Understanding the BudgetThe Budget documents presented to Parliament comprise, besides the Finance Minister’s Budget Speech, the following:A. Annual Financial Statement (AFS)B. Demands for Grants (DG)C. Appropriation BillD. Finance BillE. Memorandum Explaining the Provisions in the Finance Bill, 2011F. Macro-economic framework for the relevant financial yearG. Fiscal Policy Strategy Statement for the financial yearH. Medium Term Fiscal Policy StatementI. Expenditure Budget Volume-1J. Expenditure Budget Volume-2K. Receipts BudgetL. Budget at a glanceM. Highlights of BudgetN. Status of Implementation of Announcements made in Finance Minister’s Budget Speech of the previous financial year
Understanding the Budget(Cont)• The government is accountable to the Parliament in its financial management. With the constitutional supremacy of the bicameral Parliament, especially of the Lok Sabha-, every single financial act is processed and passed by the representatives of the people.• However, proposals for the formulation of budget levying taxes, determining government accounts and expenditures, are prepared by the Governments Ministries and consolidated in the Ministry of Finance.• The Union Budget presented to the Parliament consists of the General Budget and the Railway Budget, the Demands for Grant, the Vote on Account, the Supplementary Demands for Grant, the Appropriation Bill and the Finance Bill.
Understanding the Budget(Cont)• Immediately after the Annual Statement, the Finance Bill is introduced in the Lok Sabha by the Finance Minister. The Finance Bill is presented in fulfilment of the requirement under Article 110 (1) (a) of the Constitution, detailing the imposition, abolition, remission, alteration or regulation of taxes proposed in the Budget. After passing of the Appropriation Bill, the Finance Bill is considered and passed by the Parliament as a Money Bill.
Finance Ministers Speech• To keep this presentation of reasonable length, the actual speech delivered in the parliament by the Finance Minister has been archived on our webpage, click here to access the speech.
Budget Estimates• Gross Tax receipts are estimated at ` 9,32,440 crore.• „ on-tax revenue receipts estimated at ` 1,25,435 crore. N• „ otal expenditure proposed at ` 12,57,729 crore. T• I „ncrease of 18.3 per cent in total Plan allocation.• I „ncrease of 10.9 per cent in the Non-plan expenditure.• X „ I Plan expenditure more than 100 per cent in nominal terms than envisaged for the Plan period.• I „ncrease of 23 per cent in Plan and Non-plan transfer to States and UTs.• F „ iscal Deficit brought down from 5.5 per cent in BE 2010-11 to 5.1 per cent of GDP in RE 2010-11.
Budget Estimates• Fiscal Deficit kept at 4.6 per cent of GDP for 2011-12.• F „ iscal Deficit to be progressively reduced to 3.5 per cent by 2013-14.• “Effective Revenue Deficit” estimated at 2.3 per cent of GDP in the Revised Estimates for 2010-11 and 1.8 per cent for 2011-12.• A „ ll subsidy related liabilities brought into fiscal accounting.• N „ et market borrowing of the Government through dated securities in 2011- 12 would be ` 3.43 lakh crore.• C „ entral Government debt estimated at 44.2 per cent of GDP for 2011-12 as against 52.5 per cent recommended by the 13th Finance Commission.
Direct TaxesChange Impact The limit to the first proviso of Section 2 of the More charitable institutions income tax act, specifying aggregate receipts for can now avail benefits of charitable purposes has been revised to 25 lakhs relaxed taxation from the existing Rs 10 lakhs No Deduction of income in the form of Higher tax outlay for SEZ dividends from SEZs earned by developers developers Weighted Deduction on account of section 35 The effort is to increase R&D (2AA) being sum paid to a National Laboratory spend and get corporate India or a university or an IIT or a specified person to contribute to growth of has been increased from 175% to 200% sciences in India. Reduced tax outlay for donors.
Direct TaxesChange Impact Benefit of deduction under Section 35 AD has This is in line with the push to been extended to increase the growth rate. The businesses engaged in developing and building a housing deduction available for pre project under a scheme for affordable housing framed by More charitable institutions the government of India to new or existing plants engaged in the manufacture of can now avail benefits of fertilizers. relaxed taxation regime. existing hotels with 2 star and above rating hospitals with atleast 100 beds for patients Amounts paid by employers as contributions to Lower tax outloay for pension schemes be allowed as deduction under employers paying for pension section 36 upto 10% of the salary of the schemes for employees employee for the year
Direct TaxesChange Impact The additional benefit of `20,000 allowed in Salaried individuals can still respect of subscription of long term save money when investing in infrastructure bonds has been extended for Infrastructure bonds another year Power generation and distribution units can Lower tax bill for power commence operations upto 1st April 2012 to generation and distribution avail benefits u/s 80IA units Tax deduction equivalent to 100% of profits for New blocks licensed after 31st a period of 7 years under section 80-iB has been march shall be able to avail extended to blocks licensed under contracts such tax holiday for a period awarded after 31st March 2011 under the new of 7 years exploration licensing policy
Direct TaxesChange Impact The threshold for variation between arms length Since new threshold has not price and actual price to be revised from 5% been announced there is room A new subsection 2A has been introduced to for interpretation here. cover discovery of Transfer pricing transaction, other than the ones submitted before the TPO Aimed at curbing flow of New provisions for transactions with persons income from tax havens, this located in notified jurisdictional areas have been may make life a little difficult defined governing the taxability of such for existing legitimate transactions businesses operating with Interest earned on infrastructure debt funds such persons referred to in section 10(47) will be taxable at 5% Low tax bill
Direct TaxesChange Impact Lower rate of 15 per cent tax on dividends Will encourage flow of received by an Indian company from its foreign income back to India subsidiary as per newly inserted section 115 BBD Hike in the rate of MAT under section 115 JB A move to offset some of the from 18% to 18.5% other sops given and to bring MAT coverage has been extended to LLP’s things in line with DTC Tax exemption on the distributed profits of an This had been previously SEZ shall expire on the 1st of June 2011 announced and hence comes at no surprise
Direct TaxesChange Impact Income distributed to unit holders not being Higher rates of taxation for individuals or HUF shall be taxable at the rate of such funds thirty percent on income distributed by money market mutual fund or liquid fund Tax rate for income distributed by fund other than money market mutual fund or liquid fund has also been hiked to 30% There is a typo in the Budget where-in We hope this will be clarified Explanation 2 of section 139 is referred to, this soon should instead refer to explanation 1 Misc. changes to assessment procedures
Direct TaxesChange Impact Exemption limit for the general category of Net savings of ` 2000 individual taxpayers enhanced from ` 1,60,000 to ` 1,80,000 Exemption limit enhanced and qualifying age Age reduced from 65 to 60 reduced for senior citizens Higher exemption limit for Very Senior Citizens, Limit of ` 5 lakh announced who are 80 years or above Current surcharge of 7.5 per cent on domestic Lower tax expense for companies proposed to be reduced to 5 per cent domestic companies
Indirect TaxesChange Impact Central Excise Duty to be maintained at No changes standard rate of 10 per cent Reduction in number of exemptions in Central Excise rate structure. Nominal Central Excise Duty of 1 per cent More expensive items imposed on 130 items entering in the tax net Lower rate of Central Excise Duty enhanced from 4 per cent to 5 per cent Optional levy on branded garments proposed to Branded garments to become be converted into a mandatory levy at rate of more expensive 10% Peak rate ofCustom Duty to stay at current level.
Indirect Taxes - Agriculture and Related SectorsChange Impact Exemptions from Excise Duty enlarged to The finance minister has include equipments needed for storage and announced a number of sops warehouse facilities on agricultural produce to encourage the agricultural Basic Custom Duty reduced for specified industry. There should be a agricultural machinery from 5 % to 2.5 % positive impact in our opinion Basic Custom Duty reduced on micro-irrigation equipment from 7.5% to 5% De-oiled rice bran cake to be fully exempted from basic Custom Duty. Export Duty of 10 per cent to be levied on its export
Indirect Taxes - Manufacturing SectorChange Impact Basic Custom Duty reduced for various items to Similar to the push on the encourage domestic value addition vis-à-vis agriculture side, the FM has imports, to remove duty inversion and tried to give the anomalies and to provide a level playing field to manufacturing industry a the domestic industry push as well. Rate of Export Duty for all types of iron ore enhanced and unified at 20% ad valorem. Full exemption from Export Duty to iron ore pellets Basic Custom Duty on petcoke and gypsum is This will lead to fall in cost of proposed to be reduced to 2.5% Cement Cash dispensers fully exempt from basic Should encourage local Customs Duty manufacture
Indirect Taxes - EnvironmentChange Impact Full exemption from basic Customs Duty and a These steps all in all should concessional rate of Central Excise Duty help lower costs for new extended to batteries imported by entrants and should make manufacturers of electrical vehicles newer technologies cheaper Concessional Excise Duty of 10 per cent to and hence ease their adoption vehicles based on Fuel cell technology Exemption granted from basic custom duty and special CVD to critical parts/assemblies needed for Hybrid vehicles Reduction in Excise Duty on kits used for conversion of fossil fuel vehicles into Hybrid vehicles.
Indirect Taxes – Environment (cont)Change Impact Excise Duty on LEDs reduced to 5 per cent and These steps all in all should special CVD being fully exempted help lower costs for new Basic Customs Duty on solar lantern reduced entrants and should make from 10 to 5 per cent newer technologies cheaper Full exemption from basic Customs Duty to and hence ease their adoption Crude Palm Stearin used in manufacture of laundry soap Full exemption from basic Excise Duty granted to enzyme based preparation for pre-tanning
Indirect Taxes – Other ProposalsChange Impact Scope of exemptions from basic Customs Duty Private art galleries will not for work of art and antiquities extended to also be able to import artwork apply for exhibition or display in private art at lower rates. Should open galleries open to the general public doors to investment in art Exemption from Import Duty for spares and Lower cost for ship owners capital goods required for ship repair units extended to import by ship owners Concessional basic Custom Duty of 5 per cent and CVD of 5 per cent available to newspaper establishments for high speed printing presses extended to mailroom equipment
Indirect Taxes – Other Proposals(cont)Change Impact Jumbo rolls of cinematographic film fully exempted from CVD by providing full exemption from Excise Duty Factory built ambulances provided concessions Manufactureres like TATA from excise duty and Force are the main gainers as their sales/margins should hopefully improve
Service TaxChange Impact Standard rate of Service Tax retained at 10 per cent Hotel accommodation in excess of ` 1,000 per Expect Hotel stays and eat day and service provided by air conditioned outs to become more restaurants that have license to serve liquor expensive Factory added under the service tax umbrella Tax on all services provided by hospitals with 25 Clearly a move to tax the or more beds with facility of central air specialty hospitals serving the conditioning rich Service Tax on air travel both domestic and international raised
Service Tax (cont)Change Impact Services provided by life insurance companies in the area of investment and some more legal services proposed to be brought into tax net All individual and sole proprietor tax payers A major relief for small with a turn over upto ` 60 lakh freed from the business owners as they no formalities of service tax audit longer have to get service tax audits done on an annual basis
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