Show me the numbers! Show me some determination!

That seems to be the crisp message from Mint Street to Finance Minister Pranab Mukherjee. A day before the Union Budget 2012-13 presentation, the Reserve Bank of India (RBI ) Governor D Subbarao has decided to tread a cautious path by staying away from touching the policy rates. The RBI has kept the policy repo rate unchanged at 8.5 per cent. "Credible fiscal consolidation will be an important factor in shaping the inflation outlook," says RBI in its monetary policy review. The biggest danger to monetary policy in the months to come is from inflation, which in turn decides the interest rates. In a five-page note on mid quarter monetary policy review, the RBI has said the timing and the magnitude of interest rate cuts will be driven by inflation risk. The upside risks to inflation have actually increased tremendously from the recent surge in crude oil prices to $125 a barrel, fiscal deficit in the range of 5-5.5 per cent of GDP and a vulnerable domestic currency against the US dollar. The fiscal slippage is already adding to inflationary pressures. In fact, fiscal deficit is one number RBI is keenly awaiting in the Union Budget. If the finance minister settles for a higher fiscal deficit number (beyond 5 per cent), it is a clear indicator that interest rates are not going to come down drastically in the current year. The RBI has also said that while merchandise exports growth has decelerated, the moderation in imports growth was less pronounced leading to a widening of the trade deficit. The RBI has hinted that the current account deficit is likely to remain high because of sluggish global demand and rising crude oil prices. "The financing of the current account deficit will continue to pose a challenge so long as the global situation remains uncertain," says RBI. So the trinity of crude prices, rupee depreciation and the fiscal deficit will decide the future of interest rates going forward

India Budget 2012: Highlights

India moved to close loopholes in the countrys tax laws with the introduction of General Anti-tax Avoidance Regulations (GARR), rationalizing definitions of international transactions and introduction of many new penalties for tax avoidance, non-compliance, and unaccounted money, in its budget 2012. In the 14.9 trillion rupee ($298 billion) budget, finance minister Pranab Mukherjee also announced additional disclosure requirements for individuals and businesses. Many other provisions similar to Indias ambitious Direct Tax Code (DTC) that aims to replace the countrys archaic tax system are also announced. Key Highlights Changes in Provisions Relating to International Taxation, Amendments Retroactively Effective from April 1, 1962 India: General Anti-Avoidance Rules (GAAR)

Advance Pricing Agreements (APA) Tax Audits Extension of R&D Related Deduction Transfer Pricing (TP) Provisions to Apply To Domestic Transactions Minimum Alternate Tax (MAT) / Alternate Minimum Tax (AMT) India Tax Rates: Companies Other Tax Rates India Direct Tax - Individuals Tax Deductions Expats India Direct Tax Other Changes India Indirect Taxation India Foreign Investment

HOME NEWS VIEWS POLITICS POLICY WHISTLE BLOWER INSTITUTIONS CORPORATE AFFAIRS NETWORK PUBLIC REPORTER ABOUT US CONTACT US

Budget 2012 gives boost to aviation sector

The Indian airline industry on Friday got a major relief with the government allowing it to raise capital through external borrowings worth $1 billion for a year, as it planned to allocate Rs 4,000 crore to ailing Air India. In a bid to encourage the nascent maintenance, repair and overhaul (MRO) sector, it also proposed to allow full exemption from customs duty and countervailing duty to aircraft spares, tyres and testing equipment. Introducing the 2012-13 Budget, Finance Minister Pranab Mukherjee acknowledged that the airline industry was facing a financial crisis and the high operating costs of the sector was largely

attributable to the jet fuel cost. To reduce the cost of ATF, Government has permitted direct import of ATF by Indian carriers, as actual users. In order to address the immediate financing concerns of the civil aviation sector suffering from a major capital scarcity, he proposed to permit External Commercial Borrowings (ECBs) for working capital requirements of the airline industry for a period of one year, subject to a total ceiling of $1 billion. He also said that a proposal to allow foreign airlines to participate up to 49 per cent equity of an airline company, operating scheduled or non-scheduled services, was under active consideration of the government. While the central plan outlay for Civil Aviation Ministry in 2012-13 is estimated at Rs 7,293 crore, a demand for plan allocation of Rs 4,000 crore to Air India in the next financial year has also been proposed in the budget. Noting that India had the potential to establish itself as a hub for third-party Maintenance, Repair and Overhaul (MRO) of civilian aircraft, Mukherjee said to realise this potential, spare parts of aircraft, new and rethreaded tyres and testing equipment would be fully exempted from basic customs duty and countervailing duty. In a sop to Indians travelling abroad, he also proposed to raise the duty-free baggage allowance, which was last revised in 2004, from Rs 25,000 to Rs 35,000 and for children of up to 10 years from Rs 12,000 to Rs 15,000. In order to augment long-term low cost funds from abroad for the infrastructure sector, the budget also proposed tax incentives for funding certain infrastructure sectors, including those Indian companies involved in aircraft operations. It proposed to amend Section 115A of the IT Act to provide that any interest paid by a company to a non-resident entity in respect of borrowing made in foreign currency from sources outside India between July 1, 2012 and July 1, 2015, would be taxable at a rate of only five per cent, down from 20 per cent applicable currently. The amendment will take effect from April 1, 2013 and apply to the assessment year 2013-14.