Balancing act/GIVE:Relief to individuals in I-T, foregoing Rs 4,500 cr. TAKE: Excise duty, service tax hiked by 2% to raise Rs 45,940 cr

Balancing act
16 March 2012

GIVE:Relief to individuals in I-T, foregoing Rs 4,500 cr. TAKE: Excise duty, service tax hiked by 2% to raise Rs 45,940 cr
r c rajamani

NEW DELHI, 16 MARCH: Presenting a cautious and moderately liberal front in a politically and economically difficult year for the Congress-led UPA government, the finance minister, Mr Pranab Mukherjee, today tabled the Union Budget 2012-13 in the Lok Sabha, offering some cheer to the taxpayer, the corporate world, small and medium enterprises, the farm and a few other sectors.

Responding partially to widespread expectation from the salaried class as well as the recommendation of the standing committee of his own ministry, Mr Mukherjee enhanced the exemption limit for personal income tax from Rs 1,80,000 to Rs 2,00,000 and raised the peak rate slab of 30 per cent tax to Rs 10,00,000 from Rs 8,00,000. The exemption limit for senior citizens is Rs 2.50 lakh.

The progressive tax slabs range from 10 per cent for Rs 2,00,000 to Rs 5,00,000 and 20 per cent for Rs 5,00,000 to Rs 10,00,000 to 30 per cent for incomes above Rs 10,00,000. Within the existing limit for deduction for health insurance, there will also be a deduction of Rs 5,000 for preventive health check-ups.

Defending his Budget outside Parliament, Mr Mukherjee said it was aimed at giving boost to “growth with stability”. “There was “determined effort to regain the path of fiscal consolidation,” he said.

A promise to curb black money, a major push on infrastructure, capital market reforms and huge subsidy cut were among the key proposals of Mr Mukherjee’s seventh budget.
For the corporate sector, apart from unchanged tax rates, he gave cheaper access to funds for expansion. He also juggled with excise rates and customs duties for specific items. He proposed to raise the service tax rate to 12 per cent from the present 10 per cent.

Promising further liberalisation of capital markets, Mr Mukherjee announced a new equity savings scheme to extend income tax deduction of 50 per cent to those who invest up to Rs 50,000 in equities and whose annual income is less than Rs 10 lakh.
Giving a global perspective to the performance of the nation’s economy in his 110-minute speech, the finance minister said: “The global crisis has affected us. India’s gross domestic product (GDP) is expected to grow at 6.9 per cent in 2011-12, after having grown at 8.4 per cent in each of the two preceding years.” Mr Mukherjee said, “Though we have been able to limit the adverse impact of the slowdown in our economy, this year’s performance has been disappointing. But it is also a fact that in any cross-country comparison, India still remains among the front-runners in economic growth.” Holding out hope for the future, he said the Indian economy was at the cusp of a revival, as agriculture and services have continued to grow at a decent pace. It was industrial performance that was acting as a drag, he noted. “While we do not have the aggregate figures for the last quarter of 2011-12, numerous indicators pertaining to this period suggest that the economy is now turning around. There are signs of recovery in coal, fertiliser, cement and electricity sectors.”
Service tax has been widened for all but 17 services and in a bid to get investors to put money in the equity markets, Mr Mukherjee has allowed a 50 per cent deduction on short-term capital gains tax for new investors up to Rs 5 lakh. The government will also track tax evasion through the PAN card and will bring out a white paper on black money in the current session of Parliament. The Budget makes it mandatory to declare assets held abroad.

On the flipside, Mr Mukherjee gave little indication in his speech on the timeframe for implementing goods and services tax (GTS) or the long-promised Direct Tax Code.
He also increased service tax and standard excise duty by 2 per cent across the board to net an additional Rs 41,440 crore a year, leading to several items becoming costlier. He left corporate tax rates and the peak customs duty unchanged but raised the import duty on gold bars and platinum and excise duty on cigarettes, bidis, pan masala and chewing tobacco. Customs duty on completely built large cars, SUVs and MUVs of value exceeding $40,000 (Rs 20 lakh) was also raised.

While the direct tax proposals in the Budget will result in a revenue loss of Rs 4,500 crore, indirect tax proposals would result in a revenue gain of Rs 45,940 crore. The tax proposals thus aim at a net gain of Rs 41,440 crore.

Noting that the share of service taxes remains far below its potential, Mr Mukherjee proposed to tax all services except those in the negative list, which contains 17 heads. The negative list includes all services provided by government and local authorities, except a few services where they compete with the private sector. It also includes pre-school and school education, recognised education at higher levels and approved vocational education, renting of residential dwellings, entertainment and amusement services and a large part of public transportation including inland waterways, urban railways and metered cabs. In addition to the negative list, there is a list of exemptions which include health care, services provided by charities, religious persons, sportspersons, folk and classical artists, individual advocates providing services to non-business entities, and independent journalists.

Gross tax receipts for 2012-13 are estimated at Rs 10,77,612 crore, an increase of 15.6 per cent over the 2011-12 budget estimates and 19.5 per cent over the revised estimates.

Total expenditure for 2012-13 is budgeted at Rs 14,90,925 crore, of which Plan expenditure is Rs 5,21,025 crore and non-Plan Rs 9,69,900 crore. The combined effect of lower tax and disinvestment receipts and higher expenditure, mainly on account of subsidies, has pushed the fiscal deficit to 5.9 per cent of GDP in the revised estimates for current fiscal.

Two projects for Bengal

KOLKATA, 16 MARCH: In contrast to the 2011-12 Budget, in which Mr Pranab Mukherjee showered at least seven major projects/sops on West Bengal ahead of the Assembly poll in the state, the Union Budget this time has only two projects for the state. One is a Rs 439 crore flood-management project for Kandi sub-division in Murshidabad. The other is the allotment of Rs 50 crore to establish a testing centre for water quality in Kolkata.