Budget 2005-06

Budget 2005-06

Union Budget for 2005-06 raised income tax exemption limit to Rs 1 lakh, restructured tax slabs, lowered corporate tax to 30 per cent and slashed excise and customs duties on several commodities, including petrol and diesel.

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Finance Minister P Chidambaram raised the exemption limit for women and senior citizens, but slapped a 0.1 per cent tax on cash withdrawals of Rs 10,000 a day from banks as an "anti-black money" measure but announced no amnesty scheme for evaders.

The securities transaction tax, introduced last year, has been raised from 0.15 per cent to 0.2 per cent.

While excise duty on automobile and aerated water was left untouched at 24 per cent, he levied 10 per cent specific excise duty on cigarettes and tobacco products like gutkha.

His direct proposals to yield additional Rs 6,000 crore a year. The indirect proposals are broadly revenue neutral.

In a major overhaul of direct taxes and to provide stability in the medium term, Chidambaram raised the basic income tax exemption limit to Rs one lakh from the present Rs 50,000.

Income of Rs 1-1.5 lakh will now attract 10 per cent tax, Rs 1.5-2.5 lakh 20 per cent and above Rs 2.5 lakh 30 per cent. Further ten per cent surcharge will apply for incomes above Rs 10 lakh.

Given the higher exemption limits and scaling up of tax brackets, the Finance Minister removed the standard deduction.

However, Chidambaram spelt out wide-ranging changes in the indirect tax regime, bringing down the peak customs duty on non-agriculture products to 15 per cent from existing 20 per cent.

He indicated that foreign direct investment (FDI) in the pension, mining and trade sectors will be liberalised.

Chidambaram said a special purpose vehicle (SPV) to fund infrastructure projects will be set up.

The Finance Minister said the fiscal deficit for 2004-05 will fall to 4.5 per cent of GDP from 4.8 per cent in the previous year. Revenue deficit at 2.7 per cent of GDP.