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No new taxes? Arun Jaitley's first budget to please the middle class
June, 12th 2014

Finance minister Arun Jaitley's first budget is unlikely to contain new taxes but might see the scrapping of some taxes like the Securities Transaction Tax, and the retrospective taxation introduced by Pranab Mukherjee, according to indications. These and other such measures are in keeping with what the middle class expects from the new government.

Jaitley also believes that proposals related to inheritance tax, suggested by some economists, do not hold good in the Indian context. Jaitley's general views on taxation were expressed during his ongoing consultations with economists and captains of industry.

According to a senior source, Jaitley responded to the economists who suggested an inheritance tax saying, "Nobody wants new taxes. The general mood among the people is that the taxes should be relaxed. The living standards of the citizens in India and the countries where inheritance tax is imposed are not comparable." Rationalisation of the tax regime had been one of the key agendas in the BJP's poll manifesto.

Inheritance tax is imposed in developed countries such as the USA and the United Kingdom. In the UK, inheritance tax is due when the property of the deceased in valued at more than 3,25,000 pounds. It is chargeable at 40% above this threshold, but the rate of interest could be lower if the property is used for charity.

One of the common demand in representations from all sections of stakeholders has been addressing the retrospective tax law, imposed in the Budget of 2012, specifically targeted at Vodafone, which makes windfall profits from India but never paid any taxes after takeover of the previous company. The Vodafone argument, also upheld by the Supreme Court, was that the holding companies is based abroad and so not liable to pay tax in India. The UPA government's legislation overran the Supreme Court verdict in favour of Vodafone.

That legislation made it mandatory for the holding companies based abroad and have bought out other companies also based outside, to pay withholding taxes in India for any such instances from 1962 onwards. This retrospective clause is sought to be changed now and the cut off year is likely to be 2007 when the Vodafone case first came up.

A senior finance ministry official told dna: "Jaitley has asked some economists to come out with suggestions on how the retro taxation could be addressed. Experts, however, feel that this could be done through a simple amendment."

R Nangia, managing partner at tax consultancy firm Nangia and Co said: "All the government needs to do is bring an amendment saying the law will apply prospectively. The government has the numbers and won't face difficulty in getting it passed."

Though Jaitley has also ruled out any mega dole outs to individual tax payers such as exempting income up to Rs5 lakh, there is a high likelihood of increasing the exemption limit, according to senior ministry officials.

These and other initial indications from the finance ministry give enough indications that Jaitley's will be a budget tailor-made for the middle classes. What is not clear yet is whether welfare measures initiated by the UPA government will be cut down because it would mean that the budget will be fattening the wallets of the middle class while depriving the poor of the little dole they get from the government. This could be a politically unsound measure and Jaitley is not likely to risk any such adventure in his first budget.

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