The Hindu Business Line : Stimulus for economy, hopes for the poor

THE Finance Minister, Mr P. Chidambaram, has delivered on the expectations of almost all sections of the society. His Budget for 2005-06, presented to Parliament on Monday, has a welcome income-tax package for the middle class, a response to corporate sector's long-standing demand for lowering the tax rate, a renewed emphasis on infrastructure development, focused approach to industry segments which have high employment potential and a wholesome deal for rural India.

All this, the Finance Minister has achieved without putting any significant additional burden on the people. His indirect tax proposals were broadly revenue neutral while the direct tax effort would yield Rs 6,000 crore. But, Mr Chidambaram's expectations of revenue buoyancy are very high. He expects a Rs 27,573-crore jump in corporate tax collections, a Rs 15,310-crore hike in income-tax collections, and almost Rs 21,000 crore increase in excise collections. In other words, tax compliance has to be high and the Minister intends to tighten the screws on tax leakages.

One measure has already been accounted — a marginal tax on a number of bank transactions so as to create a tax trail. Also, the cess on petrol and diesel will go up by 50 paise from April 1, the additional money to go for road development.

Though no major reforms were announced, the Minister did not gloss over the Government's commitment to this process. Mr Chidambaram indicated that banking sector reforms were on and that the RBI would come out with the details and also hinted that foreign direct investment (FDI) in mining, retail trade and pensions were high on the priority list. These would come after `due consultations,' he said, and urged the Members of Parliament to take a pragmatic view in this matter.

For the general public, the best news was the income-tax package. As per the proposal, there would be nil tax up to an annual income limit of Rs 1 lakh. The next slab, attracting 10 per cent tax, would be between Rs 1 lakh and Rs 1.5 lakh. After that, incomes above Rs 1.5 lakh and up to Rs 2.5 lakh would be taxed at 20 per cent and income above Rs 2.5 lakh would be taxed at 30 per cent.

Also, every taxpayer has been allowed a consolidated limit of Rs 1 lakh for savings, which will be deducted from income before tax is calculated. In return, individual taxpayers will forgo the Standard Deduction and rebate under Section 88 will be eliminated and Section 80L omitted.

However, six deductions will continue to receive the same tax treatment as of now. These are interest paid on housing loan for self-occupied house property; medical insurance premium; specified expenditure on disabled dependant; expenses for medical treatment for self or dependant or member of Hindu Undivided Family; deduction in respect of interest on loans for pursuing higher studies and deduction to a person with disability.

Women and senior citizens also benefit. The threshold income-tax exemption level for women will be Rs 1.25 lakh and for senior citizens Rs 1.5 lakh. These revised exemption levels will be in lieu of the prevailing tax rebate provisions.

Corporates got a lower tax of 30 per cent in the 2005-06 Budget, along with a 10 per cent surcharge and a rate of depreciation of 15 per cent for general machinery and plant, but the initial depreciation rate will be increased to 20 per cent. All this translates to a relief of nearly 3 per cent.

However, what has confused the corporate sector in the fringe benefit tax that has been imposed. Till a clarification comes from the Government, there is no clarity on the types of expenses that this tax will hit. The service tax coverage has also been enlarged, but small service providers have been let out of the net.

Mr Chidambaram also had a number of proposals pertaining to either the sunrise sectors or the stressed industries. Thus, the Budget contains specific proposals such as a Rs 10,000-crore Special Purpose Vehicle to kick off infrastructure projects, delayed terminal dates for specific exemptions granted to pharma, biotech, electronics, telecom, chemicals, textiles, food processing and petroleum sector.

The financial sector and the capital markets too have something to cheer and the Sensex heartily responded by hitting an all-time high.

On the social side, the Budget contains announcements of a national health mission, allocations for the urban renewal mission, a backwards area initiative, and special facilities and schemes for Scheduled Castes and Tribes as well as minorities.

Chidambaram lightens tax load, widens the net

* No income-tax up to Rs 1 lakh; slabs widened

* Standard Deduction scrapped

* Tax saving on investments up to Rs 1 lakh

* Tax on cash withdrawal above Rs 10,000

* Cigarettes and branded jewellery to cost more

* Edible oils and Tea to cost less

* Transaction tax on stock-market trading hiked

* Corporate Tax clipped to 33.6% from 36.6%

* Depreciation reduced to 15%

* Fringe Benefit Tax of 30% introduced

* Peak customs tariff reduced to 15%