Mukherjee offers direct tax sops but recovers loss in indirect taxes: Budget 2011
February, 28th 2011
The income-tax exemption limit for individuals has been raised from Rs1.6 lakh to Rs1.8 lakh in the budget for 2011-12, giving a relief of Rs20,000 to every taxpayer.
Presenting his third budget as finance minister of the United Progressive Alliance government, and sixth overall, finance minister Pranab Mukherjee also widened the service tax net to cover more services in a move that will raise the cost of air travel, hotel accommodation and drinking alcohol in air-conditioned restaurants.
Mukherjee, however, preferred not to roll back central excise to the levels of November 2008, keeping the duty at 10% while levying a nominal 1% central excise duty on 130 items that will enter the tax net.
Basic food and fuel items will continue to be exempt while the new levy will not apply to precious metals and stones. Jewellery made of gold, silver and precious metals sold under brand names would be covered by the new levy.
Minimum Alternate Tax (MAT) on book profits of companies has been raised from 18% to 18.5% and the lower rate of excise duty has been raised from 4% to 5%.
Mukherjee's income-tax sops included reducing the eligibility age of senior citizens from 65 to 60 and enhancing the exemption limit for them from Rs2.40 lakh to Rs2.50 lakh. He also created a new category of 'Very Senior Citizens' of 80 years and above who will be eligible for a higher exemption limit of Rs5 lakh.
The minister estimated a net revenue loss of Rs200 crore in the budget. The proposals related to indirect taxes are estimated to result in a net revenue gain of Rs11,300 crore, including Rs4,000 crore on service tax expansion, while the proposals on direct taxes are expected to result in a revenue loss of Rs11,500 crore.
The budget for next year pegs the fiscal deficit at 4.6% of the gross domestic product for 2011-12, which works out to Rs4,12,817 crore.
Gross tax receipts are estimated at Rs9,32,440 crore, an increase of 24.9% over the budget estimates for 2010-11.
Net non-tax revenue receipts for the next financial year are estimated at Rs1,25,435 crore. The total expenditure proposed for 2011-12 is Rs12,57,729 crore. Plan expenditure will be Rs4,41,547 crore, an increase of 18%, and non-plan expenditure will be Rs8,16,182 crore, an increase of 10.9% over the budget estimates of 2010-11.
Defence expenditure for the next year has been pegged at Rs1,64,415 crore, an increase of Rs17,071 crore over the last financial year. This includes a capital expenditure of Rs69,199 crore.
"Needless to say, any further requirement for the country's defence would be met," Mukherjee said.
The budget has raised allocation for social-sector spending by 17% to Rs1,60,887 crore and the allocation for the Bharat Nirman programme by Rs10,000 crore.
Allocation for infrastructure has been increased by over 23% to Rs2,14,000 crore and the credit to farmers has been increased by Rs1 lakh crore to Rs4,75,000 crore.
The budget assumes open market borrowing of Rs3.43 lakh crore. Extension of nutrient-based subsidy to cover urea is under active consideration.
In a boost to housing sector finance, the budget continued the scheme of intra-subvention of 1% on housing loans and liberalised it by extending it up to Rs25 lakh from the present Rs10 lakh and Rs15 lakh.
Air travellers will pay Rs50 more on domestic trips and Rs250 on international journeys by economy class as service tax has been raised. Travel in higher classes on domestic journeys would be taxed at the standard rate of 10% to bring it on a par with international high-class travel.
Spreading the service-tax net further, the finance minister proposed to include hotel accommodation costing in excess of Rs1000 a day and service provided by air-conditioned restaurants serving liquor.
Hotels with a declared tariff of Rs1,000 per diem will have to pay service tax with an abatement of 50%, which means an effective burden of 5% of the amount charged.
Air-conditioned restaurants with licence to serve liquor will now be paying service tax with an abatement of 70%, which will mean an effective burden of 3% of the bill only.
The finance minister also proposed various measures to achieve a closer fit between the present service tax regime and its successor goods and services tax (GST).
The new services to be covered are hospitals with 25 or more beds with central air-conditioning, life insurance in the area of investment on the lines of unit-linked insurance plans, legal services provided by business entities to individuals, and representational and arbitrational services by individuals to business entities.
However, there shall be no tax on services provided by individuals to other individuals.
The minister announced a broad set of financial-sector reforms, saying he proposed to move the legislations relating to insurance laws, LIC, revised Pension Fund Bill, Banking Laws (amendment) Bill, State Bank of India Subsidiaries Bill and a bill on Factoring and Assignment of Receivables.
In a massive effort to curb diversion of subsidised items like kerosene, LPG and fertilisers, the budget proposes to introduce from March next year a scheme that will move towards direct transfer of cash subsidy to people living below the poverty line.
On the much-speculated rollback of stimulus measures implemented three years ago in the midst of the global financial crisis, Mukherjee said a counter-cyclical fiscal policy is required for insurance against external shocks and localised factors.
Aiming towards fiscal consolidation, the government proposes to introduce an amendment to the Fiscal Responsibility and Budget Management Act, laying down the fiscal roadmap for the next five years.
The finance minister also proposed to introduce the Public Debt Management Agency of India Bill in Parliament next year.
In a bid to make the foreign direct investment (FDI) policy more user friendly, Mukherjee said discussions are underway to further liberalise the policy.
To liberalise the portfolio investment route, it has been decided to permit mutual funds registered with the Securities and Exchange Board of India to accept subscriptions from foreign investors for equity schemes which will enable Indian mutual funds to have direct access to foreign investors.
To enhance the flow of funds to the infrastructure sector, the FII limit for investment in corporate bonds, with residual maturity of over five years, issued by companies in infrastructure is being raised by an additional limit of US $20 billion, taking the limit to US $25 billion.
This will raise the total limit for FII investment in corporate bonds to US $40 billion.