UNION BUDGET- 2010-2011

Vision & Objective: 

        

GDP Growth to be targeted at 9% Target of Rs 25,000 cr disinvestment this year Direct Tax Code and GST will be implemented from April 1, 2011 Fertilizer Subsidy to be reduced GDP to reach 10% in near future To consider Parikh Report on Fuel Price FDI Regime to be simplified Inflation Rate to be lowered in 2 Months 2% interest subvention for Exports extended for one year Committed to SEZ Growth

BANKING 
    
RBI considering issuing banking licences to private companies. Non-banking finance companies will also be considered if they meet the criteria. Government to provide Rs16,500 crore to public-sector banks to maintain tier-I capital. This will improve the lending capacity of these banks The Budget 2010 has also made additional provisions of capital for lending to Rural Areas. Banking facilities to be provided to all habitations with a population of 2,000 and more

INFRASTUCTURE 
Rs. 1.37 lakh crore for Infrastructure Development  Railways to be allocated Rs 16,772 crore  Road Development allocation increased to 19,894 crore  20 km National Highway to be built everyday  Proposal to hike allotment for renewable energy by 61%  To Establish Clean Energy Fund 
More than double allocation for Power Sector to 5,130 crore

INFRASTUCTURE 
One-time grant of Rs 200 crore for Tamil Nadu dor Textiles  NREGA Allocation at Rs 40,100 crore  Rs 1200 crore package for drought-hit Bundelkhand  Ganages - Rs 500 crore 
Bharat Nirman Yojna - Rs 48,000 crore  Solar Energy - Rs 1,000 crore  Tirupur Textile Industry - Rs 500 crore  Goa - Rs 200 crore special package  To set up 20,000 MW Solar Power by 2022  Delhi-Mumbai Industrial Corridor to be set up

TECHNOLOGY 

Unique ID to be given on time  Tech Advisory Group to set up under Nandan Nilekani  Rs 19000 crore allocated for Unique ID Project  Rupee to have new Symbol. A new look Rupee to come up soon.

RURAL DEVELOPMENT 
    
For rural development,Rs.66,100 crore have been allocated. Allocation for National Rural Employment Guarantee Authority stepped up to Rs 40,100 crore in 2010-11. Indira Awas Yojana's unit cost raised to Rs45,000 in the plains and Rs.48,500 in hilly areas. Allocation for urban development increased by 75% to Rs.5,400 crore in 2010-11. An amount of Rs.48,000 crore allocated for rural infrastructure programmes under Bharat Nirman. Banking facilities to be provided to all habitations with a population of 2,000 and more

AGRICULTURAL& RELATED SECTOR 
In view of drought and floods, debt repayment period extended to June 2010.  Farmers, who repay loan on time, will get a waiver of 2%  Farmers to get Loans at 5%  Rs.200 crore to be provided in 2010-11 for climateresilient agricultural initiative  Five more mega food processing projects in addition to 10 existing ones.  Rs 300 crore for Rashtriya Krishi Vikas Yojna  Rs 400 crore to be allocated for Green Revolution in Eastern India  Agriculture Loan for Farmers increased to Rs 3,75,000 crore

EDUCATION & HEALTH 
 

Allocation for School Education increased from Rs 26,800 crore to Rs 31,036 crore i.e.16 % In addition, States will have access to Rs.3,675 crore for elementary education under the Thirteenth Finance Commission grants for 2010-11.
Sarva Siksha Abhiyaan - Rs 36,000 crore  

Allocation for Health at 22,300 crore special focus on AIDS control and mental health programmes and the prevention of diabetes and cardiovascular diseases
National Health Insurance Scheme for NREGA Workers, who work for 15 days in a Month 



An Annual Health Survey to prepare the District Health Profile . Plan allocation to Ministry of Health & Family Welfare to Rs 22,300 crore for 2010-11.

SOCIAL WELFARE 
Plan outlay for Women and Child Development stepped up by almost 50 per cent.  The ICDS platform being expanded for effective implementation of the Rajiv Gandhi Scheme for Adolescent Girls.  ³Saakshar Bharat´ to further improve female literacy rate launched with a target of 7 crore non-literate adults which includes 6 crore women.  Mahila Kisan Sashaktikaran Pariyojana to meet the specific needs of women farmers to be launched with a provision of Rs 100 crore as a sub-component of the National Rural Livelihood Mission.  Plan outlay of the Ministry of Social Justice and Empowerment enhanced by 80 per cent to Rs.4500 crore. With this enhancement, the Ministry will be able to revise rates of scholarship under its postmatric scholarship schemes for SCs and OBC students.  Plan allocation for the Ministry of Minority Affairs increased by 50 per cent from Rs.1,740 crore to Rs.2,600 crore for the year 2010-11.

ENVIRONMENT AND CLIMATE CHANGE 
National Clean Energy Fund for funding research and innovative projects in clean energy technologies to be established.  One-time grant of Rs.200 crore to the Government of Tamil Nadu towards the cost of installation of a zero liquid discharge system at Tirupur to sustain knitwear industry.  Rs.200 crore provided as a Special Golden Jubilee package for Goa to preserve the natural resources of the State, including sea beaches and forest cover.  Allocation for National Ganga River Basin Authority (NGRBA) doubled in 2010-11 to Rs.500 crore.  Schemes on bank protection works along river Bhagirathi and river Ganga- Padma in parts of Murshidabad and Nadia district of West Bengal included in the Centrally Sponsored Flood Management Programme. 
A project at Sagar Island to be developed to provide an alternate port facility in West Bengal.

FISCAL CONSOLIDATION
A IS F C LD F IT IS A IC
7 6 5 4 3 2 1 0 2008-09 2009-10 2010-11 2011-12 6.00 6.70 5.50 4.80

FISCAL DEFICIT

TH GOV NM NT HAS BUDG T D A FISCAL D FICIT OF 5.5 % OF GDP FO 10-11 DO N F OM 6.7 % LAST A . Targeting at Disinvestment of s 25,000 crores and Auction of 3G Spectrum

INCOME TAX 2010-11

DIRECT TAXES
The proposed new rates for IT are as follows:

Income Up to Rs. 1,60,000 Rs. 1,60,001 to Rs. 5,00,000 Rs. 5,00,001 to Rs. 8,00,000 Above Rs. 8,00,000

Tax Rate Nil 10% 20% 30%

The following table show cases the tax benefit for different income levels. Including edu cess
(Rs.)

Income Level Male 4,00,000 6,00,000 8,00,000 Ladies 4,00,000 6,00,000 8,00,000 Senior Citizens 4,00,000 6,00,000 8,00,000

Old Slabs 35,020 86,520 1,48,320 31,930 83,430 1,45,230 26,780 78,280 1,40,080

New Slabs 24,720 55,620 96,820 21,630 52,530 93,730 16,480 47,380 88,580

Difference 10,300 30,900 51,500 10,300 30,900 51,500 10,300 30,900 51,500

DIRECT TAXES 
In the words of the finance minister, ³ this proposal will bring relief to about 40 per cent of the current tax payers´.  Deduction of an additional amount of Rs. 20,000 allowed, over and above the existing limit of Rs.1 lakh on tax savings, for investment in long-term infrastructure bonds as notified by the Central Government  Besides contributions to health insurance schemes which is currently allowed as a deduction under the Income-tax Act, contributions to the Central Government Health Scheme also allowed as a deduction under the same provision.  On the paperwork front too there is some cheer as the finance minister has said that a two page SARAL -2 is ready and will simplify the process of filing our returns.  Rate of Minimum Alternate Tax (MAT) increased from the current rate of 15 percent to 18 per cent of book profits.  Current surcharge of 10 percent on domestic companies reduced to 7.5 per cent.

DIRECT TAXES 
To further encourage R&D across all sectors of the economy, weighted deduction on expenditure incurred on in-house R&D enhanced from 150 per cent to 200 percent. 

Limits for turnover over which accounts need to be audited enhanced to Rs. 60lakh for businesses and to Rs. 15 lakh for professions.  If tax has been deducted on payment by way of any expense and is paid before the due date of filing the return, such expenditure to be allowed for deduction. Interest charged on tax deducted but not deposited by the specified date to be increased from 12 per cent to 18 per cent per annum.  Proposals on direct taxes estimated to result in a revenue loss of Rs. 26,000 crore for the year.

TAX AUDIT LIMITS INCREASED
Under the existing provisions of section 44AB, every person carrying on business is required to get his accounts audited if the total sales, turnover or gross receipts in business exceed Rs. 40 lakh. Similarly, a person carrying on a profession is required to get his accounts audited if the gross receipts in profession exceed Rs. 10 lakh. These limits have been increased to Rs. 60 lakh and Rs. 15 lakh respectively.

CHANGE IN GIFT TAX PROVISIONS

Under the existing provisions of section 56(2)(vii), any sum of money or any property in kind which is received without consideration or for inadequate consideration (in excess of Rs. 50,000) is taxable in the hands of the recipient. Of course, receipts from relatives or on the occasion of marriage or under a will are outside the scope of this provision. Nonetheless this law is only applicable to an individual or an HUF.

INDIRECT TAXES 
Rate reduction in Central Excise duties to be partially rolled back and the standard rate on all non-petroleum products enhanced from 8 per cent to 10 per cent ad valorem.  The specific rates of duty applicable to portland cement and cement clinker also adjusted upwards proportionately. Similarly, the ad valorem component of excise duty on large cars, multi-utility vehicles and sports-utility vehicles increased by 2 percentage points to 22 per cent.  Restore the basic duty of 5 per cent on crude petroleum; 7.5 per cent on diesel and petrol and 10 per cent on other refined products. Central Excise duty on petrol and diesel enhanced by Re.1 per litre each.  Some structural changes in the excise duty on cigarettes, cigars and cigarillos to be made coupled with some increase in rates. Excise duty on all non-smoking tobacco such as scented tobacco, snuff, chewing tobacco etc to be enhanced. Compounded levy scheme for chewing tobacco and branded unmanufactured tobacco based on the capacity of pouch packing machines to be introduced.

CHEAPER PRODUCTS 
CNG, Mobile, Medicines, Refrigerators, Medical Equipments, Farm Equipments, Mobile Phones, Mobile chargers, Watches, Readymade Garments, Microwave Ovens, Toys, Foreign Farm Equipments, Set Top Boxes, Water Purifier, LED Lights

DEARER PRODUCTS 
Petrol, Diesel, Coal, cigarettes, Cement, Large Cars, Jewelry, Gold, TV Sets, ACs, Silver, Pan Masala

IMPACT OF INDIRECT TAXES
Proposal - Excise duty has been increased from 8.24% to 10.3%,rolling back the fiscal stimulus duty concessions. Impact - Most of the articles purchased for daily use are likely to be dearer by 2.5% to 3%. Proposal - Construction of new building, intended for sale by builder, during or after construction, to prospective buyer (except where no money is received from prospective buyer before grant of completion certificate) will be deemed to be a taxable service Impact - Buying a new 2 BHK costing Rs 2.5 crore in Bandra may possibly cost Rs 2.59 crores. Proposal - Basic customs duty on gold bars bearing serial numbers (other than tola bars) and gold coins has been increased by Rs 100 per 10 grams. Impact - Imported gold bars and coins of 10 grams could be costlier by Rs 110 to Rs 120 per 10 grams.

IMPACT OF INDIRECT TAXES
Proposal - Imported mobile phones will be exempted from levy of Special CVD (of 4%). Impact - Cost of an iPhone imported directly reduced by around 4-5 %.

TAX REFORMS
DIRECT TAX CODE
What Hon. FM says about DIRECT TAX CODE«.

³I am happy to inform the Honourable Members that the process for building a simple tax system with minimum exemptions and low rates designed to promote voluntary compliance, is now nearing completion. On the Direct Tax Code the wide-ranging discussions with stakeholders have been concluded. I am confident that the Government will be in a position to implement the Direct Tax Code from April 1, 2011´. This code if implemented seeks to replace the 48-year-old Income Tax Act, 1961, which in turn had been largely influenced by Income Tax Act 1922

GOODS AND SERVICES TAX (GST)
Centre actively engaged with the Empowered Committee of State Finance Ministers to finalise the structure of Goods and Services Tax (GST) as well as the modalities of its expeditious implementation. Endeavour to introduce GST by April, 2011

IMPACT OF BUDGET ON VARIOUS SECTORS
AUTOMOBILE  Budget announcements are unlikely to have a major impact. The overall impact on passenger cars, two-wheelers and tractors,though,is positive while that on commercial vehicles will be marginally negative  The reduction in direct taxes for individuals is expected to lead to increased demand for passenger cars. Rise in disposable income will also offset the expected hike in the prices of cars. A typical compact car, for instance, is expected to be costlier by Rs 6,000-7,000,in line with the hike in excise duty.  Commercial vehicle prices will rise as well. Operating expenses are expected to increase by around 2%,thus negatively affecting transporter profitability.  Continued focus on rural development will marginally benefit two-wheeler and tractor sales.

OIL AND GAS 
Subsidy on petroleum products will be disbursed as cash to oil marketing companies (OMCs).  This would significantly reduce working capital stress on OMCs.  Increase in customs duty across crude oil and petroleum products would translate in higher duty protection for refiners.  The resultant increase in refinery gate prices for retail auto and cooking fuels, if absorbed by OMCs, would translate in a rise of almost Rs 11,000-14,000 crore in under-recoveries in 2010-11 P.  Further, additional central excise on petrol and diesel of Re 1 per litre each, if passed on to the end consumer, would have no implication on the profits of OMCs.  Retail selling prices would rise Re 1.25 a litre. However, if retail prices are adjusted to reflect the hike in customs duties, the required hike in petrol and diesel retail prices would be to the tune of Rs 2.4-2.6 a litre.

BANKING AND FINANCE 
The government has proposed a Rs 16,500-crore Tier-I capital infusion in 2010-11,which is significantly higher than Rs 1,200 crore provided in 2009-10.  This would preserve the governments holding in public sector banks as well as provide an opportunity to raise other resources for credit expansion while maintaining a healthy capital-to-risk weighted asset ratio.  The extension of loan waiver to farmers would postpone the recognition of non-performing assets in banks agriculture portfolio in March 2010.The overall impact is neutral.

POWER 
The budgetary allocation for the sector, excluding Rajiv Gandhi Grameen Vidyutikaran Yojana (RGGVY), has been raised to Rs 5,130 crore from Rs 2,230 crore. The hike in MAT to 18% from 15% would have a neutral impact, as it would be passed on to end-users. A clean energy cess of Rs 50 per tonne will be levied on domestic and imported coal. As fuel costs are passed on to consumers, power tariffs are expected to rise by 2-3 paise per kwh. There will be a marginal pressure, though, on companies which sale power in the open market.

CEMENT 
The Budget is expected to have an overall negative impact due to a 2% hike in excise duty.  Companies are not expected to pass on this increase to consumers due to falling operating rates following significant capacity addition.  Measures to spur housing and infrastructure investments, though, will have a marginally positive impact on demand.

STEEL 
The Budget impact is expected to be neutral.  The 2% hike in central excise duty is expected to be passed on to consumers, thereby pushing up prices by Rs 500-750 a tonne.  The expected rise in the cost of manufacturing due to the levy of cess on coal (Rs 50 a tonne) is also likely to be passed on.  The focus on increasing infrastructure investments in railway, urban infrastructure and housing is likely to lend support to steel demand.

INFRASTUCTURE 
Higher allocation towards infrastructure sectors and continued takeout financing and refinancing plans of IIFCL will have a positive impact.  Additional deduction available for investment in long-term infrastructure bonds for individuals will improve fund availability.  Additionally, concession on import duty for monorail projects would reduce capital cost for players.  Hike in minimum alternative tax rate to 18% of book profits, though, will negatively impact financials of operational BOT projects.