Budget 2010-11

By karan singh, MBA (general )

section -A
 Challenges
• To quickly revert to the high GDP growth path
of 9 per cent and then find the means to cross
the ‘double digit growth barrier’.
• To harness economic growth to consolidate the
recent gains in making development more
inclusive.
• To address the weaknesses in government
systems, structures and institutions at different
levels of governance.
 Overview of the economy
• India among the first few countries in the world to implement a broad-
based counter-cyclic policy package to respond to the negative fallout of
the global slowdown.
• The Advance Estimates for Gross Domestic Product (GDP) growth for 2009-
10 pegged at 7.2 per cent. The final figure expected to be higher when the
third and fourth quarter GDP estimates for 2009-10 become available.
• The growth rate in manufacturing sector in December 2009 was 18.5 per
cent – the highest in the past two decades.
• A major concern during the second half of 2009-10 has been the
emergence of double digit food inflation. Government has set in motion
steps, in consultation with the State Chief Ministers, which should bring
down the inflation in the next few months and ensure that there is better
management of food security in the country.
 Some facts about india
• India’s GDP grew at 5.36% in year 2009-10
• India’s fiscal deficit stood at 6.9% of GDP
• Our debt stood at 75% of GDP
• India’s revenue receipts stood at 682212
crores
• India’s GDP figure stood at 1243 billion $.(by
CIA factfile)
• Our fiscal deficit stood at 3,81,408 crores
 Budget highlights
• Personal tax liability goes down across the board. New
tax slabs are:
• Upto Rs 1,60,000 nil
• 1,60,001-5,00,000 10%
• 5,00,001-8,00,000 20%
• 8,00,001 & above 30%
• Those with an income of Rs 5,00,000 annual get to save
Rs 20,000 directly in taxes. The aim here is to put more
money in the hands of people to encourage spending &
provide boost to the demand.
 Taxation
• Tax exemption for women up to Rs 1,90,000 & for senior citizens up
to Rs 2,40,000
• Professionals with annual income of less than or equal to Rs 15 lacs
do not need to have their accounts audited
• Tax exemption goes up with tax saving limit up by Rs 20,000 to 1.2
lacs from the current 1 lac.
• This has been done by the way of directing investment towards
infrastructure bonds in which up to Rs 20,000 can be invested.
• Comments: a very good way to provide benefits to people as well
as also boosting the infrastructure of the country.
• Fact file: for tax savings up to Rs 1lac under 80 C limit NSC’s & PPF’s
are still the most popular saving schemes
 Taxpayer
Annual income Tax payee Income tax Post budget IT savings
now
Rs 500000 individual 34000 22,000 12,000
women 31000 19,000 12,000
Senior citizens 26000 14,000 12,000
Rs 1000000 individual 1,74,000 1,18,000 56,000
women 1,71,000 1,15,000 56,000
Senior citizens 1,66,000 1,10,000 56,000
Rs 2000000 individual 4,74,000 4,18,000 56,000
women 4,71,000 4,15,000 56,000
Senior citizens 4,66,000 4,10,000 56,000
 Taxpayer
• Budget leaves more money in the hands of
consumers to encourage spending by widening
the tax slabs.
• Educational cess of 3% would still continue
• New saral forms for filing of income tax returns
• No capital gains tax on transformation of sole
proprietorship or other small businesses to LLP
 Taxpayer
• Personal income tax collection : Rs 1,20,566 crores
(2010-11)
• Share of personal income tax in GDP: 1.7%
• Share of gross tax revenues: 16.1%
• Tax collection growth over previous year : -3,6%
• Comments: despite widening of tax slabs, income tax
collection would drop only marginally as compliance is
expected to improve.
• Implementation of direct tax code will pave way for
investment patterns for years ahead
 Agriculture
• To provide Rs 400 crore for introducing green
revolution in Gangetic belt.
• To provide Rs 300 crore for integrated rainwater
harvesting schemes
• Rs 200 crore for launching climate independent
farming schemes.
• Increase godown hiring by FCI from a period of 5
years to 7 years
• Credit allocation for farmers raised from 3,25000 to
3,75000 crores
• External commercial borrowing will be available for
cold storage facilities also
 For the consumer…
• Cenvat hike by 2%. All objects from chips to cars would
become expensive
• Petrol & diesel prices up by Rs 2.67 & Rs 2.58 litres
respectively
• Carmakers up prices by Rs 3000-Rs 1 lac. cars, SUV’s &
MUV’s to cost more due to excise duty hike between 2- 10%.
• Prices of consumer goods to would increase.
• Prices of cigarettes & chewing tobacco to rise.
• Fact file: India's 43.2% India’s expenditure on food, clothing ,
beverages & shoes
 Consumer
• Lcd TV’s may cost between Rs500-1000 more. AC’s price
could go up by Rs 400-500.
• Prices of soap, shampoos, hair care products could rise
between 2-5 %.
• Liquor prices to rise by 5%.
• CD/DVD combo prices to become more expensive.
• Gold prices also increase by Rs 100 / 10 grams. Gold to
cost 200-300 more due to rise in import duty. Import
duty on silver increased by Rs 500 to Rs 1500 per Kg.
• Excise duty cut on deodorants & perfumes by up to 5 %
 Consumers
• Airfares will go up because of service tax being proposed to
be levied on the economy class.
• Health insurance by companies & health check ups ordered
by companies would be more expensive due to it being
brought under service tax.
• Coaching classes, firms engaged in brand promotion &
sports sponsorship services will also be taxed
• Service tax to be levied on services like renting of house,
renting a vacant land for business purposes & freight rates
of railways.
• To provide banking facilities to places having more than
2000 inhabitants
 The investor
• Disinvestment drive stepped up, more PSU’s expected to be a part
of disinvestment drive with cumulative earnings of up to Rs 40,000
crore expected
• High net worth individuals can no longer escape tax net by
becoming NRI’s
• Bullion over 50000 received as “gift” to be taxed
• Vijaya, Uco, central & union bank to bgain from Rs 16,500 crore
infusion
• IPO’s & FPO’s by state run firms will improve the market breadth &
length
• New investment avenue in the form of tax free infrastructure
bonds.
 The investor
• Bank NPA’s to dip as farmers get more time to repay the debt.
• Service tax to be charge on transaction if builder does not
produce a completion certificate.
• New electronic data registry to store title details will curb
home loan frauds
• Tax rejig to enhance ULIP return, more money out of
premium is invested
• Service tax on mediclaim will be settled between insurers &
hospitals & money will be recovered from policy holders
• Health insurance costs set to rise.
 The investor
• Financial stability & development council to watch regulators
& control turf war.
• MF’s relieved as dividend distribution tax remains unchanged
• NPS or new pension scheme introduced.
• Unrealized gains of non-life insurance companies will not be
taxed
• Top banks to benefit more from capital infusion & benign
interest rate
• HIKE IN MAT(minimum alternate tax) ; a form of service tax
• Realty, housing, finance & mortgage poised for vertical growth
 The investor
• More disposable income will fuel growth in auto companies
• Greater emphasis on infrastructure growth companies
• Power utilities affected by the way of imposition of MAT
• Higher duty on tobacco & tobacco products passed on to
consumers
• Revised personal tax slabs to boost consumption
• Auto & ancillaries , durable companies to gain despite higher
excise.
• Weighted deduction in R&D, providing incentives of upto
200%
 The investor
Healthcare companies to benefit from higher
planned expenditure
Increased defense expenditure to benefit
indigenous suppliers like rolta
Impetus to government funded education schemes.
Fertilizer & irrigation companies to benefit from
higher agri & rural development allocation
Textile, gems & jewellery company to gain on
extension of interest rate subvention
 The investor
• Estimated rise of 5-6% in disposable incomes to benefit retail
companies
• Impetus on agri-conservation to improve farm yields, positive for
agro companies
• Marginal impact of higher excise on cement companies; could pass
burden on user companies.
• Higher customs duty on liquid fuels to increase fuel costs of
chemical companies.
• Lower government borrowings to create safe environment for fixed
income funds
• Enhanced flow of funds to rural India to widen consumption led
investment
 business
• Lower government borrowings will ensure the private sector
is not crowded out
• Excise duty hike will cause some price rise
• Compliance for small businesses with annual earning not
exceeding Rs 60 lac eased up
• STPI (software technology park of india)tax holiday not
extended beyond mar 2011
• Pre packaged sopfware to only attract customs & excise levy
• Increased spending on E-governance, more focus on IT
• National clean energy fund established with a corpus of Rs
2000 crores.
• Allocation for MSME sector raised by 33% to 2400 from
current 1800 crores
 Business
• 5% concession on customs duty for solar products.
• IT/BPO firms will get service tax refunds of Rs 3000 crores owing to
the new structure.
• Extension of special additional duty on mobile phone accessories
• Interest subvention of 2% for one more year for handicraft exporting
units
• More government IT projects like tax management, treasury, goods
& NPS for tech companies
• New coal regulator to help open up sector.
• Rs 66,100 crore infusion in rural development schemes
• Fact file: $216 million was invested as PE & VC in clean energy
related business ventures
 Business
• IIFCL’s disbursements double to more than Rs 20,000 crores.
• Development plans become costly as excise duty rises by 10
% on building materials like steel, cement. Direct impact on
infrastructure.
• Rise in coal price due to concessions on clean energy. Rise
of .03 Rs / unit of electricity.
• MAT rate increased to 18% from 15%.
• Surcharge on corporate tax reduced to 7.5% from the current
10%. A change of .7725% in overall tax rate of companies.
Not a big but welcome change.
• Real estate companies get more time to claim deductions on
profit.
• Fund corpus for micro finance doubled to 400 from existing
200 crores
 Business
• Hike in MAT to affect tax rates of companies overall by 2.9355%.
• Income tax on shares received as “gifts”.
• Pending housing & real estate projects can be completed in 5
instead of the current 4 yrs limit.
• New hotels will get tax holidays till they start making profits.
• Direct tax revenue: 3,87,008 crores
• Corporate tax revenue: 2,55,076 crores.
• Tax rate 33.99%
• Direct tax share in GDP: 66%
• Direct tax collections will rise just 7%
 Business
• CENVAT rate hiked to 10%
• Service tax rate unchanged @ 10%. More services however in
service tax ambit.
• GST to be introduced from April 1 2011.
• Peak customs duty unchanged. Customs on crude oil @ 5%.
• Duty on big cars hiked to 22%, on smaller cars 10 % from the
current 8%.
• Government imposes service tax on construction of complexes.
• Freight costs of coal, iron ore rises by Rs 100/ tonne. More cost
increase of basic raw materials.
• Service tax on sponsorship of cricketing events like IPL
 Economy
• More money in taxpayers hands & greater allocation for
government programmes to boost consumption
• More private funds through infrastructure bonds
• New banking licenses being rolled out in private sector
• To boost investor confidence & help investment flows.
• Fiscal deficit target @ 5.5% of GDP for the year 2010-11, to
be brought down to 4.8 % the next year & then 4.1% the
next year.
• More transparency in govt accounting, to be backed with
legislation.
• Unified rate for goods & services, a move towards GST
 Economy
• Talks about fiscal consolidation. With this India joins the
select group of companies that have begun to exit the
stimulus provided for overcoming the recession.
• to bring public debt down to 68% by 2014-15
• Effect on direct tax collection to the tune of Rs 26000 crore
• Non planned expenditure to rise by just 4%
• Tax revenues to go up by 14%
• Rise in GDP of 12.5%.
• Planned expenditure to move up by 18.45%, twice of 8.5%
for the year 2009-10
 Economy
• Total government expenditure: Rs 11,08,749 crores
• Growth : 119% in the last 5 years
• Borrowings : 3,81,408 crores
• There is a need to review the stimulus package provided
to industry
• No service tax on farm seed testing & certification
• Status paper on public debt to be presented in the next 6
months
• Fact file: 17.8 trillion $ , India’s GDP by 2050 which would
make it the 3rd largest economy after USA & China
 Economy
• With government borrowings declining there will be less
pressure on interest rates & private sector can borrow
more
• No more bonds for fertilizers & oil companies; all
subsidies will be paid in cash
• More indirect taxes in budget, service tax net widens up
• Central GST to be 10%
• Social & rural infrastructure sectors to make up 62% of
the planned outlay.
• Rs 1000 for new NPS accounts
 Economy
• Allocation for healthcare sector has been .36% of GDP, same as
last year’s allocation & a far cry from the required 2-3% promised
• 4000 crore increase in allocation in the education sector.
• Hike in NREGA of Rs 1000 crore, outlay rises to Rs40100 crores
• expected growth in agriculture to be 4%.
• Slew of income tax, customs & excise duty reductions to
encourage private participation in the farm sector.
• Effective rate of 5% for short term loans as against the current 7%
• No fertilizer price hike. nutrient based subsidies system on the
anvil.