Union Budget 2016-17 – Highlights

Feb. 29, 2016

Members of the Council

Sub : Union Budget 2016-17 – Highlights

Dear Member

With regard to the above, please find below the highlights.

a) The major announcement for the leather industry is the enhancement of abatement rate on footwear from 25% to 30%, as notified by Central Excise Notification No. 12/2016 (Non- Tariff) dated 1st March 2016 (copy enclosed).On account of this enhancement of abatement, the following will be the net duty rates.

Type of footwearExisting dutyChanges made in Union Budget 2016-17
Footwear of MRP not exceeding Rs.500/- per pairNilNo change
Footwear with MRP above Rs.500/- and upto Rs.1000/-6% Central Excise duty with 25% abatement6% Central Excise duty with 30% abatement
Footwear with uppers of leather with MRP above Rs.1000/- (under 6403 and 6405)6% Central Excise duty with 25% abatement6% Central Excise duty with 30% abatement
All other footwear12.5% Central Excise duty with 25% abatement12.5% Central Excise duty with 30% abatement

Typical examples of net duty reduction on account of enhancement of abatement are given below

(value in Rs.)   
DetailsPrior to budgetNowDuty Reduction
Price(leather and non-leather footwear)600600
Taxable Amount450420
Excise Duty (6%)2725.2
Net Tax Rate after abatement4.50%4.20%0.30%

DetailsPrior to budgetNowDuty Reduction
Price (non-leather footwear)12001200
Taxable Amount900840
Excise Duty (12.5%)112.5105
Net Tax Rate after abatement9.38%8.75%0.63%

b) Krishi Kalyan Cess, @ 0.5% on all taxable services, w.e.f. 1 June 2016. Proceeds would be exclusively used for financing initiatives for improvement of agriculture and welfare of farmers. Input tax credit of this cess will be available for payment of this cess. This means that the Service Tax Rate will go up from 14.5% to 15% w.e.f. 1st June 2016.

c) There are no changes in Peak Rate of Customs Duty (which will remain at 10%) and Peak Rate of Central Excise Duty (which will remain at 12.5%)

d) New manufacturing companies incorporated on or after 1.3.2016 to be given an option to be taxed at 25% + surcharge and cess provided they do not claim profit linked or investment linked deductions and do not avail of investment allowance and accelerated depreciation. Corporate tax rate of 29% plus surcharge and cess will be applied for the next financial year for relatively small enterprises i.e companies with turnover not exceeding Rs. 5 crore (in the financial year ending March 2015), to 100% deduction of profits for 3 out of 5 years for startups setup during April, 2016 to March, 2019. MAT will apply in such cases.

Thanks and regards

R. Ramesh Kumar
Executive Director