Reports » India
Indian Budget 2011?]2012
By Nirmal Bang
FM has surprised equity market with 4.6% fiscal deficit target against the earlier target of 4.8% for the year 2011-12 set in the previous budget. The lower fiscal deficit budget has come without any increase in excise duty rates. 2010-11?fs fiscal deficit is estimated at around 5.1% supported by higher than expected non tax revenue like auction of 3G spectrum. India's fiscal deficit has ballooned to 6.3% of the GDP in 2009-10 on the back of stimulus spending worth billions of dollars to combat economic slowdown. In the medium term fiscal policy, Finance Minister pegged the target of fiscal deficit at 4.1% for 2012-13, and 3.5% for 2013-14. Even the revenue deficit for the 2010-11 and 2011-12 are seen at 2.3% and 1.8% respectively. FM is targeting to restrict fiscal deficit to a lower level on the assumption of higher growth in the economy. However looking at the risk of tight liquidity and higher oil prices we believe it is an optimistic target.
As a result of lower fiscal deficit FM could manage to keep a check on net market borrowings also. He has set a target of Rs 3.43 lakh crs for 2011-12 as against the earlier target of Rs 4.80 lakh crs. This could have some positive impact on the interest rate scenario.
Finance Minister retained the rate of excise duty at 10%, giving a little respite to industries like auto and cigarette, which feared roll-back of stimulus measures. FM has even brought 130 items under the tax net to prepare the ground for transition to GST, although the burden would only be to the tune of 1%. He also retained service tax at 10% for 2011-12, but increased the scope of revenue by bringing more services under the purview of services tax.
Another important factor expected in the budget was how Finance Minister would support growth in infrastructure sector. Though FM was able to create new avenue for financing infrastructure sector but was lacking in clearing the way for smooth implementation. For the funding of infrastructure projects FM has taken steps by proposing tax-free bonds worth Rs. 30,000 crore, extending income tax exemption on tax-saving infrastructure bonds, special infrastructure debt funds to attract foreign financing in infrastructure, hiked the FII investment limit by an additional $20 billion for investment in infrastructure-related sectors. But on implementation side he was silent on land acquisition, labour law & environment clearance process.
FM has re-affirmed implementation of DTC, GST and issuance of new banking licenses. He has also indicated government intention to move towards direct subsidy on kerosene and fertilizers to poor people from March next year. FM has announced many initiatives to provide relief to the people below the poverty line in the agricultural sector. These initiatives include increasing credit flow for farmers from Rs 3.75 lakh crores to Rs 4.75 lakh crores. Moreover interest subvention has been increased from 2% to 3% bringing the effective interest rate to 4% and direct cash subsidy in the hands of farmers. Basic food and fuel to be exempted from central excise duty.
In all we feel 2011-12 is a positive budget which has tried to keep growth momentum intact with lower fiscal deficit, higher avenue for financing infrastructure project and re-affirming important law implementation.
Major Changes In The Tax Structures
Custom Duty (CD)
- Full exemption from basic customs duty is being extended to de-oiled rice bran oil cake
- Export of 10% is being imposed on exports of de-oiled rice bran oil cake
- Basic customs duty is being reduced from 5% to 2.5% on specified agricultural machinery mainly paddy trans-planter, laser land leveler, cotton picker, reapercum- binder, straw or fodder balers, sugar cane harvesters and track used for manufacture of track-type combine harvester
- Basic customs duty on waste paper and Ferro nickel is being reduced from 5% to 2.5%
- Full exemption from basic customs duty is being extended to stainless steel scrap
- The customs duty dispensation and concessional CVD @5% is also being made available to import of spare battery packs for the electric vehicles by importers which are registered with the agencies notified for Central Financial Assistance (CFA) scheme of the ministry of Non-conventional and Renewable Energy (MNRE)
- Basic customs duty is being reduced from 7.5% to 2.5% on micro-irrigation equipment
- Basic customs duty on raw pistachios is being reduced from 30% to 10%
- Full exemption from basic customs duty and SAD and concessional CVD @ 5% (by way of a central excise duty exemption) is being extended to specified parts of the hybrid vehicles, namely, battery pack, battery chargers, AC/DC electric motors and motor controllers. The concession is subject to actual user condition and will be available till 31.02.2013
- All clearances from SEZ into Domestic Tariff Areas (DTA) are being exempted from Special Additional Duty (SAD) provided they are not exempt from the levy of VAT/Sales Tax
- The benefit of exemption which is currently available to ship repair units on import of spares and consumables required for repair of ocean going vessels is being extended to the owners of such vessels registered in India.
- Basic customs duty is being reduced on raw silk (not thrown) of all grades from 30% to 5%
- Cotton waste is being full exempted from basic customs duty.
- Basic customs duty is being reduced from 5% to 2.5% on rayon grade wood pulp
- Basic customs duty is being reduced from 7.5% to 5% for specified gems and jewellery machinery
- The scope of full customs duty exemption to water supply projects for agricultural and industrial use is being expanded to the water pumping station and water reservoir of such projects
- Endovascular stents are being full exempted from basic custom duty of 5%
- Exemption from SAD in being provided to P&P medicines imported for retail sale
- Basic customs duty on lactose for use in the manufacture of homeopathic medicines is being reduced from 25% to 10%
- A concessional import duty structure of 5% CVD and Nil SAD is being prescribed on parts of inkjet and laserjet printers imported for manufacture of such printers
- An import of Nil basic customs duty, CVD of Rs 140 per 10gm and Nil SAD is being prescribed for gold dore bars of upto 80% gold purity imported for refining and manufacturing serially numbered gold bars in India
Excise Duty (ED)
- The standard rate of central excise duty is maintained at 10%.
- An excise duty of 1% without Cenvat credit facility is being imposed on 130 items which were earlier either fully exempt or chargeable to nil rate of excise duty.
- The concessional central excise duty rate of 4% is being increased to 5% and thus items such as sugar confectionary, pastry and cakes, textile goods, drugs, medical equipments will now attract enhanced duty of 5%.
- Full exemption from excise duty is being withdrawn on microprocessors for computers, hard disc drive, CD ROM drive flash memory and combo drives and they will now attract a concessional rate of 5%.
- An excise duty of 5% is being imposed on automatic looms and projectile looms.
- Excise duty on greaseproof paper and glassine paper is reduced from 10% to 5%.
- Excise duty is being reduced from 10% to 5% on parts of specified textile machinery.
- Excise duty of 10% is being imposed on branded readymade garments and textiles.
- A concessional rate of excise duty at 10% is being extended to factory built ambulances.
- A tariff rate of excise duty of 10% is being prescribed for jute yarn.
- The exemption from excise duty on Cashew shell liquid (CNSL) is being withdrawn and consequently it will now attract a concessional rate of 1% without CENVAT credit facility.
- Excise duty on sanitary napkins, baby and clinical diapers is reduced from 10% to 1% with no Cenvat credit.
- Concessional rate of excise duty of 1% is being extended to water filters but without use of electricity and their replaceable kits.
- Excise duty of 1% is imposed on branded jewellery and branded articles of precious metals.
- Exemption from excise duty is being extended to air conditioning equipments, panels and refrigeration panels.
- Replaced excise duty of Rs 290/ bag on cement with ad valorem rate of 10% + Rs 80 per tonne where the maximum retail price (MRP) of cement is less than Rs 190 per 50kg bag. On the other hand, where the MRP is greater than Rs 190, the excise duty of 10% of price is replaced by 10% ad valorem + Rs 160 per tonne.
- Tariff rate of excise duty is being increased from Nil to 10% on silver powder, silver unwrought and semi manufactured silver in specified forms.
- Excise duty is reduced on serially numbered gold bars from Rs. 280 per 10 grams to Rs 200 per 10 grams.
- Excise duty on LEDs has been reduced to 5% and special CVD has been fully exempted.
Proposals relating to customs and central excise are estimated to result in a net revenue gain of Rs. 7,300 crs for the year.
- Rate of tax on services retained at 10 per cent to pave the way forward for GST.
- Scope of Service Tax has been enhanced, brining new services under the coverage of the act.
1. Hotel accommodation in excess of Rs. 1,000 per day and service provided by air conditioned restaurants that have license to serve liquor added as new services for levying Service Tax.
2. Tax on all services provided by hospitals with 25 or more beds with facility of central air conditioning and services.
3. Service Tax on air travel both domestic and international raised by Rs. 50 and Rs.250 respectively. In Domestic other than economy class, 10% standard service tax will be levied
4. Services provided by life insurance companies in the area of investment and some more legal services proposed to be brought into tax net. The composition rate has been increased from 1% to 5%
5. All individual and sole proprietor tax payers with a turnover up to Rs 60 lakh freed from the formalities of audit
- Exemption for certain services
1. Exemption is being provided to ?gWork Contracts?h services provided for Construction or finishing of new residential complex under JNNRUM& Rajiv Awaas Yojana.
2. Exemption is being provided to services provided with in a port or an airport under a work contract services for specified purpose
3. Exemption is being provided to:?hRashtriya Swasthya Bima yojana?h under the General Insurance service.
4. Services related to transportation of goods by road, rail or air , when both the origin & destination are located outside the India
Proposals relating to service tax are estimated to result in a net revenue gain of Rs. 4,000 crs for the year.
- The exemption limit for the general category of individual tax payers has been enhanced to Rs 1,80,000 from Rs. 1,60,000 in the Union Budget 2011-12.
- Qualifying age for Senior Citizens has been reduced from 65 years to 60 years and exemption limit for Senior Citizens has been enhanced from Rs 2,40,000 to Rs 2,50,000.
- A new category of Very Senior Citizens, 80 years and above, has been created who will be eligible for a higher exemption limit of Rs 5,00,000.
- Current surcharge of 7.5% on domestic companies reduced to 5%.
- Corporate Tax remains unchanged.
- Rate of Minimum Alternative Tax proposed to be increased from 18% to 18.5% of book profits
- Tax incentives extended to attract foreign funds for financing of infrastructure.
- Additional deduction of Rs. 20,000 for investment in long-term infrastructure bonds proposed to be extended for one more year.
- Low withholding tax of 5% for notified infra funds
- The Direct Tax Code Procedure (DTC) is aimed to implement by April 1, 2012.
- Lower rate of 15% tax on dividends received by an Indian company from its foreign subsidiary.
- Investment in fertilizer sector is capital intensive and is to include capital investment in fertilizer production as an infrastructure sub-sector.
- Weighted deduction on payments made to National Laboratories, Universities and Institutes of Technology to be enhanced to 200%.
- Earlier units under Special Economic Zone were exempted have been brought under the preview of MAT 18.5% plus 5% surcharge. Special Economic Zones Developer will come under MAT in the Union Budget of 2011-2012.
- Investment linked deduction to businesses developing affordable housing.
- System of collection of information from foreign tax jurisdictions to be strengthened.
- Audit not required for individuals having turnover up to Rs 6 mn
Proposals on direct taxes estimated to result in a revenue loss of Rs. 11500 cr for the year.
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