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Taxila Business School

26 Feb 2010
ANALYSIS OF UNION BUDGET 2010

Prof.Gaurav Malpani (CA, CS, ICW, MBA, M.Com, LLM )


Department Head (Finance)
Taxila Business School

The Union Budget 2010 presented by our Finance Minster Pranab Mukerjee has been
received positively by the stock market investors. This is evident from the sharp jump in the
indices - Sensex and Nifty.

The Biggest Positive


By far the most attractive thing in the Budget 2010 for individuals is the increase in the
income tax slab limits. Though the entry level slab for income tax has not been changed
from Rs.1.6 lakhs, there is a considerable jump in the other slabs.

The new proposed slabs for the personal income tax are:

10% - Between Rs.1.6 lakhs and 5 lakhs

20% - Between Rs.5 lakhs and 8 lakhs

30% - Above 8 lakhs

As per the words of the Finance Minister, this proposal will bring relief to about 40% of the
current tax payers.

Infrastructure Bonds are Back

Rs.20,000/- has been introduced as the additional limit for investment in Infrastructure
Bonds. Infrastructure Bonds are thus making a comeback after 5 years as a savings option
for tax savers. This will also reduce the tax burden for a few who are interested in traditional
savings tools. This Rs.20,000/- will be over and above the current limit of Rs.1,00,000/- in
various tax saving schemes.

New Pension Scheme Push

A renewed push has been given to the New Pension Scheme in this Budget. Till now the
New Pension Scheme has not found much favour from the common public due to typical
teething problems related to its implementation.

Our Finance Minister has proposed to give Rs.1000/- as a starting incentive to all Accounts
of NPS opening in the next 3 years. This is a welcome measure, as the NPS is as of now the
key Contributory Social Security Scheme in India.
Housing Interest Rate

The Finance Minister has said that the Interest Support of 1% for low cost housing loans will
be extended for the next year too. This is a boon for the builders of townships and also the
aam aadmi of India who could not afford costly houses. This is a direct form of supporting
the recovery of the economy itself.

Support for Rural People

Agriculturists and people livings in rural India can have a breath of relief. The farm loans
have been given an extension of 6 months.

Not only that, new loans will be getting a Government support of 2% reduction in interest
rates. Effectively this brings down the farm interest rate to 5%. The earlier support was
limited to only 1%.

The rural communities in non-arable areas get support from the continuation of the Mahatma
Gandhi National Rural Employment Guarantee Scheme. The budget has allotted
Rs.40,000/- crores for this scheme, which is now being implemented across the country.

Micro-Finance Support

Recognizing the major change in development brought about by micro-finance companies in


India, the Finance Minister has proposed a Micro-Finance Development Fund to support
Micro Finance Companies. At Rs.400 crores, the fund size is small but being with right
intention, the gesture is one in the right direction.

Banks Loans

Rs.16,500 crores has been budgeted for providing the Tier I capital required for some PSU
banks. This will improve the lending capacity of these banks. The Budget 2010 has also
made additional provisions of capital for lending to Rural Areas.

These measures will not only stabilize banks but also provide the much needed muscle to
improve the loan portfolio of PSU banks.

Additional licenses are being planned for private banks. NBFCs will also get a chance to
open banks. The modalities will be discussed in detail shortly.

Conclusion:

Based on the above concessions and support for lending and investments, we can conclude
that Budget 2010 is very much friendly for the individuals of India. The salaried class may
rejoice in their tax out goes coming down in a big way. The Rural Population can cheer over
their cash outflows coming down and/or postponed. Banks, housing developers and those
buying low cost houses can be happy with the 1% interest support