The Union Budget 2009-10 has been presented in the backdrop of worldwide economic recession. Having got the mandate for stability and continuance of reforms, the Government has made a sincere attempt to put the rail of economic reforms back on track. The Budget contains bold reliefs like discontinuance of fringe benefits tax and surcharge on individuals and firms.
The ICAI is happy to note that the Government has accepted the suggestion of the ICAI for the extension of scope of presumptive taxation to all small businesses with a turnover/ gross receipt of less than Rs.40 lakhs. The rate of presumptive tax would be 8% of turnover/gross receipts. Further, they would also be exempted from applicability of advance tax provisions. Further, another important suggestion accepted by the Government is that the chartered accountants are now eligible to undertake audit under sections 14A and 14AA of the Central Excise Act.
The present budget has given special attention to the economic and social infrastructural sector. Introduction of takeout financing scheme would facilitate incremental lending to the infrastructure sector, refinancing upto 60% of commercial bank loans for public private partnership projects in infrastructure, removing regulatory and institutional bottlenecks for speedy implementation of infrastructural projects, enhanced allocation to highways by 23% over 2008-09 (B.E.), increased allocation to railways to 15,800 crores from 10,800 crores, enhanced allocation by 87% to the Jawaharlal Nehru National Urban Renewal Mission, a 160 percent increase in the accumulated Power Development & Reforms Programmes will go a long way in strengthening the infrastructure sector.
Special impetus to the agricultural sector is a welcome step. Raising of agricultural credit to Rs 3.25 lakh crore, extending the period of loan repayment by farmers under Agricultural Debt Waiver and Debt Relief Scheme (2008) by six months, increasing the allocation to the Accelerated Irrigation Scheme and Provision of direct fertilizer subsidy to farmers are welcome steps.
The budget is rightly concerned about the increasing fiscal deficit. Perhaps these are the results of fiscal initiatives taken by the Government to give boost to the economy. However, economic revival in the present scenario is perhaps more important than controlling fiscal deficit.
Last year, the farm loan wavier scheme could not address the issue of small and marginal farmers who had taken loans from private money lenders and hence the decision to set up a task force to address the issue is a step in the right direction.
There are several welcome measures on the personal taxation front. Although the increase in basic exemption limit is marginal i.e. by Rs.15,000 in case of senior citizens and Rs.10,000 for others, the abolition of surcharge of 10% would definitely benefit individuals whose income is over Rs.10 lakhs. The increase in deduction under section 80DD in respect of a dependent with severe disability from Rs.75,000 to Rs.1 lakh and expansion of scope of section 80E to cover all fields of study including vocational study are welcome measures.
The Budget has given a fillip to the new pension scheme of the Central Government, by exempting NPS Trust from income-tax, dividend distribution tax and securities transaction tax. However, it puts a heavy burden on the tax payer when the proceeds are taxable at the time of withdrawal. Therefore, in the absence of social security network as prevalent in advanced countries, the pension should be exempt from tax at the time of withdrawal.
The two most welcome proposals are the abolition of fringe benefit tax and the commodities transaction tax. These proposals would also considerably reduce the administrative burden of the tax department and increase the plough back of the corporates. However, the discontinuance of the Securities transaction tax would have boosted the capital markets.
For the corporates, the benefit by way of abolition of these taxes has been offset by increase in the rate of MAT from 10% to 15%. This is likely to affect the plough back of profits by companies. The increase in the time-limit for set-off of MAT Credit from 7 to 10 years would only provide a marginal relief to companies. However, on the positive front, the weighted deduction for in-house research is proposed to be extended to all manufacturing industries, with the exception of a negative list. The sunset clause for exemptions under section 10A and section 10B have been extended by one more year. Introduction of investment linked tax incentives to certain businesses like setting-up and operating cold chain warehousing facilities for storing agricultural produce etc. is a right step to incentivise business.
Limited Liability Partnerships (LLP) have been included in the fold of partnership firms. However, the wide ranging suggestions of the ICAI in regard to various tax aspects of Limited Liability Partnerships have not found place in the Statute book.
The amendments in relation to allowing of remuneration of partners in the hands of firms are partially in tune with the suggestions of the ICAI. These amendments would benefit the professional firms also since they can pay higher remuneration to their partners.
The provisions relating to tax deduction at source have been considerably rationalized. There would no surcharge or cess in respect of any TDS provision, with the exception of section 192, for which cess would be applicable. The reduction of rate of TDS under section 194-I from 10% to 2% in respect of rent for plant, machinery or equipment is welcome. The consequence of non-furnishing of PAN by the deductee would result in tax being deducted at a steeply enhanced rate of 20% or more. This will result in better compliance.
There is some relief on the advance tax front also. Advance tax liability would arise only if the tax payable is more than Rs.10, 000.
The increase in exemption limit for levy of wealth tax from Rs.15 lakhs to Rs.30 lakhs is a welcome measure.
The initiative for improving efficiency in the direct tax system by setting up a Central Processing Centre at Bengaluru for processing of all electronically filed return is very commendable. However, the assesse should be permitted to file the acknowledgement in ITR-V with the jurisdictional Assessing Officer.
The assurance of the Finance Minister to introduce the new Direct Taxes Code within 45 days is widely welcome as it is hoped that the complexities of the existing Income-tax Act would be removed.
The Honble Finance Minister has said that there will be acceleration in the process for the smooth introduction of Goods and Services Tax with effect from 1st April, 2010. There has been an agreement on the basic structure of dual Goods and Services Tax comprising of a Central GST and State GST.
Service tax is introduced on legal and medical services. And very rightly, in respect of the legal services, service tax is not applicable in case the service provider or the service recipient is an individual. To rationalize this, the exclusion should be extended to chartered accountants, company secretaries, cost and works accountants and medical professionals.
Regarding refund of services tax to the exporter of goods, Honble Finance Minister has given a welcome relief to the exporter of goods from the administrative difficulties. Now, the Department has to grant refund on the basis of certificate issued by chartered accountants.
It is a welcome step to include chartered accountants for the purpose of conducting audit under sections 14A and 14AA of the Central Excise Act, 1944.
On the whole the budget proposals can be expected to have a favorable effect on the economy, with the positive aspects outweighing the proposals perceived to be negative.