Money in people’s hands good for all | india | Hindustan Times
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Money in people’s hands good for all

Abolishment of the Fringe Benefit Tax (FBT) is welcome as it involved a great deal of unnecessary paper work for corporates, while the tax collections were minimal, writes Keki Mistry.

india Updated: Jul 07, 2009 02:50 IST

The Finance Minister has presented the budget against a challenging backdrop, as he had to walk a fine balance between stimulating growth, ensuring fiscal prudence and focusing on inclusive growth.

One of the core issues for long-term growth of the Indian economy is boosting infrastructure investment, which the government has done through increased outlays as it aims to raise infrastructure spending to 9 per cent of GDP by 2014.

The markets appeared to have hyped the budget too much, which resulted in the markets displaying their disappointment.

The markets seemed to have anticipated some big bang measures on economic reforms, foreign direct investment and disinvestments. However, the Finance Minister rightly conveyed the message that the budget is not the only platform for such announcements.

The key positives for the common man include the removal of surcharge on personal taxation and increasing the tax exemption limits.

This would mean the common man would now have more disposable income to spend.

Increased spending and consumption in turns stimulates demand, which is good for the economy.

The other salutary measure includes the extension of tax benefits to the New Pension Scheme.

The benefits under the New Pension Scheme Trust, includes exemption from dividend distribution tax and securities transaction tax. This will encourage more individuals to opt for such financial products, besides increasing awareness of the importance of self-funded pension benefits. The scheme will also be beneficial for the long-term development of the capital markets.

The abolishment of the Fringe Benefit Tax (FBT) is welcome as it involved a great deal of unnecessary paper work for corporates while the tax collections were minimal. However, the FBT has found its way back through the taxation of fringe benefits as perquisites in the hands of employees. One wishes that ESOPs could have been left out of the definition of perquisites.

Besides, ambiguity could arise in terms of the method of calculating the perquisite tax, as the date of exercising the option would vary from employee to employee as compared to the earlier FBT, which was based on the vesting date of the options.

Further, in the case of other employee benefits such as concessional housing, the tax burden for the employee would increase substantially.

To conclude, Budget 2009-10 was a pragmatic and a sensible one given the current global economic scenario and the need to revive GDP to the 9 per cent growth trajectory.

(The writer is vice-chairman & MD, HDFC Ltd)