In a play-safe Budget, Finance Minister P Chidamabaram on Wednesday gave marginal relief to income tax payers and announced some anti-inflationary measures in his fourth budgetary exercise, which was received with disappointment by trade and industry.
Personal and corporate income tax rates remained unchanged while the threshold exemption limit has been raised by Rs.10,000 giving a relief of Rs.1,000 to all individuals. The deduction for medical insurance premium has been hiked to Rs.15,000 and it will be Rs.20,000 for senior citizens, that is those above 65 years of age.
The new threshold limit in income tax for women will be Rs 145,000 and for senior citizens Rs 195,000.
However, Chidambaram hiked the education cess from two per cent to three per cent to net an additional Rs 5,000 crore (Rs 50 billion) to fund secondary and higher education As anti-inflationary measures, Chidambaram announced a ban on futures trading on staples wheat and rice in all commodities exchanges.
He also gave excise duty relief for cement sold in retail at Rs.190 per bag and exempted crude as well as refined edible oils from additional countervailing duty of four per cent to make them affordable.
The duty on sunflower oil, both crude and refined, was reduced by 15 per centage points.
However, for the industry the divident distribution tax has been hiked from 12.5 per cent to 15 per cent while money market mutual funds and liquid mutual funds will attract 25 per cent dividend distribution tax.
The scope of Fringe Benefit Tax has been expanded to include employees stock option plan. While the jittery stock market tanked 540 points with BSE closing below 13,000 points level on top of global melt down, corporate leaders were disappointed at not getting any industry-specific incentives or relief in corporate taxes and surcharge.
By and large the industry and market leaders feel that the budget gave negative sentiments in the short-term but expressed the hope that the economy would emerge stronger in the long run.
"I have not done anything to hurt growth," Chidambaram said at the traditional post-Budget briefing while stressing that a number of measures have been taken to moderate inflation.
Other tax proposals
- Dividend distribution tax raised from 12.5 to 15 per cent.
- ESOPs to be brought under FBT.
- Expenditure on samples and free distribution items to be exempted from fringe benefit tax.
- Additional revenue from direct taxes to yield Rs 3000 crore and indirect taxes revenue neutral.
- Tax exemption on aviation turbine fuel sold to turbo prop aircraft extended to all small aircraft less than 40,000 kg.
- Withdrawals by central and state governments exempted from Banking Cash Transaction Tax. The limit for individuals and HUF raised from Rs 25,000 to Rs 50,000.
- Corporate Tax Rates Unchanged
- No surcharge for SMEs (firms with a taxable income of Rs 1 crore (Rs 10 million) or less).
Indirect Tax Proposals
- Peak Rate For Non Agricultural Products From 12.5% to 10%
- Second and defective steel from 20% to 10%
- No Duty on Coking Coal
- Customs duty on Polyster Fibre and Yarns down to 7.5%
- Duty on Cut and Polished diamonds from 5 to 3%
- Dredgers to be exempt from import duty
- Duty on Drip Irrigation, Agricultural Sprinklers and Food processing machinery from 7.5% to 5%
- General rate on medical equipment to 7.5%
- Duty on Sunflower Oil down 15 percentage points
- Duty on pet foods down from 30 to 20%
- Excise & Service Tax: No change in Excise and Service Tax Rates
- Ad-valorem component on petrol and diesel down from 8% to 6%
- Excise & Service Tax:Relief for deserving cases in job creating sectors
- SSIs exemption from Rs 1 crore to Rs 1.5 crore
- Exemption limit for small service providers from Rs 4 lakh to Rs 8 lakh. Two lakh assessees will go out of service tax. Revenue loss will be Rs 800 crore
- Two lakh people to benefit out of service tax exemption. Govt to lose Rs 800 crore as a result.
- Service tax on Residents Welfare Associations whose members contribute more than Rs 3,000.
- Surcharge on Corporate income tax on companies below Rs one crore removed.
- Tax free bonds to be issued by state-owned urban local bodies.
- Five year tax holiday for two, three, four star hotels and convention centres with a seating capacity of 3,000 in NCT of Delhi, Gurgaon, Ghaziabad, Faridabad and Gautam
- Minimum Alternate Tax being extended to I-T companies.
- Benefits of investment in venture capital funds confined to IT, bio-technology, nano-technology, seed research, dairy among some others.
Photograph: Saab Pictures