Commodity Trade Mantra

India Budget – No Major Gold & Silver Import Curbs

India Budget – No Major Gold & Silver Import Curbs

India Budget – No Major Gold & Silver Import Curbs

India announced one of the most highly anticipated budgets in recent years, presented today by Finance Minister P. Chidambaram. India looks to rein in a bloated fiscal deficit and restore confidence in Asia’s third-largest economy. India raised the value of Gold that can be brought home from abroad by NRI’s (Non Resident Indians). A male passenger can now bring Gold worth 50,000 Rupees    without paying any duty while a women passenger can bring Gold worth up to 100,000 for free. NRI’s have long demanded that the Indian government should levy the customs duty based on the weight of Gold instead of the value of Gold as rate of Gold will keep changing. However India reduced the amount of gold as the maximum permissible weight of Gold that can be imported has been reduced to 1 kg from 10 kgs. India introduced a 4% excise duty on Silver manufactured from smelting zinc or lead. India budget for 2013-14 acknowledged the fact that rising gold imports remained a major contributor to country’s widening Current Account Deficit (CAD). Mr. Chidambaram said the country needs to find a whopping $75 billion to finance Current Account Deficit. He also added that the CAD remains a major worry for country’s development and added that current year’s economic growth rate will be below India’s potential growth rate of 8%. Finance minister P. Chidambaram however did not raise import duty on Gold in his budget presentation as was widely expected. Chidambaram however introduced a 0.01% Commodity Transactions Tax (CTT) for Commodity Futures in a limited way from next fiscal year. He exempted Agro commodities from the CTT. The Finance Minister also introduced a string of reforms, opening India to wider foreign investment and cutting deficit-ballooning spending and subsidies to avert a damaging credit rating downgrade and boost corporate spending.

The Commodities Transaction Tax – CTT:

The Finance Bill 2013 proposes to introduce Commodities Transaction Tax (CTT) in a limited way, which is expected to deliver Rs.5000 crores (Rs. 50,000 Million)  in government revenue. The Finance Minister P. Chidambaram said that CTT shall be levied on non-agricultural commodities future contracts at the same rate as on equity futures that is at 0.01% of the price of the trade. Gold, Silver, non-ferrous metals and Crude Oil will attract a 0.01% duty in Commodities Transaction Tax. The tax applies to buy side and sell side. The trading in commodity derivatives will not be considered as a ‘speculative transaction’ and CTT shall be allowed as deduction if the income from such transaction forms part of business income. Mr. Chidambaram also said that there is no distinction between derivative trading in the securities market and derivative trading in the commodities market, only the underlying asset is different. Hence, it is time to introduce CTT in a limited way. However, agricultural commodities will be exempt. Some market analysts are of the view that this may have an impact on trading volumes.

India Budget Highlights:

FISCAL DEFICIT

Fiscal deficit seen at 5.2% of GDP in 2012/13

Fiscal deficit seen at 4.8% of GDP in 2013/14; revenue deficit at 3.3%

Faced with huge fiscal deficit,Indiahad no choice but to rationalize expenditure

BORROWING

Gross market borrowing seen at 6.29 trillion Rupees   in 2013/14

Net market borrowing seen at 4.84 trillion Rupees   in 2013/14

Short-term borrowing seen at 198.44 billion Rupees   in 2013/14

To buy back 500 billion Rupees   worth of bonds in 2013/14

SPENDING

Total budget expenditure seen at 16.65 trillion Rupees   in 2013/14

Non-plan expenditure estimated at about 11.1 trillion Rupees   in 2013/14

India’s 2013/14 plan expenditure seen at 5.55 trillion Rupees

Revised estimate for total expenditure is 14.3 trillion Rupees   in 2012/13, which is 96 pct of budget estimate

SUBSIDIES

2013/14 major subsidies bill estimated at 2.48 trillion Rupees   from 1.82 trillion Rupees

Set aside 100 bln Rupees   towards spending on food subsidies in 2013/14

Petroleum subsidy seen at 650 billion Rupees   in 2013/14

Revised petroleum subsidy for 2012/13 at 968.8 billion Rupees

Estimated 900 billion Rupees   spending on food subsidies in 2013/14

Revised food subsidies at 850 billion Rupees   in 2012/13

Revised 2012/13 fertilizer subsidy at 659.7 billion Rupees

TAX

Proposes surcharge of 10 pct on rich taxpayers with annual income of more than 10 million Rupees   a year

To increase surcharge to 10 pct on domestic companies with annual income of more than 100 million Rupees

For foreign companies, who pay the higher rate of corporate tax, the surcharge will increase from 2 pct to 5 pct

To continue 15% tax concession on dividend received byIndiacompanies from foreign units for one more year

Propose to impose withholding tax of 20 pct on profit distribution to shareholders

Amnesty on service tax non-compliance from 2007

10 billion Rupees   for first installment of balance of GST (Goods and Services Tax) payment

Propose to reduce securities transaction tax on equity futures to 0.01 pct from 0.017 pct

Time to introduce commodities transaction tax (CTT)

CTT on non-agriculture futures contracts at 0.01%

GROWTH

India faces challenge of getting back to its potential growth rate of 8%

India must unhesitatingly embrace growth as highest goal

REVENUE

Expect 133 billion Rupees through direct tax proposals in 2013/14

Expect 47 billion Rupees through indirect tax proposals in 2013/14

Target 558.14 billion Rupees from stake sales in state-run firms in 2013/14

One-time Amnesty Scheme for service tax due from 2007

To set aside Rupees 9,000 crore as compensation to states for CST

To impose service tax on all AC restaurants

Nirbhaya Fund for women safety

TDS of 1% on land / property deals over Rupees 5 million

Import duty on luxury cars to 100% from 75%

Import duty on imported motor vehicles hiked

Import duty on set-top boxes to 10% from 5%

To reduce STT on equity futures, MF units

To continue with education cess of 3%

INFLATION

Food inflation is worrying, will take all steps to augment supply side

CORPORATE SECTOR AND MARKETS

Plans to issue inflation-indexed bonds

Proposes capital allowance of 15% to companies on investments of more than 1 bln Rupees

Foreign institutional investors (FIIs) can use investments in corporate, government bonds as collateral to meet margin requirements

Insurance, provident funds can trade directly in debt segments of stock exchanges

FIIs can hedge Forex exposure through exchange-traded derivatives

Investor with less than 10% stake in a company will be regarded as FII, more than 10% stake as FDI (foreign direct investment)

Stock exchange regulator will simplify know-your-customer norms for foreign portfolio investors

To implement quickly recommendations of financial sector legislative reforms commission

SMEs allowed to listed on MSME exchange without making a public offer

POWER AND ENERGY SECTOR

Proposes zero customs duty for electrical plants and machinery

Proposes to move to revenue-sharing from profit-sharing policy in oil and gas sector

To equalize duties on steam and bituminous coal to 2% customs duty and 2% CVD (countervailing duty)

FOREIGN TRADE

To cut duty on exports of precious and semi-precious stones to 2% from 10%

BANKING

To provide 140 billion Rupees capital infusion in state-run banks in 2013/14

Rs 2000 crore for Urban Housing fund

Regulatory authority for the road sector

Dedicated debt section in Stock exchanges

KYC of banks sufficient to acquire insurance policies

Insurance firms to open branches in tier iii cities with out IRDA approval

Rs 2000 crore for urban housing fund

Social security package for unorganized sector

14,000 crore for capital infusion for public sector banks

Social security package for unorganized sector

Banks to be permitted to act as insurance brokers

By Oct 2013 to get approval to constitute panel on transaction costs, financial policies

India’s first Women’s Bank as public sector bank; Rs 1000 crore as initial capital

Rs 14,000 crore to public sector banks for additional capital infusion to meet BASEL III requirements by March 2014

Public sector banks: 12517 crore – additional capital for banks by March 2013

DEFENCE

To allocate 2.03 trillion Rupees to defense in 2013/14

AGRICULTURE

To allocate 801.94 billion Rupees to rural development in 2013/14

Plan to allocate 270.49 billion Rupees for agriculture in 2013/14

FINANCE MINISTER COMMENTS

“Faced with a huge fiscal deficit, I have no choice but to rationalize expenditure. We took a dose of bitter medicine. It seems to be working.”

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