The Finance Minister has increased the exemption limit for individuals to Rs1.80 lakh. However, the biggest surprise was proposals for senior citizens. The DTC, scheduled to be effective from April 2012, would be worth waiting for taxation issues to be made clear for individuals and corporates
After the bonanza announced by railway minister Mamata Banerjee, individual taxpayers were expecting similar goodies from the finance minister.
However, Pranab Mukherjee did not offer too much relief to individual taxpayers except raising income tax (I-T) exemption limit to Rs1.80 lakh from Rs1.60 lakh. There is no change in the tax exemption limit for women.
Mr Mukherjee said, "Last year, I provided relief to individual taxpayers by broadening the tax slabs. To take us closer to direct tax code (DTC) rates, I propose to enhance the exemption limit for the general category of individual taxpayers from Rs1,60,000 to Rs1,80,000 this year. This measure will provide a uniform tax relief of Rs2,000 to every taxpayer of this category."
The DTC is expected to effective from 1 April 2012.
The finance minister (himself a senior citizen), however, surprised individual senior citizens. He lowered the age limit for senior citizens to 60 years from 65 years and also increased the I-T exemption limit to Rs2.50 lakh from Rs2.40 lakh. For every senior citizen aged 80 years and above, the income-tax exemption limit has been raised to Rs5 lakh.
Girish Batra, chairman and managing director, NetAmbit, said," Hike in exemption limit will mean more disposable income in hands of consumers likely to be channelise into savings instruments and hence more demand for personal finance products. Given high interest scenario, the short term deposits, debt focused mutual funds, FMPs are most likely to benefits. Also high yield is another reasons why individual would put the money into saving instruments than spending. Further reduction in senior citizen age would provide fillip for retirement products demand including insurance, health insurance, savings schemes and retirement homes. Higher exemption limit is icing on the cake. Implications are similar for new category of very senior citizens created with people of 80 years of age."
However, Jyothi Prasad, investment banking, Asit C Mehta Investment Interrmediates Ltd, said, "Nothing exciting happened in the individual income tax (norms) in terms of any significant changes in slabs and no change in rates. This is likely to be a sentiment spoiler for the average middle class salaried person. Therefore this (the Budget) was not as populist as was expected."
The finance minister, presenting his sixth Budget, said that the government proposed to introduce the Constitution Amendment Bill in the current session to pave the way for the introduction of the long-awaited Goods and Services Tax (GST) regime. GST would subsume most of the Central and State taxes like excise and sales tax, making rules easier for the industry and other taxpayers.
He said under 'Mission Mode' projects, the government released funds to 31 projects received from States or Union Territories (UTs) for computerisation of commercial taxes, which will allow States to align with the rollout of the GST regime.
A new scheme with an outlay of Rs300 crore would also be launched to provide assistance to States to modernise their stamp and registration administration and roll out e-stamping in all the districts in the next three years, the FM said.
While widening the service tax net, Mr Mukherjee also brought all services provided by hospitals with 25 or more beds that have centralised air-conditioning. The levy is also extended to diagnostic tests of all kind.
"Extending service tax on medical checkups and diagnostic services would make medical services costlier. With the already existing skyrocketing prices of medical services, this would be a big drain on the pockets of senior citizens who avail these services on a regular basis and have very few sources of income," said Hiren Dhakan, associate fund manager, Bonanza Portfolio Ltd.
Here are the new tax proposals from the Union Budget 2011-12...
The finance minister said, "My proposals on direct taxes are estimated to result in a revenue loss of Rs11,500 crore for the year. Proposals relating to indirect taxes are estimated to result in a net revenue gain of Rs11,300 crore, leaving a net loss of Rs200 crore in the Budget."
DIRECT TAXES: Net loss from direct tax proposals are estimated at Rs11,500 crore for the year.
1. Personal Taxes:
2. Corporate Taxes
INDIRECT TAXES: Excise and customs duty proposals to result in net gain of Rs7,300 crore.
SERVICE TAXES: Service tax proposals to result in net revenue gain of Rs4,000 crore.
The finance minister reduced the qualifying age for senior citizens to 60 years; the I-T exemption limit has been raised to Rs2.50 lakh and a new category of ‘very senior’ citizens has been introduced—but experts and commentators feel that much more could have been done
The provisions allocated for senior citizens in Budget 2011-2012 are being regarded as a dampener. Experts and senior citizen commentators view it as a cosmetic change, which wouldn't make much of a difference.
Finance minister Pranab Mukherjee announced the following measures for senior citizens: reduction of the qualifying age to 60 years from 65 years, enhancing exemption limit to Rs2.50 lakh from Rs2.40 lakh and creating a new category of 'very senior citizens', 80 years and above, who will be eligible for a higher exemption limit of Rs5 lakh.
"I would say that we are not only back to where we started from, we have landed behind from square one," said Kaka Samant, GIC Pensioners Association. "It is a good move to bring the senior citizens' age limit to 60 years, but with this (raging) inflation, a marginal increase of Rs10,000 in exemption limit for senior citizens does not serve any purpose," he added.
Moneylife Foundation, in a Position Paper for senior citizens, had suggested that the age limit for senior citizens should be brought down to 60. Also, it was suggested that the exemption amount should be increased for senior citizens. The minister, though did not increase the exemption limit overall, created a 'very senior citizens' category, which will have the benefit of exemptions up to Rs5 lakh.
The recommendations were sent to the ministry along with a forwarding letter by
Dr SA Dave, former chairman of the Securities and Exchange Board of India (SEBI). After the minister's speech today, Dr Dave said, "Of course, reducing the age limit is a good move. But a slight relief in term of exemptions is not much. More could have been done, and more has to be done."
Professor Kanu Doshi, renowned chartered accountant, finance commentator and member of the board of directors of several companies, said, "The tax deduction at source for senior citizens could have been raised from Rs10,000 to Rs25,000. The changes made have been nominal. What we must see is that the elderly get the benefits from these reforms because often, financial institutions and companies are very uncooperative."
Lack of provisions on healthcare has come as a disappointment, because that is the most important concern for the elderly, especially with growing healthcare costs, said Prof Doshi. The Sastry Committee report, which talks of universal access to healthcare, is still sitting on the shelf. Mr Samant said that it is high time the recommendations are implemented, which would prove to be beneficial for the elderly.
Mr Samant also added, "While it is good to make provisions for families living below the poverty line, the bar should be raised to people who are above the poverty line. If the earning member falls ill and goes unattended, the family goes down below the poverty line. The government should stop such disasters from happening and make provisions accordingly."
Finance minister has hiked duty on iron ore export to 20% in order to restrict export and conserve resources. The duty increase would hurt Sesa Goa, the largest private exporter of iron ore from the country
The finance minister today proposed to increase the export duty on all types of iron ore to a uniform 20%, a decision that will hurt iron ore exporters, particularly Sesa Goa.
Sesa Goa is the largest exporter of iron ore in the private sector and the company's stock price lost 7% (about Rs20) to Rs262.30 on the Bombay Stock Exchange today, while the benchmark Sensex closed up 0.69%.
Finance minister Pranab Mukherjee proposed to increase the export duty on "lumps" (one type of iron ore) from 15% to 20%, and the duty on "fines" from 5% to 20%, saying that iron ore is a natural resource that needs to be conserved. "Fines" constitute the bulk of exports from the country.
"The country's exporters of iron ore, those who mainly sell fines, will surely be affected by this increase in duty and Sesa Goa would be adversely hit as most of the company's business comes from the export of fines," Alok Kumar Nemani, analyst at Nomura Financial Advisory and Securities (India), told Moneylife.
Sesa Goa managing director PK Mukherjee declined to comment on the duty hike.
On the other hand, the finance minister has withdrawn the export duty on iron ore pellets, apparently to enhance exports after value-addition. Iron ore is the main ingredient for steel production.
Sajjan Jindal, vice chairman and managing director, JSW Steel, said, “The hike on export duty on iron ore fines and lumps to 20% advalorem is most welcome. I am sure that this will lead to greater value addition at home and encourage the domestic steel industry."
"This duty hike could also cause an increase in iron ore prices," Mr Nemani said.
India, the world's third largest iron ore producer, mined 218 million tonnes of iron ore in 2009-10 and exported nearly half of this. Sesa Goa is the country's largest producer and exporter of iron ore in the private sector. It exports almost 80% of its production, most of which is the "fines" quality of ore.
However, National Minerals Development Corporation (NMDC), another major iron ore producer, would not be affected much as the state-owned company exports only about 5%-10% of its production.
"With this increased export duty on fines, Sesa Goa's profitability would come down by 15%-18%," said an analyst from a Mumbai-based financial services company.
Steel minister Beni Prasad Verma was seeking a control on the export of iron ore, whereas major iron ore producing states like Orissa and Chhattisgarh were looking for a ban on exports.
The analyst said, "India has abundant reserves of iron ore, and export duty has been increased to preserve iron ore for the future."