GOVT RAISES I-T SOPS; ABOLISHES FBT, CTT

The government announced a slew of tax sops, including an additional Rs 10,000 personal income tax exemption and scrapping of 10 per cent surcharge, while announcing cheaper loans to farmers and incentives for export and infrastructure to attain nine per cent growth. In tune with the poll promises made by the Congress and reflecting the pressures of the global financial crisis, Finance Minister Pranab Mukherjee presented the Budget for 2009-10 that contained a series of measures that could be termed popular. Beginning with incentives for individual tax payers that included an additional exemption of Rs 15,000 for senior citizens and Rs 10,000 for women and others, Mukherjee also abolished Fringe Benefit Tax that could ease pressure on employers in giving benefits to the workers, but there was no change in corporate tax as also the rates for customs, excise and service tax. The stock market, however, tanked, with BSE benchmark plunging by over 700 points. The government pleased its constituency 'aam admi' (common man) by keeping its poll promise with a proposal to enact a Food Security Act for providing 25 kg of rice or wheat a month to the poor at Rs 3 kg. Attaching the highest priority for infrastructure, where government institutions and banks could finance Rs 1 lakh crore for projects in addition with private flow, Mukherjee said that the present conditions and uncertainty about global recovery would make it difficult for him to focus on fiscal deficit which would shoot to 6.8 per cent from 2.7 per cent last year. He said additional revenue would be mobilised through disinvestment of government equity in public sector undertakings and other steps, but said that interest payment alone would be over Rs three lakh crore largely on account of the burden of stimulus packages announced last year that helped the economy grow by 6.7 per cent. However, he said that government would have the ownership of banks and insurance companies even as disinvestment takes off while reiterating that state holding in these entities would be at least 51 per cent. Mukherjee also announced a number of sector specific incentives, particularly for those that promote employment, and announced a hike in provision for flagship schemes like NREGA by 144 per cent to Rs 39,100 crore and said that government would also provide a minimum of Rs 100 a day under the job guarantee scheme. India Inc largely welcomed the initiative for attaining nine per cent economic growth, but said that areas like Securities Transaction Tax and Minimum Alternate Tax, which Mukherjee proposed to hike from 10 per cent to 15 per cent, should have caught the government's favourable attention. He proposed an overall expenditure of Rs 10,28,838 crore - this is the first time since independence that expenses have crossed Rs 10 lakh crore mark - but nearly seventy per cent of this would be accounted by non-plan expenses, large part of which was on account of additional expenses for implementation of Sixth Pay Commission, food and fertiliser subsidy, interest payment and defence outgo.

 FBT IS OFF, IT'S BACK TO PERQUISITES TAX

Employees will have to pay tax on Esops, superannuation and ‘other amenities’. First, the good news. The finance minister has removed the fringe benefit tax (FBT) on the value of certain benefits like employee stock options (Esops), sweat equity and superannuation funds given to employees. Now, the bad news. The tax burden will be borne by the employees. It’s not only these three categories, the Finance Bill also says there could be “other fringe benefits or amenities that could be treated as perquisites”. This means the tax burden shifts from your employer to you. For example, companies are now paying the fringe benefit tax for an employee’s paid trip abroad. From April 1, 2010, this could change. Though the Finance Bill has not yet listed the “amenities” that will be treated as perquisities, the employee may have to pay tax on the deemed benefit. Tax experts said the inclusion of “other amenities” to be inserted in Section 17 of the Income Tax Act was more worrying. “Though the Budget does not clarify the list of other perquisites that will be taxed, the language indicates the finance minister has left the window open for taxing them,” said Srinivasa Rao, National Tax Director, Ernst & Young. Esops are given by the employer or former employer free of cost or at a concessional rate to the assessee, depending on the ‘fair market value’. For the calculation of tax, Esops will be taxed in the hands of the employee in two ways. First, at the time of exercising the option, where the perquisite (to be taxed) is the difference between the market value and the grant price. The second is when the shares are sold, the difference between sale consideration and the cost would be treated as capital gains and taxed. Also, the Budget has said any contribution by the employer in excess of Rs 1 lakh to an approved superannuation fund will be considered a perquisite and taxed accordingly. And the Central Board of Direct Taxes may also include other benefits or amenities as perquisites and tax these. “The FBT regime was not in harmony with major international tax systems and especially created tax credit issues in cross-border Esops. It resulted in unnecessary distortions in tax law, causing much inconvenience to both companies and employees. The elimination of FBT is definitely a welcome move,” said Nish*th M Desai, founder, Nish*th Desai Associates.

 DUTIES ON LIFE-SAVING DRUGS REDUCED

The government reduced basic customs duty on influenza vaccine and nine other specified life-saving drugs used for treating breast cancer, Hepatitis-B, rheumatic arthritis, etc. The government has also reduced basic customs duty for two bulk drugs used in manufacturing these medicines from 10 per cent to 5 per cent. Bulk drugs are processed raw materials used in manufacturing the final doses of medicines. "They (influenza vaccines, nine medicines and two bulk drugs) will also be totally exempt from excise duty and countervailing duty," Finance Minister Pranab Mukherjee said while presenting the Budget in the Lok Sabha on Monday. Besides this, customs duty will also be reduced from 7.5 per cent to five per cent on two specified life-saving devices used in treating heart ailments, Mukherjee said. These devices will also be fully exempt from excise duty and countervailing duty, he added. 

 NO ENTRY FEE ON MFS FROM AUG 1: SEBI

Indian mutual funds can not levy any entry charge for investments from August 1, the Securities and Exchange Board of India said in a note late on Tuesday. Funds could, however, levy an exit fee of up to 1 per cent of the redemption amount to pay commissions to distributors and for marketing and selling expenses, it added. The regulator said investors would pay any upfront charge to distributors directly based on his service. It also directed distributors to disclose commissions payable to them by fund houses. 

 DESPITE ODDS, GST ON TRACK

Excise rates on several items raised to 8 per cent for uniformity Announcing that the much-anticipated Goods and Service Tax, or GST, will be introduced on schedule from April 1 next year, Finance Minister Pranab Mukherjee today proposed to increase the rate of central excise on several products from 4 per cent to 8 per cent, so that the indirect duty rate became broadly uniform. Most items are now charged excise at 8 per cent, while the lowest rate for the indirect tax is 4 per cent. GST, a consumption-based tax, is proposed to be passed on at every stage of production. For example, a producer who pays tax on inputs can set it off against tax paid on the final product. So the tax paid is only on the value addition. The view in several quarters was that it would be difficult to introduce it on schedule because so much remained to be done, including an amendment to the Constitution. Pharmaceutical products, food items, water pumps and paper products stay with 4 per cent. Mukherjee said the indirect tax will have a central and a state rate, with legislation at both the levels. “The announcement indicates that, apart from the two rates, some items may be charged at a lower rate,” said Rajeev Dimri, partner and leader, indirect tax practice, BMR Advisors. In a recent speech, Vijay Kelkar, chairman of the 13th Finance Commission, had said that, once GST was in force, states should be compensated for their revenue losses while bringing construction, real estate and railways under the new tax. In spite of the increase in the excise rates, indirect tax collection is expected to dip 1.7 per cent and to Rs 1,06,477 crore in 2009-10, as the global financial crisis slows production at factories. Mukherjee also sought to address the distortions in several areas of excise collections. This includes reducing excise rate on petrol trucks and the additional component of excise duty on cars with engines bigger than 2,000 cc. 

 Union Budget 2009: Commonwealth budget enhanced to Rs 3,472 crore

Finance Minister Pranab Mukherjee today proposed to increase the allocation for the 2010 Commonwealth Games to Rs 3,472 crore from the Rs 2,112 crore proposed in the Interim Budget.



Presenting the budget for 2009-10 in the Lok Sabha, Mr Mukherjee said the Commonwealth Games presented the country an opportunity to showcase its potential as an emerging Asian Power. 

 Union Budget 2009: Massive hike in expenditure to put economy on growth path

Following are the Highlights of General budget 2009-10 presented by Finance Minister Pranab Mukherjee in Parliament today.



* Total expenditure increased by 36 per cent, plan expenditure to go up 34 per cent to Rs 3,25,149 crore.



* Non-Plan expenditure to go up by 37 per cent



* Target for Agriculture credit flow set at Rs 3,25,000 crore.



* Allocation under Rashtriya Krishi Vikas Yojana increased by 30 per cent and under accelerated irrigation benefit programme increased by 75 per cent.



* Allocation under NREGS hiked by 144 per cent to rs 39,100 crore



* Allocation under Bharat Nirman increased by 45 per cent Pradhan Mantri Gram Sadak Yojana, Rajiv Gandhi Grameen Vidyutikaran Yojana and Indira Awaas Yojana get substantial hike



* New Scheme of Pradhan Mantri Adarsh Gram Yojana to be launched on Pilot basis.



* All BPL families tobe convered under rashtriya swasthya Bima Yojana.



* Unique Identification authority of india gets Rs 120 crore.



* One Rank one-pensiion committee report accepted, Pre-1997 and pre-2006 below officer rank defence pensioners to benefit.



* Outlay for commonwealth games increased to RS 3472 crore.



* No change in corporate tax rates.



* Income Tax exemption Limit increased by Rs 10,000 from Rs 1.5 lakh to Rs 1.6 lakh from Rs 1.8 lakh to Rs 1.9 lakh for women Tax payers and RS 2.25 lakh to Rs 2.41 lakh for senior citizens.



* 10 Per cent surcharge on income Tax ges.



* Fringe benefit tax to be abolished.



* Minimum alternate tax increased from 10 to 15 per cent.



* Commodity transaction tax to be abolished.



* Television set-to box attract 5 per cent customs duty.



* Customs duty on Bio-Diesel reduced from 7.5 to2.5 per cent to LCD panels from 10 per cent to 5 per cent and on 10 specified life saving drugs/Vaccine from 10 per cent to5 per cent.



* Customs duty on gold increased from Rs 250 per 10 grams to Rs 500



* Excise rate hike from 4 to 8 per cent for a number of products barring specified food items, Drugs and pharmaceuticals, medical Equipment, Paper and Paper Boards, Pressure cookers and cheap footwear.



* Excise duty on Naptha, slashed to 14 per cent while high spped diesel blended with 20 per cent Bio-Diesel fully exempted from Excise duty.



* Excise duty on man-made fibre, polyster chips, Pta and DMT to be increased from 4 per cent to 8 per cent.



* Service tax to be imposed on cosmetic and plastic surgery, Transport of goods by rail and coastal and inland Waterway Gargo



* Redeye deficit projected at 4.8 per cent of GDP.



* Fiscal deficit pegged at 6.8 per cent.

 Union Budget 2009: FM reduces duty on Lcd TV panels

Finance Minister Pranab Mukherjee today announced a reduction in the basic customs duty on LCD panels to five per cent from 10 per cent to boost indigenous television production particularly in the small and medium sector, Presenting the Budget proposals for 2009-10 in the Lok Sabha, Mr Mukherjee also extended by one more year the full exemption from the countervailing duty of four per cent was available for accessories, parts and components imported for manufacture of mobile phones which was valid till June 30, 2009. 



Presently exporters of leather products, textile garments, footwear as well as sports goods were permitted to import raw materials, consumables upto three per cent of the free on board value of their exports free of duty. The Minister now added a few more items to these lists by providing for full exemption from basic customs duty for rough corals for encouraging value addition and export. 



To combat the phenomena of global warming and climate change, the basic customs duty on permanent magnets -- a critical component of wind operated electricity generators has been reduced to five per cent from 7.5 per cent. 

 Union Budget 2009 disappoints health, legal sectors

The General Budget for the Financial Year 2009-10 presented by Finance Minister Pranab Mukherjee today has caused disappointment in the Health and legal sectors.



Reacting to the Budget proposals, presented in the Lok Sabha by the Finance Minister, renowned heart surgeon K K Aggarwal said it had nothing in it for the health sector.



‘The budget has increased allocation for Defence by 34 per cent to Rs 1,41,703 crore, while the allocation for health is quite meager. For example, the budget increases allocation under the Rural Health Mission by just Rs 257 crore,’ Dr Aggarwal said.



He said though the Finance Minister said health sector has been exempted from service tax, a service tax has been imposed on transport which means that ambulances come under its purview.



‘This year, they have imposed a tax on ambulances. Next year, it could be the health professionals,’ Dr Aggarwal said.



Also disappointing was the fact that no new health insurance scheme had been announced in the budget, he noted. 



‘We were expecting the Government to announce new hospitals and dispensaries besides funding for buying new and technologically advanced medical equipment. But, nothing has been announced on this in the Budget. Further, there is no mention of any support for Ayurveda and Yoga,’ the Heart specialist said.



The budget also comes as a letdown for the lawyers fraternity.



Though, individual lawyers have been kept out of the purview of service tax, legal firms will have to shell out service tax.



Senior lawyer G D Rattan said, ‘The lawyers in the Capital have already been bearing the brunt of the reduction in their clientele due to opening of the new courts in Dwarka. The imposing of service tax adds to their misery. Though individual lawyers have been kept out of the purview of the tax, it is feared that in years to come, they might have to fork out a big chunk of their income in form of service tax.’ Another senior High Court lawyer Mirdanshu said, ‘In these times of recession when many clients have become tight fisted, the service tax on legal professionals comes as an additional burden on the lawyers.’

 IT INDUSTRY SEES VALID CASE FOR TAX HOLIDAYS

 CORPORATE TAXES: WHO PAID THE MOST AND THE LEAST

 TAXMAN’s ARM MAY REACH HK, CAYMAN ISLES

 TAXING LLPs AT ENTITY LEVEL A DAMPENER FOR PE, VC COMPANIES

 GOVT KITTY TO ADD RS 1,200 CR FROM NEW SERVICES TO BE TAXED

The government on Tuesday said the new services brought under the service tax net would contribute about Rs 1,200 crore to the exchequer this fiscal. "We are expecting about Rs 1,200 crore on account of new services introduced," Central Board of Excise and Customs Chairman P C Jha told reporters here. Finance Minister Pranab Mukherjee included some more services within the service tax ambit in the Budget 2009-10. He extended service tax to be levied on advice, consultancy or technical assistance provided in the field of law and transport of goods through railways coastal cargo or inland waterways. Mukherjee in his Budget speech had said that his indirect tax proposals would yield a net gain of Rs 2,000 crore for the full year.

 ADVANCE TAX LIMIT HIKED

This financial year onwards, you won’t have to pay advance tax if your tax liability is less than Rs 10,000 annually. The finance minister has rationalised the advance tax limit in the Union Budget. According to the Budget memorandum, the threshold for this tax has been doubled from Rs 5,000 to Rs 10,000. The limit has been hiked “with a view to providing for inflation adjustment”, says the memorandum. The Rs 5,000 limit has been in existence for the past 13 years. It was fixed in the 1996 Budget. “This gives a further leeway to individual taxpayer to pay the entire income tax at the end of every year,” said Vikas Vasal, executive director, KPMG. Advance tax applies to individuals whose incomes are not subject to tax deduction at source (TDS). This directly impacts the self-employed in the lower tax slab. This tax is also payable on income on account of interest, tuition fee, rent, trading of securities and consultancy work. Advance tax is paid every quarter. If not paid on time, it attracts a penalty at an annualised rate of 13 per cent. Let’s look at what is the difference the hike, included under the existing provisions of Section 208 the Income-Tax Act, has made to individuals. Considering the earlier exemption of Rs 1.5 lakh and Rs 1 lakh deductions, a person was liable to pay advance tax if he was earning a salary of more than Rs 2.75 lakh. This year onwards, advance tax has to be paid by people earning over Rs 3.10 lakh. The salary level increases as the exemption limit is now Rs 1.6 lakh. “This move impacts individuals in the lower income group. For those in the high income slab, this is immaterial,” said K H Viswanathan, executive director, RSM Astute Consulting Group.