Budget 2009-10 lays major emphasis on infrastructure

  Jewellery makers gain as Budget exempts excise duty

 Tax benefits for New Pension System

The New Pension System (NPS) has become operational since 1st January, 2004 and is mandatory for all new recruits to the Central Government service from 1st January, 2004. Since then it has been opened up for employees of State Government, private sector and self employed (both organised and unorganized). NPS Trust has been set-up on 27th February, 2008 as per the provisions of the Indian Trust Act, 1882 to manage the assets and funds under the NPS in the interest of the beneficiaries.

With a view to ensure that tax treatment of savings under this system is in synchronised with the “exempt-exempt-taxed” (EET) method and that there is no incidence of taxation at the accumulation stage, it is proposed to make the NPS Trust a complete pass-through in so far as taxation is concerned. Therefore, it is proposed to,—

(i) to provide that any income received by any person on behalf of the New Pension System Trust established on 27th day of February, 2008 under the provisions of the Indian Trust Act of 1882 shall be exempt from income tax;

(ii) to provide that any dividend paid to the NPS Trust shall be exempt from Dividend Distribution Tax;

(iii) to provide that all purchases and sales of equity and derivatives by the NPS Trust will also be exempt from the Securities Transaction Tax; and

(iv) to provide that the NPS Trust shall receive all income without any tax deducted at source.

The tax benefit under section 80CCD of the Income-tax Act, 1961 was hitherto available to “employees” only. However, the NPS now has been extended also to “self-employed”. Therefore, it is proposed to amend sub-section (1) of section 80CCD so as to extend the tax benefit thereunder also to “self-employed” individuals.

It is also proposed to amend the Explanation to the said section to provide that for the purposes of the said section the assessee shall be deemed not to have received any amount in the previous year if such amount is used for purchasing an annuity plan in the same previous year.

These amendments will take effect retrospectively from 1st April, 2009 and will, accordingly, apply in relation to assessment year 2009-2010 and subsequent years.

  Farmers's debt relief scheme extended

 Tax reforms to be expedited, says Mukherjee

A new direct tax code will be introduced in 45 days and bring changes in the indirect tax structures, Finance Minister Pranab Mukherjee Monday said while presenting the union budget for 2009-10 in the Lok Sabha Monday.

Reiterating his commitment to expedite tax reforms, Mukherjee also said he would aim to introduce the goods and services tax by the initial deadline of April 10, 2010.

 Govt scraps Commodity Transaction Tax

The Government abolished the Commodity Transaction Tax (CTT) that was announced in the Budget last year, but was yet to be implemented and the commodity exchanges rejoiced the decision.

Finance Minister Pranab Mukherjee announced the scrapping of the CTT while presenting the Budget for 2009-10. He said the decision is in step with the recommendation of the Prime Minister's Economic Advisory Council.

The Government had proposed 0.017 per cent as the CTT (Rs 17 on the transaction value of every Rs one lakh trade on commodity exchanges).

The CTT was announced in line with the Security Transaction Tax (STT) in the 2008-09 Budget by then Finance Minister P Chidambaram but was not notified following stiff opposition from regulators and exchanges.

Reacting to the decision, commodity market regulator FMC Chairman B C Khatua said, "We are very happy for industry."

 Pranab allots Rs 120 cr for Unique ID; first set in 18 months

Countrymen will start getting the sophisticated unique identity cards from within the next 18 months with the government allocating Rs 120 crore for the purpose in the general budget on Monday.

Announcing this, Finance Minister Pranab Mukherjee said the first set of unique identity numbers will be rolled out in 12 to 18 months.

"A provision of Rs 120 crore has been proposed for this project," Mukherjee said during his budget in the Lok Sabha.

The Unique Identification Authority of India (UIDAI), set up recently by the government, will establish an online databse with identity and biometric details of Indian residents and provide enrolment and verification services across the country.

Mukherjee said the setting of the UIDAI was a "major step in improving the governance with regard to delivery of public services.”

 FM Pranab Mukherjee presents Union Budget 2009

Union finance minister Pranab Mukherjee began presenting the Union budget 2009-10 in the Lok Sabha today. Here are the highlights: 

• Steep 34% hike in defence budget announced
• Government raises income tax sops; incentives for farmers
• Government to introduce Food Security Bill soon
• Union budget 2009-10: Highlights
• Opposition all set to corner Congress govt in budget session
• Finance minister holds pre-budget talks with Congress
• Government plans to bring back the economy to the high GDP growth rate of nine per cent at the earliest, Mukherjee said.
• Growth rate in 2008-09 dipped to 6.7% from the average 9% growth in previous three fiscal years, he said.
• Mukherjee intends to make pre-budget consultations with state finance ministers an annual affair.
• Fiscal deficit grew from 2.7% to 6.8% of GDP.
• Total fiscal stimulus during 2008-09 amounts to Rs1,86,000 crore.
• Indian Infrastructure Financial Corporation Limited (IIFCL) to evolve financing mechanism for giving increased support to infrastructure projects.
• Allocations for highways being stepped up by 23%.
• Indian Infrastructure Finance Company Limited will re-finance commercial bank loans upto 60% in critical projects through public-private partnership to the tune of Rs1,00,000 crore, to raise investment in the sector.
• Allocation for urban poor for provision for housing and basic amenities to be raised to Rs3,973 crore in the current year.
• Allocation for Jawaharlal Nehru Urban Renewal Mission increased by 87% to Rs12,887 crore.
• Central assistance for storm-water drainage project increased to Rs500 crore from Rs200 crore in the interim budget.
• Target for agriculture credit raised to Rs3,25,000 crore in 2009-10 from Rs2,87,000 crore.
• Incentives in interest rates to farmers to pay back agriculture loans on time.
• Additional allocation of Rs1,000 crore for accelerated irrigation project.
• Export Credit Guarantee scheme extended till March 2010.
• Allocation for market development assistance scheme enhanced by 148%.
• Extension of interest subvension scheme extended to March 2010 to cover sectors like handicrafts and handlooms.
• Extension of stimulus package for print media by another six months beyond June 30 in view of the economic downturn.
• To return to FRBM target for fiscal discipline at the earliest, says Mukherjee.
• Subsidy regime for fertilisers to change to nutrient-based rather than price-based.
• Expert committee to be set up to advise on viable and sustainable pricing system for imported petroleum products.
• IT returns to be made simpler.
• Banks and insurance firms to remain in the public sector.
• Rs100 crore to be given as one-time grant in aid to expand banks in unbanking areas.
• Aam admi is the focus of all our programmes and schemes, says Mukherjee.
• Government committed to provide Rs100 a day as wages under NREGA.
• Work on National Food Security scheme for providing food at cheaper rates to the poor has begun, says FM.
• An allocation of Rs39,100 crore to be made for NREGA in 2009-10, an increase of 144%.
• NREGA coverage increased from 3.39 crore households in 2007-08 to 4.74 crore households in 2008-09.
• Allocation for flagship Bharat Nirman progamme being raised by 45%.
• For Indira Awas Yojana, allocation to be increased by 63%in 2009-10, to touch Rs8,800 crore.
• Rs2,000 crore for rural housing fund under National Housing Bank.
• Rashtriya Mahila Kosh corpus to be raised from Rs100 crore to Rs500 crore.
• National Mission for Female Literacy with emphasis on minorities, scheduled castes and scheduled tribes to be launched. Fifty per cent of all rural women to be brought into self-help group programmes.
• Full interest subsidy for students taking courses in approved institutions. Five lakh students to benefit.
• Modernisation of national exployment exchanges to be carried out.
• Action initiated to provide social security to unorganised sector workers.
• Allocation for National Rural Health Mission to be raised by Rs257 crore over and above the outlay in the interim budget.
• Under National Action Plan on climate change, eight national missions are being launched. For one of the missions, National Ganga Project, the government proposes to increase allocation to Rs562 crore.
• First Unique Identification Card to citizens to roll out in 12-18 months. I propose provision of Rs120 crore for the project, says Finance Minister.
• New pension benefits for 12 lakh jawans and junior commissioned officers from July.
• Allocation for Commonwealth Games increased to Rs3,472 crore from Rs2,112 crore.
• I propose to allocate Rs500 crore for rehabilitation of internally displaced Tamils in Sri Lanka, says Mukherjee.
• Rs1,000 crore for rebuilding infrastructure damaged by the recent Cyclone Aila in West Bengal.
• Total budget expenditure for 2009-10 will be Rs10,28,032 crore, crossing the Rs10 lakh crore mark for the first time since independence.
• Plan expenditure, for both the Centre and states, to go up by Rs61,000 crore over the interim budget.
• Fiscal deficit in 2009-10 is proposed at 6.8% of GDP.
• Defence gets Rs1,41,703 crore for 2009-10, a 34% hike from the 2008-09 budgetary allocation of Rs1,05,600 crore.
• To further improve the efficiency of tax system, I propose to set up two authorities for advance ruling, says Mukherjee.
• Effort is to improve tax collection by eliminating distortions in tax system and expanding the base.
• No change in corporate tax.
• Personal income tax exemption limit for senior citizens raised by Rs15,000.
• I propose to raise by Rs10,000 the exemption limit for women on income tax. For all others, Rs10,000 up from Rs1,50,000, says Mukherjee.
• Ten per cent surcharge on personal income tax removed.
• Fringe Benefit Tax abolished.
• Proposal to incentivise business. I propose to start investment-linked tax benefits in areas of agriculture and national grid, says Mukherjee.
• Minimum Alternate Tax on book profits increased to 15% from 10%.
• 100% tax deduction for donations to electoral funds to improve transparency in political funding.
• Income tax incentives on educational loans expanded to cover vocational studies after schooling.
• Small businesses up to Rs40 lakh turnover exempted from filing advance tax returns.
• Presumptive Taxation of 8% on businesses of turnover of up to Rs40 lakh.
• Customs duty of 5% being levied on import of set-top boxes used under Conditional Access System (CAS).
• Manufacturing growth, which was negative during last year till March this year, appears to be barely turning the corner, says Mukherjee.
• Customs duty on gold and silver import increased.
• Customs duty to be reduced on drugs for heart treatment.
• Proposal to restore optional 4% CENVAT on cotton textiles beyond fibre stage.
• Excise duty on fibre for cheaper cloth reduced.
• Excise duty on petrol-driven small trucks reduced to 10%
• Full exemption from excise duty on branded jewellery
• Service tax exempted for exporters on select services
• Service Tax to be extended to lawyers on technical advice

 DIRECT TAXES CODE TO SIMPLIFY TAX STRUCTURE IN 45 DAYS

The government on Monday promised to come out within 45 days with a framework for the Direct Taxes Code that will simplify tax structure. "I propose to pursue the structural changes in direct taxes by releasing a new Direct Taxes Code within the next 45 days," Finance Minister Pranab Mukherjee said while unveiling the budget for 2009-10. The Direct Taxes Code Bill, which will eventually replace the Income Tax Act, 1961 and other tax laws, will be introduced in the Lok Sabha during the winter session. Noting that tax reform is a process and not an event, the Minister said the government would release a discussion paper on Direct Taxes Code for public debate. "Based on the inputs received, the government will fianalise the Direct Taxes Code Bill," Mukherjee said. Meanwhile, on the structural changes in indirect taxes, the Minister promised to speed up the process for implementing Goods and Services Tax (GST) by April 1, 2010. The GST, a new indirect tax regime, would do away with most of the indirect taxes and would have a dual structure. The two components would be Central GST.

 No change in indirect tax rates,GST rollout by April 2010

Budget 2009-10 did not announce any big bang change in the country’s indirect tax regime, but yet succeeded in making the Centre’s intent very clear.

Finance minister Pranab Mukherjee on Monday continued with the existing rates for central excise duty, service tax and customs duty in the backdrop of the economic slowdown, while ‘reinforcing’ the Centre’ role in introducing GST from April 1, 2010

The three stimulus packages have reduced the median slab for excise duty to 8% and service tax to 10%. The peak customs duty rate is 10%.

The domestic economy is yet to revive from the global downturn. Growth in the index of six core infrastructure industries slipped to 2.8% in May 2009 as against 5% in April and 3.1% a year ago.

Revenue secretary PV Bhide however said, “A call on rolling them back will be taken when the economy revives. This can be done through notifications,”

But, signalling GST could be levied at about 16%, Mukherjee has reviewed the list of items that attract a 4% excise duty—‘the only rate below the mean rate.’

He also stressed that the deadline for GST would be met—despite the recent reservations of states—but did not lay out any roadmap for it, such as Constitutional amendments that would be required. Despite the continuation in the excise duty and service tax cuts, the Exchequer is expected to earn an additional Rs 2,000 crore from indirect taxes in 2009-10 at Rs 2,69,477 crore.

For this, the Budget has included transport services by railways and inland water services, legal consultancy and cosmetic and plastic surgery under service tax. Customs duty on gold and silver bars has also been hiked to Rs 200 for 10 grams and Rs 1,000 per kg each.

Providing relief to exporters, the Budget has exempted them from service tax on services received from goods transport agents and commission agents. “The Budget has taken steps keeping in mind the economic situation. The extension in duty cuts will help in reviving industry,” said R Muralidharan, executive director PricewaterhouseCoopers.

 TAX-GDP RATIO TO FALL BELOW 11% THIS FISCAL

The economic slowdown has severely dented the Centre’s tax collections, with indirect taxes bearing the brunt. Having fallen throughout the 1990s, the Centre’s tax-GDP ratio had registered a steady increase from 8.97 per cent to 12.56 per cent between 2000-01 and 2007-08. But following the onset of the slowdown, this trend has been reversed. For the current fiscal, the budgeted ratio is 10.95 per cent. The Finance Minister, Mr Pranab Mukherjee, has targeted gross tax revenues at Rs 6,41,079 crore, which is Rs 46,636 crore lower than what his predecessor, Mr P. Chidambaram, had budgeted for 2008-09. Most of this dip is on account of indirect taxes, with both excise as well as Customs collections during 2009-10 slated to fall below not just their Budget estimates (BE) but even the revised estimates (RE) for last fiscal. Only revenues from services are expected to hold steady. On the other hand, the picture appears less grim in direct taxes, though this is purely because of the extraordinary reliance on corporation taxes.

MORE FROM CORPORATES

In what may not be particularly good news for India Inc, the Centre targets to mop up an extra Rs 34,725 crore from corporates this fiscal (BE over RE for 2008-09), despite the continuing squeeze on profit margins. Against this, revenues from personal income-tax are scheduled to actually be lower than their RE as well as BE levels. The overall rising share of direct taxes in the Centre’s gross collections has been a uniform story of the post-reforms era. From less than a fifth in 1990-91, the proportion of direct taxes is budgeted to touch almost 58 per cent this fiscal. By taxing earnings of individuals and corporates rather than production and trade, direct taxes are said to lead to a less stifling of economic activity. Also, whereas taxes on goods are paid by the rich and poor alike, taxes on incomes and profits have a relatively egalitarian character. The post-reform period has also seen a widening of the tax base to include services, which, despite accounting for some 55 per cent of GDP, did not yield a single pie in tax revenues till 1994-95. In the current fiscal, service tax is expected to realise Rs 65,000 crore. 

 CUT IN I-T MAY HELP MUTUAL FUNDS

Though the Budget did not contain anything that directly pertains to mutual funds, the increase in disposable income in the hands of investors is likely to pave the way for increased investments in mutual funds in the long term, said fund managers. The thrust towards infrastructure is also likely to benefit certain theme-based funds, they said. Infrastructure and domestic consumption have been two major themes in this Budget and this would be a huge positive for infrastructure funds and selected equity diversified schemes, said Mr Krishnamurthy Vijayan, Executive Chairman, JPMorgan Asset Management India. Removal of surcharge on personal income-tax and the modest increase in zero tax slabs should help consumer-driven sectors such as FMCG, pharma, consumer durables; while banking and financials may come under pressure in the short term, said Mr Arindam Ghosh, CEO of Mirae Asset AMC. The cut in surcharge will increase the disposable incomes of people earning Rs 10 lakh and more, and this is likely to increase their investment allocations, said Mr Waqar Naqvi, CEO of Taurus Mutual Fund. This money could make its way to investment avenues such as mutual funds, banking and insurance products, said Mr Jaideep Bhattacharya, Chief Marketing Officer, UTI Mutual Fund. Also, with the increased spending on NREGA and infrastructure projects, the disposable income at rural households might rise and find its way into the financial and banking sectors, he said. The decision to have one banking centre in every administrative block will increase the penetration of financial products, including mutual funds, in rural areas, said Mr Bhattacharya. Some market-watchers said it was too early to predict the investment behaviour of people even though they might end up with larger disposable incomes. “Not much money is expected to flow into mutual funds or even equities directly; in fact, it will largely be either into bank deposits or into purchase of white goods such as TVs or washing machines,” said a fund manager. In tough times, people need cash in their hands to decide on the area they want to spend on and the Finance Minister has reduced tax surcharge and put money in their hands, said Mr Saurabh Nanavati, Chief Executive Officer, Religare Mutual Fund. The group, which is likely to benefit from increased infrastructure spending and increased disposable incomes through the hike in the income-tax slabs, is more likely to spend rather than invest, noted another fund manager. Another source of long-term investment, the New Pension System (NPS), is also in Government focus. The Government is trying to channelise long-term savings by promoting NPS by abolishing STT and dividend distribution tax on equity investments through this scheme, said Mr Sameer Narayan, Head of Equity, Fortis Mutual Fund. This might result in more people joining the NPS, said Mr Bhattacharya. 

 TAXES TWEAKED, NO IMPACT SEEN ON CONSUMERS

Notebooks, exercise books exempted from any additional tax burden. The government has maintained the effective rate of duty on paper, paper board and articles at 4 per cent while raising the duty for certain stationery products like folders, letter pads and file covers to 8 per cent. Notebooks and exercise books have also been exempted. The move will have no impact whatsoever on paper consumption. “The move has a neutral impact on us and there will be no change in the price of paper. However, this will help maintain the consumption demand,” said B Hariharan, director (finance), Bilt, the country’s largest paper producer. Demand for paper tracks gross domestic product (GDP) growth and the demand is currently growing at close to 7 per cent. A hike in duty on paper would have forced paper manufacturers to pass on the increase either partially or completely to consumers. “In case of a hike, we would have tried to pass on the change. But in current circumstances passing on the entire hike would have been difficult. Paper producers might have had to absorb a part of the hike,” said another paper industry official. Items like folders, paper labels, file covers, various business forms and other articles of stationery, paper or paperboard, on which the duty is being hiked from four to eight per cent, is produced only by small and marginal units. This will have an impact on such units.