Income-Tax sops in Budget; air travel, health check-up to be costlier

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New Delhi: A play-safe Budget on February 28 raised the threshold income-tax exemption limit from Rs. 1.60 lakh to Rs. 1.80 lakh that will leave at least Rs. 2,000 more in the hands of tax payers across the board and made changes in the service tax that will make air travel, hotel accommodation and drinking in AC restaurants costlier.

Presenting the Budget for 2011-12 that will result in a net revenue loss of Rs. 200 crore, Finance Minister Pranab Mukherjee imposed an excise duty of 1 percent on 130 specified items which will, however, exempt food and fuel.

He also gave some relief to corporate by reducing the current income-tax surcharge of 7.5 percent on domestic companies to 5 percent but raised the Minimum Alternate Tax (MAT) from 18 to 18.5 percent, including developers of Special Economic Zones (SEZs) in it.

While leaving the rest of exemption slabs, surcharge and cess on income-tax untouched, he reduced the qualifying age of senior citizens from 65 to 60 years, raised their exemption limit from Rs. 2.40 lakh to Rs. 2.50 lakh. No special benefit was announced for women whose basic exemption limit remains at Rs. 1.90 lakh.

Mukherjee also created a new category of “Very Senior Citizens” of 80 years and above, who will be eligible for a higher exemption limit of Rs. 5 lakhs.

The Budget sought to widen the ambit of the service-tax net by which hotel accommodation above Rs. 1,000 a day and AC restaurants that serve liquor will be included.

The scope of life insurance service is being widened to cover all services provided to any person by an insurer and legal services provided by business entity to individuals and individuals to entities but not individuals to individuals.

Opposition parties flayed the Budget saying it was very “disappointing and direction less” while the industry welcomed it as “positive and growth oriented”.

Hailing the “commendable job” done by his Finance Minister, Prime Minister Manmohan Singh said the signals are that this is a government, which is reform-oriented but admitted “you cannot please all people.”

All services, including diagnostic services provided by AC clinical establishments with more than 25 beds and services provided by a doctor, who owns such establishments have been brought under the service-tax net.

Economy class domestic travel by air will cost Rs. 50 more while international travel will cost Rs. 250 more. Higher class domestic travel by air attract a standard 10 percent service-tax bringing it on par with international higher class travel.

While direct tax changes are expected to result in a revenue loss of Rs. 11,500 crore, the net revenue gain on account of indirect taxes is likely to be Rs. 11,300 crore, including an additional Rs. 4,000 crore on account of service-tax changes.

Prepared food stuff like sugar confectionery, pastry and cakes, starches, paper    and articles of paper, textile goods, drugs and medicinal equipment will become costlier with increase in the concessional rate of excise duty from 4 percent to 5 percent.

Ready-made garments and branded textile made-ups will also become costlier with the levy of mandatory 10 percent excise duty. Exemptions from excise duty is being withdrawn on micro processor for computers, floppy and hard disc drive, CD-Rom drive, DVD drives and writers making it costlier but they will attract only 5 percent concessional duty.

Items that will become cheaper are sanitary napkins, baby and clinical diapers and adult diapers with reduction of excise duty, factory built ambulances, precious metals, including gold and silver. However, 1 percent excise duty is being imposed on branded jewelry and branded articles of precious metals.

The Budget for next year pegs the fiscal deficit at 4.6 percent of GDP for 2011-12 which works out to Rs. 4,12,817 crore. Gross tax receipts are estimated at Rs. 932,440 crore, an increase of 24.9 percent over the Budget Estimates for 2010-11.

Net non-tax revenue receipts for the next financial year are estimated Rs. 125,435  crore. The total expenditure proposed for 2011-12 is Rs. 1,257,729 crore. Plan expenditure will be Rs. 441,547 crore, an increase of 18 percent and non-Plan expenditure will be Rs. 8,16,182 crore, an increase of 10.9 percent over Budget estimates of 2010-11.

Defense expenditure for the next year has been pegged at Rs. 164,415, an increase of Rs. 17,071 crore over the last financial year. This includes a capital expenditure of Rs. 69,199 crore.

“Needless to say, any further requirement for the country’s defense would be met,” Mukherjee said.

The Budget has raised allocation for social sector spending by 17 percent to Rs. 160,887 crore and the allocation for Bharat Nirman program by Rs. 10,000 crore.

Allocation for infrastructure has been increased by over 23 percent to Rs. 2,14,000 crore and the credit to farmers hiked by Rs. 1 lakh crore to Rs. 4,75,000 crore.

The Budget assumes open market borrowing of Rs. 3.43 lakh crore. Extension of nutrient-based subsidy to cover urea is under active consideration.

In a boost to housing sector finance, the Budget continued the scheme of interest subvention of 1 percent on housing loans and liberalized it by extending it up to Rs. 25 lakh from the present Rs. 10 and Rs. 15 respectively.

The Finance Minister also proposed various measures to achieve a closer fit between the present service-tax regime and its successor Goods and Services Tax (GST).

The Minister announced a broad set of financial sector reforms, saying he proposed to move the legislations relating to insurance laws, LIC, revised pension fund bill, banking laws amendment  bill, State Bank of India Subsidiaries Bill and a bill on Factoring and Assignment of Receivables.

In an effort to curb diversion of subsidized items like kerosene, LPG and fertilizers, the Budget proposes to introduce from March next year a scheme that will move towards direct transfer of cash subsidy to people living below poverty line (BPL).

On the much-speculated roll-back of stimulus measures implemented three years ago in the midst of global financial crisis,  Mukherjee said a counter-cyclical fiscal policy is required for insurance against external shocks and localized domestic factors.

Aiming towards fiscal consolidation, the government proposes to introduce an amendment to Fiscal Responsibility and Budget Management Act, laying down the fiscal roadmap for the next five years.

The Finance Minister also proposed to introduce the Public Debt Management Agency of India Bill in Parliament in the next year.

In a bid to make the Foreign Direct Investment policy more user-friendly,  Mukherjee said discussions are underway to further liberalize the policy.

To liberalize the portfolio investment route, it has been decided to permit SEBI registered mutual funds to accept subscriptions from foreign investors for equity schemes which will enable Indian mutual funds to have direct access to foreign investors.

To enhance the flow of fu
nds to the infrastructure sector, the FII limit for investment in corporate bonds, with residual maturity of over five years issued by companies in infrastructure is being raised by an additional limit of $20 billion taking the limit to $ 25 billion.

This will raise the total limit for FIIs investment to corporate bonds to $ 40 billion.

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