for those interested in knowing about the budget,
TN Ashok / Business Editor
NEW DELHI, March 16; " I must be cruel only to be kind", thus spake India's Finance Minister Pranab Mukherjee on his onerous task of acting as the medicine man to rein in the rather alarming fiscal deficit which was threatening to derail the economy at a time when the world was struggling with the 2nd coming of another recession.
The FM used the Hamletian quote to say that when things went wrong (with the economy) it was he who had to administer the medicine in terms of economic policy corrections which could be painful ( increased taxes) in the short term but good in the long run. When everything is well we share in the joy as various players including policy makers, politicians, , agriculturists and business houses participate in the making of the economy.
Pranab Mukherjee had little choice but to focus on the single purpose of reducing fiscal deficit, control inflation , provide stimulus to the infrastructure sector , provide sops to the individual tax payer and capital markets. All this he did in a controlled measure so as not to lose control of public expenditure.
While no clear timelines have been provided on the introduction of the Direct Taxes Code the Goods and Services Tax(GST), the FM has taken measures to align the budget along that direction with some of the proposals outline in both. For instance he has raised exemption limit for income tax from rs 1,80,000 to rs 2,00,000 though a parliamentary committee has recommended it be raised to rs 3,00,000. The reason it could not be adhered to was the late submission of the report( in march) and the ministry needs time to consider and implement the same. Neverthless this measure brings in a relief of rs 2,000 to the individual tax payer.
The ceiling on the 20% tax slab has been raised to rs 10 lakhs from rs eight lakhs which will provide a certain amount of relief to the tax payers in this category of income.
The new tax slabs :
Income upto Rs 2 lakhs Nil
Income above Rs 2 lakh and upto Rs 5 lakh 10%
Income above Rs 5 lakh and upto Rs 10 lakh 20%
Income above Rs 10 lakh 30 %.
On top of this the FM has allowed a deduction of upto rs 10,000 for interest from savings bank accounts for th individual tax payers. Those with salary incomes upto Rs 5 lakhs and interest from sb ac upto rs 10,000 benefit. They need not file income tax returns. Also, any expenditure of upto rs 5,000 on preventive health check up is deductible from the tax amount. Senior citizens don't have to pay advance tax.
No change has been contemplated in the corporate tax. However certain measures are being proposed to allow corporate to access lower cost funds and promote higher level of investments in several sectors.
The rate of withholding tax on interest payments on external commercial borrowing is being reduced from 20% to 5% for three years to provide relief to stressed out sectors in infrastructure sector such as power, airlines, roads and bridges, ports and shipyards, affordable housing, fertilizer and dams.
In another sop to the corporate sector, the FM has proposed to remove the cascading effect of Divident Distribution Tax (DDT) in a multi – tier corporate structure. Repatriation of dividends from foreign subsidiaries of Indian companies to India at llwer tax rae of 15% against existing 30% is being allowed for one more year, that is up to March 2013.
In a measure aimed at boosting the power sector, the FM has proposed to extend the sunset clause by one year for power sector undertakings so that they can set upon on or before March 31, 2013 for claiming 100% deduction of profits for 10 years. Also, additional depreciation of 20% in the initial year is being proposed to be extended to new assets acquired by power generation companies.
Focusing on the capital markets, Mukherjee proposed to reduce the Securities Transaction Tax (STT) by 20% that is from 0.125 % to 0.1 per cent on cash delivery transactions. AT the same time he proposed to extend the levy of Alternate Minimum Tax (AMT ) on all persons other than companies, claiming profit linked deductions. He also proposed to introduce a \General Anti Avoidance Rule (GAAR) to counter aggressive tax avoidance schemes, while ensuring that is it used only in appropriate cases .
To end generation and use of unaccounted money (Black Money), he proposed
1) Compulsory reporting requirement in case of assets held abroad
2) Allowing reopening of assessment up to 16 years in relation assets held abroad
3) Tax collection at source on purchase in cash or bullion or jewellery in excess of Rs 2 lakh
4) Tax deduction at source on transfer of immovable property (other than agricultural land) above a specified threshold
5) Tax collection at source on trading in coal. Lignite and iron ore
6) Increasing the onus of proof on closely held companies for funds received from shareholders as well as taxing share premium in excess of air market value
7) Taxation of unexplained money. Credits, investments, expenditures at the highest rae of 30% irrespective of the slab of income
The proposals on Direct Taxes would result in a net revenue loss of Rs 4500 crore in a year while indirect taxation measures would yield a revenue of rs 45,940 crore, leaving a net gain of Rs 41,440 crore.
Outlining the major indirect taxes proposals, the FM said he proposed to raise service tax from 10% to 12%. He also proposed to tax all services except those in the negative list. The list comprises 17 heads carefully drawn up in tune with international practices. List of exemptions include health care, services provided by charities , religious persons, sportspersons, performing artists in folk and classical arts, individual advocates providing services to non business entities, independent journalists and services by way of animal care or care parking.
Increase in service tax would yield additional revenue of Rs 18,660 crore in year. He sought to justify the hike in service tax saying it was not harsh when you consider that services account for 59% of GDP.
For the film industry in its centenary year, the FM proposed to ex4mpt the industry from service tax on copyrights relating to recording of cinematographic films.
The FM proposed to set up a busy team to examine the possibility of a common tax code for service tax and central excise which could be adopted to harmonize the two legislations as much as possible at the right time. On export of services some sort of relief is sought to be provided by a new scheme to simplify refunds without resorting to voluminous documentation or verification. Such refunds would also be admissible for taxes on taxable services that have been exempted.
Other measures include enhancing the duty on large cars from 22 % to 24% and in case or cars attracting a mixed rate of duty of 22% plus rs 15,000 per vehicle, it would now be a uniform duty of 27% ad valorem rate. No change is proposed in the peak rae of customs duty of 10% on agricultural goods. He has proposed relief to stimulate investment in the agriculture and relat4ed sectors, infrastructure, mining railways, roads civil aviation. Manufacturing.
On the question of civil aviation getting relief, Mukherjee proposed to fully exempt from basic customs duty parts of aircraft and testing equipment imported for the purpose. To support the airline industry, he proposed, to fully exempt both new and treaded aircraft tyres from basic customs duty and excise duty.
The minister made no commitment on enhancing foreign participation or equity holding in Indian private airline carriers, but said both were under active consideration. While retaining the ownership pattern in Indian private carriers as Indian, he showed some concessions in external commercial borrowings of upto one billion us dollars for the airlines industry which was severely distressed due to distressed tourist scenario and severe competition on fares worldwide.
For airline passengers, he announced a concession of raising the baggage allowance to rs 35,000 from the existing Rs 25,000 for persons of Indian origin. For children upto 10 years it was raised from rs 12,000 to rs 15,000.
The proposals relating to customs and central excise estimated to result in revenue gain of rs 27,280 crore in afull year.
In the ultimate analysis, while cororate india might complain no further reforms were announced in the budget and individuals might say their reliefs were not upto expectations, the finance minister has done a tight rope walk to ensure fiscal discipline is maintain to ensure deficit did not derail the economy and took into account sentiments flowing from the reverses in the elections in four major states which were not entirely supportive of further reforms.
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