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Corporate taxes untouched, slight relief in personal tax
New Delhi, July 6, 2009
Finance Minister Pranab Mukherjee arrives at Parliament to present the 2009-10 General Budget on Monday. Minister of State for Finance S S Palanimanickam is also seen.
Presenting the budget in the Lok Sabha, the first in the second five-year term of the Congress-led United Progressive Alliance (UPA) government, Mr Mukherjee said the budget was also aimed at deepening and broadening the agenda for inclusive development and to energise government and improve delivery mechanisms.
The Budget is normally presented on the last working day of February but this year the government had presented only an interim budget because the General Elections were due only a few weeks later and it felt the regular budget should be presented by the new government.
Mr Mukherjee said the renewed mandate won by the government was, in the words of Prime Minister Manmohan Singh, a vote for continuity, stability and prosperity and for inclusive growth and equitable development.
He said he was sensitive to the great challenge of rising expectations of a young India that is restless, yet engaged and ready to seize the opportunities that it is presented with. "There are new and powerful reasons for us to create, facilitate and sustain those opportunities," he said.
Pointing out that the Budget was drawn up against the background of the global economic crisis, Mr Mukherjee stressed that a single budget speech could not solve all of the country's problems and nor was it the only instrument to do so.
The Finance Minister said the tax-GDP ratio had increased to 11.5 per cent in 2008-09 from 9.2 per cent in 2003-04. The share of direct taxes in the Centre's tax revenues had increased to 56 per cent from 41 per cent in this period.
On the whole, Mr Mukherjee's proposals on direct taxes for this year will be revenue neutral while the adjustments he has made on indirect taxes will add up to an estimated net gain of Rs 2000 crore for a full year.
Mr Mukherjee said the exemption limit on personal income tax for senior citizens had been increased by Rs 15,000 from Rs. 2.25 lakh to Rs. 2.40 lakh.
For women tax payers, the exemption limit has been increased by Rs.10,000 from Rs.1.80 lakh to Rs. 1.90 lakh and from Rs. 1.50 lakh to Rs.1.60 lakh for all other categories of individual taxpayers.
He also proposed to increase the deduction under section 80-DD in respect of maintenance, including medical treatment, of a dependent who is a person with severe disability to Rs one lakh from the present limit of Rs 75,000.
The surcharge of 10 per cent on personal Income Tax has been done away with.
The Finance Minister said he also proposed to abolish the Fringe Benefit Tax (FBT), which has been perceived as imposing considerable compliance burden.
In a move that is not likely to be very popular with the corporate sector, the Minimum Alternate Tax (MAT) rate is proposed to be increased from 10 per cent to 15 per cent. Mr Mukherjee said this was being done for bringing greater equity. However, he also proposed to extend the period allowed to carry forward the tax credit under MAT from seven years to ten years.
To provide fiscal support to the New Pension Scheme (NPS) for establishment of a social security system, he proposed to exempt the income of the NPS Trust from income tax and any dividend paid to this Trust from Dividend Distribution Tax. All purchase and sale of equity shares and derivatives by the NPS Trust will also be exempt from the Securities Transaction Tax.
Mr Mukherjee said he proposed to enable self-employed persons to participate in the NPS and avail of the tax benefits available thereto.
To reform the system of funding of political parties, he has proposed to provide that donations to electoral trusts shall be allowed as a 100 per cent deduction in the computation of the income of the donor. Electoral Trusts will be such trusts as are set up as pass-through vehicles for routing donations to political parties and are approved by the Central Board of Direct Taxes (CBDT).
Section 80E of the Income Tax Act provides for a deduction in respect of interest on loans taken for pursuing higher education in specified fields of study. Mr Mukherjee has now extended the scope of this provision to cover all fields of study, including vocational studies pursued after the completion of schooling.
To mitigate the practical difficulties faced by charitable organisations in handling anonymous donations, Mr Mukherjee has granted relief to such organisations by not taxing anonymous donations received to the extent of five per cent of their total income or a sum of Rs one lakh, whichever is higher.
The Commodities Transaction Tax has been abolished, as recommended by the Prime Minister's Economic Advisory Council.
The scope of Presumptive Taxation has been expanded to all small businesses with a turnover of Rs. 40 lakh. All such tax payers will have the option to declare their income from business at the rate of eight per cent of their turnover and simultaneously enjoy exemption from the compliance burden of maintaining books of accounts.
Mr Mukherjee said the tax holiday under Section 80–IB(9) will be extended in respect of profits derived from the commercial production of mineral oil and natural gas from oil and gas blocks which are awarded under the New Exploration Licensing Policy (NELP)- VIII round of bidding.
On the indirect taxes front, excise duty has been hiked on several items to eight per cent barring food items, drugs, pharmaceuticals, paper, paper board, pressure cookers, cheaper electric bulbs and low price foot wear.
The basic customs duty on bio-diesel has been brought down from 7.5 to 2.5 per cent. Excise duty on petrol driven trucks has been brought down from 20 per cent to 8 per cent.
Excise duty on man-made fibre and yarn has been increased from 4 to 8 per cent. It has also been increased on purified terephthalic acid (PTA), dimethyltryptamine (DMT) and polyester chips from 4 to 8 per cent.
Set-top boxes for television will attract customs duty of 5 per cent while customs duty on LCD panels will be reduced from 10 to 5 per cent.
Service tax will be imposed on service provided in relation to transport of goods by rail, coastal cargo and goods through inland water including National Waterways.
Cosmetic and plastic surgery and advice, consultancy and technical assistance in the field of law will also attract service tax. This however, will not be applicable if the service provider or the service receiver is an individual.
Mr Mukherjee said the government would give a big boost to infrastructure development and remove all bottlenecks in the speedy implementation of major projects. He said that the India Infrastructure Finance Company Limited (IIFCL) would evolve a "takeout financing" scheme in consultation with banks to facilitate incremental lending to this key sector.
He increased the allocation for the National Highways Development Programme by 23 per cent, for the flagship Jawaharlal Nehru National Urban Renewal Mission by 87 per cent and for the Accelerated Power Development and Reform Programme by 160 per cent. He also increased the allocation for the Railways from Rs 10,800 crore made in the interim budget for 2009-10 to Rs 15,800 crore.
The allocation for housing and provision of basic amenities to the urban poor was enhanced to Rs 3973 crore. This includes the provision for Rajiv Awas Yojana (RAY), a new housing scheme for the urban poor that is intended to make India a slum free country in five years.
Mr Mukherjee said the provision for the Brihan Mumbai Storm Water Drainage Project, which is deisgned to address the problem of flooding in Mumbai, has been increased from Rs 200 crore in the interim budget to Rs 500 crore to expedite its completion. The entire estimated cost of Rs 1200 crore for the project is being funded through Central assistance and Rs 500 crore has been released for it upto 2008-09.
He said the government proposed to develop a blueprint for long distance gas highways leading to a National Gas Grid that would facilitate the transportation of natural gas across the length and breadth of the country.
The target for agriculture credit flow has been increased from Rs. 2,87,000 crore last year to Rs. 3,25,000 crore for 2009-10. The interest subvention available for short term crop loans up to Rs. 3 lakh per farmer will continue and an additional subvention of 1 per cent will be paid from this year to those farmers who repay such loans on schedule. Thus, the interest rate for these farmers will come down to 6 per cent per year.
Under the farm loan waiver scheme of Rs.71,000 crore implemented in the last budget, the time for paying 75% of overdues has been extended to 31st December, 2009.
Mr Mukherjee announced that a task force would be set up to suggest a course of action that the government could take with regard to farmers in some regions of Maharashtra who had taken loans from private money lenders and were thus not covered by the loan waiver scheme.
The allocation for Rashtriya Krishi Vikas Yojna (RKVY) is being stepped up by 30 per cent and that for Accelerated Irrigation Benefit Programme by 75% over the allocation last year.
To ensure balanced application of fertilizers, the Government intends to move towards a nutrient based subsidy regime instead of the current product pricing regime. It will lead to availability of innovative fertilizer products in the market at reasonable prices and attract fresh investments in this sector. In due course, it is also intended to move to a system of direct transfer of subsidy to the farmers.
The Finance Minister announced that the draft Food Security Bill will soon be put on Internet for public debate and consultations. The proposed National Food Security Act will ensure that every family living below the poverty line in rural or urban areas will be entitled by law to 25 kgs of rice or wheat per month at Rs. 3 a kg.
Mr Mukherjee promised all possible assistance to the export sector to help it overcome the impact of the ongoing global economic slowdown.
The Budget provides a special fund of Rs. 4,000 crore to support micro, small and medium enterprises (MSMEs). This fund will incentivise banks and State Finance Corporations to lend to micro and small enterprises by refinancing 50 per cent of incremental lending to them.
The allocation for the Market Development Assistance Scheme, which provides support to exporters in developing new markets has been enhanced by 148 per cent. The 2 per cent interest subvention on pre-shipment credit to employment-oriented export sector has been extended till March 31, 2010.
The Finance Minister announced a slew of measures to further the government's promise of inclusive development and empower the "aam aadmi" (common man).
The provision for the Bharat Nirman Schemes has been raised by 45 per cent, the National Rural Employment Guarantee Scheme (NREGS) by 144 per cent, the Pradhan Mantri Gram Sadak Yojana (PMGSY) by 59 per cent, the Rajiv Gandhi Grameen Viduytikaran Yojana (RGGVY) by 27 per cent and the Indira Awas Yojana (IAY) by 63 per cent more than last year.
A sum of Rs. 2,000 crore has been allocated for the Rural Housing Fund. A new scheme, Pradhan Mantri Adarsh Gram Yojana (PMAGY) will be launched this year on a pilot basis for integrated development of 1000 villages with a scheduled caste population of more than 50 per cent.
Mr Mukherjee said stress would be laid on the formation of women Self Help Groups (SHGs). Apart from providing capital subsidy at an enhanced rate, it is also proposed to provide interest subsidy to poor households for loans upto Rs. 1 lakh from banks.
A National Mission for Female Literacy will be launched with the aim of reducing the current level of female literacy by half in three years. It will focus on minorities, Scheduled Castes and Scheduled Tribes as well as other marginalized groups. The Reach of Self Help Groups will be widened to enroll at least 50 per cent of all rural women as members of SHGs over the next five years.
The Swarna Jayanti Gram Swarozgar Yojana (SGSY) is to be restructured as National Rural Livelihood Mission to make it universal in application, focused in approach and time bound, for poverty eradication by 2014-15.
The Budget commits that all Integrated Child Development Services will be extended to every child under the age of six by March, 2012.
The allocation for the Ministry of Minority Affairs has been increased by 74 per cent. The Budget has made allocations for the new schemes of National Fellowship for Students from minority communities.
A new project is being launched for modernization of the Employment Exchanges to enable job seekers to register online from anywhere and approach any employment exchange.
The Government proposes to bring all below poverty line (BPL) families under the Rashtriya Swasthya Bima Yojana (RSBY). The allocation for the scheme is being increased by 40 per cent.
Mr Mukherjee said the Petroleum Ministry would announce details of a plan to set up an expert group to advise it on a viable and sustainable system of pricing petroleum products. He said in a scenario in which nearly three-quarters of the country's oil consumption were met through imports, domestic prices of petrol and diesel had to be broadly in sync with global prices of these items.
He said the people would be encouraged to participate in the government's programme of disinvestment of public sector undertakings (PSUs). He said the government would retain at least 51 per cent in such interprises. He said PSUs such as banks and insurance companies would remain in the public sector and given all support, including capital infusion, to grow and remain competitive.
The Finance Minister said he proposed to raise, in a phased manner, the threshold for non-promoter public shareholding for all listed companies.
He said an action plan would be drawn up to provide banking services in under-banked and unbanked areas of the country. He set aside Rs 100 crore during the current year as a one-time grant-in-aid to ensure provision of at least one centre/point of sales (POS) for banking services in each of the unbanked blocks in the country.
Mr Mukherjee said several steps were being taken to improve the delivery of public services, including the ambitious project of setting up the Unique Identification Authority of India (UIDAI) to issue unique identity numbers to each citizen, for which a provision of Rs 120 crore has been made this year. He said the first set of unique identity numbers would be rolled out in 12 to 18 months.
He said an additional amount of Rs 430 crore was being proposed for modernisation of police forces in the states. For strengthening border management, an additional amount of Rs 2284 crore, over and above the provision in the interim budget, has been provided for construction of fences, roads, and floodlights on the international borders.
On the basis of the recommendations of a committee headed by the Cabinet Secretary, Mr Mukherjee said the government had decided to substantially improve the pension of pre-January 1, 2006 defence pensioners below offer rank (PBOR) and bring pre-October 10, 1997 pensioners on par with post October 10, 1997 pensioners.
He said these decisions would result in enhanced pension for more than 12 lakh jawans and junior commissioned officers (JCOs). He said these measures would cost the exchequer more than Rs 2,100 crore annually. He said certain pension benefits being extended to war-wounded and other disabled pensioners were also being liberalised.
A sum of Rs. 1,000 crore has been kept in the Budget for rebuilding the infrastructure damaged by Cyclone Aila in West Bengal. The Budget also provides Rs. 500 crore for the rehabilitation of the internally displaced persons and reconstruction of the northern and eastern areas of Sri Lanka.
Among other measures, the allocation for Commonwealth Games, which Delhi will host in October next year, has been raised.
Provisions have also been made for the new Indian Institutes of Technology (IITs) and National Institutes of Technology (NITs) announced earlier as well as the plan for opening one Central University in each uncovered state. A provision for establishing campuses of the Aligarh Muslim University at Murshidabad in West Bengal and Malappuram in Kerala has also been made.
The Budget estimates 2009-10 provide for a total expenditure of Rs. 10,20,838 crore. Out of it, Rs. 6,95,689 crore is non-Plan expenditure and Rs. 3,25,149 crore is Plan expenditure. Thus, the total expenditure this year is 36 per cent over that of 2008-09. The increase in Non-Plan expenditure comes to 37 per cent whereas the increase in Plan expenditure is 34 per cent.
The Government has decided to enhance the gross budgetary support (GBS) for the Annual Plan 2009-10 by Rs. 40,000 crore over the Interim Budget. The bulk of this enhanced GBS is directed towards public investment in infrastructure with special emphasis on rural infrastructure, raising growth potential and leading to income generation.
Besides, the State Governments will be permitted to raise additional open market loans of about Rs. 21,000 crore in the current year.
"This fiscal expansion will go a long way in reversing the impact of economic slowdown and accelerate our growth revival in the medium term," the Finance Minister said.
The gross tax receipts are budgeted at Rs. 6,41,079 crore, lower than last year while the non-tax revenue receipts have been estimated at Rs. 1,40,279 crore - higher as compared to last year.
The revenue deficit as a percentage of GDP is projected at 4.8% compared to 1% in budget estimates (BE) 2008-09 and 4.6% as per provisional accounts of 2008-09. The fiscal deficit as a percentage of GDP is projected at 6.8% compared to 2.5% in BE 2008-09 and 6.2% as per provisional accounts 2008-09.
"This level of deficit is a matter of concern and Government will address this issue in right earnest to come back to the path of fiscal consolidation at the earliest," Mr Mukherjee added.
Budget Speech
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