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More in your purse for the nonce

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S. Murlidharan

THE common man has every reason to cheer except perhaps when he smokes. Tobacco products would cost 10 per cent extra unless the manufacturers agree to take the tax increase in their stride. The Finance Minister would have targeted liquor also for the additional impost but for the constitutional restraint which makes excise on liquor a State subject.

But apart from the snub to smoking, the leitmotif of Mr P. Chidambaram's budget proposals is one of munificence. He has done some furious tax-cutting. The liberal across-the-board increase in the tax-free limit from Rs 50,000 to Rs 1 lakh coupled with reduction in tax rates on income up to Rs 2.5 lakh is bound to warm the cockles of the hearts of the middle class. The bottomline is more money in their purse.

Moreover, a harried middle-class man trying to balance his budget after having purchased a dream home need not have to stretch himself. The entire repayment of principal of his borrowings subject to a ceiling of Rs 1 lakh will be deductible from his income. In the earlier regime only a payment of Rs 20,000 on this account made the grade for tax rebate under Section 88. But remember not to stuff your purse with anything more than Rs 10,000 at a time because there is a move afoot to squeeze Rs 10 out of every withdrawal in excess of Rs 10,000 a day. The move, ludicrous as it is, though its avowed aim is to stop huge withdrawals from melting into thin air, would be an irritant for bankers. And the unintended but comic fallout of the move would be lengthening queues in banks - those wanting to withdraw Rs 1 lakh would do so in ten instalments spanning ten days!

The income-tax sops coupled with reduction in customs duty on select items, if only to keep up with our ASEAN Joneses, would leave a big hole in the Budget. One wonders where the Finance Minister is going to find money from for his grandiose social sector projects that he has reeled off with singular nonchalance. That he has left the rich and well-heeled lightly despite the overweening presence of the Left is ominous. The resultant fiscal deficit would be passed on to the common man in the form of inflation. But let this not spoil your party for the nonce. The Finance Minister has added to the aura of conviviality in his Budget by making investments in gold easier. He plans to allow mutual funds to bring out units, the underlying asset of which would be gold. One thus would be able to buy gold for as low an investment of Rs 10 given the fact that a typical unit's face value is Rs 10. In other words, one can buy and sell gold without having to carry it! No threat of theft or any other.

Of course, market risks have to be shouldered by the investors in these units. In other words, these units would appreciate or depreciate in sympathy with the movement in prices of the yellow metal. But then there would be a positive spin-off in the market. With the number of players increasing in the bullion market, prices would be determined more truly and transparently than hitherto.

(The writer is a Delhi-based chartered accountant.)

(This article was published in the Business Line print edition dated March 1, 2005)
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