Budget: FM unveils ‘qualified’ sops

He also gave some relief to corporates by reducing the current income tax surcharge of 7.5 per cent on domestic companies to five per cent but raised the Minimum Alternate Tax (MAT) from 18 to 18.5 per cent including developers of Special Economic Zones (SEZs) in it.

While leaving the rest of exemption slabs,surcharge and cess on income tax untouched,he reduced the qualifying age of senior citizens from 65 to 60 years,raised their exemption limit from Rs 2.40 lakh to Rs 2.50 lakh. No special benefit was announced for women whose basic exemption limit remains at Rs 1.90 lakh.

Mukherjee also created a new category of “Very Senior Citizens” of 80 years and above who will be eligible for a higher exemption limit of Rs five lakhs.

The budget sought to widen the ambit of the service tax net by which hotel accommodation above Rs 1,000 a day and AC restaurants that serve liquor will be included.

The scope of life insurance service is being widened to cover all services provided to any person by an insurer and legal services provided by business entity to individuals and individuals to entities but not individuals to individuals.

Opposition parties flayed the budget saying it was very “disappointing and direction less” while the industry reaction was welcoming – Budget was called “positive and growth oriented”.

Hailing the “commendable job” done by his Finance Minister,Prime Minister Manmohan Singh said the signals are that this is a government which is reform oriented but admitted “you cannot please all people”.

All services including diagnostic services provided by AC clinical establishments with more than 25 beds and services provided by a doctor who owns such establishments have been brought under the service tax net.

Economy class domestic travel by air will cost Rs 50 more while international travel will cost Rs 250 more. Higher class domestic travel by air attract a standard 10 per cent service tax bringing it on par with international higher class travel.

While direct tax changes are expected to result in a revenue loss of Rs 11,500 crore,the net revenue gain on account of indirect taxes is likely to be Rs 11,300 crore,

including an additional Rs 4,000 crore on account of service tax changes.

Prepared food stuff like sugar confectionery,pastry and cakes,starches,paper and articles of paper,textile goods,drugs and medicinal equipments will become costlier with increase in the concessional rate of excise duty from four per cent to five per cent.

Ready made garments and branded textile made ups will also become costlier with the levy of mandatory 10 per cent excise duty. Exemptions from excise duty is being withdrawn on micro processor for computers,floppy and hard disc drive,CD-Rom drive,DVD drives and writers making it costlier but they will attract only five per cent concessional duty.

Items that will become cheaper are sanitary napkins,baby and clinical diapers and adult diapers with reduction of excise duty,factory built ambulances,precious metals including gold and silver. However,one per cent excise duty is being imposed on branded jewellery and branded articles of precious metals.

The Budget for next year pegs the fiscal deficit at 4.6 per cent of GDP for 2011-12 which works out to Rs 4,12,817 crore. Gross tax receipts are estimated at Rs 9,32,440 crore,an increase of 24.9 per cent over the Budget Estimates for 2010-11.

Net non-tax revenue receipts for the next financial year are estimated Rs 1,25,435 crore. The total expenditure proposed for 2011-12 is Rs 12,57,729 crore. Plan expenditure will be Rs 4,41,547 crore,an increase of 18 per cent and non-Plan expenditure will be Rs 8,16,182 crore,an increase of 10.9 per cent over Budget estimates of 2010-11.

Defence expenditure for the next year has been pegged at Rs 1,64,415,an increase of Rs 17,071 crore over the last financial year. This includes a capital expenditure of Rs 69,199 crore.

“Needless to say,any further requirement for the country’s defence would be met,” Mukherjee said.

The Budget has raised allocation for social sector spending by 17 per cent to Rs 1,60,887 crore and the allocation for Bharat Nirman programme by Rs 10,000 crore.

Allocation for infrastructure has been increased by over 23 per cent to Rs 2,14,000 crore and the credit to farmers hiked by Rs 1 lakh crore to Rs 4,75,000 crore.

The Budget assumes open market borrowing of Rs 3.43 lakh crore. Extension of nutrient-based subsidy to cover urea is under active consideration.

In a boost to housing sector finance,the Budget continued the scheme of interest subvention of one per cent on housing loans and liberalised it by extending it up to Rs 25 lakh from the present Rs 10 and Rs 15 respectively.

The Finance Minister also proposed various measures to achieve a closer fit between the present Service Tax regime and its successor Goods and Services Tax (GST).

The Minister announced a broad set of financial sector reforms,saying he proposed to move the legislations relating to insurance laws,LIC,revised pension fund bill,banking laws amendment bill,State Bank of India Subsidiaries Bill and a bill on Factoring and Assignment of Receivables.

In an effort to curb diversion of subsidised items like kerosene,LPG and fertilisers,the Budget proposes to introduce from March next year a scheme that will move towards direct transfer of cash subsidy to people living below poverty line (BPL).

On the much-speculated roll-back of stimulus measures implemented three years ago in the midst of global financial crisis,Mukherjee said a counter-cyclical fiscal policy is required for insurance against external shocks and localised domestic factors.

Aiming towards fiscal consolidation,the government proposes to introduce an amendment to Fiscal Responsibility and Budget Management Act,laying down the fiscal roadmap for the next five years.

The Finance Minister also proposed to introduce the Public Debt Management Agency of India Bill in Parliament in the next year.

In a bid to make the Foreign Direct Investment policy more user-friendly,Mukherjee said discussions are underway to further liberalise the policy.

To liberalise the portfolio investment route,it has been decided to permit SEBI registered mutual funds to accept subscriptions from foreign investors for equity schemes which will enable Indian mutual funds to have direct access to foreign investors.

To enhance the flow of funds to the infrastructure sector,the FII limit for investment in corporate bonds,with residual maturity of over five years issued by companies in

infrastructure is being raised by an additional limit of USD 20 billion taking the limit to USD 25 billion.

This will raise the total limit for FIIs investment to corporate bonds to USD 40 billion.

In a bonanza to the farming community,Mukherjee announced loans at interest rate of four per cent — three per cent less than market rate — for farmers who pay their dues in time and raised the credit target for farm sector by Rs 1 lakh crore.

“The existing interest subvention scheme of providing short-term crop loans at seven per cent interest rate will continue during the 2011-12 fiscal,” he said.

He also said the credit target for the agriculture sector has been increased by Rs one lakh crore to Rs 4,75,000 crore.

Also,banks have been asked to focus on farm credit lending to small and marginal farmers,he added.

In the health sector,the Finance Minister stepped up plan allocation by 20 per cent with a focus on health insurance,which would be extended now to unorganised sector workers in hazardous mining and associated industries.

“The Rashtriya Swashthya Bima Yojana has emerged as an effective instrument for providing a basic health cover to poor and marginal workers. It is now being extended to MGNREGA beneficiaries,beedi workers and others,” Mukherjee said in his budget speech today.

The total allocation for the health sector has been hiked to Rs 26,760 crore from Rs 23,530 crore last year.

The Finance Minister also proposed an ambitious disinvestment target of Rs 95,000 crore from sale of shares in public sector companies over next three fiscals,including Rs 40,000 crore in 2011-12.

This is despite the government not being able to meet its target of Rs 40,000 crore in the current fiscal,when total disinvestment proceeds are estimated at Rs 22,144 crore.

“I intend to maintain the momentum on disinvestment in 2011-12 by raising Rs 40,000 crore,” he said.

Besides,disinvestment receipts have been projected at Rs 30,000 crore and Rs 25,000 crore in 2012-13 and 2013-14,respectively.

In a major boost to develop infrastructure sector,Mukherjee announced creation of an infrastructure debt fund and raising the limit of foreign institutional investors (FII) in corporate bonds.

The government also announced issuance of tax-free bonds

worth Rs 30,000 crore and extending income tax exemption on tax-saving infrastructure bonds up to a maximum of Rs 20,000 for one more year.

The Budget proposes to take the FII limit for investment in corporate infrastructure bonds to USD 25 billion and also permits foreign portfolio investment in SEBI-registered mutual funds.

With raising FII limit,Mukherjee said they will be eligible to invest up to USD 40 billion in corporate bonds,including a total of USD 25 billion in the infrastructure sector.

Energy and transport will get a lion’s share of the Central Plan’s outlay in the next fiscal even as the Finance Minister announced several key initiatives for giving a boost to the infrastructure sector.

The government proposes to spend Rs 2.72 lakh crore on the transport and the energy sectors out of Rs 5.92 lakh crore earmarked in the Central Plan for 2011-12. The allocation for the sectors account for 45.95 per cent of the plan outlay.

This marks an increase of 9.68 per cent over the budget estimates of the previous year.

However,since the full outlay of Rs 2.48 lakh crore could not be spent last year,the increase in outlay in 2011-12 was 21.43 per cent compared to the revised estimates for 2010-11.