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Indirect Tax Flash by Grant Thornton India
February, 26th 2009

The Interim Budget announced by the acting Finance Minister Pranab Mukherjee received a lukewarm response from the industries and the general public at large

The Interim Budget announced by the acting Finance Minister Pranab Mukherjee received a lukewarm response from the industries and the general public at large. The stimulus package announced on February 24, the third in a row, after the ones announced on December 2 and January 7, comes as a booster to the economy, reducing cost and spurring demand.

Notifications have been issued on February 24 reducing the rates as given hereunder:

Central Excise Duty on manufacture:
There are broadly 3 slabs of central excise duty viz. 10%, 8% and 4%. The 10% rate of excise duty has been reduced to 8%. Further, excise duty on bulk cement has come down from 10% or Rs. 290 PMT (whichever is higher) to 8% or Rs. 230 PMT (whichever is higher).

Countervailing duty (CVD) on imports:
The CVD on imports stands reduced to the same extent from 10% to 8%. This leads to a reduction of the effective customs duty by over 2%.

The reduced rate of excise duty/ CVD would be applicable to goods cleared on or after 24 February 2009.

Service Tax on rendering taxable services:
There has been an across the board reduction of the service tax rate by 2% i.e. from 12% to 10%. This would restore the confidence in the services sector and rationalize the rates of CENVAT and service tax.

The reduced rate of service tax would be applicable to taxable services provided on or after 24 February 2009.

The above reduction in taxes (especially excise duty) combined with the proposed correction in the formula for computing direct tax exemption in respect of export profit of a unit located in Special Economic Zone (SEZ), could trigger renewed interest in SEZ projects under development. As recently as two days ago, the Central Government has approved 10 SEZ projects in the face of the current downturn being witnessed in the real estate sector.

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