Budget brings relief to taxpayers; stimulus rollback starts

The budget provides considerable relief to tax payers by raising tax slabs but the hike in central excise duty on non-petroleum products signals the start of stimulus rollback.

The 2010-11 Union Budget on Friday provided considerable relief to income taxpayers by raising the slabs at two levels but hiked the central excise duty on non-petroleum products across the board to 10% from 8% and the basic duty on crude and petroleum products, besides effecting a one-rupee increase per litre on petrol and diesel.

The entire opposition walked out of the Lok Sabha during the presentation of the budget by Finance Minister Pranab Mukherjee, dubbing it "highly inflationary", as he partially rolled back the stimulus by hiking the ad valorem duty on large cars and multi-utility vehicles by 2% to 22%, reports PTI.

The budget also raised the specific rates of duty on portland cement and cement clinker. The basic duty of 5% on crude petroleum, 7.5% on diesel and petrol and 10% on other refined products is being enhanced.

The central excise duty on petrol and diesel is being enhanced by Re1 per liter.
The proposals relating to customs and central excise are estimated to result in a net revenue gain of Rs43,500 crore for the year. The proposals for service tax, in which government plans to bring in some more services, will result in a net revenue gain of Rs3,000 crore for the year.

While direct tax proposals are expected to result in a loss of Rs26,000 crore for the year, those relating to indirect tax are estimated to result in a net revenue gain of Rs46,500 crore.

Taking into account the concessions and measures to mobilise additional resources, the overall revenue gain is estimated to be Rs20,500 crore for the year.
The basic threshold limit for income tax exemption will remain at Rs1.6 lakh. Under the new proposal, 10% tax will be levied between Rs1,60,001 and Rs5 lakh; 20% on income between Rs5,00,001 and Rs8 lakh and 30% above Rs8 lakh.

The present income tax slabs and rates are 10% for income between Rs1,60,001 and Rs3 lakh; 20% for income between Rs 3,00,001 and Rs5 lakh and 30% for income above Rs5 lakh.

Proportionately, similar changes have been made in the taxes related to women and senior citizens aged above 65 years.

Mr Mukherjee also gave another relief to individual tax payers by raising the existing limit of Rs1 lakh on tax savings by an additional amount of Rs20,000 for investments in long-term infrastructure bonds.

Contributions to Central Government Health Scheme (CGHS) have also been allowed as deductions within the overall ceiling for tax rebate besides contributions to health insurance schemes which are currently allowed as deductions under the Income Tax Act.

The budget also proposed a hike in defence expenditure from Rs1,41,703 crore to Rs1,47,344 crore, including Rs60,000 for capital expenditure.
In the Budget Estimates for 2010-11, gross tax receipts are estimated at Rs7,46,651 crore while the non-tax revenue receipts are estimated at Rs1,48,118 crore.

Total expenditure is placed at Rs11,08,749 crore, which is an increase of 8.6% over the total expenditure in Budget Estimates of 2009-10. The plan and non-plan expenditures in Budget Estimates in 2010-11 are estimated at Rs3,73,092 crore and Rs7,35,657 crore respectively.

The fiscal deficit for 2010-11 has been pegged at 5.5% and the rolling targets for 2011-12 and 2012-13 have been pegged at 4.8% and 4.1%, respectively.

The fiscal deficit of 5.5% of Gross Domestic Product in 2010-11 works out to Rs3,81,408 crore. Taking into account various other financing items for fiscal deficit, the actual net borrowing of the government in 2010-11 would be of the order of Rs3,45,010 crore.

In direct taxes, the Finance Minister proposed to reduce the current surcharge of 10% on domestic companies to 7.5% but at the same time raised the rate of Minimum Alternate Tax (MAT) from 15% to 18% of book profits.

In indirect taxes, Mr Mukherjee made structural changes in the excise duty on cigarettes, cigars and cigarillos, coupled with some increase in rates. He also proposed to enhance excise duty on all non-smoking tobacco such as scented tobacco, snuff and chewing tobacco.

In addition, he proposed to introduce a compounded levy scheme for chewing tobacco and branded unmanufactured tobacco based on the capacity of pouch-making machines.

Attempting to pay focussed attention to agriculture and related sectors, the Finance Minister proposed to provide project import status with a concessional import duty of 5% for setting up mechanised handling systems and pallet-racking systems in mandis and warehouses for foodgrain and sugar as well as full exemption from service tax for installation and commissioning of such equipment.
A similar status on customs duty with full exemption from service tax will also be extended to the initial setting up and expansion of cold storage, cold room and processing units for such produce.{break}

Extending his goodies in excise duties in certain sectors, the finance minister gave full exemption to toy balloons and reduction in basic customs duty on long pepper, asafoetida and excise duty on goods covered under Medicinal and Toilet Preparations Act.

The Service Tax net is being expanded to include domestic and international air journeys of all classes, health check-up undertaken by hospitals for employees of business entities and health services provided under health insurance schemes offered by insurance companies.

Mr Mukherjee said the budget aimed at focussing on inclusive growth and ensuring food security. These concerns for 'aam admi' have gone hand-in-hand for credible measures for improving investment climate, strengthening infrastructure and fiscal consolidation.

As the country looks to "quickly revert" to high GDP growth path despite uncertain times, concerns for inclusive growth targeting the disadvantaged sections form the defining features of the budget, he said.

Many new initiatives have been introduced for sustained and inclusive growth. These include the setting up of Mahila Kisan Sashaktikaran Pariyojana (Women Agriculturist Empowerment Scheme), Financial Stability and Development Council, Gold Regulatory Authority, National Mission for Delivery of Justice and Legal Reforms and National Energy Fund.

As part of improving investment environment, the minister said a number of steps have been taken to simplify the foreign direct investment scheme by making it user-friendly, by consolidating all regulations and guidelines into one comprehensive document.

Towards strengthening the banking system, the Budget provides for Rs16,500 crore as Tier-I capital to ensure that PSU banks are able to attain a minimum 8% Tier-I capital by March 2011.

In agriculture, a four-pronged strategy would be followed to spur growth in the sector. The budget provides for Rs400 crore for extending Green Revolution to eastern regions, including Bihar, Chhattisgarh, Jharkhand, eastern Uttar Pradesh, West Bengal and Orissa.

The budget provides Rs1,73,552 crore for infrastructure, accounting for 46% of the total plan allocation. The allocation for road transport is being raised by over 13% from Rs17,520 crore to Rs19,894 crore.

The plan allocation for power sector is being more than doubled from Rs2,230 crore in 2009-10 to Rs5,130 crore in 2010-11.

Under inclusive development, the budget allocates Rs1,37,674 crore, representing 37% of the total outlay to be spent on social sector programmes.

Plan allocation for school education is being increased from Rs26,800 crore to Rs31,036 crore to support the children's right to free and compulsory education. In addition, states will have an access to Rs3,675 crore for elementary education under the Finance Commission grant for 2010-11.

For rural development Rs66,100 crore have been provided while NREGA gets Rs40,100 crore and Bharat Nirman programme Rs48,000 crore.

Indira Awas Yojana gets Rs10,000 crore. The unit cost under this scheme is being raised to Rs45,000 in plain areas and Rs48,500 in hilly areas to cover the increase in cost of construction of houses.

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    This year's Budget is a definite break from the past

    With an unapologetic emphasis on privatisation and a consumption-led economy, this year’s Budget marks a paradigm shift in the present government’s approach, ostensibly putting India on the cusp of a major change.

    Winds of change are blowing over the Indian economy, if this year’s General Budget is anything to go by. The traditionally circumspect and left-of-Centre Congress government looks to have shed its recent mentality of restraint and caution in favour of a more pragmatic and aggressive approach towards putting India on the fast track to economic prosperity.

    In one single swoop, the government has introduced several positives that will ostensibly give its growth prospects a much needed shot in the arm. Take for instance the government’s surprise move to provide banking licences to several more private players and non-banking finance companies (NBFCs). For almost a decade, there have been no additions to the Indian banking industry. This announcement clearly manifests the government’s plans of liberalisation and privatisation. By opening up the banking sector to NBFCs, the government has put into motion the idea of having a competitive and thriving banking system.

    In another welcome move, the government has sounded the horn on opening up India’s retail sector. This subject has seen much debate in Parliament, with certain sections arguing that it would effectively kill the unorganised segment in India. But the fact is that foreign direct investment (FDI) in retail will bring with it several advantages to the sector. The government wants to push it to help in bringing down the considerable difference between farm gate, wholesale and retail prices.

    A surprise announcement was the radical shift in the direct tax policy. With a healthy revision in tax slabs, the Budget has given a significant boost to the disposable income of the aam salaried aadmi. The finance minister has effectively given a licence to the Indian consumer to go out and spend, if not splurge. The government possibly envisages an economy which is much more consumption- and investment-oriented than today. Indeed, the fatter wallets are likely to entice people into putting more money into various investment vehicles—even risky assets hitherto considered unworthy of any attention. This bodes well for the economy as a whole.

    “The benefit provided to individuals by enlarging the tax slabs has resulted in a tax payer with a taxable income of Rs5 lakh–8 lakh gaining as much as 35%–37%. 

    This coupled with additional investment opportunity of Rs20,000 in infrastructure bonds will provide further savings on tax to the tax-payer and a boost to savings in the economy,” says Dr Suresh Surana, founder, RSM Astute Group.

    On the divestment front too, the government looks set to unlock more value from State-run enterprises. With a reasonable divestment target of Rs25,000 crore for the next year, the Budget has made good the government’s commitment to put the disinvestment wheels into motion.

    To speed up the reforms process in the financial services sector, government announced its intention to set up a Financial Services Legislative Reforms Committee. It is indicative of the government’s sense of urgency in introducing effective reforms in the sector. “The proposal will bring more focus and speed up the reform process. This will certainly help the entire financial sector, including insurance, and lay down a strong foundation for growth,” says TR Ramachandran, CEO & MD, Aviva India.

    The government has also rightly put greater emphasis on the rural and agricultural sector in this Budget. With several positive initiatives in areas of agri-production and extension of credit support to farmers, the government has acknowledged the important role of the rural economy in carrying growth forward. Rural consumption will play a crucial role in supporting industrial growth.

    For the small and medium enterprises (SMEs), the Budget will evoke mixed reactions. “From an overall perspective, the Budget is good for Indian industry and also for SME sector. The SMEs which are paying corporate tax will get relief, as they will pay lower surcharge of 7.5% on their tax liabilities, but the burden of Minimum Alternate Tax (MAT) will go up to 18% from 15% from April 1, in case the companies are paying tax under MAT,” says Manish Bang, director, Expanza Access Ltd.

    With this Budget, the government has found the right balance between supportive growth and fiscal prudence. It has initiated several reforms at a crucial time, while keeping the fiscal deficit in check. That is a commendable effort. Chanda Kocchar, managing director and CEO of ICICI Bank, says, “The overall focus of the government on improving its fiscal position and increasing fiscal transparency is highly commendable. The finance minister has announced medium-term targets for the fiscal deficit, with the fiscal deficit targeted at 4.1% in FY2013. At the same time, he has articulated bringing items like oil and fertiliser subsidies, so far considered as off-balance sheet items, into direct fiscal computation. This movement towards better fiscal management and transparency will increase efficiency in the economy, improve India’s attractiveness as an investment destination and provide the government greater fiscal flexibility to deal with any future economic shocks.”

    Indeed, the Manmohan Singh-led government has come a full circle since its game-changing policy initiatives of the early nineties. Following in the prime minister’s footsteps, finance minister Pranab Mukherjee too seems to have finally arrived on the scene, after more than three decades with the party. The fact that this is only the second year of his new five-year term at the helm of Indian affairs is a heartening indicator of things to come.

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    1 decade ago

    It is good that more Banking Licences to more private players and NBFCs. But they should be manadated to have minimum branches in rural areas and also minimum business from rural areas. There is lack of coverage by Private banks in rural areas and all of theses socalled hitech banks go after HNI and corporates and do not have any exposure to rural credit. Only the Govt owned public banks have borne the burden. Why give licence to Private banks if they would not go to rural areas? If Pan India operations are Not possible the new licensee are not required.

    Tata Docomo: Netting buddies

    The phone company’s latest TVC is a good example of how slice-of-life commercials can deliver a good return for the marketing buck

    Tata Docomo has launched a sound marketing strategy. The concept is born out of the fact that people like to share thoughts, deeds, jokes, problems, even crimes, with buddies. That explains the huge success of Facebook and Twitter in our social lives. Which is why they have launched a mobile community product called ‘BuddyNet’.
    With BuddyNet, as per their claims, pals can share talktime, music and social networking sites over their Tata Docomo mobiles. Two commercials are on the air at the moment. In one, a young teen, in a ‘chummery’ dwelling, is seen searching for something. He’s lost his boxers, you see. A guitar-strumming pal wickedly points in the direction of the third room mate who has stolen the stinky chaddies. The pissed teen gives the robber a nice kick on the arse. Good situation. This often happens in hostels, dorms and shared apartments. The other commercial features a black-eyed dude complaining to his pals that he got beaten up by the college bully. The buddies rush out gallantly to seek revenge for their injured pal. And all the boys land-up with black eyes as well. Nice one, this too happens on the campus all the time. I have first-hand (eye) experience of it!
    Good example of how well-thought-out, relevant, slice-of-life commercials can deliver a good return for the marketing buck. Youngsters, the key market segment for cellphones, should be able to connect with these situations easily. Tata Docomo is a late entrant in the cluttered Indian mobile phones market, and will need to think seriously out of the box if it hopes to occupy the consumers’ volatile mind space.
    Because until now, the brand has been running what is probably the worst piece of Indian advertising seen in recent times. I speak of their very, very irritating ‘Friendship Express’ commercial. The one that features people from different nationalities aboard a train, complete strangers coming together to recite Tata Docomo’s jingle! Can you believe that? People coming together to sing their maha tired, maha trite, maha cacophonous music track!!! These folks need to get a life if this is their idea of bonding on a train.
    The worst thing, and I repeat, the worst thing a brand can do is to get self-conscious and desperate about hearing its own name being sung out a zillion times at the cost of the hapless viewers. This is advertising at its lowest form. Where a selfish brand gives a damn for the viewers’ entertainment.
    Anyways, good to see at least for their product innovations, the Docomo chaps are thinking a bit more clearly.

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