /or listed shares in three successive years. The income limit of the first time investor raised from Rs.10,00,000 to Rs.12,00,000. Impact on the industry Aimed at increasing the retail participation in equity / MF segment. Budget proposals Person taking a loan for his first home from a bank or a housing finance corporation up to Rs.25,00,000 during the period 1.4.2013 to 31.3.2014 will be entitled to an additional deduction of interest of up to Rs.100,000. Impact on the industry Expected to improve the housing loan demand in Tier- II & III cities thereby positively impacting the banks/Housing finance companies. Budget proposals Additional budgetary support of Rs.100 crore provided to India Microfinance Equity Fund set up by SIDBI
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Impact on the industry Credit positive for the sector as it will bolster their equity capital. Budget proposals Allocation of Rs.500 crore to SIDBI to set up a Credit Guarantee Fund for factoring. Impact on the industry Positive for factoring companies specially given the largely unsecured nature of factoring transactions.

FMCG SECTOR
Ease pressure on prices of soaps, tea, sugar
There may be some good news for consumers finally. Essential food items like tea, coffee, flour, sugar and edible oil, as well as discretionary products like premium soaps and deodorants, may get a bit cheaper as a result of some service tax exemptions proposed in the Budget. The Budget has exempted service tax on freight charges of foodstuff including flour, tea, coffee, jaggery, sugar, milk products, salt and edible oil, which would result in savings for FMCG and food companies. Also, the service tax of 12.36 per cent has been removed for alcohol-based soaps and deodorants, which is also expected to benefit companies. Impact: The service tax exemption will benefit FMCG and food companies which manufacture these items, as well as those which use them as inputs. Companies will be able to save an estimated 2-3 per cent on their transportation costs. Most companies including Hindustan Unilever, NestleBSE 1.08 %, ITCBSE 2.07 %, General Mills, Perfetti, Kelloggs and Adani Wilmar will be able to mop up savings due to these service tax exemptions. Overall, for the industry, the impact will be quite large

Dried nut prices set to soften after customs cut

The customs duty on hazelnuts has been brought down from 30% to 10%, which is expected to bring down their cost to the level of other dried nuts such as cashew nuts and pistachios. Hazelnuts are a very niche category enjoyed by a very select consumer base. The duty reduction would certainly bring down prices of hazelnuts , which are very expensive. By and large makers of chocolates , pastry and ice cream use hazelnuts, albeit in small quantities. The price reduction would probably lead to a higher consumption of these premium nuts
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Cigarettes and Cigars a soft target of excise duty

Duty Structure of cigarettes and cigars Excise Duty Non-filter cigarettes (exceeding 65mm-70mm) Filter cigarettes (exceeding65mm-70mm) Filter cigarettes (exceeding 70mm-75mm) Filter cigarettes (exceeding 75mm-85mm) Cigar and cheroots Cigarillos Cigarettes of Tobacco Substitutes Cigarillos of Tobacco Substitutes Before 1463(Rs./1000 sticks) 1034 (Rs./1000 sticks) 1463 (Rs./1000 sticks) 1974(Rs./1000 sticks) 12% or Rs.1370 (whichever is higher) 12 % or Rs.1370 (whichever is higher) Rs.1258 per thousand 10% or Rs.1473 (whichever is higher) After 1772 (Rs./1000 sticks) 1249 (Rs./1000 sticks) 1772 (Rs./1000 sticks) 2390 (Rs./1000 sticks) Impact negative negative negative negative

12% or Rs. 1781 negative (whichever is higher) 12 % or Rs. (whichever negative is higher) Rs.1511 per thousand negative 12% or Rs. 1738 (whichever is higher) negative

The hike in excise duty if passed on the end-consumers that could marginally impact demand for cigarettes and other tobacco products. However, since these tobacco products forms a small part of the entire FMCG industry and also there are no changes proposed in other segments of the FMCG industry CARE Research concludes a neutral impact on FMCG industry. Hike in excise duty would have a negative impact on the revenues of companies like ITC, Godfrey, VST Industries. Due to decline in demand for these products as well as negatively impact margins as the hike may not be fully passed on to end users instantly.

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REAL ESTATE SECTOR

Indias real estate industry contributes around 5-6 % to the gross domestic product and it is also amongst the highest employment generating sector. The real estate industry in India is highly fragmented with most of the real estate developers having region-specific presence. Real Estate sector is highly cyclical and is susceptible to a number of risk factors like demandsupply mismatch, regulatory approvals that could act as a bottleneck, fluctuating commodity prices, and changing macroeconomic scenario. Walking on a tight rope of fiscal management, the Union Finance Minister P Chidambaram did his best to bring smiles on the faces of home buyers. Some of the proposals and their impact are as follows: Impact on Industry:Proposal 1: Additional deduction of interest of up to Rs.1 lakh for first home buyer for availing housing loans from a bank or a housing corporation of up to Rs.25 lakh. If the entire benefit is not utilized in one year, the balance can be carried over to next year.

Impact: This is likely to increase the demand in real-estate sector as this will lead to higher demand in affordable housing segment and increase in employment opportunities in the sector. However this will have a limited impact on housing demand. It may help increase demand for sub-Rs 40 lakh houses but may shut out buyers who already own a home and buyers from metro regions where housing prices are high. Proposal 2: Abatement of service tax reduced to 70% from 75% for homes and flats having carpet area of 2,000 square feet or more or in value terms Rs.1 crore or more or where the service component is greater. Impact: High value homes/flats will be more expensive as this will lead to increase in service tax outflow, which is ultimately paid by the buyers only. But the number of people who will be affected will be few as there are not many home buyers in this segment. These higher tax out go will be passed on to the home buyers. Proposal 3: Rural Housing Fund corpus increased to Rs.6,000 crore from Rs.4,000 crore. Further, to set up Urban Housing Fund of Rs.2,000 crore by National Housing Bank in consultation with RBI. Impact: This is also likely to help support the demand for houses in rural and urban areas. These steps will boost fund availability and address the overall housing shortage and will provide enhanced fund availability.

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Proposal 4: Developments on the industrial corridor between Delhi-Mumbai along with identification of locations to develop 7 new cities and 2 new smart industrial cities along the same, and development plans for Chennai-Bengaluru and Bengaluru-Mumbai. Impact: Such large-scale development plans would provide impetus to the real estate development, though in the long term. It is a positive step towards developing 'Smart' cities. Proposal 5: Tax @1% shall be deducted by the transferee on payments made to resident transferor in relation to transfer of immovable property, where consideration for transfer of immovable property exceeds Rs. 50 lakh. This amendment is proposed to take effect from 1st June, 2013. Impact: This TDS will be chargeable to the seller on the income received. The buyer will have to issue a Form 16 to the seller with the tax credited. The procedure is cumbersome and every transaction above 50 lacs will involve a Chartered Accountant. Overall and with no doubts this will add up to the cost of purchase and will have a hit on already plunging market. However this will provide a spurt in sales till May 2013 considering the effective date of this proposal. On the flip side, this imposition will not only control speculation, but will also bring about improved reporting and accountability in high-value housing transactions. Impact on companies:Tata Housing Development Company, Ashiana Housing Limited, Sunteck Realty Ltd are some of the top real estate companies in our country today. The real estate sector has been under pressure for quite some time due to lack of falling demand and funding issues leading to stressed cash flow. Besides, the high prices as well as rising interest rates had an adverse impact on the affordability of the buyers. The budget proposals may reverse the situation as it focuses on the affordable housing segments. However, the situation has become marginally difficult for luxury houses as abatement for luxury houses has been reduced, thereby making it more expensive.

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HEALTHCARE & HOSPITALS

Proposals
Allocation of Rs. 32745 crore to the Ministry of Health and Family Welfare, showing an increase of 24.3% over RE. Allocated Rs. 4,727 crore for medical education, training and research. Allocated Rs. 1,069 crore to the Department of Ayurveda, Yoga & Naturopathy, Unani, Siddha and Homoeopathy (AYUSH). Contributions made to the Central Government Health Scheme eligible for deduction under Section 80D of the Income-tax Act. MRP-based assessment in respect of branded medicaments of Ayurveda, Unani, Siddha, Homeopathy and bio-chemic systems of medicine to reduce valuation disputes.
INR Crore Ministry Of Health &Family Welfare Dept. of Health & Family Welfare Dept. of AYUSH Dept. of Health Research Dept. of AIDS Control 2011-12 Actual Rs. 23159 Rs. 20669 Rs. 611 Rs. 564 Rs. 1314 2012-13 Revised Estimate Rs. 24894 Rs. 22000 Rs. 670 Rs. 464 Rs. 1760 2013-14 Budgeted Estimate Rs. 32745 Rs. 29165 Rs. 1069 Rs. 726 Rs. 1785

Deductions for New hospitals with at least 100 beds have been increased to 150% from 100% of the Capital expenditure. The concessional rate of 5 per cent of basic customs duty is being extended to six life savings drugs/vaccines and their bulk drugs used in the manufacture of said drugs. Also, excise duty is fully exempted on these. The Excise duty is being reduced to Nil on specified raw materials Viz stainless steel tube and wire, cobalt chromium tube, Hayness Alloy-25 and polypropylene mesh required for manufacture of Coronary stents/ Coronary stent system and artificial heart valve on actual user basis. Also, The Excise duty is being reduced to 6 per cent on specified raw materials viz polypropylene, Stainless Steel Strip and stainless steel capillary tube for manufacture of syringe, needle, catheters and cannulae on actual user basis.

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Impact on the Industry

Increase in outlay of Health Ministry (NHM, training, research, AYUSH, etc.) will help because the money is to be spent on meeting various programs and missions specifically targeted at vulnerable groups. Such spending would help the spread of health infrastructure in the under-served parts of the country. Establishing at least one office of public sector life/general insurer in every town with population greater than 10,000 will ensure an increase in insurance penetration because it will establish a sustainable distribution chain and make available insurance products to people across the country. This would be particularly positive for public sector insurers. Expansion of RSBY (Rashtriya Swasthiya Bima Yojana) to include the categories such as rickshaw, auto rickshaw and taxi drivers, sanitation workers, rag pickers and mine workers in the scheme would increase the demand for healthcare facilities. The increase in investment-linked deduction to 150 per cent (previously 100 per cent) on at least hundred-bed hospital is the key positive. The provision of NIL excise duty and exemption of customs duty on raw materials required for manufacture of Coronary stents/ Coronary stent system will led to availability of these stents to cardiac patients at cheaper rates. Also, the reduction of excise duty and customs duty on specified raw materials for manufacture of syringe, needle, catheters and cannulae makes them available at cheaper rates for the patients.

View
The increase in the investment-linked deduction will prove out to be a key positive. Also the Nil/reduction in Excise Duty & Customs Duty of the raw materials will relief the patient. However, there was an expectation that Infrastructure status should be granted to healthcare industry and tax holiday benefit should be provided accordingly which was not fulfilled.

HOSPITALITY SECTOR
Proposals
Proposals to levy Service Tax on all air conditioned restaurant, including those which do not serve liquor.

Impact on the Industry

This proposal is not expected to impact the hospitality sector but the burden will be passed on to consumers.

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MEDIA & ENTERTAINMENT INDUSTRY

Proposals
Private FM radio services to be extended to 294 more cities. About 839 new FM radio channels will be auctioned in 2013-14. Exemption of Service Tax on copyright on cinematography limited to films exhibited in cinema halls. Increase in customs duty on set boxes (STBs) to 10% from 5%.

Impact on the Industry

Existing players can expand to newer cities with the expansion of private FM services to 294 more cities & auction of 839 new FM radio channels. MSO (Multiple System Operator) and DTH (Direct to Home) players will have a negative impact as the price of set top box (which is mostly imported) will go up which they will find hard to pass on because of the competition. Various players in the value chain of the film industry will continue getting the benefits of the service tax exemption.

Impact on the Companies

Company Den Networks, Hathway Cable, Dish TV, Sun TV. Eros International Entertainment Network India Ltd. Comments Hike in customs duty on set top boxes from 5% to 10%. Increased customer acquisition costs Continuation of full exemption of service tax on copyright on cinematography Will get an opportunity to expand FM services into more cities

View
The increase in Customs Duty will increase subscriber acquisition costs in the short term as the entire cost increase may not be passed on to consumers but at the sector level it is not expected to have a significant impact.

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INFRASTRUCTURE SECTOR
PORTS AND AIRPORTS Budget Proposal A total of Rs. 1,30,000 crore is likely to be pumped into the development of ports and airports,77% for ports and 33% for airports between 2013 to 2017. Public Private Partnership (PPP) projects are expected to account for more than 75% of these investments. In 20132014traffic at airports and ports is expected to grow at a subdued 3-5% and 4-6% respectively. BUDGET IMPACT The proposal to develop a major port in Sagar, West Bengal and Andhra Pradesh will add 100 million tone of capacity. Further a new outer harbor in the Chidambaranar port Tamil Nadu through the PPP will add another42 million tonne. Both these measures will lead to an increase in port capacities in a phased manner over the next five to six years. There are limited benefits for private players as traffic at ports continues to register moderate growth and overall capacity utilization rates are expected to decline. The budget has proposed further concessions for aircraft maintenance facilities. The move is expected to help players in the nascent Indian aircraft manufacture, repair and overhaul industry. INFRASTRUCTURE: ROADS STATE OF THE INDUSTRY The healthy growth in awarding of national highways projects slowed down significantly in 2012-2013. Several Build Operate Transfer (BOT) projects have not been able to attract private participation, given the highly leveraged financial profile of the developers and concerns over funding. Since the bidding interest for BOT projects remain lack luster, National Highway Authority of India (NHAI) plans to award a higher proportion of projects on the EPC model. BUDGET IMPACT issue of tax free infrastructure bonds raised by the government agencies (including NHAI and Hudco) for infrastructure has been allowed once again in 2013-2014, upto a total limit of Rs. 50,000 crore. This is expected to provide additional funds to the NHAI for executing national highway projects. The budget proposes to set up an independent regulatory authority for the road sector. In the medium term, this could enable faster implementation of projects.

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TEXTILES SECTOR
The Indian textile industry is one of the major sectors of Indian economy and contributes almost 14 per cent of Indias industrial production, 4 per cent of National GDP and almost 17 per cent of India's export earnings. Being a manpower-intensive industry, it provides employment to about 35 million people (both directly and indirectly). The Indian textile industry can be divided into a number of segments such as cotton, silk, woolen, readymade, jute and handicraft, however; it is skewed towards cotton. It has come of age and is gaining acknowledgment on the world platform with excellent textiles manufacturing base and easy availability of raw material. India is self sufficient in cotton, being the second-largest producer in the world. This provides India a competitive edge worldwide in terms of the cost of the raw material. Some of the proposals and their impact are as follows: Proposal 1: Zero Excise Duty Route for Readymade Garment (RMG) Industry Impact: Currently, there is a mandatory excise duty at 12% on RMG segment whereby RMG manufactures are availing 6% cenvat credit of excise duty paid on cotton yarn and cotton fabric. Hence, RMG manufactures need to pass on the extra burden of 6% to their customers. The profitability margins of those not able to pass on fully are under pressure with recent slowdown in demand. Now with Zero Excise Duty Route, RMG manufacturers will have an option not avail a cenvat credit on raw materials and will not be liable for excise duty on RMG. This will ease out the pressure on the margins of RMG manufacturers who are already struggling with slow demand growth. Relaxation in a mandatory excise duty of 12% on branded RMG would have a positive impact on the industry players. It will also boost garment demand amid weak consumer sentiment, low real wage growth and high inflation. This is expected to promote revenue growth in 2013 and improve operating profit and cash flows of the textile sector. Proposal 2: Extension of Technology Upgradation Fund Scheme (TUFS) in the 12th Plan with an investment target of Rs.151,000 crore with focus on the powerloom sector. Impact: The TUFs scheme if continued in next 12th Five Year Plan, would motivate the players in the Industry to make further investments, looking to the opportunity available both in the overseas and domestic market. Higher budgetary allocation under TUFS is a positive for the sector. It will encourage the investment in the sector. Proposal 3: Allocation for Textile Parks under the Scheme for Integrated Textile Parks (SITPs) Impact: Additionally, Governments announcement to set up Apparel Parks within the SITPs will benefit the Apparel manufactures in the long term. Proposal 4: Proposal for Integrated Processing Development Scheme

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Impact: A new scheme for Integrated Processing Development Scheme will address the environmental concerns by improving the effluent treatment infrastructure for the textile industry mainly textile processors. Proposal 5: Financial Assistance for Handloom sector Impact: Proposal for allowing working capital and term loan at a concessional interest rate at 6% will boost the investment in the handloom sector and will also benefit to the large handloom weavers who are women and belong to the backward classes.

MUTUAL FUNDS
The Rs. 8.26-trillion mutual fund industry of the country got a boost in the Union Budget 201314 when the Finance Minister proposed a cut in Securities Transaction Tax (STT), which will bring down the cost of transaction. Mutual Fund distributors were asked to become stock exchange members. This move is likely to help distributors increase their confidence level. The scope of Rajiv Gandhi Equity Savings Scheme (RGESS), introduced in the last years Budget, has been expanded, in line with market expectations. The Finance Minister raised the income limit for investors, keen to invest in RGESS, from Rs. 10 lakh to Rs. 12 lakh. He also allowed first time investors to invest in mutual funds and listed shares in three successive years instead of only one. In the Budget, Pension Funds and Provident Funds were also allowed to invest in Exchange Traded Funds (ETFs)and debt mutual funds and Asset-Backed Securities (ABS). There are some very good proposals one obviously from a mutual fund perspective the STT has been slashed has been quite sharply and that is clearly an incentive for the small investors to start investing. Total AUM (monthly average) of the industry increased by a modest 5% y-o-y to Rs.7.47 lakh crore as on September 30, 2012 impacted by the overall volatility in the stock markets and tight liquidity conditions. There is the to list of eligible securities in which Pension Funds and Provident Funds may invest will be enlarged to include exchange traded funds, debt mutual funds and asset backed securities

Major Impact would be that:It would broaden of investor base would help increase market volumes to great extent.

Commodities Market
Various announcements made in the Union Budget 2013-14 and their impacts on various commodities have been listed below:
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Non-Agri Commodities Commodities Transaction Tax

To bring commodities markets at par with equity markets, where trading attracts Securities Transaction Tax (STT), the Union Budget 2013-14 has proposed to impose a similar tax, known as Commodities Transaction Tax (CTT), on Futures contracts of non-agricultural commodities like gold, silver etc. Following the announcement, Multi Commodity Exchange (MCX) would be impacted the most as the turnover from non-agri commodities constitutes the major share in the total turnover of MCX.

Bullion:
Despite stating that gold continues to be one of the biggest contributors in the Current Account Deficit (CAD), import duty on gold was not increased. However, in January, a 2% hike in gold import duty was announced. The duty was increased from 4% to 6%, resulting in lower gold demand, prolonged selling by stockists and fall in prices. A further duty hike could have led to rise in import through illegal channels. In addition to it, duty-free limit of gold import has also been raised. These measures were taken positively by the market participants and the gold was seen trading at Rs. 29,615 per 10 gram, up 0.10%, compared to the previous day. Increase in excise duty of 4% on silver manufactured from smelting zinc or lead, resulted in a fall of 0.45% in the spot rate of silver. To encourage exports, duty on pre-forms of precious and semi-precious stones has been reduced significantly from 10% to 2%. The move may increase inflow of foreign currencies in India.

Non-Metal:
Markets may take new revenue sharing policy for shale gas and clearance of exploration in New Exploration Licensing Policy (NELP) blocks in a positive manner. Increase in duty on imported motor vehicles, motor cycles, yachts and similar vehicles may hit oil demand, which in turn may impact prices.

Agri-Commodities:
As the agri-commodities were exempted from the ambit of Commodity Transaction Tax (CTT), investors seeking to invest in commodity markets might move their money from non-agri commodities to agricommodities, which will boost the segment. Allocation to the Ministry of Agriculture has been raised by 22% over the Revised Estimate (RE) to the tune of Rs. 27,049 crore in the current year.
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To boost the readymade garment industry, zero excise duty route has been restored for cotton at fibre stage and 12% duty in case of spun yarn at the fibre stage. Spot prices of cotton witnessed a positive movement of 1.31%. To promote micro nutrients like bajra, maize and wheat, a new scheme was introduced. A sum of Rs. 200 crore has been proposed to be provided to start the pilots for these crops.

Reductions in Securities transaction tax (STT) as per following:

MF/ETF redemptions at fund counter: From 0.25% to 0.001% ; MF/ETF purchase/sale on exchanges from 0.1% to 0.001% only on the seller. The Major impact of reduction of STT on redemptions or purchase/sale Mutual funds would be more attractive. Since many investors very not very happy with introduction of STT on Mutual fund it may also led to increase in number of redemption of Mutual fund Policy.

INFORMATION TECHNOLOGY SECTOR

Budget Provisions

Increase surcharge from 5 to 10 percent on domestic companies whose taxable income exceed Rs 10 crore. In case of foreign companies who pay a higher rate of corporate tax, surcharge to increase from 2 to 5 percent, if the taxabale income exceeds Rs 10 crore. In all other cases such as dividend distribution tax or tax on distributed income, current surcharge increased from 5 to 10 percent. The Concessional rate of tax of 15 percent on dividend received by an Indian company from its foreign subsidiary proposed to continue for one more year. It allotted Rs 4909 crore for the ambitious IT driven project to modernize the postal network. Post offices to become part of the core banking solution and offer real time banking services.

Industry expectations

MAT on SEZ income to be withdrawn - Not fulfilled Tax deductions for onsite services - Not fulfilled

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Growth prospects to improve in 2013-14 The Indian information technology (IT) industry primarily consists of four segments IT services, IT enabled services, ITsoftware and hardware. The slow economic growth in the US and European markets has adversely impacted Indian IT services exports growth in 2012-13. As a result, exports are expected to grow only by 10 per cent in USD terms in 2012-13, down from the 19 per cent growth seen in 2011-12. Growth is being led by volumes as billing rates are under pressure. Blended billing rates fell by 1-2 per cent with a slowdown in the billing of BFSI clients, who account for 41 per cent of total revenues, and the increasing proportion of lower value services in IT revenues. According to CRISIL Research estimates, in 2013-14, IT services exports will grow at a relatively faster pace of 13-15 per cent y-o-y to reach $50billion. Although we expect the IT budget of clients to remain flat in 2013, increase in the share of offshoring will enable a higher growth in the coming year. According to NASSCOM, Indian ITeS exports grew by 12 per cent y-o-y in 2012-13. Although India is facing stiff competition in the customer relationship management (CRM) space, higher-value knowledge-based services will continue to drive growth in the ITeS industry. An inherent need to reduce costs will ensure continued offshoring by clients, thereby supporting growth. CRISIL Research expects ITeS industry export revenues to grow by 11-13 per cent y-oy in 2013-14, driven by growth in transaction and knowledge based services. The domestic information technology (excluding IT hardware) is expected to grow by 14.1 per cent in rupee terms in 2012-13. Factors such as rapid advancement in technology infrastructure, enhanced focus by the government on egovernance projects and emergence of business models that help provide IT to new customer segments are driving technology adoption in India. During 2013-14, the Indian IT hardware Industry is expected to witness double-digit growth in rupee terms. In 2012-13, the operating margins of IT services exports players are likely to improve on account of benefit arising out of rupee depreciation. However, CRISIL Research expects this trend to reverse in 2013-14 as rupee is expected to appreciate against the dollar while the billing rates remain more or less flat. Budget impact /Outlook: The modernisation of the postal network with IT driven project is the key positive for the industry. On the taxation front, removing double taxation on dividends received from overseas arms will reduce the burden on shareholders. From the perspective of the IT industry, the clarifications on taxation rules regarding development centres and safe harbour rules are very welcome as are measures to drive skill development, with a special focus on Tier II and Tier III towns, However, the increase in surcharge for domestic and foreign players, surcharged on dividend distribution tax or tax on distributed income will expected to result in marginally higher tax outgo going forward.
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Recommendation: The IT industry had expected more clarity on taxation policies regarding software and services, discontinuation of MAT on SEZs, and implementation of the Goods and Services Tax (GST) and Direct Tax Code (DTC), among others. Overall the Union budget 2013-14 will have minor impact on the IT sector.

EDUCATION SECTOR
The key expectations from Budget 2013 include the following: an increase in the budgetary allocation for primary education; the adoption of innovative models for the development of higher education infrastructure such as public private partnership [PPP]; the provision of fiscal incentives to the private sector for setting up vocational and skill development institutions; an increase in the access to low-cost funds for students pursuing higher education in India through appropriate schemes; an enactment of the long-pending higher education legislation that could help in easing the overlapping and archaic regulatory framework that exists today; and the provision of "infrastructure status" to companies developing education infrastructure.. Major Proposals in the budget: 1) The budgetary allocation to Ministry of HRD for various schemes increased by 17% to Rs.65,867 crore for the education sector. 2) The education cess of 3 per cent has been retained for the financial year 2013-14; this move will continue to promote the public spending in various education schemes like Sarva Shiksha Abhiyan. 3) Budgetary allocation to Sarva Shiksha Abhiyan at Rs.27,258 crore. 4) Budgetary allocation to Madhyamik Sihksha Abhiyan at Rs.3,983 crore. 5) Budgetary allocation to provide scholarship of Rs.5,284 crore to SC, OT, OBC, Minorities and girl children. 6) Budgetary allocation of Rs 13,215 crore for Mid-day meal scheme. 7) Another positive announcement was the allocation of 1000 crore allocation for National skill development fund. Impact of the Proposals: The Government has reemphasized its commitment in the area of education. The budgetary allocation to augur well for the private sector players in the education industry.

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Additional measures that could have been taken: Some measures could have been announced to incentivize private players to enter into the information and communication technology segment of education which is the newest trend in the sector.

DIRECT TAXES
PERSONAL TAXATION No change proposed in the current slab or tax rates which are currently as under: Tax rate Nil 10% 20% 30% Current slab Upto 2,00,000 2,00,001-5,00,000 5,00,000-10,00,000 Above 10,00,000

Some of the proposal and their impact are as follows: 1) PROPOSAL: A tax rebate of Rs.2000 is proposed for tax payers earning a total income of upto 5 lakhs. IMPACT: The basic threshold limit for tax trigger now stands effectively increased at Rs.2.2 lakhs for tax payers with income upto Rs. 5 lakhs. No relief for tax payers earning total income above Rs. 5 lakh. 2) PROPOSAL: An additional deduction of Rs 1 lakh is proposed on interest payable by individuals taking new home loans up to Rs 25 lakh during 2013-14 for purchase of their first residential property (of a value not exceeding Rs 40 lakh). The unutilized deduction amount can be carried forward to the next year. IMPACT: This additional deduction will enable tax saving up to Rs 33,990 for first-time property buyers and also encourage the home loan market. The existing deduction for bank interest (including the limit of Rs 1.5 lakh for self-occupied property) under the head 'Income from House Property' continues. 3) PROPOSAL: Eligibility conditions of Rajiv Gandhi Equity Savings Scheme (RGESS) are proposed to be liberalized: investment in listed equity oriented mutual funds will also
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qualify. The deduction shall be allowed for 3 consecutive years and lastly, the income limit for taxpayers eligible under the scheme stands increased to Rs 12 lakh from Rs 10 lakh. IMPACT: This would make the scheme slightly more attractive for first-time investors, enabling annual tax savings of up to Rs 7,725 for three years. However, the maximum amount of deduction continues to be Rs 25,000 per year. 4) PROPOSAL: Donations made to National Children's Fund proposed to be allowed as a 100% tax deduction. IMPACT: This will enable taxpayers to avail 100% deduction on donations made to National Children's Fund. This move is intended to treat the National Children's Fund on a par with other funds of national importance, such as the PM's National Relief Fund. 5) PROPOSAL: It is proposed that the buyer of immovable property exceeding Rs 50 lakh in value will need to deduct tax at source at 1% of the sale value. IMPACT: While this will help bring to tax the transactions in the real estate sector, there would be an additional compliance burden for the buyer. Interestingly, there are no exceptions for individual buyers either. 6) PROPOSAL: Transfer of immovable property for inadequate consideration is proposed to be taxed in the hands of the buyer. If date of agreement is prior to the date of registration, the differential value will be computed as of the agreement date. IMPACT: While the seller is already liable to tax on the stamp value of the property, it is now proposed to also tax the purchaser (paying insufficient consideration) to the extent of value deficiency. Certain exceptions have been carved out. 7) PROPOSAL: Return of income filed without payment of taxes payable will be considered as a 'defective return'. IMPACT: However, a leeway has been given to taxpayers to cure such a defect by paying the taxes within 15 days of receiving notice of defective return. 8) PROPOSAL: It is proposed to enable online/electronic filing of wealth-tax return as well. IMPACT: This will make filing of wealth tax returns easier.
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9) PROPOSAL: It has been proposed to reduce Securities Transaction Tax ('STT') for certain transactions such as equity futures on recognized stock exchanges (from 0.017% to 0.01%), redemption of equity-oriented mutual fund units (from 0.25% to 0.001%) and sale of equity-oriented mutual fund units on recognized stock exchanges (from 0.1% to 0.001%). STT of 0.1% levied on the purchaser of equity-oriented mutual fund units on stock exchange is also abolished. IMPACT: This will help in reducing the costs of such transactions and give a fillip to investor sentiments. P: It is proposed to levy Commodities transaction tax (CTT) at 0.01% on sale of non-agricultural commodity derivatives, traded in recognized associations this is proposed to be payable by the seller. I: This is a new levy similar to STT being levied on equity derivative transactions. This will lead to increase in transaction cost in commodity trading. CORPORATE TAXATION There is an increase in surcharge for the corporate Total Income 0-1,00,00,000 1,00,00,001-10,00,00,000 10,00,00,001 above Domestic Company 30.90% 32.45% 33.99% Foreign Company 41.20% 42.02% 43.26%

1) PROPOSAL: Increase in surcharge from 5% to 10% for domestic companies where total income exceeds Rs 10 crore. IMPACT: The effective corporate tax rate for domestic companies stands increased from 32.45% to 33.99%. Effective minimum alternate tax rate stands revised to 20.96% from 20% earlier, resulting in higher tax outgo. 2) PROPOSAL: Increase in surcharge from 2% to 5% for foreign companies where total income exceeds Rs 10 crore. IMPACT: The effective corporate tax rate for foreign companies such as branches of overseas companies and other similar entities shall stand revised to 43.26% from 42.02%.
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3) PROPOSAL: Increase in surcharge from 5% to 10% on dividend distribution tax (DDT). IMPACT: The effective rate of DDT shall be increased from 16.22% to almost 17%. 4) PROPOSAL: Dividends received from foreign subsidiaries by India Inc will continue to be taxed at the concessional rate instead of at the corporate tax rate. Thus, the effective tax rate will be 16.995%. IMPACT: This will incentivize Indian companies to repatriate excess cash lying in overseas subsidiaries to India. 5) PROPOSAL: Remove cascading effect of DDT in respect of dividend received by a domestic company from its foreign subsidiary. IMPACT: The Indian company shall not be liable to pay DDT on the dividend distributed to its shareholders to the extent of dividends received from its foreign subsidiary. This will bring in tax efficiency by eliminating multiple levy of tax on the dividend distributed by the Indian company. 6) PROPOSAL: Increase in rate of tax on royalty and fees for technical services for nonresident tax payers under the Income Tax Act from 10% to 25% in respect of agreements entered into after March 31, 1976. IMPACT: This would increase the tax rate of royalty and fees for technical services paid to non-residents where income is taxable under the provisions of the Income Tax Act. Non-residents can continue to avail of lower tax rates under the Double Taxation Avoidance Agreement, where applicable. Tax treaties such as those with Netherlands and Singapore prescribe for a lower tax withholding of 10% which will continue. 7) PROPOSAL: Investment allowance to manufacturing companies is introduced additional deduction of 15% of the actual cost of new assets acquired and installed during the period April 1, 2013 to March 31, 2015, provided actual costs exceed Rs 100 crore, subject to conditions. IMPACT: This will provide a much needed boost to the manufacturing sector. The additional deduction would be over and above the depreciation claimed by such a company.

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8) PROPOSAL: Beneficial withholding tax of 5% extended to interest on rupeedenominated long-term infrastructure bonds of an Indian company, subject to certain conditions. IMPACT: Earlier, only borrowings in foreign currency were eligible for the beneficial withholding tax of 5%. Liberalizing this requirement by extending the benefit of such reduced withholding tax of 5% will further augment long-term low-cost funds from abroad for infrastructure companies. 9) PROPOSAL: Introduction of additional income tax of 20% on buyback of shares by unlisted companies. IMPACT: According to the FM, buyback of shares is often used as a tool to avoid DDT on distribution of income in the form of dividend. Henceforth, distribution of income by an unlisted company by way of buyback will also be liable to tax at 20%. However, there would be no tax liability in the hands of the shareholders. 10) PROPSAL: Difference between stamp duty valuation and sale price of land or building or both will be regarded as business income where sale price is less than stamp duty value, even if such assets are held as stock-in-trade. I: There will be additional tax liability in cases where land or building or both are treated as stock-in-trade and the sale value is less than the stamp duty value. Earlier, this was applicable only to land or building held as capital asset. 11) PROPOSAL: Where tax due from private company cannot be recovered, the burden can shift to a director. It is clarified that the tax due shall include interest, penalty or any other sum payable. IMPACT: The proposal seeks to put the litigation on meaning of the term 'tax due' at rest. This would cast an additional obligation on the director. 12) PROPOSAL: Deduction in respect of commodity transaction tax paid. IMPACT: Payment of commodity transaction tax shall be allowed as a deduction where income arising from commodities transaction is included under business income. The treatment is aligned with the treatment in respect of securities transaction tax.

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INDIRECT TAXES
The Union Budget 2013 rolled out many provisions for INDIRECT TAXES. Here's a look at some of these proposals and their impact: Proposal Customs duty free allowance threshold in respect of jewellery for an Indian passenger residing abroad for over a year or a person who is transferring his residence to India has been revised from Rs 10,000 to Rs 50,000 for men and from Rs 20,000 to Rs 1,00,000 for women. Services by air conditioned restaurants not having licence to serve liquor shall now trigger an effective liability of 3.71%. Basic excise duty on marble block increased from Rs 30 per sq metre to Rs 60 sq metre. Basic customs as well as excise duty on SUVs increased from 75% to 100% and from 27% to 30% respectively. Basic customs duty on set top boxes increased from 5% to 10%. Basic excise duty on mobile phones priced above Rs 2,000 increased from 1.03% to 6.18%. Service tax on agreement to buy an under construction residential unit priced at Rs 1 crore or above or a unit having carpet area of 2000 sq ft or more has been increased from effective 3.09% to 3.71%. Basic excise duty on cigarettes , cigars, cheroots and cigarillos increased by around 18-30 % from existing duty rates. Handmade carpets have been fully exempted from payment of basic excise duty. Basic customs duty on yachts and similar vessels increased from 10% to 25%. Impact Non-Resident Indians (NRIs) residing abroad for over a year or foreigners transferring their residence to India will enjoy hassle-free immigration as they can import more jewellery resulting in customs duty savings of Rs 14,420 and Rs 28,840 for male and female passengers respectively. Dining out for a family of four costing Rs 1,500 will now be costlier by Rs 56.

Households looking to upgrade to marble flooring for a 2-BHK with a carpet area of 1,000 sq ft will have to now pay an additional amount of approximately Rs 4,000. Imported Porche Cayenne with ex-showroom price in the range of Rs 50 lakh could now be costlier by Rs 5 to 7 lacs approximately. Imported HD/DVR set top boxes with market price of Rs 4,000 could now cost higher by Rs 4,175 or Rs 4,200. If you are planning to buy a Samsung Galaxy Grand costing Rs 21,500, you will have to pay at least Rs 700 more Buying a house in upmarket Bandra, a Bollywooddominated suburb of Mumbai, costing Rs 3 crore will now be costlier by approximately Rs 1.86 lakh. Injury to health by smoking will now be paralleled by injury to your pocket. One pack of 20 Classic Mild cigarettes costing Rs 120 could get costlier by Rs 8-10. Carpet worth Rs 10,000 could get cheaper by Rs 450-490. Price of daily use floor coverings made up of coir or jute that costed about Rs 300 could be cost less by Rs 15. Buying the entry level yachts costing in the range of Rs 25 lacs could become expensive by approximately Rs 3.5 lakh.
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Basic customs duty on imported motor cycles having engine capacity of more than 800cc is increased from 60% to 75%. Service tax exemption on parking meant for general public withdrawn.

Get set to pay approximately Rs 90,000 extra, if you want to buy new Harley Davidson cruiser costing Rs 12 lacs. An additional 12.36% burden on parking charges will have to be borne while parking vehicles in malls, multiplexes, etc. The malls, multiplexes, offering parking at Rs 50 a day will now charge Rs 57 approximately. Courses like craftsman training schemes, apprentice program, health and para medicals, gaming and animation, hardware repairing, etc., from approved institutions where the annual fee was previously Rs 55,000-Rs 60,000 could get cheaper by Rs 6,000-Rs 7,500.

Vocational courses offered by institutions approved by State Councils included within negative list for service tax i.e. no tax payable.

Source: Economic Times - Powered by Ernst & Young

1.

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Impact of budget on Bond market

The FM delivered a fiscal deficit of 4.8% of GDP as expected by the markets. What does a fiscal deficit of 4.8% of GDP mean for the economy. Will interest rates come down and government bond yields fall. A fiscal deficit of 4.8% of GDP translates into an absolute amount of Rs 542,000 crores. The government will go to the bond market to finance 89% of the fiscal deficit and this amounts to Rs 484,000 crores. The absorption of this government borrowing will determine the direction of interest rates in the economy. Banks, insurance companies, pension and provident funds, FIIs, mutual funds and other institutional investors absorb the government borrowing, Banks are the single largest category of buyers of government bonds and are expected to take up 41% of the government borrowing assuming a 13% deposit growth in 2013-14 and 23% of those incremental deposits being deployed in government bonds. Higher deposit growth will help banks absorb more of the government borrowing. The rest of the government borrowing will be taken up others. RBI has been buying government bonds for the last four years to add liquidity into the system and could well buy more government bonds in the coming fiscal. RBI buying around Rs 1 lakh crores of government bonds will help the government borrowing go through smoothly. Apart from the government borrowing, the lower trajectory of inflation that is estimated at around 6.5% levels will help RBI reduce the repo rate from current levels of 7.75%. Lower repo rates should translate into lower deposit and lower lending rates assuming liquidity with the banks are comfortable. The bond markets immediate reaction to the budget was negative as the market was expecting a lower government borrowing amount. However as the market goes into fiscal 2013-14 it will gauge the demand for government bonds, prospects of rate cuts and liquidity to determine direction of bond yields. Interest rates should look to trend down in fiscal 2013-14 but the fall will not be immediate and will be slow and steady.

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IMPACT ON STOCK MARKET

Among the major Asian stock markets, China (up 2.0%) and Japan (up 1.9%) led the gains boosted by positive economic data from US. China's manufacturing grew at its slowest rate in five months in February. This was because of weak demand and shut down of factories for the Lunar New Year holiday. The economic data from Japan suggested slight improvement in unemployment but a decline in business investment. However, there was some optimism as Japan's prime minister nominated a new central bank chief known to support deflation fighting economic strategies. The biggest loser was Indian stock market. The Budget disappointed markets and the Indian equity markets led the losses and ended the week down by 2.1%. In another key event, HSBC Markit manufacturing Purchasing Managers' index (PMI), rose to 54.2 in February, after falling to a three-month low level in January.

Source: Yahoo Finance

Barring consumer durables (up 3.7%) and software (up 2.4%), the other sectoral indices ended the week in the red with stocks in the realty (down 8.6%) and energy (down 4.6%) sector leading the losses.

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Source: BSE

Talking about individual stocks Company 22-Feb-13 1-Mar-13 Change 52-wk High/Low

Top gainers during the budget week (BSE-A Group) Titan SUN TV Tech Mahindra 256 411 1,040 274 438 1,102 1,042 496 7.0% 6.5% 6.0% 5.9% 4.2% 312/204 490/177 1102/591 1066/830 526/320

Container Corporation 984 IPCA Labs 476

Top losers during the budget week (BSE-A Group) Core Education MMTC Ltd Pantaloon Suzlon Energy NHPC Ltd 295 541 216 23 29 65 407 174 19 24 -77.9% -24.8% -19.2% -18.1% -16.6% 342/49 875/405 267/127 30/14 29/15

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Bibliography and References

1. 2. 3. 4. Economic times Care research Ernst and young statistics Reuters

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