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FM proposed no changes in personal and corporate income taxes. Highlights | What to cost less | Your viewindia Updated: Mar 01, 2006 15:38 IST
There will be no change in the rates of personal income tax or corporate income tax.
Announcing this in the Lok Sabha on Tuesday while presenting the Budget proposals for 2006-07, Finance Minister P Chidambaram said no new taxes are being imposed.
The FM slashed customs and excise duties on a number of items including small cars and aerated soft drinks and brought 16 more items like ATM operations and luxury class air travel under the service tax net.
Presenting his third Budget, the Finance Minister also abolished the one-by-six scheme for mandatory filing of tax returns and proposed across the board increase in the Securities Transaction Tax while announcing a roadmap for a Goods and Service Tax in four years.
He, however,did not bow to the demand of the industry to withdraw the controversial Fringe Benefit Tax but modified it to remove some of the glitches in its implementation. Similarly, he ruled out withdrawal of Banking Cash Transaction Tax.
As usual, the Finance Minister did not resist the temptation to tax smokers when he raised excise duty on cigarettes by five per cent. While the proposals on direct tax are expected to yield Rs 4000 crore, those on indirect taxes Rs 2000 crore.
Pegging the Fiscal Deficit for 2006-07 at 3.8 per cent of GDP at Rs 1,48,686 crore and Revenue Deficit at 2.1 per cent at Rs 84,727 crore, Chidambaram raised gross budgetary support for plan to Rs 1,72,728 crore, an increase of 20.4 per cent. Out of this, the central plan will receive a support of Rs 1,31,285 crore.
The Minister abolished one-by-six scheme under the Income Tax Act obliging certain categories of persons to file returns.
Responding to the demand for tax exemption on fixed deposits of certain tenure, the Finance Minister proposed to include investments in fixed deposits in scheduled banks for a term of not less than five years in Section 80C of the Income Tax Act.
He also proposed to remove the limit of Rs 10,000 in respect of controbution to certain pension funds in Section 80CC, subject to the overall ceiling of Rs1 lakh.
The Finance Minister also proposed to remove the exemption under Section 10(23G), which he said, was not relevant when interest rates are moderate.
Chidambaram estimated the total expenditure for the coming year at Rs 5,63,991 crore. The total revenue receipts have to be placed at Rs 4,03,465 crore and revenue expenditure at Rs 4,88,192 crore.
Defence allocation raised
Defence allocation has been increased by Rs 6,000 crore to Rs 89,000 crore with allocation for capital expenditure raised to Rs 37,000 crore.
More for rural sector
With UPA Government emphasis on social sector spendings, the Budget gives a major thrust on taking forward the common minimum programme agenda, hiking by 54 per cent budgetary support to Bharat Nirman Programme, allocation of 12,041 crore for northeastern region and Rs 4,813 crore for mid-day meal scheme. Total allocation for rural employment, including under the employment guarantee act, was fixed at Rs 14,300 crore.
FM encourages savings
To encourage savings, the Finance Minister announced that fixed deposits in banks with at least five year maturity will get rebate under income tax for savings under Section 80C. The Income exemption of Rs 10000 in pension funds under 80 CCC has been removed and brought under rebate under Section 80C within the overall ceiling of Rs one lakh.
In the quest for equity, the Minister increased the Minimum Alternate Tax on corporates from 7.5 per cent of book profit to 10 per cent, which is only one third of the normal rate.
Modified Fringe Benefit Tax
Chidambaram made changes in FBT relating to valuation of benefit on tour and travel at five per cent instead of 20 per cent. On hospitality and hotel boarding and lodging in case of airlines and shipping industry too, the benefit is to valued at five per cent.
Service tax up
As a step in the direction of progressive convergence of the service tax rate and CENVAT rate, the Finance Minister propose to increase service tax rate from 10 to 12 per cent. But the net impact is expected to be very small as the service tax paid can be credited against service tax or excise duty payable, he added.
The new services to be covered include ATM operations, maintenance and management, registrars, share transfer agents and bankers to an issue, sale of space or time other than in the print media for advertisement, sponsorship of events other than sports events by companies, international air travel, excluding economy class passengers, container services on rail excluding freight charges, business support services, auctioneering, recovery agents, ship management services, travel of cruise ships and public relations management services.
Coverage of certain services now subject to service tax is also to be expanded.
Excise and Customs
On Indirect Taxes side, keeping in line with the Government's policy of reducing customs duty, the Finance Minister announced reduction of peak rate for non agricultural products from 15 to 12.5 per cent.
But there will be an across the board countervailing duty of 4 per cent on all imports with a few exceptions, while full credit will be allowed for manufacturers of excisable goods.
Customs duty on vanaspati has been increased to 80 per cent to protect the domestic industry.
The duty cuts also benefit alloy steel, primary and secondary metals, refractories, chemicals and major bulk plastics.
Cancer and AIDS patients will get relief by the reduction of customs duty on 10 anti-AIDS and 14 anti-cancer drugs to five per cent. Duty on certain life saving drugs, kids and equipment have been brought down from 15 to 5 per cent. These drugs will also be exempt from excise duty and CVD.
Reflecting the increase in the implicit capital gains, Chidambaram proposed an increase of 25 per cent across the board on all rates of Securities Transaction Tax. STT rates were fixed when prices of securities were much lower.
Announcing further measures to deepen, broaden and strengthen the stock market, he proposed to increase foreign institutional investment in government securities from 1.75 billion dollars to two billion dollars and the limit on FII investment in corporate debt from 0.5 billion dollars to 1.5 billion dollars.
Chidambaram also doubled the ceiling on aggregate investment by mutual fund in overseas instruments to two billion dollars and removed the requirement of 10 per cent reciprocal share holding.
The budget proposed to allow a limited number of qualified Indian Mutual Funds to invest, cumulatively upto Rs one billion dollars in overseas exchange traded funds. It proposed to set up an investor protection fund under the aegis of SEBI, funded by penalties and fines recovered by the market regulator to bolster confidence of retail investors. RBI and SEBI will issue the guidelines.
Referring to financial sector reforms, Chidambaram said he proposed to unwind the special securities through conversion of non-tradeable securities into tradeable, SLR Government of India dated securities.
This would increase access of the banks to additional resources for lending to productive sectors in the light of the increasing credit needs of society.