budget that was presented by the Finance minister (FM) Pranab
Mukherjee on 26th
February 2010. In
the run up to the budget, the markets were
concerned about the level of fiscal deficit and the related funding of
deficit, future road map for reduction of deficit, withdrawal of fiscal
stimulus, introduction of Goods & Service Tax (GST) and Direct
FM presented a budget that has more or less covered the market
expectations by easing off the stimuli within expectations, encouraging
consumption-led growth by leaving more income in the hands of tax
setting targets for reduced
deficits in the next two fiscals. The markets cheered
the budget with the SENSEX closing higher by 175 points. The
for the Infrastructure sector, especially, has heartened as it
continues to be critical
to the country’s growth.
are the key budget highlights.
Deficit Consolidation and Improvement
on budget estimates, the fiscal
deficit for FY 2010-11 is
at 5.5% of
works out to Rs.3,81,408 crore
actual net market borrowing of the Government in 2010-11 would be of
deficit targets for FY 2011-12 and FY 2012-13 are pegged at 4.8 % and
FY 2008-09, the cumulative fiscal deficit including fertilizer and oil
were at 7.8% of the GDP and for FY 2009-10 at 6.9%
effort made by the finance ministry to
avoid issuing bonds to oil and
to raise 25,000+ crores through disinvestment of stake in Government
deficit is in line with the market expectations. Any higher level of
would have negatively impacted the market. Also, the government has
with a road map to reduce the deficit in the next two fiscal years,
the government’s seriousness to tackle the deficit issue. We
believe that with
the government’s high growth target for the economy, the
disinvestment and 3G auctions will help in reducing the level of
personal income tax slabs have been increased
upto Rs.1.6 lakh
upto Rs.1.9 lakh
upto Rs.2.4 lakh
Rs. 1,60,000 – 5,00,000
Rs. 1,90,000 – 5,00,000
Rs. 2,40,000 – 5,00,000
Rs. 5,00,000 – 8,00,000
Rs. 5,00,000 – 8,00,000
Rs. 5,00,000 – 8,00,000
of an additional amount of Rs. 20,000
allowed, over and above the
limit of Rs.1 lakh on tax savings, for investment in long-term
as notified by the Central Government
surcharge of 10 per cent on
domestic companies reduced to 7.5 per cent.
of Minimum Alternate Tax (MAT) increased
from the current rate of 15
to 18 per cent of book profits.
of investment linked deduction under the Act extended to new hotels of
category and above anywhere in India to boost investment in the tourism
statement by the FM has come as a boon to the individual tax payers.
The FM has
increased the slabs for taxes which will put more money into the hands
individual tax payer. Also, the government proposes
Rs. 20,000 apart from Rs. 1 lac under 80 C, wherein the Rs. 20,000 will
invested into the infrastructure bonds as notified by the central
benefits both the tax payer and infrastructure projects. With this
tax payer can save an additional amount of maximum of Rs. 57,000 in tax
companies mostly from the service industry will be paying higher taxes
account of MAT.
standard excise duty rate on all non-petroleum products enhanced from
8% to 10%
excise duty on large cars, multi-utility vehicles and sports-utility
increased by 2 percentage points to 22%
specific rates of duty applicable to portland cement and cement clinker
upwards by 25%
the basic duty of 5% on crude petroleum; 7.5% on diesel and petrol and
other refined products. Central Excise duty on petrol and diesel
Re.1 per litre each.
in duties on gold and platinum from Rs.200 per 10 grams
to Rs.300 per 10 grams and on silver from Rs.1,000 per kg to Rs.1,500
of tax on services retained at 10 per cent to pave the way forward for
Goods and Services Tax (GST).
the diesel rising by Rs 2.58 and the Petrol
rising by Rs. 2.67, this will no doubt lead to an inflation spillover
fuel prices will fan price increases for other goods, and with food
already high, the double whammy will lead to higher levels of inflation
the present. This will prompt RBI to raise the interest rates, which
affect the economic growth.
the increase in the excise duties and the petroleum
prices can be seen as a move to ease stimulus. While the market was
increases in excise duties, the market wasn’t expecting the
duties on petroleum
products to increase in the budget. It was widely expected that the
fuel prices would be handled under the Kirit Parikh committee
the implementation of the Kirit Parikh
committee recommendations would have helped the oil marketing companies
helping the reduction in the deficit. So by increasing the duties on
products, the government has chosen the lesser evil for the time being
further if the government decides to implement the Kirit Parekh
prices will be hiked even more.
gold and precious metals have become costlier.
hike in excise duty on the other goods listed was
expected by many and the rate of the hike is within expectation. It is
that most companies would pass on the hike to the consumers.
the GST regime, both the excise and service tax
rates will be at 10%. So as a precursor to the implementation of the
regime, the FM has kept both the service tax and standard excise duty
other than those listed) at 10%.
to introduce the Direct Tax Code (DTC) from April 1, 2011
to also introduce the Goods
and Services Tax (GST) from April
the tax reforms aim at eradicating overlapping
taxes and simplifying the taxation structure.
industry has been awaiting the implementation of
the GST. However, the DTC will likely change the current direct
taxation rules significantly.
How much the DTC benefits the tax payers will only be clearer once it
has been presented
to the parliament for approval.
import status to 'Monorail projects for urban transport' at a
basic duty of 5 per cent
exemption from import duty is available to specified machinery for road
construction projects on the condition that the machinery shall not be
disposed of for a minimum period of five years.
FM has provided Rs.1,73,552 crore, which accounts for over 46 per cent
total plan allocations, for infrastructure development in the country.
FM has raised the allocation of road transport by over 13 per cent from
Rs.17,520 crore to Rs.19,894 crore.
16,752 crore provided for Railways, which is about Rs.950 crore more
than last year
has been provided with a major push in this budget and actions speak
than words. The FM has allocated 46% of the total planned allocation
infrastructure sector. Even individuals will get additional deduction
taxable incomes if they invest Rs.20,000 into the
host of duty concessions have been given to infrastructure relating to
agriculture produce, right from warehousing, transportation of food
creating cold supply chains and machines handling food grain produce at
and Financial Services Sector
apex level Financial Stability and Development Council to be set up
with a view
to strengthen and institutionalise the mechanism for maintaining
is considering giving some additional banking licenses to private
players. Non Banking Financial Companies could also be considered, if
the RBI’s eligibility criteria.
crore provided to ensure that the Public Sector Banks are able to
minimum 8% Tier-I capital by March 31, 2011.
encourage the people from the unorganised sector to voluntarily save
retirement, the Government will contribute Rs.1,000 per year to each
Pension Scheme (NPS) account opened in the year 2010-11. This
will be available for persons who join NPS, with a minimum contribution
Rs.1,000 and a maximum contribution of Rs.12,000 per annum during the
apex body to look into the level of financial stability is very much
avoid the situation that the US
went through in 2008. The need for such a body in India cannot be
different market segments have different regulators, and with the
presence of participants
operating across segments (for example, ICICI Bank, ICICI Securities,
MF, ICICI Prudential Life Insurance) there is a real risk of any
becoming “too big to fail” and can lead to
disastrous results not only for
India but for the whole world.
proposal of RBI to give new licenses for Non Banking Financial
(NBFCs), although unexpected, is good for the banking industry as such
will increase the level of financial inclusion and the level of
FM has provided with a host of
for the production of green energy, with a clear thrust on solar energy
is one of the few countries that can benefit the maximum from solar
Rs. 50 energy cess on domestic as well as imported coal is also a good
and proceeds can be used for activities that will increase the green
Excise duty is being reduced from 8% to 4% on LED lights, at par with
Fluorescent Lamps (CFLs).
FM proposes to exempt a few more specified inputs required for the
of rotor blades for wind energy generators from Central Excise duty.
provide a concessional customs duty of 5% to machinery, instruments,
and appliances, etc., required for the initial setting up of
solar thermal power generating units and also propose to exempt them
Central Excise duty.
ambitious target of 20,000 MW of solar power by the year 2022 has been
under the mission.
clean energy cess on coal produced in India at a nominal rate of Rs.50
tonne. This cess will also apply to imported coal.
- It is
proposed to set up solar, small hydro and micro power projects at a
about Rs.500 crore in Ladakh in Jammu & Kashmir