PRANAB DA's BUDGET FOR YOU

New Delhi, Feb. 26

Middle-class Indians will have more disposable income in their hands from the Finance Minister, Mr Pranab Mukherjee's 2010-11 Union Budget, even as they might have to shell out more for what they buy.

Income-tax

While individuals would continue to be tax-exempt on incomes up to Rs 1.6 lakh, the Budget has proposed the 10 per cent rate on a slab extending up to Rs 5 lakh, as against the current Rs 3 lakh.

Likewise, the 20 per cent rate will now apply on income slabs beyond Rs 5 lakh and up to Rs 8 lakh, compared with the existing Rs 3 lakh to Rs 5 lakh range. The maximum marginal rate of 30 per cent will be charged only on an income slab of above Rs 8 lakh, whereas this limit is Rs 5 lakh now.

Simply put, an individual with taxable income of Rs 5 lakh would save Rs 20,600 annually from Mr Mukherjee's move. If his income is Rs 8 lakh, the savings works out to Rs 51,500, which means an additional Rs 4,300 every month to splurge or to save.

The flip side, however, is the Finance Minister's proposals on the indirect tax front — which may probably take away as much as what the income-tax reliefs would put in middle class pockets.

Excise duty raised

To start with, the standard ‘Cenvat' excise duty, applicable on most non-petroleum products, has been raised from 8 per cent to 10 per cent, which Mr Mukherjee has justified as a partial rollback of the earlier rate reductions as part of the various fiscal stimulus packages. The affected goods range from cars and bikes to steel and most consumer durables.

The Budget has also effected a Re 1 a litre excise hike on petrol and diesel, along with raising their Customs duty from 2.5 per cent to 7.5 per cent. As a result, a litre of petrol will now cost Rs 2.71 more, and diesel will be Rs 2.55 a litre costlier. The inflationary impact of the latter may not be small.

Service tax

While Mr Mukherjee has kept the service tax rate unchanged at 10 per cent, he has widened its ambit to include rail freight and air travel (both domestic and international on all classes).

Thus, while Ms Mamata Banerjee's Rail Budget did not hike either passenger or freight charges, the Union Budget has made up partially through service tax on goods hauled by rail. Other commodities that would turn dearer are cement, gold and silver jewellery.

As far as corporates are concerned, the Budget offers a mixed bag. While the surcharge on domestic companies has been slashed from 10 per cent to 7.5 per cent, the Minimum Alternative Tax (MAT) rate has been raised from 15 per cent to 18 per cent of book profits. That would bring MAT assessees closer to other companies that pay a corporate tax of 30 per cent.

But these blips notwithstanding, industry by and large has welcomed Mr Mukherjee's latest Budget, unlike the one he presented for 2009-10. The markets this time cheered the various proposals, including the setting of a specific Rs 40,000-crore disinvestment target and also the clear signals sent out on a return to fiscal prudence.

For 2010-11, the Finance Minister has projected the Centre's net market borrows at Rs 345,010 crore, which is below the current fiscal's revised estimate (RE) of Rs 398,411 crore. This, in turn, is expected to ward off fears about hardening of interest rates and private investments being crowded out as a result.

The fiscal deficit, too, is slated to fall from the RE of 2009-10, both in absolute terms (from Rs 414,041 crore to Rs 381,408 crore) as well as relative to GDP (from 6.7 per cent to 5.5 per cent).

Reform signals

While the latest Budget is not seen as a ‘game-changer', most corporates, however, have welcomed the fiscal consolidation measures and statement of commitment to introduce the dual Goods and Services Tax (GST) regime and the Direct Taxes Code from April 2011 as strong reform signals.

In fact, Mr Mukherjee indicated to presspersons that the Central GST rate may be pegged at 10 per cent, which happens to equal the Cenvat and service tax rates proposed in the Budget.

The other big positives were the move to control subsidies. Besides allowing oil companies to hike petrol and diesel prices, Mr Mukherjee also promised to take forward the recommendations of Kirit Parekh Expert Group's on decontrol “in due course”.