India's businesses fear more taxes in Budget 2012

Reuters 8 hours ago

Email Print Companies: BlackRock Enhanced Capital and Income Fund, Inc. RELATED QUOTES
Symbol Price Change

CII

13.54

-0.14

RELATED CONTENT
View Photo An employee arranges Indian currency notes at a cash counter inside a bank in Agartala, January 29, 2010. REUTERS/Jayanta Dey/Files

NEW DELHI (Reuters) - India's businesses, already facing high interest rates and a global economic slowdown, worry that the finance ministry will ask them to shoulder a bigger tax burden in the budget set for release on Friday to trim the fiscal deficit. After a drubbing in recent state elections, the government has little room to cut subsidies costing 2.5 percent of GDP. But without fiscal consolidation, the Reserve Bank of India will have a harder time lowering interest rates without stoking inflation. Growth in Asia's third-largest economy is expected to dip below 7 percent in the current fiscal year ending March, the slowest pace in three years, while manufacturing may cool to 4 percent from 7.2 percent in the previous year. (For full coverage of the budget, click http://in.reuters.com/subjects/india-budget-2012) The following reflects industry expectations for the budget: TAX REFORMS

Industrial chambers including the Federation of Indian Chambers of Commerce and Industry (:FICCIFICCInull) and the Confederation of Indian Industry (NYSE:CII NewsCIInull) are lobbying hard for a delay in hiking tax rates but do not expect any major tax relief. Prime Minister Manmohan Singh's economic advisory council, headed by former RBI governor C Rangarajan, wants to roll back fiscal stimulus by raising tax rates by about 2 percentage points on most manufactured products and widening the service tax net. After the 2008 global financial crisis, India approved a nearly $37 billion fiscal stimulus package, mainly tax cuts for industry, and this has not been fully withdrawn. The trade groups may get little sympathy for their bid to delay reversal of tax breaks. Finance Minister Pranab Mukherjee has limited room to prune spending, while the taxto-GDP ratio has fallen to 10.5 percent from near 12 percent in the year before the financial crisis. However, to cheer up capital markets, Mukherjee may abolish the transaction tax on trading of shares. Fiscal consolidation might also please investors because it would be seen as paving the way for interest rate cuts by the central bank. CUTTING SUBSIDIES: Mukherjee, who says he is losing sleep over a rising subsidy bill, could try and tweak fuel, fertilisers and food subsidies while allocating more funds for education, health, farm produce and infrastructure like ports, railways and roads. The government's draft legislation on food security -- to provide subsidised food to nearly 60 percent of the 1.2 billion population -- may take more time to get parliament's approval, and fuel prices could be increased outside the budget to trim the subsidy bill. The total budget subsidy bill could touch $50 billion this fiscal year, against $32 billion a year ago, thus widening the fiscal deficit to more than 5.5 percent of GDP, well above the initial target of 4.6 percent of GDP. The next budget is likely to show a fiscal deficit of near 5 percent of GDP in the fiscal year beginning April 1, with growth estimated at between 7.5 percent and 8 percent. Economists in a Reuters poll conducted in January pegged GDP growth at 7.9 percent. Economists widely criticized the last budget for overly optimistic growth forecasts and unrealistic spending cut plans. Some worry the next installment may contain more of the same.

BOOSTING PRIVATE INVESTMENT Industry has sought to keep factory gate duties and service taxes held at the current levels. CII wants the government to fast track at least 100 big manufacturing and infrastructure projects like a Delhi-Mumbai industrial corridor to remove bottlenecks in industrial growth. More than 70 state-funded projects are running late by more than two years over landacquisition and environmental issues, racking up nearly $19 billion in extra expenses, or 20 percent of the total projected costs. TWEAKING TAX RATES: The finance ministry is likely to tweak various corporate tax exemptions without changing the current 30 percent rate for corporate profits. That tax rate puts India on a par with other emerging economies such as Mexico, but considerably higher than some Asian economies, according to data from the Organisation for Economic Co-operation and Development. In South Korea, for example, the corporate tax rate is 22 percent. A parliamentary panel, headed by former Finance Minister Yashwant Sinha, has recommended phasing out various corporate tax exemptions, estimated at nearly $18 billion in 2011/12. FOREIGN INVESTMENT FLOWS: The cash-starved civil aviation, real estate and capital markets hope for further easing of rules on foreign investors as a way to attract more money, which should help improve access to cheaper funds from overseas and ease inflation. Foreign investment inflows, which include direct investment and portfolio money, are estimated around $25 billion in 2011/12 fiscal year against about $12 billion in the last fiscal year, says Rangarajan, but a widening gap between exports and imports is putting pressure on the current account deficit also. Manufacturing and service exports, estimated at $400 billion this fiscal year, expect marketing incentives and policy support in the budget to grow amid fading global growth prospects.

The government may provide more funds for exporters' bodies to explore new markets in Africa, Latin America, and transport subsidy in addition to assuring them a relatively stable Indian currency.

Inflation picks up, muddling rate cut picture

Reuters 8 hours ago

Email Print Companies: RBI RELATED QUOTES
Symbol Price Change

RBI

0.00

+0.00

RELATED CONTENT
View Photo A vegetable seller speaks on a mobile phone at a market in Kolkata February 25, 2010. REUTERS/Parth Sanyal/Files

By Rajesh Kumar Singh NEW DELHI (Reuters) - India's headline inflation picked up for the first time in five months in February on higher food costs but another measure of price pressures cooled, sparking market speculation that the central bank may surprise with an interest rate cut on Thursday. The wholesale price index, India's main gauge of inflation, edged up a faster-thanexpected 6.95 percent from a year earlier in February after a spike in vegetable prices fanned food inflation. Wholesale prices had risen an annual 6.55 percent in January, the slowest in 26 months.

But non-food manufactured inflation, which the central bank uses to gauge demanddriven price pressures, slowed to a 14-month low of 5.8 percent from 6.7 percent in January. "The key trend that needs to get captured is on core inflation...and that is something that should go as a positive for monetary policy," said Shubhada Rao, chief economist at Yes Bank in Mumbai. "We still believe the RBI could look at a repo rate cut of 25 basis points tomorrow." Weakening economic momentum as well as a softer policy stance adopted by central banks in the region is piling pressure on central bank Governor Duvvuri Subbarao to start cutting rates sooner than later. Graphic on inflation: http://link.reuters.com/deq95s BOOST TO RATE CUT HOPES Federal bond yields and swap rates eased on hopes of a surprise interest rate cut on Thursday, when the Reserve Bank of India (NasdaqGS:RBI - NewsRBInull) reviews its policy. "The market is building an increased chance of rate cut in March now than before as the manufacturing inflation print was benign," said Kumar Rachapudi, fixed-income strategist at Barclays Capital in Singapore. The 10 year benchmark federal bond yield dropped 7 basis points after the data to the day's low of 8.28 percent. The five-year benchmark swap rate eased 5 basis points to 7.48 percent while the one-year swap rate fell 5 basis points to 8.05 percent. India's economic growth faltered to a three-year low of 6.1 percent in the Decemberquarter as a political logjam and the central bank's hawkish policy against inflation hit investment. The pace of economic expansion this fiscal year is forecast to dip below 7 percent for the first time in three years. "We are sticking with the view that a 25 basis point repo rate reduction is (just about) the most likely outcome," Credit Suisse analysts wrote in a note after the data on Wednesday.

"It is worth stressing that GDP growth, at 6.1 percent in the December quarter of 2011, was well below any estimate of trend growth and hence disinflationary, while money and bank lending growth has also softened in recent months." WAIT AND WATCH The central bank's main lending rate -- repo rate --- is at a 3-year high of 8.5 percent. The RBI last week surprised markets by cutting the cash reserve requirements for banks. Most economists expect rising global crude prices and the need for a clarity on the government's fiscal roadmap would prevent the RBI from cutting rates before the AprilJune quarter. "I think the big risk going forward for inflation will be driven by the revision in the domestic fuel prices, and we do expect inflation to sustain around 7 percent until March," said Abheek Barua, chief economist at HDFC Bank in New Delhi. "The broad balance is in favour of a rate cut, but I would think the RBI would wait until it gets a firm fix on the contours of the budget (on March 16)." FISCAL MESS India's Finance Minister Pranab Mukherjee faces an arduous task of trimming the federal fiscal gap, when he presents the annual budget on Friday. With the deficit poised to miss this fiscal year's original target of 4.6 percent of GDP by a wide margin, Mukherjee is expected to cut fuel subsidy and raise tax rates to contain the fiscal shortfall. A decision to raise pump prices is fraught with political risks, and it will likely also accelerate inflation and temper the pace of rate cuts. A 10 percent increase in domestic fuel prices could increase headline inflation by 100 basis points, estimates Deutsche Bank, which may constrain the RBI from cutting interest rates swiftly. "If you take just the direct impact of global oil prices at current levels, then the headline inflation number could at least be 90-100 basis points higher," said Rupa Rege Nitsure, chief economist at Bank of Baroda in Mumbai. Fuel prices rose an annual 12.83 percent, slower than a 14.21 percent on year rise in January.---------------

Politics, oil price hold budget to baby steps

Reuters Mon 12 Mar, 2012 6:59 PM IST

2 Email Print Companies: RBI RELATED QUOTES
Symbol Price Change

RBI

0.00

+0.00

By Tony Munroe and Manoj Kumar MUMBAI/NEW DELHI (Reuters) - The best thing Prime Minister Manmohan Singh's government has going for it ahead of Friday's budget unveiling is low expectations. The ruling party, battered in recent state polls and hamstrung by slowing economic growth and high global oil prices, is in no position to advance bold economic reforms that could unclog flagging growth in Asia's third-largest economy. What it can do is bolster tax collections by rolling back what remains of Lehman crisisera stimulus and restoring excise taxes to earlier levels. It can also expand the scope of service tax coverage and keep a lid on populist spending -- no small feat for a government whose base tends to be rural and poor. Grappling with a yawning fiscal deficit will be crucial to restoring credibility that was stretched in the last budget by unrealistic assumptions. "Big steps will not be taken, but baby steps will be taken. They will try to show they are trying to do things," M. Govinda Rao, a member of the Prime Minister's Economic Advisory Council, told Reuters.

The Reserve Bank of India (NasdaqGS:RBI - NewsRBInull), investors and rating agencies are all clamouring for cuts to a deficit that forces heavy government borrowing, driving up interest costs and deterring investment. Including shortfalls at the state level, India's fiscal deficit is around 8 percent of GDP, the highest in emerging Asia. Economists expect Finance Minister Pranab Mukherjee to target a fiscal deficit of about 4.8 to 5.3 percent of GDP for the fiscal year that starts next month, higher than last year's 4.6 percent target but less than the roughly 6 percent it is actually on track to chalk up. In last year's budget, Mukherjee's projections for growth, asset sales and the deficit proved wildly optimistic. "I just hope that the finance minister realises that credibility is just as important as representing an aggressive number," said Abheek Barua, chief economist at HDFC Bank in New Delhi, who said a deficit goal of 5 percent of GDP is feasible. SUBSIDY RESTRAINT The biggest budget challenge for the Congress government, however, will be taming its populist urge to spend, especially on subsidies for fuel and other essentials that, once adopted, are hard to cut without being punished at the polls. The government's subsidy bill is expected to top $50 billion this year, exceeding the budget's initial estimates by more than $20 billion. Oil subsidies alone overshot by three-fold and there is little relief in sight, with Brent crude trading above $125 a barrel after rising nearly 10 percent this fiscal year, while a weakening rupee amplified the costs. The government bit the bullet in 2010 and freed up petrol prices but continues to subsidise diesel and cooking fuels and has raised the price of diesel only in grudging increments. Even if the government had the political wherewithal to reduce subsidies or deregulate prices, the inflationary effects would make this infeasible at a time when the central bank is looking to cut rates, as it confronts the slowest quarterly growth rates since the aftermath of the Lehman crisis. "It would be remarkably difficult to start to cut rates right now if you were to deregulate fuel prices," said Sanjay Mathur, an economist with Royal Bank of Scotland in Singapore.

And expected savings from lower fertiliser subsidies will also likely be offset by a new food security law, which may be implemented later in the year as the government tries to drum up support after this month's drubbing in state elections and as it prepares for national elections in 2014. Still, with the general elections more than two years off, the new budget offers a window of opportunity to rein in subsidies without immediate political consequences. Bolder reforms to kick-start growth, like those pushed by Singh when he was finance minister in the 1990s, are unlikely. New Delhi has shelved a plan to open the country to foreign supermarkets, while any sweeping subsidy cuts or tax reforms, such as the introduction of a goods and services tax, are on hold, with the Congress party unsure about support even from coalition allies. YEAR TO FORGET India's economic planners hope to improve on what has been a fiscal year to forget. A year ago New Delhi targeted economic growth at nearly 9 percent but the actual figure is likely to come in around 7 percent, with the December quarter's 6.1 percent growth the weakest in nearly three years. That disappointing growth, combined with high energy and food prices that boosted subsidy spending and weak markets that thwarted a sell-down of state assets, led it to miss by a mile on the deficit target. Headline inflation remained high, although a high base effect and easing food inflation brought the January figure down to 6.55 percent, its lowest since November 2009. New Delhi is expected to pencil in revenue of roughly 300 billion rupees from asset sales, some economists say. Telecom spectrum sales could fetch a further 350 billion rupees, Nomura wrote. The government is expected to set a borrowing target of 5.3 trillion rupees for the new fiscal year, up from an expected 5.1 trillion in the current year, a Reuters poll showed. Failure to stick within the target would be viewed unkindly by investors fed up with a government that twice in the current fiscal year increased its borrowing target. "The government is borrowing from the market so much that there is no liquidity for the private sector," the Economic Advisory Council's Rao said.

BUDGET 2012 LIVE: Duty on big cars hiked to 27%

By Yahoo! India Finance | Yahoo! Finance India Fri 16 Mar, 2012 1:44 PM IST

12 Email Print

Welcome to Yahoo!s live coverage of the Union Budget 2012-13.

Pranab ends his speech with a warning: "India stands on the brink of a recession"

Long cigarettes will now cost more, Pranab announces an increase in excise duty on cigarettes. Sensex begins to tank with increase in service taxes and excise duties Duty on bicycle and bicycle parts has been reduced , duty on energy savings lamps have also been eased. At 1230 hrs, the 30-share BSE Sensex is up 53 points at 17,729.09, a gain of 0.30%. The NSE Nifty is up 20 points at 5,400.25, a gain of 0.37%. Indirect Taxes
In a double whammy to the services sector Pranab has increased the service tax from 10 per

cent to 12 per cent and has widened the service tax net to include most sectors . All services excepting those in the negative list will be taxed. Negative list to include preschool and high school education, entertainment services. This increase in service tax will result in Rs 18,660 cr of additional revenues.

Excise Duty on large cars have been increased from 22 per cent to 27 per cent Full exemption on custom duty on coal has been proposed INCOME TAX EXEMPTION HIKED!

Pranab increases tax exemption limit to Rs 2,00,000 from 1,80,000. Senior citizens will have to pay no advance tax while there wil be no change in tax rates for corporates Upto 2,00,000 - Nil 2,00,000 - 5,00,000 - 10% 5,00,000 - 10,00,00 - 20% Above 10,00,000 - 30%

"Life of the Finance Minister is not easy. I must be cruel to be kind" Pranab quips
Tax on stock trading has been reduced.The cut in STT the stock exchange toll fee for buying and selling share is cut by 20 percent. Just crumbs for traders

Fiscal deficit for FY12 stand at 5.9%. NEW SAVINGS SCHEME FOR TAX BENEFIT! The finance minister said that a new equity-linked savings scheme, named after former prime minister Rajiv Gandhi, will offer income tax deduction of up to 50 per cent for those who invest Rs 50,000 in the stock market. However, only those whose annual income is less than Rs 10 lakh will be eligible for the tax deduction. In a bid to increase India's literacy rate the FM proposes to set up 6,000 schools in 12th Five-Year Plan. Rs 25,555 cr will be allotted for Right to Education in FY13. The FM also cuts
interest rates on loans to women self help groupsThe government is considering issuing

Resident i cards to all individuals above the age of 18 years to help in e governance procedure. Allocation toward UID will be at Rs 14,232 crore in FY13. AGRICULTURE The plan outlay for agriculture has been raised by 18% to Rs 20,208 crore in FY13. Irrigation and dams will be eligible for special funding, says the Finance Minister The bank index extended gains to more than 2 percent after Pranab Mukherjee said the government will provide nearly Rs 160 billion capital infusion in state-run banks in fiscal year 2013 that starts in April.

The FM proposes Rs 12,040cr for backward area projects and Rs 14,000cr for rural drinking water and sanitation in FY13.

Retail stocks rise as the finance minister commits to multi-brand FDI in his budget speech. Shopper's Stop up 3.3%, Pantaloon up 1.5%, Trent rises 1.8%. Market now slipping off day's highs as no major announcement on subsidy cuts FM promises tax incentive for new investors. A good move, considering that the share of household savings invested into the stock markets has declined. However, it remains to be seen if this works for the markets. Markets seem to be happy: The Sensex is at 17,796.19 points, up +120.34 (0.68%), while the NSE Nifty is at 5,423.10 points, up +42.60 (0.79%). AVIATION SOPS The finance minister said that the move to allow foreign airlines to participate direct or indirectly in India being considered actively. The plan to allow foreign airlines to invest up to 49% in domestic airlines is being considered actively too. External commercial borrowings to the extent of $1 billion to be allowed for aviation sector for next year. Aviation sector stocks however remain limp, showing hardly any movement. Micro-finance Institution Regulation Bill, National Housing Bank Regulation Bill, Bank Regulation Bill and Public Debt Management Bill likely to be passed this session. The finance minister also proposes to recapitalise banks -- rural, urban and argiculturerelated banks -- to the extent of Rs 15,000 crores. 11:35 pm: Sensex at 17858, up 182 points, Good news for investors: Changes in IPO norms will also be introduced which will increase participation in small towns The finance minister seeks to bring down subsidies to a level of 1.7% of the GDP over the next three years. He also plans to roll out a computerised scheme for transfer of fertilizer subsidy.

The finance minister assured the Lok Sabha that he plans to implement the Direct Taxes Code "at the earliest". Speaking about the Goods and Services Tax, he said that GST would be operational by August 2012. The Finance Minister has allotted Rs 15,888 cr for capitalisation of PSUs. RETAIL SOPS Pranab announces sops for new retail investors under the Rajiv Gandhi Equity Scheme. The Rajiv Gandhi Equity Scheme that is to be introduced will have lock-in period of 3 years - details of which the FM says would be announced in due course. An Income Tax deduction of 50 per cent on investments of up to Rs 50,000 in savings scheme named after Rajiv Gandhi has been proposed. Efforts are being made to arrive at broadbased consensus with state governments on allowing FDI in multi-brand retail up to 51 per cent, says FM.

The finance minister seems to have begun on a note that might get the hopes of the industry up a bit. He spoke about reforms, driving up growth, fighting corruption and the menace of black money. He also mentions the need to follow a roadmap that would help the nation arrive at the various checkpoints on time and in a planned manner.So will be bite the bullet and push through the reforms? Let's listen further... Disinvestment The FY13 divestment target is pegged at a whooping Rs 30,000 crore, Pranab proposes. The government's stake in PSUs where sell-off is decided would not be less than 51%. Rate hikes hit growth The Reserve Bank's hawkish stance has hit India's consumption and growth. The Finance Minister, however, promises lower inflation number and expects to narrow the fiscal deficit gap. The economy has been steadily turning around and manufacturing appears to be on revival, he adds. India stands tall amidst crisis

Performance this year was disappointing but as compared to peers India was better. Middle East crisis, debt worries in EU have intensified. The FM says he will focus on five broad issues: 1. Focus on domestic investments and driving up growth 2. Stress on rapid revival in private sector investment. 3. Emphasis on removing supply die bottlenecks in sectors like agriculture, energy, etc. 4. Make timely intervention to address the scrourge of malnutrition in certain disctricts of the country. 5. Expedite coordinated efforts to improve governance, transperancy and address the problem of black money. At 1110 hrs, the Sensex is up 82 points at 17,758.28, a gain of 0.47%. The NSE Nifty is up 31 points at 5,401.55, a gain of 0.39%. The market is keeping its fingers crossed. "We have to improve the supply side management of the economy. Mere words are not enough and we need to take some action," says Pranab Pranab Mukherjee has started presenting the his seventh budget amid a lot of din in Parliament. This year has been one a year of recovery interupted, Pranab says. Despite global recession, Indian economy has been growing at an impressive pace, says the finance minister. However he agrees that the global economic crisis has affected India.

Finance Minister Pranab Mukherjee has already arrived in Parliament and is ready to present his Budget. Of course, he stopped over at the Rashtrapati Bhavan to meet President Pratibha Patil Meanwhile, the stock market is waiting with bated breath for the FMs budget proposals. The Sensex at 10.48 am is at 17,745.59 points, up +69.74 (0.39%), while the NSE Nifty is at 5,409.10 points, up +28.60 (0.53%). So what can the FM do? Will he give a push to the reforms process? Or will he make this one a populist budget given the trouble that the UPA-2 finds itself in today? TAX RATES TO GO UP?

News reports suggest that the finance minister could increase the income tax exemptions available to the common man, but others speculate that the tax rates could even be hiked. For those of you who are wondering what this Budget is all about and how it's important to you.Click here Even as the General Budget is to be presented in just a couple of minutes, the drama over the Railway Budget continues. Also, the DMK MPs too are absent and are not attending Parliament. Apparently, they are readying for the by-polls.

The Budget will be presented against a backdrop of slowing economic growth and a soaring fiscal deficit. GDP growth for fiscal year 2011-12 is expected to be at a mere 6.8 per cent, the lowest in three years

Pranab has a tough task on hand trying to balance the wants of the aam admi, please India Inc and show that hes being pro growth Expectations from this Budget run high. Salaried employees may have reasons aplenty to cheer this budget as the Finance Minister is expected not only to raise the income tax exemption limit to Rs 3,00,000 but also increase the rebate amount under Section 80CCF to Rs 50,000 from Rs 20,000

Budget 2012 : Neither Cruel Nor Kind

Yahoo! Finance India 20 hours ago

Email Print

By Sandeep Shanbhag They say no news is good news. Budget 2012 embodies this saying. It was good --because it was not bad! Especially after the recent assembly election debacle, one almost expected the Finance Minister to use the budget platform to dole out huge subsidies and waivers in a bid to woo back the electorate. That he refrained from doing so is in itself the best news in Budget 2012 and kudos to the government for this mature stand.

Also, after years of being conditioned to taxes being raised or new taxes being introduced (e.g. FBT and BCTT etc), one almost expects the annual Budget to upset the apple cart. But even though experts have called it a non event or an anticlimax to me this Budget was a rather pleasant disappointment! The following are some of the key proposals of the Finance Minister.
Marginal

Relaxations in the tax slabs A small lip service increase in tax slabs aligning them to those specified in the proposed Direct Tax Code (DTC) was carried out. The new slabs are as contained in the accompanying table.
Income Up to Rs. 2,00,000 Rs. 2,00,001 to Rs. 5,00,000 Rs. 5,00,001 to Rs.
10,00,000

Tax Rate Nil 10%

20% 30%

Above Rs. 10,00,000

Earlier, anyone earning an income of Rs. 10 lakh would have paid a tax of Rs. 1.52 lakh. Now, with the revised slabs, the tax outgo works out to Rs. 1.30 lakh a net benefit of Rs. 22,000. The surprising thing is that the tax relaxations apply only to higher income group. Those who earn lesser than Rs. 8 lakh stand to gain a maximum of Rs. 2,000 only. A more equitable system is where the richer pay higher taxes and get lesser benefits than the lower income group rather than the other way around! Secondly, and in an extremely unchivalrous move, ladies and senior citizen taxpayers stand to gain (although marginally) lower than their male counterparts. Consider the following table. At different income levels, both ladies and senior citizens would be saving tax of Rs. 1,000 and Rs. 2,000 respectively, lower than the gentlemen.

New Old Income Level (Rs) Male 8,00,000 10,00,000 Ladies 8,00,000 10,00,000 Senior Citizen 8,00,000 10,00,000 85000 145000 85000 125000 Nil 20000 91000 151000 90000 130000 1000 21000 92000 152000 90000 130000 2000 22000 Slab(Rs) Slab (Rs) Savings (Rs)

Tax Deduction at Source (TDS) on sale of immovable property This was perhaps the most significant step taken by the Budget.Currently only in the case of sale of immovable property by an NRI, TDS is required to be deducted by the buyer. However, there is no such requirement on sale of property by a resident. Now, w.e.f. 1st October 2012, it will be obligatory for the buyer of a property at the time of making payment to the seller, deduct tax at source @ 1% of such sum, if the sale consideration exceeds (a) Rs. 50 lakh where the property is situated in urban areas (b) Rs. 25 lakh in other cases. There will be no registration of the sale of property unless the buyer furnishes proof of deduction and payment of TDS.

For reducing the compliance burden on the transferee, it is also proposed that a simple one page challan for payment of TDS would be prescribed containing details (including PAN) of transferor and transferee and also certain details of the property. The transferee would not be required to obtain any Tax Deduction and Collection Account Number (TAN) or to furnish any TDS statement as this would be mostly a one time transaction. The transferor would get credit of TDS like any other pre-paid taxes on the basis of information furnished by the transferee in the challan of payment of TDS. Tax Collection at Source (TCS) on cash sale of bullion and jewellery In order to curb the quantum of unreported cash transactions in jewellery, with effect from 1st of July 2012, a seller of bullion and jewellery shall collect tax at@ 1% of sale consideration from every buyer of bullion and jewellery if sale consideration exceeds two lakh rupees and the sale is in cash. This would be irrespective of the fact whether buyer is a manufacturer, trader or purchase is for personal use. Reporting of foreign assets through return of income Currently, no income tax return needs to be filed if the income of the taxpayer is below the basic threshold. Budget 2012 proposes to amend this provision by providing that filing of the tax return would be compulsory where the resident individual has any asset (including financial interest in any entity) located outside India or signing authority in any account (bank account, demat account etc.) located outside India. In other words, filing of tax return would be compulsory irrespective of whether such individual has taxable income or not. Particularly noteworthy is the fact that this amendment is applicable retrospectively for FY 11-12 i.e. it is applicable for the return filing of FY 11-12.
Tax Audit limits increased

Currently, under the provisions of section 44AB, every person carrying on business is required to get his accounts audited if the total annual sales exceed Rs. 60 lakh. Similarly, a professional is required to get his accounts audited if the gross receipts exceed Rs. 15 lakh. Such audit is popularly known as tax audit. The threshold of Rs. 60 lakh is being enhanced to Rs. 1 crore. Similarly the ceiling of Rs. 15 lakh in the case of professionals is being enhanced to Rs. 25 lakh for the purposes of tax audit. This provision will be applicable w.e.f FY 12-13. Exemption for Senior Citizens from payment of advance tax

Currently, all taxpayers have to pay advance tax if their tax liability exceeds Rs. 10,000. Budget 2012 proposes to exempt senior citizens (60 years of age and above) from paying advance tax provided they do not earn any business income. Exemption from long-term capital gains tax for investment in SME As per newly introduced Sec. 54GB, long term capital gains tax exemption would be available to an individual or an HUF on sale of a residential property (house or plot of land) in case of re-investment of the sale consideration in the equity of a new start-up SME company in the manufacturing sector which is utilized by the company for the purchase of new plant and machinery.
This relief would be subject to the conditions that-

(i) The investment in the SME has to be made before the due date of furnishing income tax return. (ii) The investment should be such that post investment the taxpayer holds more than 50% share capital or more than 50% voting rights in the company. (ii) the SME has to use the funds invested in it for the purchase of new plant and machinery within a period of one year from the date of subscription in the equity shares. (iii) If the shares or the plant and machinery purchased is sold before five years, the exempted capital gain would be brought to tax in the year of sale. (v) By way of a sunset clause it is provided that this exemption would not be available for any sale of residential property made after 31st March, 2017.
Reduction in the rate of Securities Transaction

Tax (STT) In a bid to improve market sentiment and at the same time boost revenue collection, the STT rate on delivery based equity transactions has been reduced by 20% from 0.125% to 0.1%. STT collections are estimated to be around Rs. 7,000 crore and according to experts, reducing the transaction cost could actually result in promoting growth without sacrificing revenue significantly The proposed reduced STT rates will be effective w.e.f. 1st of July, 2012. Sec. 80D to include expenditure on preventive health check up

An expenditure of up to Rs. 5,000 incurred by a taxpayer on the preventive health checkup of self, spouse, dependant children or parents(s) would be allowed as a deduction within the overall limit of Sec.80D. That is to say, this Rs. 5,000 is not an extra deduction but would be covered under the general limit of Sec. 80D. Deduction in respect of interest on deposits in savings accounts Savings bank interest up to Rs. 10,000 would be exempted from tax in the case of an individual taxpayer and HUF. Interest on fixed deposits will not be covered. Exemption of any sum or property received by an HUF from its members Currently, under Sec. 56, in the case of individuals and HUFs, gifts from relatives are exempted from tax. The provision was ambigious in the case of HUFs as it could be argued that an HUF by definition does not have a relative as such. Therefore, the provisions of the section are being amended so as to provide that any sum or property received without consideration or inadequate consideration by an HUF from its members would also be excluded from taxation. Of note is the fact that this amendment is being made effective retrospectively from the 1st of October, 2009. Eligibility conditions for exempt life insurance policies Currently, any sum received under a life insurance policy is exempted provided the premium payable for any of the years does not exceed 20% of the actual capital sum assured. Similarly, any premium paid for a life insurance policy is deductible under Sec. 80C provided such premium does not exceed 20% of the actual capital sum assured. The Budget proposes to reduce the above 20% limit to 10% for policies issued on or after 1st April, 2012. This amendment seems to have been carried out in order to limit the deduction to only those policies that primarily offer insurance as against others which are more of investment plans than insurance policies.
Service Tax

Readers may remember that in the third stimulus package unveiled in February 2008, the service tax rate was brought down from 12% to 10%. Budget 2012 proposes to reinstate the same to the earlier 12%. Service tax, though an indirect tax, directly adds to our cost of living. Expenses on almost all amenities such as telephones, electricity, restaurants, transport, credit cards etc., are

subject to service tax. As this service tax is passed on by the service provider, in effect, it is the common man who bears it. Any increase therein would further add to the burden of the aam aadmi something the government could have avoided especially in the current environment where general price levels remain elevated.
To Sum

These then were the key proposals of Budget 2012. The FM also mentioned in his Budget speech that a a new scheme called Rajiv Gandhi Equity Savings Scheme is to be introduced where retail investors having income below Rs. 10 lakh would get a 50% tax deduction on Rs. 50,000 invested directly in equities A lock-in period of 3 years is proposed on such investment. However, so far this is just a budget announcement no details have been announced yet. Big ticket items such as disinvestment, fuel policy, FDI, FDI in multi brand retail, the high fiscal deficit etc were reserved only for comments in the Budget speech - there has been no firm action taken. Significantly, the Finance Minister mentioned that the Direct Tax Code could be introduced in the coming fiscal year. One cant help but get the feeling that the tinkering and fixing exercise that Budget 2012 eventually turned into is a precursor to the new Tax Code. Watch this space for updates.

Mukherjee puts money in one pocket, takes out from others

IANS 23 hours ago

3 Email Print

New Delhi, March 16 (IANS) Every tax payer in India is set to gain at least Rs.2,000 per annum, thanks to the relief proposed by Finance Minister Pranab Mukherjee. But the happy story ends there! With a hike of 2 percentage points in service tax and higher excise and customs duty on a host of other items, your household budget is actually set to rise.

In his seventh national budget presented in the Lok Sabha Friday, Mukherjee raised the income tax exemption limit for individuals to Rs.2,00,000 from Rs.1,80,000 and revised the tax slabs to bring relief to some 35 million people in the country. But by bringing virtually all services under the tax net and by hiking the rate from 10 percent to 12 percent -- as also by raising the standard excise rate to 12 percent from 10 percent -- he also ensured you pay more indirect taxes than before. This is why the net impact of his proposals is such that while direct tax measures will result in a net revenue loss of Rs.4,500 crore ($900 million), the indirect tax changes will fetch a net revenue gain of Rs.45,940 crore ($9.1 billion) -- over 10 times more. You may have to pay more for dining out, gold jewellery, luxury cars and smoking, even as you get relief while watching a movie in cinema halls, investing in equities, going for a preventive health check or paying for your child's education. On income tax front, the finance minister proposed new tax slabs in which income up to Rs.2,00,000 will be totally exempt, levy 10 percent on Rs.2,00,000 to Rs.5,00,000, then 20 percent on Rs.5,00,000 to Rs.10,00,000 and 30 percent on income above Rs.10,00,000. "This will provide tax relief of Rs.2,000 to every tax payer," the finance minister said, adding: "My proposal on direct taxes will result in a revenue loss of Rs.4,500 crore." Overall, in the Rs.14,90,925 crore ($300 billion) budget, the fiscal deficit -- which is the total projected expenditure less tax and non-tax revenue, as also loan recoveries -- is pegged at 5.1 percent of GDP, which is lower than 5.9 percent for the current fiscal. He said with the economy getting back on rails, it was time for some tough measures -- a statement endorsed by Prime Minister Manmohan Singh who said it was necessary to "bite the bullet", especially on issues such as subsidies. "When the time comes for taking tough decisions, we hope we will be able to take all our allies on board," the prime minister said, giving his reactions to the budget when asked specifically as to how he hoped to carry the coalition partners along. Even Mukherjee said it was more important to address the challenges than earn brownie points. "Whether or not today's announcements make tomorrow's headlines matters little, as long as they help in shaping the headlines that describe India a decade from now.

For the corporate sector, the finance minister, said, while the tax rates will remain unchanged, he assured cheaper access to funds for expansion, even as he tinkered with the excise rates and customs duties for specific items. Mukherjee said he also proposed to tax every service, but for 17 items specified in what he termed as a negative list, and enhanced the rate of such levy to 12 percent from 10 percent. This is projected to fetch Rs.1,24,000 crore ($24.8 billion) against revised estimate of Rs.95,000 crore ($19 billion) for 2011-12 . Assuring further liberalisation of capital markets, he announced a new equity savings scheme to extend income tax deduction of 50 percent to those who invest up to Rs.50,000 in equities and whose annual income is less than Rs.10 lakh. Mukherjee spelt out some far-reaching reforms in the budget, notably on the subsidy front, which he promised to cut to 2 percent of India's gross domestic product (GDP). "Such a step is needed to improve the quality of public spending," he said, adding the effort now will be to directly transfer subsidies on fertiliser, food and fuels to to the intended beneficiaries. He hoped for an early implementation of the direct tax code and a pan-India goods and services tax to unify federal and state taxes, even as he promised incentives to attract capital for infrastructure development. He also said the government will make an all-out effort to curb outflow of black money and bring back such ill-gotten funds stashed away in tax havens abroad. Mukherjee began his speech touching on the cascading ill-effects of the global slowdown on the Indian economy, but assured people there were clear signs of recovery that should see the country grow at 7.6 percent in 2012-12, against 6.9 percent this fiscal. "The global crisis has affected us. India's gross domestic product (GDP) is expected to grow at 6.9 percent in 2011-12, after having grown at 8.4 percent in each of the two preceding years," he 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 crosscountry comparison, India still remains among the front-runners in economic growth."

At the same time, Mukherjee also 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. "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."