Impact of Budget on an Individual

When the Finance Minister was about to present the budget, everyone was eagerly waiting for their goodies. Finally when the budget speech was over, the stock market tumbled, I could see most of the colleagues in the cafeteria wearing a dull look, friends called me to find out what in store for them. I have been listening to the budget for the 18 years and know how people react. But this time with the TV channels with all the analysts, businessmen, tax experts, stock market experts made it a BIG-B. Yes, lot of hype and also expectations were set. Be it increase in the basic exemption, increase in housing loan interest deduction limit, etc., So the common man was expecting more and also the industries. But when expectation was not met, there were reaction. Of course, the market reaction to global cues cannot be agreed, as it went up before the budget and started falling during the session. Let us see what are the impacts for an individual.

Direct Tax

• The basic exemption increased

The basic exemption was increased by 15,000 for Senior Citizens and by Rs.10,000. It means that non-senior citizens will save Rs.1,030 per year! (Rs.86 per month). What a saving. This small change will have lot of work for an organisation in changing their system for the payroll.

• Surcharge of 10% removed.

Those who are having a taxable income of Rs.10 lakhs and above will save a quite a bit. For example,
if taxable salary is...........saving would be
Uto Rs.10 Lakhs...........................Rs. .. 1,030 (0.5 %)
Rs.15 lakhs..................................Rs. 37,595 (9.3 %)
Rs.20 lakhs..................................Rs. 53,045 (9.3 %)
Rs.25 lakhs..................................Rs. 68,495 (9.2 %)
Rs.30 lakhs..................................Rs. 83,945 (9.2 %)
So, more the income, more the saving....is this the intent of the Finnance Minister. May be he thinks, the consumption will go up if the disposable income of the higher strata is more and the middle class will start saving (in Bank FD or Small savings) if they get more disposal income. If the saving is in PPF, NSS, NSC it increases the government borrowings and result in more interest burden to the government. Investment in Bank FD will force the bank to deploy and service the same.

• Commodities Transaction Tax (CTT) is removed

It means that those who are dealing in commodities got some relief. It is not stock market where small investors deal in small values. The value of the deal will be huge and the amount incurred on the CTT (about 0.017%) would be of high value. Now they can have a better margin.

• Fringe Benefit Tax (FBT) is removed

This is a good news for the corporate, as there is lot of administrative work involved in assessing and filing the FBT. But for an individual, it is not that good, as the Finance Minister plans to tax some reimbursement as perquisites. Some of them are ESOP, Contribution by employer to Superannuation in excess of Rs.1 lakh. More clarification is expected. Let us wait and see.

• Deduction for maintenance of dependents with severe disability increased

With the growing medical costs, the Finance Minister was kind enough to enhance the limit u/s 80DD by Rs.25,000. The earlier limit was Rs.75,000 and now we can get deduction upto Rs.1 Lakh.
I was expecting an increase in the medical reimbursement limit u/s 17, but disappointed.

• Deduction for interest on education loan criteria relaxed

The definition of higher eduction to claim deduction for the interest was relaxed to include education after the secondary schooling. This is a welcome sign, given that the cost of education is shooting up even in this economic downturn.

• Increase in the limit for paying advance tax liability u/s 208

Hitherto anyone who is having a tax liability of Rs.5,000 or more has to pay advance tax (subject to certain exemptions like tax arising out of capital gains etc.). However, if you are only having salary income, your TDS by your company will take care of this advance tax. Now, the limit has been increased to Rs.10,000. This will reduce some administrative burden on the department in collection of taxes.

Indirect Tax

It is a mixed reaction, as any excise or customs will impact our pocket. For example, the excise duty on branded jewelery is removed, customs duty on set top boxes increased, cost of LCD tv panel will cost less..and so on..

In all it is a good budget for the country and being a citizen of the country, we need to shoulder the responsibility. Of course the Government cannot wash their hands and ask the citizens to bear all. They have to bring down the inflation and try to get the cost down for us.

Cheers,
Gopal

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Budget discussion @ XIME...2

This is in continuation to my part 1.

Finally, the stage was given to me to summarize and give a concluding remarks. I started by summing up what Mr.Crasta, Dr.Venkatachalam, Prof. Srinivasan and the Students presented. The presentation I made in the morning was projected to the students. RK Lakshman's cartoon inspired me and I used it in the title sheet. Following are the summary of my presentation:

Summary of the budget:

• The budget has 2 parts. The outlay and the taxation.
  
• For the first time in the history, the total expenditure shot above Rs.10 lakhs crore.
• How the collection was put to use and the deficit created due to excess expenditure
• The deficit was projected at 6.8% of the GDP

Direct Tax

• No change proposed to the Corporate Tax rates.
• Removal of FBT & CTT. The impact of removal of FBT on Individuals
• Increasing the MAT rate by 50% (from 10% to 15%) - Hit to the industries
• Electoral Trust - contribution to be 100% deductible from Business Income
• Investment criteria for deduction rather than Tax benefit on revenue. Investment in cold storage etc.,
• The much awaited sunset clauese for STPI benefit extended only by 1 year. Not much impact for large companies, but benefit small companies
• The ADR (Alternate Dispute Resolution) & Safe Harbour rules benefits the Multinational Companies and those who acquire businesses.
• The Wealth Tax exemption limit increased by 100% (From Rs.15 lakhs to Rs.30 Lakhs)
• Presumptive tax - Limit extended to Rs.40 Lakhs. No Advance Tax.
  
• The much awaited tax rate for LLP announced. It would be on par with the partnership. So no tax on the partners (except the tax on salaries). More to know on this, as to the taxation on dissolution

Direct Tax - Individual

• The basic exemption increased by Rs.15,000 for Senior Citizens (Rs.10,000 for others)
• Surcharge of 10% removed (Benefits only those above Rs.10 Lakhs of taxable income)
• Certain FBT items now taxable in the individual hands (ESOP, Superannuation contribution)
• Gift in kind from non-relative taxable above limits
• Deduction for maintenance of dependents with severe disability increased to Rs.1 lakh
• Education loan criteria relaxed (now extended to vacation and other studies beyon Secondary School also)
• The advance tax limit has been increased to Rs.10,000.

Indirect Tax

• The overall Customs duty rate structure was maintained.
• Excise duties on certain items increased and certain items reduced.
• Branded jewellery is now exempted from Excise duty
• More services brought into the taxable services (Consulting by advocate, Railway transportation etc.,)
• The GST is as per plan. Though myself not confident about the roll-out, the industries are ambitious.

Challenges / My comments on the budget

• Maintaining the growth rate would be a tough job with the increasing Fiscal Deficit
• Bridging the Fiscal deficit would result in more borrowing & servicing the borrowing
• Divestment of PSU holding could have generated money, but cannot be used for funding Fiscal deficit
• Simplification of tax procedures (Filing returns, Completion of assessments)
• UID – within 18 months. Hoping that Nandan Nilekeni will deliver it.
• Funding Infrastructure. Make sure that there are no over-runs like the Mumbai sea-link
• Floods & Drought may hamper the growth of the economy (Agriculture, Power etc.,)
• Basic education. It was a disappointment. While importance was give to higher education, the basic education was neglected.
  

I forgot to mention the "Horse can fly" story by Prof.Srinivasan. When everyone was guessing whether the FM will deliver whatever he promised, this story can be connected to that. The story goes like this...
Once a king wanted to punish a person, as he did not like him. So he asked him what he wants as last wish. He said, he wanted to make a Horse fly. The King was shocked and asked him "are you crazy". That person replied with confident that he can make a horse fly. The King said you have an option that you can die peacefully now. If you cannot make the horse fly, you will be butchered. The person requested that he should be allowed 1 year time and wanted a horse, so that he can train and make it fly. The king granted a horse and 1 year time. That person's friend shouted at the person "What make you to think that a Horse can fly. What will happen if you cannot make it fly?". The person calmly answered - "My dear friend, in this 1 year time, anything can happen:

• I may die naturally or otherwise
• The king may die. If he dies, there are 2 possibilities (a) The new King may forgive me or (b) if the King is dethroned, the successor will let me free (a foe of a foe is a friend!)
• The horse may die. In that case, I will get another horse and 1 more year to train it.
• Who knows, the horse may fly also
  

So, friends who knows the FM may deliver or new turn of things can happen (like the unexpected economic downturn). The memory of the public is very short and the budget is valid for the year. So, let us wait and see. Due to paucity of time and the requirement is to give an overall view, I did not go deeper into the budget in the presentation.

I will have a separate post for the Individual's tax impact of the budget.

Cheers,
Gopal

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Budget discussion @ XIME...1

Yesterday (9th Jul) I had the wonderful opportunity of being in the Xavier Institute of Management & Entrepreneurship (XIME) to be a panelist for the Budget 2009 discussion. The audience being the Management students. It is easy to have the presentation made to Industrialists and CAs. But it is difficult to handle the students, especially Management students. They have lot of details and make good analysis before the meeting. I was really surprised by the way they were listening to the presentations.

Let me give a brief background. I got the invitation from Prof.Venkataraman (Director - XIME) for being a panelist and I accepted the same. Prof.Venkat is a nice and knowledgeable person. He was very sweet and simple. I went with my colleagues Ashok & Raghavan for the session. We were then joined by Mr.Crasta & Dr.B.Venkatachalam. Prof Venkat ushered us into the President's room to meet Prof. Philip, who is instrumental in bringing up the XIME in Bangalore. We were having a tete-a-tete with Prof Philip . Both Prof Philip and Prof Venkat were very courteous. We had a brief introduction to Mr.Crasta and Dr.Venkatachalam. Let me give a brief about the panelists.
Mr.Crasta (President of FKCCI and Managing Director of CM Envirosystems) needs no introduction to Bangalore Industries.
Dr.B.Venkatachalam (Managing Director of Hexagon Capital Markets Ltd and Ex-Director Finance of Bangalore Stock Exchange). Dr.Venkatachalam did his Phd in Merchant Banking.
Prof. Srinivasan (XIME) graced us by being a panel member. I will come later about this young person.

I was really thrilled when we entered the Oberoi Hall. All the students stood up to greet us. Believe me, there is no late comer. Some students started clicking the team on the dias. As I said earlier, handling students is a tough job and you do not know from where they will ask questions. I know myself when I was a student. Since I had the opportunity of taking classes, I was comfortable.

Prof.Venkat introduced the speakers and kick started the Budget discussions on a fun note by saying how his ignorance of the budget costed him as his wife said he will get some extra money due to increase in the basic income tax threshold and asked to buy branded jewellery, as the duty was cut for them.

Mr.Crasta presented the budget from an Industry perspective. He was giving the details of the total expenditure and the budget plans. They way he explained the consumption was really good. He was explaining how the Fringe Benefit Tax came into play. He wanted the students to take up Agriculture or become Entrepreneur to give employment to many people. He mentioned how the Israel is improving the agro-productivity per hectare as compared to India. He stressed on the Highway projects, which will pave way to many industries around the highway. He quoted Annadurai (former Chief Minister of Tamil Nadu) who felt the need for the highways in the state and how the state flourished because of it. He stressed the need for Co-gen of power and to make the state self sufficient in power. He said, if a female is educated the entire family would be educated. In that line he appreciated the projects of the Government. He was confident that the GST would be in place as per the plan in 2010.

Then came Dr.Venkatachalam. He started with FBT and said we the industrialists were the reason for the FBT coming into play. He said the market has distanced itself from the Budget for the last 3 years. Whatever happened on the Budget day (when the market plunged) was not really because of budget but because of the global cues. He asked the students whether they can predict the market. There were mixed responses. He said WE CAN predict the market, but will always be wrong. The volatility of the market is mainly because of the liquidity and nothing else. Whenever there is liquidity the market will be bubbling and vice-versa. He said the market did not respond positively because the investors (especially the traders) were disappointed by non-removal of Securities Transaction Tax (STT).
It was Prof. Srinivasan's turn. He is a Chartered Accountant, Cost Accountant, Company Secretary and a Science Graduate. He presented the budget from an academic perspective. He presented the budget very humorously. He quoted some jokes, which were really good and had relevance to the situation. One of them being the Mullah Nasrudeen & donkey. He said he gave up listening to the budget, as he could not understand much and it keep changing, one FM brings in a new tax and the next person removes it. We really enjoyed his session.

The students of the 14th batch followed Prof.Srinivasan to present the budget from a students' perspective. They analysed the budget and presented their facts by way of graph and tables. It was really nice to see students understanding the budget and appreciating it. Kudos to the students, professors and the institution (for such encouragement).

It was time for my turn. As I was the Chairman for the session and I need to summarize what the other panelist (greats from the industries & students) presented and also my comments on the budget. It was difficult task as I have to manage the time and also not to repeat whatever was presented. The quick presentation that I made that morning came very handy. I summarized the points of Mr.Crasta, Dr.Venkatachalam, Prof.Srinivasan and the students. I will write in detail on my presentation in a separate post, as this post is becoming too lengthy.

We then had the question and answer session. The students came prepared and shot good questions on us. We managed to answer them and due to the paucity of time, we need to close the Q&A session.

The students proposed the vote of thanks to all the panelists.

It was a memorable day and we (myself and my colleagues) really enjoyed it. My thanks to Prof.Venkat and Prof.Srinivasan for inviting me for the wonderful session.

See you all in part 2.

Cheers,
Gopal

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Expectations from Budget

Ever since the UPA government (UPAG) started the second innings with a strong note, the expectations are also set on them. The thumping victory for the UPAG rejuvenated the Stock Market and created records. With very minimal support from outside and specifically no dependency on the left parties, the UPAG should chalk out their 5 year plans.

We have seen bold decisions taken by Kapil Sibal on education reforms (need to see how they formalise their thoughts) and the pricing of the petrol/diesel.

The much awaited Tendulkar of the UPA team, Pranab Mukherjee is all set to play his first ball on the coming monday. All are eagerly waiting for his speech and the reforms / benefits he is going to announce.

With Fiscal deficit and the economic slowdown bowling against him, let us see how he is scoring !

I would like my friends to share their expectations by comments to this post. Let us see whether we get those in the Budget.

Happy guessing and weekend.

Cheers,
Gopal

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