Reduction of duty on petrol and diesel, expanding the safety net for rural poor, additional one per cent cess to fund secondary and higher education and expansion of the service tax net are some of the highlights of the Union Budget 2007-08 presented by the Finance Minister Shri P Chidambaram in Lok Sabha on Wednesday.
On excise duty the Finance Minister has brought down the ad valorem component from 8 per cent to 6 per cent on petrol and diesel. The peak rate of customs duty for non-agricultural products has been slashed from 12.5 per cent to 10 per cent. While cigarettes and bidis will cost more, duty on pan masala not containing tobacco has been reduced from 66 per cent to 45 per cent.
Duties on most chemicals and plastics have been reduced from 12.5 per cent to 7.5 per cent and customs duty on polyester fibers and yarn has also been reduced from 10 per cent to 7.5 per cent. The Gem and jewellery industry gets relief with duty on cut and polished diamonds reduced from 5 per cent to 3 per cent. Dredgers have been fully exempted from import duty.
Duty on drip irrigation systems, agricultural sprinklers and food processing machinery have been reduced by 2.5 per cent. Additional countervailing duty of 4 per cent has been completely lifted from crude and refined edible oils.
On the direct tax front, there is no change in the tax rate. However, the threshold limit for income tax payers has been increased by Rs. 10,000, giving every tax payer a relief of Rs. 1000. The new threshold limit for women will be Rs. 1,45,000 and for senior citizens Rs. 1,95,000.
Companies with a taxable income of Rs. 1 crore or less, will not have to pay surcharge on income tax. Companies providing cross country natural gas distribution network, including gas pipeline and storage facilities will be entitled to tax concession.
Chidambaram said tax-free bonds will be issued through State Pooled Finance Entities to facilitate creation of urban infrastructure.
Dividend distribution tax has been hiked from 12.5 per cent to 15 per cent. 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.
Chidambaram also proposed a levy of 1 per cent additional cess on all taxes to fund secondary and higher education and expansion of capacity by 54 per cent for reservation for socially and educationally backward classes.
While the Service Tax rate has been left untouched, new services have been brought into the taxable fold.
They include services outsourced for mining of minerals, oil or gas, asset management and design services, development and supply of content for use in telecom and advertising purposes and renting of immovable property for commercial purpose. The Finance Minister also raised the exemption limit for small service providers from Rs 400,000 to Rs 800.000. Two lakh assesses will go out of tax net causing a revenue loss of Rs 800 crore. All services provided by technology business incubators and clinical trial of new drugs have been exempted from service tax net.
The 8 flagship programmes of the UPA Government will continue to get high priority. The Finance Minister has allocated Rs. 24,603 crore for Bharat Nirman programme, recording a rise of 31.6 per cent over the last year. While the allocation on education has been increased by 34.2 per cent to Rs.32,352 crore, the allocation for health and family welfare has been increased by 21.9 per cent to Rs. 15,291 crore.
Sarva Shiksha Abhiyan gets Rs.10,671 crore and the Mid-Day Meal Scheme will be extended to upper primary classes in 3,427 educationally backward blocks.
The Finance Minister also proposed Rs. 750 crore for Means-cum-Merit Scholarships to reduce drop outs after class VIII.
National Rural Employment Guarantee Scheme will be extended to 330 districts from the current level of 200 districts. The Finance Minister has allocated Rs. 12,000 crore for this scheme besides allocating Rs. 2,800 crore for Sampoorna Gramin Rozgar Yojna to augment rural employment. The allocation for Swarnajayanti Gram Swarozgar Yojna has been hiked by 50 per cent, from Rs. 1200 crore to Rs. 1800 crore to promote self-employment among rural poor.
Chidambaram said to increase the economic viability of the agricultural sector, 50 lakh new farmers will be brought into the banking system next year with a target of Rs. 2,25,000 crore as farm credit.
He said the Government will act on the Radhakrishnan Committee which is examining all aspects of agricultural indebtedness. The Finance Minister also promised capital grant or concessional financing to double the production of certified seeds for pulses. He also proposed a financial mechanism for coffee, rubber, spices, cashew and coconut in line with a Special Purpose Tea Fund which has already been launched.
The allocation under accelerated irrigation benefit programme has been increased from Rs 7,121 crores to Rs. 11,000 crore. Out of this, the grant component to the State Governments will be Rs. 3,580 crore.
Keeping in view the growing demand for rural infrastructure development fund, the Finance Minister proposed to increase the size of this fund to Rs. 12,000 crore.
The Finance Minister proposed to bring the unorganised landless households under a safety net by providing insurance. The scheme to be called 'Aam Admi Bima Yojna' will be launched by the LIC and will provide death and disability insurance. The Central Government will bear 50 per cent of the premium of Rs.200 per year per person.
The National Housing Bank will introduce 'reverse mortgage' for senior citizens under which the house owner can avail of a monthly stream of income while remaining owner and occupying the house. Chidambaram said regulations will be put in place to allow the creation of mortgage guarantee companies.
On the capital market the Finance Minister said Indian companies will be permitted to issue exchangeable bonds to unlock a part of their holdings in group companies. PAN will be the sole identification number for all participants in the securities market. Mutual funds will be permitted to launch dedicated infrastructure funds to promote flow of funds into the infrastructure sector.
The Finance Minister said work in the Golden Quadrilateral is nearly complete and there is considerable progress in North-South, East-West corridor project. He also allocated Rs. 10,667 crore for the National Highway development programme for the coming year. The accelerated power development and reform project which has reduced technical and commercial losses in 213 towns is being restructured to cover all district headquarters and towns with a population of over 50000. Chidambaram has allocated Rs. 800 crore for this project during the coming year and another Rs. 3983 crore under Rajiv Gandhi Grameen Vidyutikaran Yojana.
The Finance Minister proposed to give a five-year tax holiday to two, three and four-star hotels in the national capital territory of Delhi, ahead of the 2010 Commonwealth Games. Convention centres with a sitting capacity of not less than 3,000 will also get tax holiday if they are completed and begin operation between April 2007 and March 2010. The Minister has also provided Rs. 150 crore to the Ministry of Youth Affairs and Sports and Rs. 350 crores to the Delhi Government for the Games.
Chidamabaram said the direct tax proposals will yield Rs. 3000 crore more while the indirect tax proposals are revenue neutral. He also allocated Rs. 96,000 crore for defence. The gross budgetary support for 2007-08 has been increased to Rs. 2,05,100 crore, of which the Central Plan will be Rs. 1,54,939 crore.
The non-plan expenditure marks a rise of 6.5 per cent to Rs. 435,421 crore. The total revenue receipts of the Central Government is projected to be Rs. 486,422 crore. The revenue deficit has been pegged at 1.5 percent of the GDP at Rs. 71,478crore while the fiscal deficit has been fixed at 3.3 per cent of the GDP.
Reiterating UPA Government's commitment to economic reforms, fiscal prudence and monetary stability, Chidambaram said revenues are buoyant for the third year in succession. Additional revenues have been generated and have been used to promote inclusive growth, equity and social justice that are at the core of the National Common Minimum Programme. He expressed the confidence that the current average inflation on 5.2 per cent to 5.4 per cent can be moderated.