PROECT REPORT

On

UNION BUDGET 2017

Synopsis submitted in partial fulfillment of

requirements for
Bachelors of Business Administration
Foreign Trade

Submitted to (Mentor) : Submitted by:

Dr. Rajeev Sharma GayatriTandon
Program Head BBA
BBA Foreign Trade 500035464
 CERTIFICATE

TO WHOMSOEVER IT MAY CONCERN

This is to certify that the dissertation report on UNION BUDGET 2017 completed
and submitted to University of Petroleum and Energy Studies, Dehradun by
GayatriTandon in partial fulfillment of the provisions and requirements for the award
of degree of BACHELORS OF BUSINESS ADMINISTRATION ), 2014-2017 is a bonafide
work carried by the scholar under my supervision and guidance.

To the best of my knowledge and belief the work has been based on
investigation made, data collected and analyzed by the scholar, and this work has
not been submitted anywhere else for any other university or institution for the
award of any degree/diploma.

(Lecturer CMES)

(UPES, Dehradun)
 ACKNOWLEDGEMENT

First and foremost, I would like to thanks my respective mentor Dr. Rajeev Sharm
(Lecturer - CMES) for his valuable guidance and encouragement throughout my
research project on Indian Tourism and Hospitality Industry Analysis. His
expertise, enthusiasm, and dedication for work have been constant source of
motivation for me.

I would like to express my deep gratitude to University of Petroleum and

Energy Studies for extending the opportunity of undergoing the project and
providing with all necessary resources and expertise needed for completion of the
project.

I also convey special thanks to Mr Head of Department (International

Business) for his extended support throughout the project.

GAYATRI TANDON

Enroll no.

BBA Foreign Trade

Executive Summary

The Research Project Impact of Union budget 2016-2017 on

various sectors concentrates on the Union Budget presented by
Arun Jaitley on 29th February 2016 and the impact of it on various
sectors. The sectors covered in this particular project are as follows:

Social Sector (including healthcare)

Financial sector reforms
Make in india

It contains all the various numerical and percentages changes in

various sectors as well as the part of the budget allocated to the
sectors. Detailed changes and reforms to be expected in the particular
sectors have also been given in project.
All the details regarding where a rupee comes from and where will it
allocated have also been shown.
INTRODUCTION OF UNION BUDGET 2017

2017 Union Budget of India

Annual Financial Statement (AFS) mandated by Article 112

of Constitution of India

Demands for Grants mandated by Article113 of Constitution of

India

Appropriation Bill mandated by Article 114(3) of Constitution of

India

Finance Bill mandated by Article110(a) of Constitution of

India

and other documents presented as per the provisions of the

Fiscal Responsibility and Budget Management Act, 2003. for the
financial year 2017 - 2018.

It was presented before the parliament on 1 February 2017 by

the Finance Minister of India, Arun Jaitley with 21.47 lakh crore
rupees Budget size.

The Finance Minister of India started speech by quoting "Madam

Speaker, On this auspicious day of Vasant Panchami, I rise to
present the Budget for 2017-18. Spring is a season of optimism. I
extend my warm greetings to everyone on this occasion.
In his speech the Finance Minister of India, Arun Jaitley has quoted
that the Agenda for 2017-18 is "Transform, Energise and Clean
India" TEC India. He further went to explain that TEC India means
to

Transform the quality of governance and quality of life of our

people

Energise various sections of society, especially the youth and

the vulnerable, and enable them to unleash their true potential

Clean the country from the evils of corruption, black money and
non-transparent political funding.

OBJECTIVES OF THE STUDY

The Union Budget is presented in the public so as to inform the public of

the estimation of revenue and expenditure which would be incurred by
the government in the following financial year. Union Budget is an
elaborative study backed by experts.

It is important so as to know whether growth and development is

taking place, and in which particular sectors.

A estimation regarding the numbers associated with the Part of the

budget for the particular sector can also be known.
It enables a comparison with previous Union Budgets which shows
the percentage change, may it be positive or negative, to showcase the
highlighted sectors

It informs people about the working of the government and

estimations of funds

The Union Budget of 2017 is all set to be presented soon. Budget 2017 sets itself apart
from few age-old traditions. First, it is departing from the colonial era convention of
presenting the Budget at the end of February. Second, this is also the first time in the
history of Independent India when the union and railway budget would be presented
together. Other expected changes are related to taxes and welfare measures.
As Finance Minister Arun Jaitley presents his fourth Union Budget, here is a brief
historical outline of the Budget of India.

The first budget of India was present when still under colonial rule. The then Finance
Minister of India, James Wilson, presented the budget on April 7, 1860.

The first budget of Independent India was presented on November 26, 1947. Presented
by Finance Minister, Sir RK Shanmukham Chetty, the economic planning for the
newly freed country had to be made in the backdrop of the Partition riots. The finances
at that moment were planned for the next seven and half months before the next budget
could be implemented on April 1, 19478. In the 1947 budget, it was agreed that the
same currency would be shared by India and Pakistan as managed by the Reserve Bank
till the end of September 1948.

Once Chetty resigned, the portfolio of finance ministry was taken over by K C Neogy.
However, he resigned after just 35 days in office. He was succeeded by John Mathai
who presented the 1949-50 and 1950-51 budgets. It was Mathai who announced the
making of a Planning Commission. Mathais presentation of 1949-50 was the first time
that a financial planning was being delivered for a united India, taking into account the
economy of all the princely states.

A big moment in Indias economic history was the time when the P.V. Narasimha Rao-
led government, under the finance ministry of Manmohan Singh, opened up the
economy encouraging foreign investments and reducing import duties. Under
Manmohan Singh the economy of India saw several new concepts and initiatives. The
Rupee was made convertible in current account and the concept of service tax was first
introduced.

In 2016, Finance Minister Arun Jaitley presented the second annual budget of
the Narendra Modi-led government. A unique feature of Budget was the extensive
use of social media to interact with the public and get their opinions on what changes
could be made in the years financial planning.
KEY FEATURE AND CHALLENGES IN THE BUDGET 2017

INTRODUCTION

In the last two and half years administration has moved from
discretionary, favouritism based to system and transparency based

Inflation brought under control. CPI-based inflation declined from 6%

in July 2016 to 3.4% in December, 2016

Economy has moved on a high growth path. Indias Current Account

Deficit declined from about 1% of GDP last year to 0.3% of GDP in the
first half of 2016-17. FDI grew 36% in H1 2016-17 over H1 2015-16,
despite 5% reduction in global FDI inflows. Foreign exchange reserves
have reached 361 billion US Dollars as on 20th January, 2017

War against black money launched

Government continued on path of fiscal consolidation, without

compromising on public investment.

The Indian economy has been robust to mild shocks and IMF
forecasts, India to be one of the fastest growing major economies in
2017

CHALLENGES IN 2017-18

World economy faces considerable uncertainty, in the aftermath of

major economic and political developments during the last year

The US Federal Reserve's , intention to increase policy rates in 2017,

may lead to lower capital inflows and higher outflows from the
 emerging economies

Uncertainty around commodity prices, especially that of crude oil, has

implications for the fiscal situation of emerging economies

Signs of retreat from globalisation of goods, services and people, as

pressures for protectionism are building up
TRANSFORMATIONAL REFORMS IN LAST YEAR

Passage of the Constitution Amendment Bill for GST and the progress for its
introduction

Demonetisation of high denomination bank notes

Enactment of the Insolvency and Bankruptcy Code; amendment to the RBI

Act for inflation targeting; enactment of the Aadhar bill for disbursement
of financial subsidies and benefits

Budget 2017-18 contains 3 major reforms. First, presentation of Budget

advanced to 1st February to enable the Ministries to operationalise all
activities from the commencement of the financial year. Second, merger
of Railways Budget with General Budget to bring Railways to the centre
stage of Governments Fiscal Policy and Third, removal of plan and non-
plan classification of expenditure to facilitate a holistic view of allocations
for sectors and ministries

DEMONITISATION

Bold and decisive measure to curb tax evasion and parallel economy

Governments resolve to eliminate corruption, black money, counterfeit

currency and terror funding

Drop in economic activity, if any, to be temporary

Generate long term benefits including reduced corruption, greater

digitisation, increased flow of financial savings and greater formalisation
 of the economy

Pace of remonetisation has picked up and will soon reach comfortable

levels

The surplus liquidity in the banking system will lower borrowing costs and
increase the access to credit

Announcements made by the Honourable Prime Minister on 31st Dec, 2016

focusing on housing for the poor; relief to farmers; credit support to
MSMEs; encouragement to digital transactions; assistance to pregnant
women and senior citizens; and priority to dalits, tribals, backward
classes and women under the Mudra Yojana, address key concerns of our
economy

FINANCIAL SECTOR

Foreign Investment Promotion Board to be abolished in 2017-18 and

further liberalisation of FDI policy is under consideration

An expert committee will be constituted to study and promote creation of

an operational and legal framework to integrate spot market and
derivatives market in the agricultural sector, for commodities
trading. e- NAM to be an integral part of the framework.

Bill relating to curtail the menace of illicit deposit schemes will be

introduced. A bill relating to resolution of financial firms will be
introduced in the current Budget Session of Parliament. This will
contribute to stability and resilience of our financial system

A mechanism to streamline institutional arrangements for resolution of

disputes in infrastructure related construction contracts, PPP and public
utility contracts will be introduced as an amendment to the Arbitration
and Conciliation Act 1996.

A Computer Emergency Response Team for our Financial Sector (CERT-Fin)

will be established
 Government will put in place a revised mechanism and procedure to
ensure time bound listing of identified CPSEs on stock exchanges. The
shares of Railway PSEs like IRCTC, IRFC and IRCON will be listed in
stock exchanges.

Propose to create an integrated public sector oil major which will be able
to match the performance of international and domestic private sector
oil and gas companies

A new ETF with diversified CPSE stocks and other Government holdings
will be launched in 2017-18

In line with the Indradhanush roadmap, ` 10,000 crores for

recapitalisation of Banks provided in 2017-18

Lending target under Pradhan Mantri Mudra Yojana to be set at ` 2.44

lakh crores. Priority will be given to Dalits, Tribals, Backward Classes
and Women.

DIGITAL ECONOMY

125 lakh people have adopted the BHIM app so far. The Government will
launch two new schemes to promote the usage of BHIM; these are,
Referral Bonus Scheme for individuals and a Cashback Scheme for
merchants

Aadhar Pay, a merchant version of Aadhar Enabled Payment System, will

be launched shortly

A Mission will be set up with a target of 2,500 crore digital transactions for
2017-18 through UPI, USSD, Aadhar Pay, IMPS and debit cards

A proposal to mandate all Government receipts through digital means,

beyond a prescribed limit, is under consideration
 Banks have targeted to introduce additional 10 lakh new POS terminals by
March 2017. They will be encouraged to introduce 20 lakh Aadhar
based POS by September 2017

Proposed to create a Payments Regulatory Board in the Reserve Bank of

India by replacing the existing Board for Regulation and Supervision of
Payment and Settlement Systems
Backdrop

1.1 Tax policies play an important role on the economy through their impact on both efficiency
and equity. A good tax system should keep in view issues of income distribution and, at the
same time, also endeavour to generate tax revenues to support government expenditure on
public services and infrastructure development. Cascading tax revenues have differential
impacts on firms in the economy with relatively high burden on those not getting full offsets.
1.2 Traditionally Indias tax regime relied heavily on indirect taxes including customs and excise.
Revenue from indirect taxes was the major source of tax revenue till tax reforms were
undertaken during nineties. The major argument put forth for heavy reliance on indirect taxes
was that the Indias majority of population was poor and thus widening base of direct taxes had
inherent limitations. Another argument for reliance on indirect taxes was that agricultural income
was not subjected to central income tax and there were administrative difficulties involved in
collecting taxes.
However, it became evident that indirect taxes lead to undesirable effects on prices and
allocation of resources. The Government of India constituted Indirect Taxation Enquiry
Committee in 1976 headed by Shri L. K. Jha to study the structure of indirect taxes, central,
state and local level taxes and suggest policy reforms. Indirect Taxation Enquiry Committee
submitted its report in 1978. The committee found a major problem with indirect tax regime as it
had caused unintended distortion in the allocation of resources and cascading effects. The
committee recommended that indirect taxation should move towards taxation of final products
and introduce modified form of value added tax. However, a major obstacle in rationalisation of
indirect tax system was the levy of tax on commodities by government at different levels viz.,
centre, state and local authorities. This multiple taxation provides incentives for tax evasion and
undermines efficiency. Further, there is lack of uniformity in the pattern of commodity taxation
resulting in harassment to the public by multiple tax authorities. Heavy reliance on indirect taxes
for raising revenue was also found to increase cost and fuel inflation.
1.3 The Government of introduced the Long Term Fiscal Policy (LTFP) on 19 December 1985
for prudent fiscal management. Major excise and custom reforms were introduced in LTFP. The
reforms in excise relates to introduction of modified value added tax i.e MODVAT. However, fill
up in the tax policy came with introduction of economic reforms in 1990. The system of
MODVAT was progressively converted into VAT and CENVAT was introduced at centre level.
Subsequently, after Constitutional Amendment empowering the Centre to levy taxes on
services, these service taxes were also added to CENVAT in 2004-05.At state level also VAT
was introduced in 2005.
1.4 Despite all the various changes the overall taxation system continues to be complex and
has various exemptions. The Government of India constituted a Task Force on implementation
of Fiscal Responsibility and Budget Management Act, 2003 (FRBMA) to chalk out a framework
for fiscal policies to achieve FRBM targets. The Report of the Task Force on implementation of
the FRBMA, chaired by Dr. Vijay Kelkar, submitted its Report in July 2004. It has recommended
introduction of a national VAT on goods and services (GST) which would help improve the
revenue productivity of domestic indirect taxes and enhance welfare through efficient resource
allocation.
The Joint Working Group of the Empowered Committee of the State Finance Ministers
submitted its report on the proposed Goods and Services Tax (GST) to the Finance Minister in
November 2007. A dual GST, one for the Centre and other for the states, was to be
implemented by 1 April 2010
II INDIAS TAX REGIME

2.1 In India the power for taxation has been divided between centre and state under article 246
of the constitution. As per the said article the centre has power to tax under list I of the Schedule
VII of the constitution, the state can tax under list II of the schedule and both can make law
under list III of the schedule. Therefore, there is a clearly defined and multiple tax regime in
India.

Taxation structure existing in country:-

Taxes levied by Centre Taxes Levied by State
Central Excise and Custom Value Added Tax( state sales
tax)
Service Tax Local taxes
Direct Taxes

2.2 Prior to the introduction of VAT in the Centre and in the States, there was a burden of
multiple taxation in the pre-existing Central excise duty and the State sales tax systems. Before
any commodity was produced, inputs were first taxed, and then after the commodity got
produced with input tax load, output was taxed again. This was causing a burden of multiple
taxation (i.e. tax on tax) with a cascading effect. Moreover, in the sales tax structure, when
there was also a system of multi-point sales taxation at subsequent levels of distributive trade,
then along with input tax load, burden of sales tax paid on purchase at each level was also
added, thus aggravating the cascading effect further.

2.3 In India, VAT was introduced at the Central level for a selected number of commodities in
terms of MODVAT with effect from March 1, 1986, and in a
step-by-step manner for all commodities in terms of CENVAT in 2002-03. Subsequently, after
Constitutional Amendment empowering the Centre to levy taxes on services, these service
taxes were also added to CENVAT in 2004-05.

2.4 When VAT is introduced in place of Central excise duty, a set-off is given, i.e., a deduction is
made from the overall tax burden for input tax. In the case of VAT in place of sales tax system,
a set-off is given from tax burden not only for input tax paid but also for tax paid on previous
purchases. With VAT, the problem of tax on tax and related burden of cascading effect is thus
removed. .
2.5 Before introduction of VAT, in the sales tax regime, apart from the problem of multiple
taxation and burden of adverse cascading effect of taxes as already mentioned, there was also
no harmony in the rates of sales tax on different commodities among the States. Not only were
the rates of sales tax numerous (often more than ten in several States), and different from one
another for the same commodity in different States, but there was also an unhealthy competition
among the States in terms of sales tax rates so-called rate war often resulting in, revenue-
wise, a counter-productive situation.

2.6 It is in this background that attempts were made by the States to introduce a harmonious
VAT in the States, keeping at the same time in mind the issue of sovereignty of the States
regarding the State tax matters.

The States started implementing VAT beginning April 1, 2005. After overcoming the initial
difficulties, all the States and Union Territories have now implemented VAT.
III Rationale for GST

3.1 Despite this success with VAT, there are still certain shortcomings in the structure of VAT
both at the Central and at the State level.

The shortcoming in CENVAT of the Government of India are as follows:-

non-inclusion of several Central taxes in the overall framework of CENVAT, such as

additional customs duty, surcharges, etc., and thus keeping the benefits of
comprehensive input tax and service tax set-off out of reach for manufacturers/dealers.

no step has yet been taken to capture the value-added chain in the distribution trade
below the manufacturing level in the existing scheme of CENVAT.

The introduction of GST at the Central level will not only include comprehensively more indirect
Central taxes and integrate goods and service taxes for the purpose of set-off relief, but may
also lead to revenue gain for the Centre through widening of the dealer base by capturing value
addition in the distributive trade and increased compliance.

3.2 In the existing State-level VAT structure there are also certain shortcomings as follows:-

several taxes which are in the nature of indirect tax on goods and services, such as
luxury tax, entertainment tax, etc., have yet not been subsumed in the VAT.

CENVAT load on the goods remains included in the value of goods to be taxed under
State VAT, and contributing to that extent a cascading effect on account of CENVAT
element.

non integration of VAT on goods with tax on services at the State level and cascading
effect of service tax.

3.3 In the GST, both the cascading effects of CENVAT and service tax are removed with set-off,
and a continuous chain of set-off from the original producers point and service providers point
upto the retailers level is established which reduces the burden of all cascading effects.

GST is not simply VAT plus service tax but an improvement over the previous system of VAT
and disjointed service tax.
3.4 Implementation of GST will also remove several roadblocks in the existing taxation system
in India.
Some of these are:
a)Tax cascading The Goods and Services Tax Act will overcome the problem of tax-
cascading through input tax credit mechanisms. Under this system, sellers or vendors of goods
and services are eligible to avail tax credits on the amount of GST paid to eligible procurements.
Manufacturers can avail credits for the GST paid to procure inputs, capital goods and services
used in the manufacturing process. In the same way, wholesalers and retailers can avail credits
for the GST paid on procurement of stock. But the final customer who purchases the product for
consumption will not be able to avail and utilize any tax credit. Tax cascading can be understood
by the following example:-
A tax is applied on a particular product at each stage and and no credit is available, then tax will
be charged at each stage whenever a good or service changes hands. In other words, tax is
applied several times and is charged even on the tax which forms part of the inputs.
The following taxes will be applied to the product:
While purchasing inputs i.e. raw materials for the product, the manufacturer pays sales
tax.
When a wholesaler purchases the product from the manufacturer, then he pays tax on
procurement of the product.
When the retailer purchases the product from the wholesaler, the wholesale again
charges tax.
Lastly, the customer purchases the product from the retailer; the retailer again charges a
tax. This layering of sales tax will significantly increase the final sales price as each party
in the supply chain increases the price of the product to recover the tax they paid. The
cascading effect will increase then tax is paid on tax.
There are a large number of products and range of services that are outside the ambit of
CENVAT and service tax. The exempts sectors are not allowed to claim any credit of the input
tax. In the same way, under the state VAT, no credits are allowed for the inputs procured and
used towards exempted sectors. Non-eligibility for availment of credits leads to
tax cascading. Due to large number of exemptions, the effect of tax cascading in India is
significantly high.
b) Complexity Presently in India, for taxing sale of goods, there is Central Sales tax and
respective VAT Acts for each state and Union territory. The Goods and Services Tax will remove
this complication by having a unified code for implementation of State GST in different states.
The GST will not only subsume a large number of indirect taxes but also solve the classification
issues by introducing only one or two rates of tax. Other than this there would be categories that
are exempted or zero rated.
Presently the activities in a supply chain are subject to several taxes. For example the
manufacture of goods is subject to excise duty and sale of these manufactured goods is subject
to state VAT or CST. The GST will ensure uniform single tax across the entire supply chain.
c) Double taxation The GST will not make any difference between goods and services as
GST will be levied at each stage in the supply chain. This will help in solving the problem of
double taxation. The issue is not only between the taxes of customs duties, excise duties and
service tax but also between service tax and VAT. The issue of double taxation was addressed
by the Honorable Supreme Court in the case of BSNL vs. UOI (2006(3)SCC-1), wherein the
Court held that the same activity cannot be regarded as both goods and services and hence
both service tax and VAT should not be applicable on the same set of transactions.
The implementation of GST will resolve the dilemma of a large number of assessee who are not
sure of application of the type of tax on certain specified transactions like software development,
sale of sim cards by telecom operators, online subscription of newspapers, value added
services provided by telecom operators, right to distribute movies etc.
d) Composite contracts There are a large number of works contracts which involve the
supply of goods and services which are available to customers under different supply chain
arrangements. Such situations arise in a gap or overlapping in taxation of goods and services
as the States do not have the power to impose tax on services and the Centre does not have
the power to impose tax on sale of goods within the state. In such cases, a comprehensive
solution can be provided only by implementation of GST.
e)Revenue growth- The introduction of GST along with prudent accounting policies,
transparency and supported by a robust electronic controls will bring down the peak rates of
taxation and enhance revenue growth. This can be understood by the following table by
comparing the present rates of tax and the proposed GST.

Goods from producer to wholesaler Present taxes GST (Rs.)

(Rs.)
Cost of production 80,000 80,000
Producers margin of profit 20,000 20,000
Producers price 1,00,000 1,00,000
Central Excise duty at 14% 14,000 Nil
VAT at 12.5% 14250 Nil
 Central GST at (expected rate )12% Nill 12,000
State GST at (expected rate) 8% Nill 8,000
Total Price 1,28,250 1,20,000
Goods from wholesaler to retailer Present taxes GST (Rs.)
(Rs.)
Cost of goods to wholesaler 1,14,000 1,00,000
Profit margin at 5% 5,700 5,000
Total 1,19,700 1,05,000
VAT at 12.5% 712.5 Nill
Central GST (expected rate )12% Nil 600
State GST at (expected rate) 8% Nill 400
Total 1,20,412.5 1,06,000
Goods from retailer to final consumer Present taxes GST (Rs.)
(Rs.)
Cost of goods to wholesaler 1,20,412.5 1,06,000
Profit margin at 10% 12,041.25 10,500
Total 1,32,453.75 1,16,500
VAT at 12.5% 1,505.15 Nill
Central GST (expected rate )12% Nill 1,050
State GST at (expected rate) 8% Nill 840
Total price to the final consumer 1,33,958.9 1,18,390

Tax component in the price to the final 30,467.65 22,890

consumer
Final price exclusive of taxes 1,03,491.25 95,500
IV Benefits of GST

4.1 Benefits for centre

As per the existing taxation system the centre does not has power to tax on production of
goods. The power to levy tax on sales rests with state except in case of inter state sales.
Therefore, introduction of GST would empower centre to tax sales also.

Benefits of GST for Centre:

Increase in GDP

Increase in exports

Power to tax after production down to distribution point

Ensures better compliance and prevent tax evasion

4.2 Benefits to state

There is no uniformity in rate of taxes among the states. Even after introduction of VAT there are
different rates of tax in different states. Therefore, there was rate war among states. GST will
lead to uniformity in tax rates. Other benefits for state are:-

Benefits for states

Will get power to tax services

Will reduce rate wars, therefore, outflow of investment to other states due to rate war
will be prevented

Introduction of comprehensive system of reliefs including set off of CENVAT and

service taxes
Increase in revenue due to broadening of tax base

Removal of burden of CST

4.3 Benefits to industry

Benefits to industry

Will provide comprehensive input tax credit, the service tax can be set off with sales
tax
No need to pay CST
Many central and state indirect taxes will be subsumed in GST, therefore, a single tax
is to be paid.
Uniformity in tax procedure throughout the country
Reduced tax burden will increase competitiveness of Indian products in foreign
markets

4.4 Benefits to consumer

Benefits to consumer

Reduced tax burden will be passed on to consumers in form of reduced prices.

Better compliance and increased tax revenue will enable the government to spend
more on welfare

4.5 The GST at the Central and at the State level will thus give more relief to industry, trade,
agriculture and consumers through a more comprehensive and wider coverage of input tax set-
off and service tax set-off, subsuming of several taxes in the GST and phasing
out of CST. With the GST being properly formulated by appropriate calibration of rates and
adequate compensation where necessary, there may also be revenue/ resource gain for both
the Centre and the States, primarily through widening of tax base and possibility of a significant
improvement in tax compliance. In other words, the GST may usher in the possibility of a
collective gain for industry, trade, agriculture and common consumers as well as for the Central
Government and the State Governments. The GST may, indeed, lead to the possibility of
collectively positive-sum game.
RESEARCH METHODOLOGY

Achieving accuracy in any research requires a deep study regarding

the subject. The prime objective of the project is to give financial
statements regarding the Budget 2016-2017 as well as comparing it
with Budget 2015-2016
The research methodology adopted is basically based on secondary
data via which the most recent and accurate piece of Government
issued numbers as well as percentages could be collected.

Type of Research Methodology

Thereotical research:The research was done by analyzing the Union

budget as stated by Mr. .Arun Jaitley

Comparative research: Union budget 2016-17 vs Union Budget

union budget 2015-2016

Quantitative research: This type of research methods requires

quantifiable data
involving numerical and statistical explanations. Quantitative Research
is used to
quantify the problem by way of generating numerical data or data that
can be transformed into usable statistics

DATA COLLECTION METHOD

There two type of method of data collection
Primary data(Observation method)
Secondary data

DATA ANALYSIS

5.1 Goods and Service Tax is a tax on goods and services, which is leviable at each point of
sale or provision of service, in which at the time of sale of goods or providing the services the
seller or service provider can claim the input credit of tax which he has paid while purchasing
the goods or procuring the service.

HOW WILL IT WORK?

5.2 GST will be paid at each step till final distribution stage. It will be charged by
dealers(manufacturer, trader and service provider) on the price of goods and services. While
GST is paid at each step in the supply chain of goods and services, the paying dealers dont
actually bear the burden of the tax because GST is an indirect tax and ultimate burden of the
GST has to be taken by the last Customer. This is because they include GST in the price of the
goods and services they sell and can claim credits for the most GST included in the price of
goods and services they buy. The cost of GST is borne by the final consumer, who cant claim
GST credits, i.e. input credit of the tax paid.

The working of GST with respect to manufacturer, trader and consumer can be seen in the
illustrations given below. The manufacturers will get the input credit of all the taxes paid by them
on the raw material and also on the services.

Let us assume the rate of GST is 16 percent and a toy manufacturer used following inputs for
manufacturing toys and sells the goods at Rs 120 lakh to trader:-
Manufacturer
Item Particulars Amount Rate of tax Input tax paid
no (Rs in lakhs) ( in percent) (Rs in lakhs)
1 Raw material 50 16 8
2 Stores and spares 25 16 4
3 Services 25 16 4
Total value of inputs 100 16

The output tax to be paid

Sale Value Rate of tax ( in percent) output tax to be paid
(Rs in lakhs)
Rs 120 lakh 16 19.2

Net Tax payable by manufacturer

Total output tax to be paid Rs 19.2 lakh

Total Input tax Paid Rs 16 lakh
Net Tax to be Paid Rs 3.2 lakh

Suppose trader use services amounting to Rs 5 lakh paying service tax at rate of 16 percent
amounting to Rs 0.8 lakh. Therefore total input tax paid by trader is:-
Trader
Item Particulars Amount Rate of tax Input tax paid
no (Rs in lakhs) ( in percent) (Rs in lakhs)
1 Goods purchased from 120 16 19.2
manufacturer
2 Services 5 16 0.8
Total value of inputs 125 20

If trader sell goods to consumer by adding Rs 5 lakh profit margin .The output tax payable by
trader is :-
Sale Value Rate of tax ( in percent) output tax to be paid
(Rs in lakhs)
Rs 130 lakh 16 20.8

Net Tax payable by Trader

Total output tax to be paid Rs 20.8 lakh
Total Input tax Paid Rs 20 lakh
Net Tax to be Paid Rs 0.8 lakh

Net Tax payable by consumer

Sale Value Rate of tax ( in percent) output tax to be paid

(Rs in lakhs)
Rs 130 lakh 16 20.8

From the above illustration it can be seen that the manufacturer and the trader gets credit of the
tax paid on good and services and had to pay tax on value added only. Further, the government
will get tax of Rs 20.8 lakh which is tax on final sale value of the product though from different
sources as detailed below:-

Description Output tax Input tax credit Net tax payable to

(Rs in lakh) (Rs in lakh) government
(Rs in lakh)
Raw material 8 0 8
supplier
Stores and spares 4 0 4
supplier
Service provider I 4 0 4
Manufacturer 19.2 16 3.2
Service Provider II 0.8 0 0.8
Trader 20.8 20 0.8
Total Tax payable to 20.8
Government

GST composition of manufacturer and dealer

 25

20

15
Output Tax Input Tax Credit Net Tax Payable
10

0
Manufacturer Trader

Composition of tax paid by the consumer

raw material stores& spares

service providerI manufacturer

service providerII trader

Systems of GST
5.3 Internationally, there are three systems in vogue:
(a) Invoice System
(b) Payment System
(c) Hybrid System
Brief description of three systems is:
Type of System Input Credit Output Tax
Invoice system On receipt of invoice On issue of invoice
Payment system On making payment On making payment
Hybrid At the option of dealer to be At the option of dealer to be
declared in advance declared in advance

(a) Invoice System: In the invoice system, the GST (Input) is claimed on the basis of invoice
and it is claimed when the invoice is received, it is immaterial whether payment is made or not.
Further the GST (Output) is accounted for when invoice is raised. Here also the time of receipt
of payment is immaterial. One may treat it as mercantile system of accounting. In India the
present system of sales tax on goods is an invoice system of VAT
and here it is immaterial whether the taxpayer is following the cash basis of accounting or
mercantile basis of accounting. The advantage of invoice system is that the input credit can be
claimed without making the payment. The disadvantage of the invoice system is that the GST
has to be paid without receiving the payment.
(b) Payment System: In the payment system of GST, the GST (Input) is claimed when the
payment for purchases is made and the GST (Output) is accounted for when the payment is
made. In this system, it is immaterial whether the assessee is maintaining the accounts on cash
basis or not. The advantage of cash invoice system is that the Tax (output) need not be
deposited until the payment for the goods and/or services is received. The disadvantage of the
payment system is that the GST (input) cannot be claimed without making the payment.
The Taxes on services in India are based on this payment system since service tax is payable
on receipt basis and further Cenvat credit is only allowable when payment of the service is
made. In some countries, this system is also adopted for small traders to keep them away from
the complexities of the Invoice system, which is purely a mercantile system.
(c) Hybrid System: In hybrid system the GST (Input) is claimed on the basis of invoice and
GST (Output) is accounted for on the basis of payment, if allowed by the law. In some countries
the dealers have to put their option for this system or for a reversal of this system
before adopting the same.
VI Salient features of the GST model proposed in India

Rate Structure

6.1 The GST shall have two components: one levied by the Centre (hereinafter referred to as
Central GST), and the other levied by the States (hereinafter referred to as State GST). Rates
for Central GST (CGST) and State GST ( SGST) would be prescribed appropriately, reflecting
revenue considerations and acceptability. This dual GST model would be implemented through
multiple statutes (one for CGST and SGST statute for every State). However, the basic features
of law such as chargeability, definition of taxable event and taxable person, measure of levy
including valuation provisions, basis of classification etc. would be uniform across these statutes
as far as practicable.

The proposed rate structure is as follows:

A lower rate for essential structure.

Standard rate for general goods.

Special rates for precious metals.

For services their shall be single rate for SGST and CGST.

These GST rates are yet not announced by the government.

Applicability

6.2 The Central GST and the State GST would be applicable to all transactions of goods and
services made for a consideration except the exempted goods and services, goods which are
outside the purview of GST and the transactions which are below the prescribed threshold
limits.

The Central GST and State GST are to be paid to the accounts of the Centre and the States
separately. It would have to be ensured that account-heads for all services and goods would
have indication whether it relates to Central GST or State GST (with identification of the State to
whom the tax is to be credited).
Input Credit

6.3 Since the Central GST and State GST are to be treated separately, taxes paid against the
Central GST shall be allowed to be taken as input tax credit (ITC) for the Central GST and could
be utilized only against the payment of Central GST. The same principle will be applicable for
the State GST. A taxpayer or exporter would have to maintain separate details in books of
account for utilization or refund of credit.

Cross utilization of Income Tax Credit between the Central GST and the State GST would not be
allowed except in the case of inter-State supply of goods and services under the IGST model
which is explained later.

Ideally, the problem related to credit accumulation on account of refund of GST should be
avoided by both the Centre and the States except in the cases such as exports, purchase of
capital goods, input tax at higher rate than output tax etc. where, again refund/adjustment
should be completed in a time bound manner.

Procedures

6.4 To the extent feasible, uniform procedure for collection of both Central GST and State GST
would be prescribed in the respective legislation for Central GST and State GST.

Administration

6.5 The administration of the Central GST to the Centre and for State GST to the States would
be given. This would imply that the Centre and the States would have concurrent jurisdiction for
the entire value chain and for all taxpayers on the basis of thresholds for goods and services
prescribed for the States and the Centre.

The taxpayer would need to submit periodical returns, in common format as far as possible, to
both the Central GST authority and to the concerned State GST authorities.

Each taxpayer would be allotted a PAN-linked taxpayer identification number with a total of
13/15 digits. This would bring the GST PAN-linked system in line with the prevailing PAN-based
system for Income tax, facilitating data exchange and taxpayer compliance.

Keeping in mind the need of tax payers convenience, functions such as assessment,
enforcement, scrutiny and audit would be undertaken by the authority which is collecting the tax,
with information sharing between the Centre and state
VII Taxes to be subsumed under GST

7.1 The following taxes levied at centre will get subsumed under GST:-
i. Central Excise Duty

ii. Additional Excise Duties

iii. The Excise Duty levied under the Medicinal and Toiletries Preparation Act

iv. Service Tax

v. Additional Customs Duty, commonly known as Countervailing Duty (CVD)

vi. Special Additional Duty of Customs - 4% (SAD)

vii. Surcharges, and

viii. Cesses.

7.2 The following State taxes and levies would be, to begin with, subsumed under GST:

i. VAT / Sales tax

ii. Entertainment tax (unless it is levied by the local bodies).

iii. Luxury tax

iv. Taxes on lottery, betting and gambling.

v. State Cesses and Surcharges in so far as they relate to supply of goods and
services.

vi. Entry tax not in lieu of Octroi.

Taxes to be kept out of purview of GST

7.3 However following taxes are proposed to be kept out of purview of GST due the reasons as
detailed:-
Purchase tax: Some of the States felt that they are getting substantial revenue from Purchase
Tax and, therefore, it should not be subsumed under GST while majority of the States were of
the view that no such exemptions should be given. The difficulties of the foodgrain producing
States was appreciated as substantial revenue is being earned by them from Purchase Tax and
it was, therefore, felt that in case Purchase Tax has to be subsumed then adequate and
continuing compensation has to be provided to such States. This issue is being discussed in
consultation with the Government of India.

Tax on items containing Alcohol: Alcoholic beverages would be kept out of the purview of
GST. Sales Tax/VAT could be continued to be levied on alcoholic beverages as per the existing
practice. In case it has been made Vatable by some States, there is no objection to that. Excise
Duty, which is presently levied by the States may not also be affected.

Tax on Tobacco products: Tobacco products would be subjected to GST with ITC. Centre may
be allowed to levy excise duty on tobacco products over and above GST with ITC.

Tax on Petroleum Products: As far as petroleum products are concerned, it was decided that
the basket of petroleum products, i.e. crude, motor spirit (including ATF) and HSD would be kept
outside GST as is the prevailing practice in India. Sales Tax could continue to be levied by the
States on these products with prevailing floor rate. Similarly, Centre could also continue its
levies. A final view whether Natural Gas should be kept outside the GST will be taken after
further deliberations.
.VIIIThreshold Limits- Services

8.1 In order to give relief to small dealers government has proposed to provide exemption
from SGST and CGST. Different threshold limits may be specified for taxes on services
and taxes on goods. The present threshold prescribed in different State VAT Acts below which
VAT is not applicable varies from State to State. A uniform State GST threshold across States is
desirable and, therefore, it is considered that a threshold of gross annual turnover of Rs.10 lakh
both for goods and services for all the States and Union Territories may be adopted with
adequate compensation for the States (particularly, the States in North-Eastern Region and
Special Category States) where lower threshold had prevailed in the VAT regime. Keeping in
view the interest of small traders and small scale industries and to avoid dual control, the States
also considered that the threshold for Central GST for goods may be kept at Rs.1.5 crore and
the threshold for Central GST for services may also be appropriately high. It may be mentioned
that even now there is a separate threshold of services (Rs. 10 lakh) and goods (Rs. 1.5 crore)
in the Service Tax and CENVAT.

The present threshold limit vis a vis proposed limit is:-

Turnover of Services Present System Proposed Syatem

Below Rs. 10 Lakh
Between Rs 10 lakh and Rs
150 lakh
Above Rs 150 lakh
Thresh hold limit for goods
No Service Tax Neither SGST nor CGST
Service tax payable Only SGST
Service tax payable Both SGAT and CGST
Differs from state to state No exemption

In case of Centre it is Rs Threshold limit of Rs 150 lakh

150 lakh
 IX INTEGRATED GOODS AND SERVICE TAX (IGST):

9.1 The scope of IGST model is that, Centre would levy IGST which would be CGST plus SGST
on all Inter-State transactions of taxable goods and services with appropriate provision for
consignment or stock transfer of goods and services. The inter-State seller will pay IGST on
value addition after adjusting available credit of IGST, CGST, and SGST on his purchases.
The Exporting State will transfer to the Centre the credit of SGST used in payment of IGST. The
Importing dealer will claim credit of IGST while discharging his output tax liability in his own
State. The Centre will transfer to the importing State the credit of IGST used in payment of
SGST. The relevant information is also submitted to the Central Agency which will act as a
clearing house mechanism, verify the claims and inform the respective governments to transfer
the funds.

The major advantages of IGST Model are:

(i) Maintenance of uninterrupted ITC chain on inter-state transactions.

(ii) No upfront payment of tax or substantial blockage of funds for the inter-state seller or buyer.
(iii) No refund claim in exporting State, as ITC is used up while paying the tax.
(iv) Self monitoring model.
(v) Level of computerization is limited to inter-state dealers and Central and State Governments
should be able to computerize their processes expeditiously.
(vi) As all inter-state dealers will be e-registered and correspondence with them will be done by e-
mail, the compliance level will improve substantially.
(vii) Model can take Business to Business as well as Business to Consumer transactions into
account.
 X GST on Export
Zero Rating of Exports

10.1 Exports would be zero-rated. Similar benefits may be given to Special Economic Zones
(SEZs). However, such benefits will only be allowed to the processing zones of the SEZs. No
benefit to the sales from an SEZ to Domestic Tariff Area (DTA) will be allowed.

GST on Imports:

10.2 The GST will be levied on imports with necessary Constitutional Amendments. Both CGST
and SGST will be levied on import of goods and services into the country. The incidence of tax
will follow the destination principle and the tax revenue in case of SGST will accrue to the State
where the imported goods and services are consumed. Full and complete set-off will be
available on the GST paid on import on goods and services.

Special Industrial Area Scheme

10.3 After the introduction of GST, the tax exemptions, remissions etc. related to industrial
incentives should be converted, if at all needed, into cash refund schemes after collection of tax,
so that the GST scheme on the basis of a continuous chain of set-offs is not disturbed.
Regarding Special Industrial Area Schemes, it is clarified that such exemptions, remissions etc.
would continue up to legitimate expiry time both for the Centre and the States. Any new
exemption, remission etc. or continuation of earlier exemption, remission etc. would not be
allowed. In such cases, the Central and the State Governments could provide reimbursement
after collecting GST.
XI Miscellaneous Matters

11.1 Refunds: If for a tax period the input credit of a dealer is more than the output credit then
he is eligible for refund subject to the provisions of law applicable in this respect. The excess
may be carried forward to next period or may be refunded immediately depending upon the
provision of law.

11.2 Exempted Goods and Services: Certain goods and services may be declared as
exempted goods and services and in that case the input credit cannot be claimed on the GST
paid for purchasing the raw material in this respect or GST paid on services used for providing
such goods and services.

11.3 Tax Exemptions

Various tax exemptions have been granted both by the Centre and States to achieve objectives of
promoting a particular sector or to reduce tax burden on a particular segment of society in the interest of
fairness or to promote a particular economic activity etc. Tax exemptions have the effect of narrowing the
tax base and increasing the administrative and compliance cost of GST. Therefore, it is felt that
exemptions should be minimized. Direct and transparent subsidies, instead of tax exemptions, are more
efficient way to achieve the targeted objective. It is recommended that apart from a dual rate GST
structure at the Central and the State levels, there should be a common exemption list. Further, specific
provisions to provide limited flexibility to the States within a set of prescribed criteria may need to be
incorporated, as in the prevailing VAT structure, in order to accommodate exemption of goods of local
importance. Similar limited flexibility would need to be provided to the Centre to address exceptional
situations such as natural disasters.

11.4 Advance Ruling

Advance ruling and dispute resolution authorities should be set up by the Centre and States to
ensure uniformity and fairness in decision-making.

11.5 Joint Authority and Legislation

The authority to amend the common exempted list and the common composition scheme
should rest with a joint authority of Central and State Governments to ensure that no single
State or Central Government amends either of these unilaterally.
11.6 IT Infrastructure
The success of the GST largely depends upon IT infrastructure available for collection,
compilation and exchange of data at the shortest possible time. IT infrastructure with national
coverage and extensive reach is critical for the successful implementation of GST. For this, an
initiative at the Central Government level needs to be taken in order to put in place a strong IT
infrastructure.
XII Roadblock to implementation of GST
12.1 Bringing about an integration of all taxes levied on goods and services in a federal polity
with sharp distribution of legislative powers is a Herculean task to say the least. The
Constitution of India, 1950 demarcates taxing powers in a two-tier structure wherein levies on
production and international imports are with the Union and post- production levies rest with the
states. The Centre levies duties of excise on manufactures and import/countervailing duties on
international imports apart from levying a tax on services under various taxing and the residuary
entry in the Union List. The states levy VAT on goods sold or entering in the state under various
entries of the state list. Even if all Union-level levies are integrated into a single levy and all state
level levies culminate in a single State level levy; this may still have two levies and the resultant
cascading and administrative burdens may nevertheless remain to an extent, though this may
go a long way in harmonising levies. A harmonised, integrated and full fledged GST calls for the
following:

(1) Constitutional Amendments: Implementation of GST calls for effecting

widespread amendments in the Constitution and the various constitutional entries
relating to taxation. As per provisions of Article 368 of the constitution , the bill for
amendment is to be passed by majority of the members of both houses and two third
of the members present and voting. Also, the amendment is to be approved by fifty
percent of the state legislative assemblies.In the current scenario it is difficult to
visualise constitutional amendments of such far reaching implications going through,
more so in view of the fact that sharing of legislative powers is such an essential
element of our federal polity and it may be perceived to be a basic feature of the
Constitution;

(2) Integration of Services: Services have to be appropriately integrated in the tax

network;

(3) Design and structure of GST: No less significant is the issue of an appropriate
design and structure of GST. For instance, how the issue of inter-state movement of
goods and services may be addressed. The phasing out of CST may go a long way in
addressing the issue of inter-state trade and commerce in goods but the crucial issue
regarding services originating in one state and being consumed in other state still
remains;
(4) Resources Sharing: Another contentious issue that is bound to crop up in this
regard is the manner of sharing of resources between the Centre and the states and
among the states inter se as also the basis of their devolution;

(5) Flow of Goods and Services: Apart from all these, there has to be a robust and
integrated MIS dedicated to the task of tracking flow of goods and services across the
country and rendering accurate accounting of levies associated with such flow of
goods and services; and

(6) Determination of Revenue Neutral Rate (RNR): At present States are charging VAT
rates 0%, 4%, 12.5% and 20% besides other levies and thus the average rate of tax
comes to 17%. Similarly, Centre is charging Central Excise duty @ 14%, CST 2%,
Service Tax 10%. The combined effect of all the taxes taken together comes to an
average rate of tax @ 27.5%. The proposed GST rate is mooted @ 20% both for the
Central GST @ 12% and the State GST @ 8%. Assuming that the States may agree
on the implementation of GST based on compensation being given to them like what
was decided at the time of introduction of VAT i.e. 1st April, 2005, the Centre may
suffer loss while satisfying the needs of about 30 states.
XIII Some questions to be answered

The following issues are yet to be answered even after the release of the Discussion paper
1. Does Exemption of 1.5 Crores in CGST for goods equally apply to dealers?
As GST will cover in its scope the levy of excise and VAT therefore the exemption limit of 1.5
Crores specified in the discussion paper will extend its hands to dealers also or the same will be
limited to the manufacturers. If the second view is opted then the definition of Manufacture will
be rolled back in the GST tax regime.
2. What is the Service tax threshold exemption limit under CGST?
The Empowered Committee has not specified the threshold exemption limit applicable to
services under CGST. However they have clarified that the same will be in conformity with the
existing threshold exemption of Rs. 10 Lakhs.
3. IGST (Inter-state transaction of GST) levy will be equal to CGST plus SGST, thus the same
will be single rates. Are separate records are to be maintained in this respect also?
It has been clarified that the IGST credit will be allowed to be set off against IGST, CGST or
SGST payable by the taxpayer. In the current scenario CST is levied on interstate sale of goods,
but the dealers aren't allowed to avail the credit of the same and they are emphasizing on the
scenario to buy the goods from within the state so as to avail the credit of VAT. However in this
new tax regime the IGST will be levied at the rate which will be equal to CGST plus SGST, this
leads to a new issue that IGST will be levied at a single compound rate or two different rates i.e.
CGST and SGST will be levied differently or not.
If the rear view is adopted then the question arises that the credit of the IGST will be allowed to
be set off against both CGST and SGST separately or cross adjustments will be allowed. If the
cross adjustment is allowed then the taxpayers availing exemption of 1.5 Crores under CGST
will be willing to purchase goods and sale them outside the state as in that situation they will be
getting the full credit of IGST thus benefiting them utmost. This scenario changes the complete
situation as it exists presently. This difficulty is yet to be sorted and clarified by the Government.
4 The dual GST model would be implemented through multiple statutes one for CGST and
SGST statute for every State.
Different statues will govern the SGST levy. This will lead to non uniformity in the tax structure at
state levels. Further, there may be complexities for smooth implementation of GST across the
nation.
5 Transitional Issues
The transition would cause ambiguity with respect to issues like treatment of "stock
in hand", available CENVAT (Central Value Added Tax), credit / VAT (Value Added Tax)
credit. However, these should be provided for much before the implementation of
GST.

6 Exemptions

There should be a common exemption list for CGST (Central Goods and Services Tax) and SGST (State

Goods and Services Tax) so that there is no discrepancy in the collection of taxes. Another important

issue are area-based exemptions.

A scheme for the treatment of such exemptions should be well devised so that there is no adverse affect

on the industry. Though Customs will remain outside the GST regime, a large number of bonds executed

by importers and exporters with Government will have to be suitably amended for changed liability in view

of new GST.

7 Job Work

Issues such as what documents and records need to be prepared by the job worker and the principal and

time limits for claiming CENVAT credit are to be decided. Since, the focus would be on 'supply' after the

implementation of GST, the status of job workers needs to be determined.

8 Assessable Value

The calculation of assessable value under GST is ambiguous since it still unknown what the components

of the assessable value are. Are discounts and other charges such as loading/unloading, freight, cartage

and packing includible in the assessable value or would they be chargeable separately?

9 Place of Supply

In the GST regime, the taxable event would be 'supply' and it is very essential to understand as to where

the 'supply' actually takes place. "Place of Supply" rules refers to the rules that allocate the right to tax

between the states. The main concern here is which state will collect the SGST.
10Branch / Stock Transfer

An efficient provision for branch transfer / stock transfer should be put in place under the GST regime.

The system should enable the businesses to make branch transfers without payment of tax and the

procedure should be simple to ensure maximum compliance and minimise disputes.

10 Return / Rejection / Replacement of Goods

There has been no clarification on the treatment of goods which are returned, rejected or replaced. A

major question here is whether the treatment would be similar to the present system of reversing the

credit or whether new provision would be introduced.

9. Common Procedures

The industry expects that there would be similar formats for registration, returns and other records for both

CGST and SGST. Functions such as assessment, enforcement, scrutiny and audit should be undertaken

by the authority which is collecting the tax with information sharing between the Centre and the States.

XIV SUGGESTIONS FOR EFFECTIVE IMPLEMENTATION

14.1 Some suggestions for better administrative machinery to handle the implementation of
Goods and Services Tax Act in India are:

Standardization of systems and procedures.

Tax relief in case of branch transfer
Well defined procedures in case of Job works
Uniform dispute settlement machinery.
Adequate training for both tax payers and tax enforcers.
Re-organization of administrative machinery for GST implementation.
Building information technology backbone the single most important initiative for GST
implementation.
 Uniform Implementation of GST should be ensured across all states (unlike the
staggered implementation of VAT) as many issues might arise in case of transactions
between states who comply with GST and states who are not complying with GST.
XV GST Implications for organisations
15.1 GST shall be the mother of all Indian tax reforms of this centaury and it would subsume
most (if not all) of the existing Central and State level taxes on supply of goods and services.
Accordingly, GST would have a significant impact on business environment and its operations.
When undertaking oversight of organizational readiness to adopt GST, independent directors
need to focus on the following aspects:
1 GST will have a multi-fold impact on operations Besides the fiscal impact and tax
compliance, GST will have an impact on cash flows, product pricing, supply chain
arrangements, procurement, revenue recognition and the IT systems. It is therefore important to
assess whether the organization is undertaking a holistic impact assessment of GST
encompassing all of the above.
2 Assess the impact on financial results GST will have an impact on the financial
statements; for example the top-line may get reduced in some cases (e.g. traded items) due to
elimination of tax cascading. The gross margins will also undergo changes as Cost of Goods
Sold may undergo changes as a result on input tax credits. For listed companies, these
changes will need to be factored in quarterly forecasts and earning releases to the stock
markets.
3 Monitor the impact on cash flows Most of the planning in GST will revolve around
optimizing cash flows. The impact will be as a result of GST on imports, stock transfers and
changes in point of taxation/ tax credits.
4 Organisations may need to re-design certain aspects of their Supply Chain The
concept of mere supply of goods and services trigger tax liability under GST as opposed to sale
under the present VAT, will impact Sourcing, Production and Distribution aspects of the Supply
Chain. For instance, sourcing considerations would involve revisiting sourcing mix (local, inter-
state and imports), stock transfer policy and renegotiation of vendor price due to the GST
impact. From a production perspective, GST impact would vary depending upon the
manufacturing and distribution arrangements e.g. own/ job-work/ contract manufacturing. The
Place of Supply rules will determine state where GST is to be deposited.
5 Understand the linkages, differences for companies implementing IFRS For companies
implementing IFRS, the requirements under IFRS vary with those under GST. Organizations will
need to consider necessary re-alignments within their IT systems to effectively manage these
differences. For instance, there could be possible differences between GST levy date and date
of revenue recognition, accounting for multiple element arrangements (e.g. the invoice value
includes a supply and maintenance element), accounting for barter transactions, reconciliation
of GST on stock transfers with accounting records etc.
6 Understand the implications on product pricing, marketing and HR The impact of GST
needs to be considered in the margins of various stakeholders in the distribution chain to ensure
that GST does not negatively impact product pricing and consequently market share. This calls
for a reassessment of exchange, discount and incentive schemes. From a HR perspective,
there may be a need to reconsider the indirect tax management structure, training requirements
of key indirect tax personnel depending upon the impact assessment.
7 Assess if the IT systems are geared to address GST requirements effectively with
minimal manual workarounds The Audit Committee should at the outset require
management to undertake necessary enhancements to IT systems so that the necessary
systemic alignments are in place to manage GST MIS requirements. Changes in the system are
likely to be required primarily on account of change in taxes/ tax rates, availability of credits for
input taxes on purchases including inter-state purchases and Import GST, availability of cross
credits for goods and services and GST on stock transfer.

15.2 To summarise, organizations need to undertake the following to enable a smooth

transition to GST:
Have an internal core team which will closely monitor the GST developments.
Identify existing bottlenecks and those likely to arise from proposed GST framework.
Representation to the implementing agencies through appropriate industry associations
to
highlight issues and propose solutions in the proposed GST framework.
Ensure flexibility in new systems/ processes/ contracts, to accommodate changes
warranted by GST
Identify need for restructuring business/ transactions/supply chain in the light of the GST
framework
Modify internal IT, invoicing and other systems/ processes/ policies to make them GST
compliant
Create awareness within organization about changes, modifications in roles/
responsibilities of team
Union Budget 2017-18 provides renewed impetus to manufacturing and Make in
India

Commerce and Industry Minister Smt. Nirmala Sitharaman has welcomed the Union Budget
2017-18 presented by Finance Minister Shri Arun Jaitley which provides renewed impetus to
manufacturing and Make in India, export infrastructure and Government e-marketplace.
Several measures have been announced in the Budget 2017-18 to provide impetus to
commerce and industry . The key initiatives include
1. A Special Scheme for creating employment in leather and footwear industries is
proposed to be implemented, on the lines of the scheme in textile and apparel sector.
2. The long standing demand of startups has been accepted and the profit (linked deduction)
exemption available to them for 3 years out of 5 years is changed to 3 years out of 7
years. For the purpose of carry forward of losses in respect of start-ups, the condition of
continuous holding of 51% of voting rights has been relaxed subject to the condition that
the holding of the original promoter/promoters continues.
3. Further liberalisation of FDI policy is under consideration and the Foreign Investment
Promotion Board (FIPB) to be abolished in 2017-18.
4. In order to make MSME companies more viable, income tax for companies with annual
turnover uptoRs. 50 crore is reduced to 25%. About 96% of companies will get this
benefit of lower taxation. This will make our MSME sector more competitive as
compared to large companies.
5. MAT credit is allowed to be carried forward up to a period of 15 years instead of 10 years
at present.
6. For creating an eco-system to make India a global hub for electronics manufacturing a
provision of Rs. 745 crores in 2017-18 in incentive schemes like M-SIPS and EDF. The
incentives and allocation has been exponentially increased following the increase in
number of investment proposals.
7. Inverted duty has been rectified in several products in the chemicals & petrochemicals,
textiles, metals, renewable energy sectors. Duty changes to improve domestic
manufacturing of medical devices, those used for digital transactions and capital goods
have also been announced.
8. Infrastructure a key pillar under the Make in India programme has been strengthened
with a large budgetary allocation. The total allocation for infrastructure development in
2017-18 stands at
Rs. 3,96,135 crores. A specific programme for development of multi-modal logistics
parks, together with multi modal transport facilities, to be drawn up and implemented.
9. Tourism is a big employment generator and has a multiplier impact on the economy.
Incredible India 2.0 is proposed to be launched to promote tourism and employment. Five
Special Tourism Zone, anchored on SPVs in partnership with the States would be set up.
10. Modernisation and upgradation of identified corridor, railway lines of 3,500 kms will be
commissioned, 25 stations are expected to be awarded for station redevelopment and 500
 stations will be made differently abled friendly by providing lifts and escalatorsduring
2017-18. These provide large opportunities under the Make in India initiative
11. Initiatives in Skill Development provide essential support for the Make in India sectors to
thrive. Launch of SANKALP scheme to provide market relevant training to 3.5 crore
youth and STRIVE scheme to improve the quality and market relevance of vocational
training.

12. A new and restructured Central scheme with a focus on export infrastructure, namely,
Trade Infrastructure for Export Scheme (TIES) will be launched in 2017-18.
13. The Government e-market place which is now functional for procurement of goods and
services, has been selected as one of the winners of the South Asia Procurement Innovation
Awards of the World Bank
 CONCLUSION

The Finance Minister Arun Jaitley has concluded his Union Budget 2017 speech in
Parliament after which the Lok Sabha has been adjourned. It is the third budget of Prime
Minister Narendra Modi Government.

Many announcements have been made by the Arun Jaitley in the Union Budget 2017 and below
are some of it...

1. The agriculture sector is likely to increase at 4.6percent, as the target of agriculture

expenditure set at Rs 10 lakh crore.

2. Funds to colleges will be given according to the rankings.

3. Safe drinking water to cover 28,000 arsenic and Fluoride-affected habitations in the next four
years.

4. Total allocation for rural, agricultural and allied sectors for 2017-18 is Rs 187223 crore, which
is 24% higher than last year.

5. In the Railway Budget, service charge on IRCTC e-tickets has been removed.

6. The target for the Fiscal Deficit for this year is 3.2%.

This time with the Union Budget, Railway Budget also got presented. In 93 years,for the first
time the budget got presented on February 1.
References

Online References:

1. indiabudget.nic.in

2. http://forbesindia.com/article/budget-2016/union-budget-2016-

highlights/

42499/1

Offline References:

1. Forbes magazine- Article on impact of Union Budget presented by

Arun

Jaitley