Budget 2010 - Hightlights

Pranab has delivered the budget in the expected lines. What the poor finance minister can do in this situation. The prime concern is the fiscal deficit and inflation. He did a good job in the budget by not making too many changes.

Individuals are happy, as they have some excess funds at their disposal.

Let us look at the highlights of the Union Budget 2010:

Plan outlay

Total Receipts          -   7,27,341`
Total Expenditure     - 11,08,749
Fiscal Deficit            -   3,81,408

The Fiscal Deficit is 5.5% of the GDP (Last year it was 6.8%). It is a good sign. We need to wait and see the FY10 result and see whether the 5.5% is achievable.

The targets for the Fiscal Deficit (as a % of GDP) is pegged at 4.8% and 4.1% respectively for 2011-12 & 2012-13.

Taxation

The most awaited agend in all the ITES sector was extending the STPI tax exemption. Pranab has kept his words on rolling back the stimuli. He didn't extend the tax benefit. In a way it is good. But some of the small organisations thrive on this tax benefit and soon they will look for buyers. Time for the ITES market to consolidate.

He has given the assurance & commitment to the introduction of Direct Tax Code and GST from 1-Apr-2010. Let us see.

Business impact

Direct Tax

• STPI & EOUs taking tax benefit u/s 10A and 10B not extended and get over by 31-Mar-2011.
• MAT rate has been increased to 18% from 15%. More credit available for the STPI units in the years to come.
• Encouragement to inhouse R&D by way of higher weighted  deduction.
• No change to the Corporate tax. But the surcharge for the domestic companies reduced to 7.5% from 10%.
• Tax benefit for SEZ had some ambiguity with the formula for computing the deduction u/s 10AA. This is clarified and the revised formula is now applicable with retrospective effect from 1-Apr-2006.
• Tax audit limit increase to Rs.60 lacs (from Rs.40 lacs) for business and Rs.15 lacs for professionals.
• The turnover for presumptive taxation of small business increased to Rs.60 lacs

Indirect Tax

• The peak excise duty increased to 10% from 8%. This is in line with the roll back of the stimulus package.
• The CST rate is unchanged at 2%
• Service Tax rate remains at 10% (in line with the GST roll out)
• Service Tax refund provisions simplified for exporters.

Individuals

• Not much change and only favourable budget.
• Petrol & Diesel to be costlier by Re.1 per litre due to the increase in the excise duty
• The tax brackets widened to benefit the individual
• Upto Rs.160,000               - No Tax
• Rs.160,000 to Rs.500,000  - 10%
• Rs.500,000 to Rs.800,000  - 20% 
• Rs.800,000 & above          - 30%

• Increased deduction u/s 80CCF. Additional deduction of Rs.20,000 for investment in Infrastructure bonds. So, we get a total deduction on Rs.120,000.
• "Swavalamban" - a initiative for National Pension Scheme. Under this, Rs.1000 p.a. will be contributed by the Govt. to each NPS account opened in the year 2010-11.
• SARAL - II : Simplified form for individual salaried class.

There are other schemes that are announced by the PM, which are of national interest. Of which the following are of interest to a common man:

• Setting up of National Mission for Delivery of Justice & Legal Reforms. This aims to reduce the legal backlog in courts from 15 yrs to 3 yrs by the year 2012.
• National Skill Development Corporation approved 3 projects for Rs.45 crore to create 10 lac skilled manpower at the rate of 1 lac per year.
• Technology Advisory Group for Unique Projects to be set up to look into the technological & systemic issues for effective tax administration and financial governance.

Going back to the earlier budget, he proposed the following 2 things in the Tax proposals.

1. Direct Tax Code - Draft of DTC within 45 days, which he achieved.
2. Safe Harbour Rules (for transfer pricing declaration) for transactions between associated parties. No threshold nor rules were laid down so far.

Challenges

• Bringing back the economy and reduce the fiscal deficit
• Control inflation
• Roll back the stimulus package
• Huge MAT credit to be set off against future tax

Conclusion

• Overall, it is a balanced budget (given the circumstances). 
• There were not much changes, which shows stability. Most of the tax proposals are of clarification in nature or of change in rates of tax.
• The focus is mainly on growth along with fiscal consolidation
• Stock Market gave a thumbs up and zoomed

All said, it is a budget. We have to see the actual performance. Hope Pranab walk the talk.

We, the citizens are like Gajni. Yes, the budget is in our memory for just 15 days. After that we will forget this budget and wait for the next budget.

Cheers,

Gopal