union budget 2011
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TRANSCRIPT
UNION BUDGET 2011Analysis of
(For internal circulation only)
Contents
• Understanding the Budget
• Finance Ministers Speech
• Budget Estimates
• Direct Taxes
• Indirect Taxes
• Agriculture
• Manufacturing
• Environment
• Infrastructure
• Others
• Service Tax
• Others
Understanding the Budget
Understanding the Budget
The Budget documents presented to Parliament comprise, besides the Finance Minister’s Budget Speech, the following:
A. Annual Financial Statement (AFS)
B. Demands for Grants (DG)
C. Appropriation Bill
D. Finance Bill
E. Memorandum Explaining the Provisions in the Finance Bill, 2011
F. Macro-economic framework for the relevant financial year
G. Fiscal Policy Strategy Statement for the financial year
H. Medium Term Fiscal Policy Statement
I. Expenditure Budget Volume-1
J. Expenditure Budget Volume-2
K. Receipts Budget
L. Budget at a glance
M. Highlights of Budget
N. Status of Implementation of Announcements made in Finance Minister’s Budget Speech of the previous financial year
Understanding the Budget(Cont)
• The government is accountable to the Parliament in its financial
management. With the constitutional supremacy of the bicameral
Parliament, especially of the Lok Sabha-, every single financial act is
processed and passed by the representatives of the people.
• However, proposals for the formulation of budget levying taxes,
determining government accounts and expenditures, are prepared by
the Government's Ministries and consolidated in the Ministry of
Finance.
• The Union Budget presented to the Parliament consists of the General
Budget and the Railway Budget, the Demands for Grant, the Vote on
Account, the Supplementary Demands for Grant, the Appropriation Bill
and the Finance Bill.
Understanding the Budget(Cont)
• Immediately after the Annual Statement, the Finance Bill is introduced
in the Lok Sabha by the Finance Minister. The Finance Bill is presented
in fulfilment of the requirement under Article 110 (1) (a) of the
Constitution, detailing the imposition, abolition, remission, alteration or
regulation of taxes proposed in the Budget. After passing of the
Appropriation Bill, the Finance Bill is considered and passed by the
Parliament as a Money Bill.
Finance Ministers Speech
Finance Ministers Speech
• To keep this presentation of reasonable length, the actual speechdelivered in the parliament by the Finance Minister has been archivedon our webpage, click here to access the speech.
Budget Estimates
Budget Estimates
• Gross Tax receipts are estimated at ` 9,32,440 crore.
• „Non-tax revenue receipts estimated at ` 1,25,435 crore.
• „Total expenditure proposed at ` 12,57,729 crore.
• „Increase of 18.3 per cent in total Plan allocation.
• „Increase of 10.9 per cent in the Non-plan expenditure.
• „XI Plan expenditure more than 100 per cent in nominal terms than
envisaged for the Plan period.
• „Increase of 23 per cent in Plan and Non-plan transfer to States and UTs.
• „Fiscal Deficit brought down from 5.5 per cent in BE 2010-11 to 5.1 per cent of
GDP in RE 2010-11.
Budget Estimates
• Fiscal Deficit kept at 4.6 per cent of GDP for 2011-12.
• „Fiscal Deficit to be progressively reduced to 3.5 per cent by 2013-14.
• �“Effective Revenue Deficit” estimated at 2.3 per cent of GDP in the Revised
Estimates for 2010-11 and 1.8 per cent for 2011-12.
• „All subsidy related liabilities brought into fiscal accounting.
• „Net market borrowing of the Government through dated securities in 2011-
12 would be ` 3.43 lakh crore.
• „Central Government debt estimated at 44.2 per cent of GDP for 2011-12 as
against 52.5 per cent recommended by the 13th Finance Commission.
Direct Taxes
Direct Taxes
Change Impact
The limit to the first proviso of Section 2 of the
income tax act, specifying aggregate receipts for
charitable purposes has been revised to 25 lakhs
from the existing Rs 10 lakhs
No Deduction of income in the form of
dividends from SEZs earned by developers
Weighted Deduction on account of section 35
(2AA) being sum paid to a National Laboratory
or a university or an IIT or a specified person
has been increased from 175% to 200%
More charitable institutions
can now avail benefits of
relaxed taxation
Higher tax outlay for SEZ
developers
The effort is to increase R&D
spend and get corporate India
to contribute to growth of
sciences in India. Reduced
tax outlay for donors.
Direct Taxes
Change Impact
Benefit of deduction under Section 35 AD has
been extended to
businesses engaged in developing and building a housing
project under a scheme for affordable housing framed by
the government of India
to new or existing plants engaged in the manufacture of
fertilizers.
existing hotels with 2 star and above rating
hospitals with atleast 100 beds for patients
Amounts paid by employers as contributions to
pension schemes be allowed as deduction under
section 36 upto 10% of the salary of the
employee for the year
This is in line with the push to
increase the growth rate. The
deduction available for pre
More charitable institutions
can now avail benefits of
relaxed taxation regime.
Lower tax outloay for
employers paying for pension
schemes for employees
Direct Taxes
Change Impact
The additional benefit of `20,000 allowed in
respect of subscription of long term
infrastructure bonds has been extended for
another year
Power generation and distribution units can
commence operations upto 1st April 2012 to
avail benefits u/s 80IA
Tax deduction equivalent to 100% of profits for
a period of 7 years under section 80-iB has been
extended to blocks licensed under contracts
awarded after 31st March 2011 under the new
exploration licensing policy
Salaried individuals can still
save money when investing in
Infrastructure bonds
Lower tax bill for power
generation and distribution
units
New blocks licensed after 31st
march shall be able to avail
such tax holiday for a period
of 7 years
Direct Taxes
Change Impact
The threshold for variation between arms length
price and actual price to be revised from 5%
A new subsection 2A has been introduced to
cover discovery of Transfer pricing transaction,
other than the ones submitted before the TPO
New provisions for transactions with persons
located in notified jurisdictional areas have been
defined governing the taxability of such
transactions
Interest earned on infrastructure debt funds
referred to in section 10(47) will be taxable at 5%
Since new threshold has not
been announced there is room
for interpretation here.
Aimed at curbing flow of
income from tax havens, this
may make life a little difficult
for existing legitimate
businesses operating with
such persons
Low tax bill
Direct Taxes
Change Impact
Lower rate of 15 per cent tax on dividends
received by an Indian company from its foreign
subsidiary as per newly inserted section 115
BBD
Hike in the rate of MAT under section 115 JB
from 18% to 18.5%
MAT coverage has been extended to LLP’s
Tax exemption on the distributed profits of an
SEZ shall expire on the 1st of June 2011
Will encourage flow of
income back to India
A move to offset some of the
other sops given and to bring
things in line with DTC
This had been previously
announced and hence comes
at no surprise
Direct Taxes
Change Impact
Income distributed to unit holders not being
individuals or HUF shall be taxable at the rate of
thirty percent on income distributed by money
market mutual fund or liquid fund
Tax rate for income distributed by fund other
than money market mutual fund or liquid fund
has also been hiked to 30%
There is a typo in the Budget where-in
Explanation 2 of section 139 is referred to, this
should instead refer to explanation 1
Misc. changes to assessment procedures
Higher rates of taxation for
such funds
We hope this will be clarified
soon
Direct Taxes
Change Impact
Exemption limit for the general category of
individual taxpayers enhanced from ` 1,60,000
to ` 1,80,000
Exemption limit enhanced and qualifying age
reduced for senior citizens
Higher exemption limit for Very Senior Citizens,
who are 80 years or above
Current surcharge of 7.5 per cent on domestic
companies proposed to be reduced to 5 per cent
Net savings of ` 2000
Age reduced from 65 to 60
Limit of ` 5 lakh announced
Lower tax expense for
domestic companies
Indirect Taxes
Indirect Taxes
Change Impact
Central Excise Duty to be maintained at
standard rate of 10 per cent
Reduction in number of exemptions in Central
Excise rate structure.
Nominal Central Excise Duty of 1 per cent
imposed on 130 items entering in the tax net
Lower rate of Central Excise Duty enhanced
from 4 per cent to 5 per cent
Optional levy on branded garments proposed to
be converted into a mandatory levy at rate of
10%
Peak rate ofCustom Duty to stay at current level.
No changes
More expensive items
Branded garments to become
more expensive
Indirect Taxes - Agriculture and Related Sectors
Change Impact
Exemptions from Excise Duty enlarged to
include equipments needed for storage and
warehouse facilities on agricultural produce
Basic Custom Duty reduced for specified
agricultural machinery from 5 % to 2.5 %
Basic Custom Duty reduced on micro-irrigation
equipment from 7.5% to 5%
De-oiled rice bran cake to be fully exempted
from basic Custom Duty. Export Duty of 10 per
cent to be levied on its export
The finance minister has
announced a number of sops
to encourage the agricultural
industry. There should be a
positive impact in our opinion
Indirect Taxes - Manufacturing Sector
Change Impact
Basic Custom Duty reduced for various items to
encourage domestic value addition vis-à-vis
imports, to remove duty inversion and
anomalies and to provide a level playing field to
the domestic industry
Rate of Export Duty for all types of iron ore
enhanced and unified at 20% ad valorem. Full
exemption from Export Duty to iron ore pellets
Basic Custom Duty on petcoke and gypsum is
proposed to be reduced to 2.5%
Cash dispensers fully exempt from basic
Customs Duty
Similar to the push on the
agriculture side, the FM has
tried to give the
manufacturing industry a
push as well.
This will lead to fall in cost of
Cement
Should encourage local
manufacture
Indirect Taxes - Environment
Change Impact
Full exemption from basic Customs Duty and a
concessional rate of Central Excise Duty
extended to batteries imported by
manufacturers of electrical vehicles
Concessional Excise Duty of 10 per cent to
vehicles based on Fuel cell technology
Exemption granted from basic custom duty and
special CVD to critical parts/assemblies needed
for Hybrid vehicles
Reduction in Excise Duty on kits used for
conversion of fossil fuel vehicles into Hybrid
vehicles.
These steps all in all should
help lower costs for new
entrants and should make
newer technologies cheaper
and hence ease their adoption
Indirect Taxes – Environment (cont)
Change Impact
Excise Duty on LEDs reduced to 5 per cent and
special CVD being fully exempted
Basic Customs Duty on solar lantern reduced
from 10 to 5 per cent
Full exemption from basic Customs Duty to
Crude Palm Stearin used in manufacture of
laundry soap
Full exemption from basic Excise Duty granted
to enzyme based preparation for pre-tanning
These steps all in all should
help lower costs for new
entrants and should make
newer technologies cheaper
and hence ease their adoption
Indirect Taxes – Other Proposals
Change Impact
Scope of exemptions from basic Customs Duty
for work of art and antiquities extended to
apply for exhibition or display in private art
galleries open to the general public
Exemption from Import Duty for spares and
capital goods required for ship repair units
extended to import by ship owners
Concessional basic Custom Duty of 5 per cent
and CVD of 5 per cent available to newspaper
establishments for high speed printing presses
extended to mailroom equipment
Private art galleries will not
also be able to import artwork
at lower rates. Should open
doors to investment in art
Lower cost for ship owners
Indirect Taxes – Other Proposals(cont)
Change Impact
Jumbo rolls of cinematographic film fully
exempted from CVD by providing full
exemption from Excise Duty
Factory built ambulances provided concessions
from excise duty
Manufactureres like TATA
and Force are the main
gainers as their sales/margins
should hopefully improve
Service tax
Service Tax
Change Impact
Standard rate of Service Tax retained at 10 per
cent
Hotel accommodation in excess of ` 1,000 per
day and service provided by air conditioned
restaurants that have license to serve liquor
Factory added under the service tax umbrella
Tax on all services provided by hospitals with 25
or more beds with facility of central air
conditioning
Service Tax on air travel both domestic and
international raised
Expect Hotel stays and eat
outs to become more
expensive
Clearly a move to tax the
specialty hospitals serving the
rich
Service Tax (cont)
Change Impact
Services provided by life insurance companies
in the area of investment and some more legal
services proposed to be brought into tax net
All individual and sole proprietor tax payers
with a turn over upto ` 60 lakh freed from the
formalities of service tax audit
A major relief for small
business owners as they no
longer have to get service tax
audits done on an annual
basis
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