Budget 2010: Impact On Sectors That Investors Need To Follow

Budget 2010: Impact on sectors that investors need to follow
28 Feb 2010, 0408 hrs IST, Vikas Agarwal, ET Bureau

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The Finance Minister tabled the Union Budget for the next financial year on Friday. The significant proposals in this budget include a hike in the slabs of individual income tax, levy of Re 1 per litre as excise duty on petrol and diesel, hike in the peak excise duty, hike in excise duty for luxury cars, higher allocation for road infrastructure development, hike in the MAT rate, higher custom duty on crude oil and reduction in the tax surcharge for domestic companies. The service tax net has been widened by adding some more services in the arena of service tax, but the limit has been retained at 10 percent which is a positive for sectors such as FMCG. The finance minister also reiterated the government's focus on education and generating skilled manpower with a higher allocation towards education. In general, the markets have taken the budget with positive sentiments, especially the hike in income tax slabs. A rough calculation shows that individuals earning more than Rs 8 lakhs would be able to save Rs 50,000 from their tax burden. This directly means more money in the hands of consumers and investors, and hence an overall feel-good in the markets. As usual, the budget is going to have a positive as well as negative impact on various sectors. These are some significant sectors that will be impacted by the budget proposals in the next fiscal year: Auto As expected, the Finance Minister has proposed a hike in the excise duty for cars. The positive factor is the excise duty hike is only for luxury cars and the utility vehicles segment. The duty has been left unchanged for small cars. Analysts believe this is positive for the automobile sector as the demand in the luxury segment should not be elastic, and the volume growth in the sector would not be impacted as there is no change in the duty for small cars. Although the hike in petrol and diesel prices is seen as a minor negative for the automobile sector, it would not have any major effect on the sales volumes of auto companies. Oil The Finance Minister has proposed a duty roll-back on petroleum prices. A basic duty of five percent on crude oil, 7.5 percent on diesel and petrol, and 10 percent on other products is proposed . This means the overall cost of petroleum products will go up. On the other hand, oil marketing companies are facing a tough task in passing the higher costs to consumers. The government is moderating the prices as a steep hike will push the inflation further up, which is already beyond comfortable levels. Hospitality
The Finance Minister has announced some tax benefits for the hotel industry, especially on investments in the economy segment . This is a positive development as it will give a boost to the investment-intensive hospitality sector, and indirectly have a positive impact on tourism. The government is promoting tourism aggressively for the last few years. Infrastructure The allocation has been increased by almost 13 percent for road infrastructure improvement and defence projects. This reiterates the fact that spending on infrastructure development has been among the top priorities of the government. This is a positive development for companies in the infrastructure development space. However, the gestation period for these projects is quite long and therefore investors with a long-term investment horizon only should look at investing in these stocks. Power and energy The power and energy sector got a mixed bag in the current budget. The Finance Minister has announced a cess (clean energy) on domestic and imported coal. This will have a negative impact on the companies that are operating in this segment . On the other hand, the Finance Minister has provided a boost to wind energy and solar energy-related companies by cutting duty on wind farm units. Information technology
There is some disappointment for the IT sector. The IT industry was expecting an extension of the tax holiday (STPI) for another couple of years as it is struggling due to the global slowdown . No further extension has come as a disappointment for the IT sector, but analysts believe the markets were expecting it. For investors: AUTO Excise duty hike lesser than what market expected The income tax breather will mean more disposable incomes, and hence more customers, increasing volume of sales for auto companies Investors can hold on to their current positions and accumulate at lower levels Investors can also explore the option of buying more during market corrections OIL The increased duty on crude oil, though moderate, will hike fuel prices This is a negative for oil and oil marketing companies Risk-averse investors should avoid exposure in these uncertain times HOSPITALITY Tax holiday for this industry will give impetus to investments in budget segment Frontrunning hospitality stocks will be good buys in these conditions
INFRASTRUCTURE The market looks good for cement and steel manufacturing companies Investors can aim for longterm gains as the outlook is good for this sector POWER AND ENERGY Wind energy companies will benefit. Investors should pick stocks at lower levels Investors can hold on to their current positions in these sectors. INFORMATION TECHNOLOGY Investors should hold on to their stocks. Entrants should buy at lower levels Investors should go for major and well-established IT companies since the market is subject to currency fluctuations
Union Budget 2010: Cement stocks in demand on excise duty rollback

26 Feb 2010, 1244 hrs IST, ET Bureau MUMBAI: Shares of cement manufacturers were in focus in reaction to the government's proposal for a rollback of excise duty on cement and cement products. Ambuja Cements rose 1.47 per cent to Rs 107.50, JK Cement gained 3.8 per cent to Rs 176.15, Shree Cements was up 1.38 per cent to Rs 2135 and Grasim Industries advanced 1.44 per cent to Rs 2699.
Budget 2010: Pragmatic but inflationary

Akrita Reyar Pranab Mukherjee is always known to be a sensible man; and if one were to extend the character reading to his budget, one would immediately see it as overall pragmatic; measured but with a steady pace. Mukherjee has lived up to most of the promises he made in 2009, which is a hugely welcome step, considering that in the past most Finance Ministers have made big promises of fiscal prudence but never kept their word. Fiscal Prudence Pranab, as per his assurance last year, has contained fiscal deficit at 6.7-6.9% vis the projected figure of 6.8%. Moreover, he has set a target of 5.5% this financial and drawn a road map that takes the figure to 4.1% by 2013.
The budget seeks to reduce market borrowing to Rs 3.45 lakh crore, well under the Rs 5 lakh crore mark, exceeding which would have set off alarm bells. The divestment target of Rs 40,000 crore is meant to step in to ease efforts towards fiscal consolidation. The Finance Minister also aims to bring down the combined Centre-States debt to 68% of GDP. This is a move in the right direction, as India is among the countries with the highest borrowing-GDP ratios in the world and currently sharesthe figure of 81% ratio with US, another high debt country. Pranab Mukherjee has clarified that it was concerns over inflations and prudence that had made him resist the temptation of issuing oil and fertilizer bonds, as he wanted to keep the market borrowings under check. But despite fiscal prudence and attempts to limit government borrowings, inflation, and particularly food prices, remain a major worry.
Related Stories CPI activists burn budget copies, block roads in Orissa Budget 2010: Pranab begins stimulus rollback
Challenges and Road Map At the onset of his speech, the Finance Minister had spelt out the economic scenario as well as the challenges the Indian economy is facing. On the economic scene, he said that Indian economy has proved resilient and successfully emerged from the global downturn of 2008-09. Though its growth rate had been hit and was down at 6.7% vis--vis 9% in the previous three fiscals, the economy had emerged largely unscathed. On the other hand, Wholesale Price Index had shot up sharply and the economy has entered a high inflation phase. Bad monsoons, and supply side constraints on food grains front have led to increase in prices of basic edibles. So, according to Pranab, three challenges need to be faced. First, the Indian economy needs to revert to the previous 9% levels and then go on to breach the double digit mark. But that is not going to happen unless the agriculture sector recovers from the negative zone it has slipped into and register at least a 4% growth rate.
Second, the economic growth needs to be made inclusive with emphasis on infrastructure particularly in rural areas, education and health. And lastly, the public delivery mechanism needs to be made more efficient.
The Finance Minister has sought to address these problems by stimulating growth through a twin policy of higher spending and fiscal concessions; fiscal consolidation and increased public spending. The idea is to release sufficient money in the market to boost domestic consumption, but work towards fiscal prudence, as medium and long terms goals cant be achieved without strong fundamentals being in place. Taxation, Inflation & Industry Widening of the tax slabs will help individuals especially the salaried class to save anywhere between Rs 20,000-50000 p.a.. This will help increase spending as well as cushion inflation that will inevitably be triggered by hike in fuel prices. Meanwhile, the Rs 1.73 lakh crore infrastructure investment through schemes helping the rural sector would increase consumption and saving in the countryside. Moreover, social spending is also focused more on creating capital assets rather than just consumption, which will give returns in the future No change in corporate tax is a welcome step, as is the unchanged service tax. Taking a different route to mop up more money, new services have been brought under in the tax net. The increase Minimum Alternate Tax from 15 to 18% may prove to be a dampener and hit some infrastructure companies and IT industry in particular, which is already disappointed at no extension of the tax holiday. The auto sector suffers a double whammy. Besides, the excise rate been increased by 2% to 22%, which was on expected lines, there has also been a Re 1/litre petro tax and reinstatement of 5% excise on crude and 7.5% on diesel and petrol. While the Prime Minister justified the move saying the concessions had been extended as global crude had escalated to USD 112/barrel, and now have come down, the Oil Secretary feels it would be tough for oil companies, which are already under pressure, to absorb the tax. The increase can meanwhile be seen as indicative of a need for long overdue price correction. A word that one cannot help but add is about the unprecedented Opposition walk out over the fuel price increase. Not only has such a thing never happened in the past, it is worth noting that the NDA government had hiked petro prices at least 9 times during its regime. And there was absolutely nothing else so provocative in the Budget that merited such an extreme step. Yes, the concerns about prices running amok are real. Fuel prices have a cascading effect and the inflationary trends spill over to other goods and services by the very fact that all goods need transportation to reach the market. The common man will be specifically wary of its impact on food prices that have touched new highs in the past few months. While Pranab Mukherejee made some noises about fresh thrust on retail outlets to bridge the gap between wholesale and final prices, it seems he would need to address the issue in
more concrete terms if he wants to rein in prices. Staying with indirect taxes, while announcing the 2% excise increase, the Finance Minister said he was acting as per the recommendation of the 13th Finance Commission. The increase thus should be seen as a part of a calibrated roll back of stimulus. The cautious approach adopted extended to the Direct Tax Code and Goods and Services Tax, with the FM choosing to wait for another year before implementing these. Mukherjee said he was optimistic that he would be able to plug all loopholes and address apprehensions on direct taxes during the period, and the announcement should be seen as a part of the roadmap for the future tax regime. Banking is among the major beneficiaries with not just a capital injection of Rs 16500 crore for public sector banks, but a policy to increase licences for private sector banks and NBFCs. Moreover, the extension of the 1% interest subvention on home loans up to Rs 20 lakh will help the realty market. The stock market gave a thumbs up to the FM with an immediate rally. This could either have something to do with low expectations or the cautiously positive accent of the growth oriented budget. The positive is that the Indian economy continues to depend more of domestic consumption and investment compared to foreign inflows and this would continue to provide it some insulation from international shocks. With domestic savings at a 30% level, the trend is likely to continue. The structural changes that the FM has quietly unleashed will give the domestic sector a further leg up. All in all, much like his balanced personality, while drafting the budge, hes kept it real.
Union Budget 2010: Realty stocks up on Rs 1.73 lakh cr allocation for infra
26 Feb 2010, 1158 hrs IST, ET Bureau
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MUMBAI: The BSE Realty Index looked up 1.12 per cent to 3,232.02 after finance minister Pranab Mukherjee announced allocated Rs 1.73 lakh crore for infrastructure in the Union Budget for 20102011. ( Watch)
The FM also increased the road transportation kitty by 13 per cent to Rs 19894 crore. The minister also announced plans to launch an Delhi-Mumbai industrial corridor for development.
Union Budget 2010: Auto index extends gains to 3%

26 Feb 2010, 1336 hrs IST, REUTERS
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MUMBAI: The BSE Auto index extended gains to over 3 percent on Friday as investors had already factored in the rise in excise duty on large cars and vehicles in the federal buget, analysts said. Finance Minister Pranab Mukherjee said the 2 percentage point excise duty cut that was part of the stimulus package last year would be rolled back to 22 percent. The rise was lower than expected, analysts said.
Union Budget 2010-11: Shares of power equipment manufacturing cos surge

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NEW DELHI: Union Finance Ministers decision to double funds for power allocation from Rs 2232 cr to Rs 5132 cr infused a sense of optimism in shares of power equipment manufacturers like BHEL, L&T, HCC etc.
A recent Macquarie report had noted that these companies would be going forward have an opportunity to supply spares and components not only to indigenous power plants but also to manufacturers of power plants based on foreign technology. The shares of BHEL was ruling at Rs 2383, HCC at Rs 138.55(up 1.50%), L&T at Rs 1554.25 (up 1.21%) at 12.15 pm on the BSE.
Union Budget 2010-11: Shares of textile companies surge

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NEW DELHI: Shares of textile companies wake of the announcement by the Union Finance
surged across the board between 2-4% in the Minister Pranab
Mukherjee that a one time grant of Rs 200 crore would be given to the Tirupur Textile cluster. The move is seen as providing a shot in the arm to the beleaguered sector. The shares of Bombay Rayon was at Rs 205.55(up 2.19%), Gokuldas Exports at Rs 157.90(up 3.81%), Siyaram Silk at Rs 150.55(up 2.98%) to name a few on the BSE.
Union Budget 2010: Cement stocks in demand on excise duty rollback

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MUMBAI: Shares of cement manufacturers were in focus in reaction to the government's proposal for a rollback of excise duty on cement and cement products. Ambuja Cements rose 1.47 per cent to Rs 107.50, JK Cement gained 3.8 per cent to Rs 176.15, Shree Cements was up 1.38 per cent to Rs 2135 and Grasim Industries advanced 1.44 per cent to Rs 2699.
Union Budget 2010: Govt ups excise duty on SUVs to 22%

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MUMBAI: Shares of automobile companies reacted to the governments proposal to hike excise duty on SUVs to 22 per cent from the existing 20 per cent. Shares of Maruti Suzuki were at Rs 1437.20, up 2.66 per cent, Mahindra & Mahindra was up 3.83 per cent to Rs 993.80 and Tata Motors was up 4.73 per cent to Rs 699.
Budget 2010: What it means for you as an investor

TNN, Feb 27, 2010, 06.25am IST
Do you have a stake in the stock market, either directly through ownership of shares, or via mutual funds that invest for you? The Budget can impact bottomlines of industries and companies through changes in excise, customs, corporate taxes and other proposals. It's always a good idea, at Budget time, to take a fresh look at these changes and how they could impact your portfolio of stocks and mutual funds. TOI presents a detailed analysis of the impact of the Budget on various crucial sectors by CRISIL, India's leading ratings, research, risk and policy advisory company. Automobile State of the Industry The Rs 175,600-crore automobile industry has shown signs of recovery across segments, thanks to the stimulus package and a low consumer base. The industry is expected to grow 12-13% in 2010-11 in value terms, led by commercial vehicle and passenger car sales. Commercial vehicle volumes are estimated to rise 15-17% in 2010-11 due to sustained economic growth. Exports will grow 13-14%. Budget Impact Budget announcements are unlikely to have a major impact. The overall impact on passenger cars, two-wheelers and tractors, though, is positive while that on commercial vehicles will be marginally negative. The reduction in direct taxes for individuals is expected to lead to increased demand for passenger cars. Rise in disposable income will also offset the expected hike in the prices of cars. A typical compact car, for instance, is expected to be costlier by Rs 6,000-7,000, in line with the hike in excise duty.
Commercial vehicle prices will rise as well. Operating expenses are expected to increase by around 2%, thus negatively affecting transporter profitability. Continued focus on rural development will marginally benefit two-wheeler and tractor sales. Banking & finance State of the Industry Credit growth in 2009-10 is estimated at 16% year-on-year against 10% as on November 9, 2009, owing to a strong industrial recovery and increase in retail credit, particularly housing and auto loans. In 2010-11, credit growth is likely to improve to around 19% with expectations of higher economic growth, revival in exports and continued thrust on infrastructure. Consequently, banks could hike deposit rates in to meet credit demand, leading to a 20% growth in deposits. Budget Impact The government has proposed a Rs 16,500-crore Tier-I capital infusion in 2010-11, which is significantly higher than Rs 1,200 crore provided in 2009-10. This would preserve the government's holding in public sector banks as well as provide an opportunity to raise other resources for credit expansion while maintaining a healthy capital-to-risk weighted asset ratio. The extension of loan waiver to farmers would postpone recognition of NPAs in banks' agriculture portfolio in March 2010. The overall impact is neutral. Cement State of the Industry Demand rose 10.9% year-on-year during April-December 2009, owing to revival in housing and increased demand from infrastructure activities. This restricted fall in operating rates to 84% compared with 85% during the previous year's corresponding period. Average retail prices rose 3.9% year-on-year during April-December 2009. The trend, though, has been mixed across regions. While
prices in the central and eastern regions rose 13% and 12%, respectively, prices in the south fell 7% and remained almost flat in the north and the west. Average prices are expected to fall 4-5% in 2010-11 due to lower operating rates owing to significant capacity addition. Consequently, operating margins are expected to fall by 550-700 basis points. Budget Impact The Budget is expected to have an overall negative impact due to a 2% hike in excise duty. Companies are not expected to pass on this increase to consumers due to falling operating rates following significant capacity addition. Measures to spur housing and infrastructure investments, though, will have a marginally positive impact on demand. Infrastructure State of the Industry Between 2009-10 and 2013-14, investments to the tune of Rs 600,000 crore are expected towards the development of roads, ports and airports. Investment in roads will account for the lion's share of close to 84%. Private sector participation is expected to drive investments in the airports and ports sectors and road projects of NHDP. Total port traffic is expected to grow 5.6% in 2009-10 due to rise in thermal coal and iron ore traffic. In airports, domestic passenger traffic is expected to grow 16.8% in 2009-10 driven by sustained revival in the economy and low ticket prices. Budget Impact Higher allocation towards infrastructure sectors and continued takeout financing and refinancing plans of IIFCL will have a positive impact. Additional deduction available for investment in long-term infrastructure bonds for individuals will improve fund availability. Additionally, concession on import duty for monorail
projects would reduce capital cost for players. Hike in minimum alternate tax rate to 18% of book profits, though, will negatively impact financials of operational BOT projects. Consumer durables State of the Industry The first six months of 2009-10 saw moderate growth. The third quarter, though, saw demand for colour televisions and refrigerators pick up sharply by 19% and 45%, respectively, compared with a negative growth of 9% and 2% in the corresponding period of the previous year. Over the past few years, demand for high-value products has been on the rise. LCD televisions, for instance, now account for a quarter of television sales in value terms. The sales clocked a growth of 50% year-on-year in April-December 2009. Household appliance sales are expected to see robust growth in 2010-11. Prices are expected to rise moderately on the back of higher commodity prices. Budget Impact The change in income-tax slabs will lead to a significant reduction in tax liability for the salaried class. The resultant increase in disposable income is expected to boost demand. The hike in excise duty to 10% from 8% is unlikely to have a major impact, as a significant portion of the production takes place in excise-free zones. Oil & gas State of the Industry Average prices for Brent crude oil stood at $68.4 a barrel in AprilJanuary 2010 compared with $92.6 in the corresponding period of the previous year. Reflecting the revival in global demand, gross refining margins (GRMs) averaged $6.6 a barrel a year-on-year
growth of 21.8%. Budget Impact Subsidy on petroleum products will be disbursed as cash to oil marketing companies (OMCs). We believe this would significantly reduce working capital stress on OMCs. Increase in customs duty across crude oil and petroleum products would translate in higher duty protection for refiners. The resultant increase in refinery gate prices for retail auto and cooking fuels, if absorbed by OMCs, would translate in a rise of almost Rs 11,000-14,000 crore in underrecoveries in 2010-11P. Further, additional central excise on petrol and diesel of Re 1 per litre each, if passed on to the end consumer, would have no implication on the profits of OMCs. Retail selling prices would rise Rs 1.25 a litre. However, if retail prices are adjusted to reflect the hike in customs duties, the required hike in petrol and diesel retail prices would be to the tune of Rs 2.4-2.6 a litre. Power State of the Industry During the Eleventh Plan, the estimated capacity addition is seen at about 46.5 GW compared with the government's target of 78.7 GW. During this period, demand for electricity is expected to grow 7-8%. Private companies are putting in place generation capacities and have also been awarded transmission projects and distribution circles under the franchisee route. In 2009, prices for short-term power (merchant power) were volatile. Prices were very high during the first half of the year, but have fallen since. Budget Impact The budgetary allocation for the sector, excluding Rajiv Gandhi Grameen Vidyutikaran Yojana (RGGVY), has been raised to Rs 5,130 crore from Rs 2,230 crore. The hike in minimum alternate tax to 18% would have a neutral impact, as it would be passed on to end-users. A clean energy cess of Rs 50 per tonne will be levied on
domestic and imported coal. As fuel costs are passed on to consumers, power tariffs are expected to rise by 2-3 paise a kwh. There will be a marginal pressure, though, on companies which sell power in the open market. Steel State of the Industry The industry has experienced a faster-than-expected recovery from the global economic slowdown. Domestic demand, which had fallen 1.2% year-on-year in 2008-09, rose 6.5% in April-September 2009. Driven by strong growth in infrastructure and automobiles, domestic demand is expected to register a compounded annual growth rate of 10-11% from 2008-09 to 2010-11. Profitability of companies is expected to rebound in 2009-10 owing to improved prices and lower raw material contract prices. In 2010-11, profitability is likely to remain stable as any rise in raw material cost is expected to be passed on to consumers, owing to an improved demand-supply scenario. Budget Impact The Budget impact is expected to be neutral. The 2% hike in central excise duty is expected to be passed on to consumers, thereby pushing up prices by Rs 500-750 a tonne. The expected rise in the cost of manufacturing due to the levy of cess on coal (Rs 50 a tonne) is also likely to be passed on. The focus on increasing infrastructure investments in railway, urban infrastructure and housing is likely to lend support to steel demand. Telecom State of the Industry Following the addition of a record 130 million mobile phone subscribers in 2008-09, the pace of addition accelerated further in 2009-10. In the first nine months, the industry added 133 million subscribers, led by a sharp decline in tariffs and the growing use of
multiple SIM cards, taking the total subscriber base to 525 million. Growth in subscriber base is expected to continue in the near term and may touch approximately 700 million by 2010-11. Budget Impact The increase in minimum alternate tax to 18% from 15% will negatively impact the profitability of telecom service providers. Exemption from basic, countervailing duty and special additional duty on components and accessories of mobile handsets has been extended to include battery chargers and head phones. The government has also extended the exemption of special additional duty to mobile phones not imported in the pre-packaged form. These measures will cause mobile handset prices to fall further. The impact, though, is expected to be marginal as handsets and accessories are already affordable. Textile State of the Industry Although the domestic market has shown some recovery, 2009-10 continues to be a challenging year due to the ongoing slump in exports. Domestic demand is expected to grow 6-7% annually in 2009-10 and 2010-11. While there are incipient signs of recovery in the US and EU markets, revival in exports would be slow. Across different segments, margins continue to remain under pressure owing to overcapacity and competition. Budget Impact The extension of 2% interest subvention on pre- and post-shipment export credit till March 31, 2011, will help small exporters reduce interest costs. The hike in excise duty on man-made fibres and yarns will increase polyester prices by Rs 1.50 to Rs 2 a kg, but the manufacturers will be able to pass the hike, as polyester continues to be cheaper than cotton. Also, the government announced a one-time grant of Rs 200 crore
to Tamil Nadu for the installation of a zero-discharge system to reduce environmental pollution at the Tirupur cluster. This will help knitwear exporters in the long term.
Budget 2010: Impact on your wallet
Published on Sat, Feb 27, 2010 at 13:34 | Updated at Sat, Feb 27, 2010 at 18:41 | Source : CNBC-TV18
The Budget speech is overthe announcements have been made. So has the Finance Minister Pranab Mukherjee put more money into your wallet? Not much was expected considering that the Direct Tax Code (DTC) was to be implemented from April 1, 2011, yet the Minister has come out with certain sops for the salary taxpayer. While individuals would continue to be tax-exempt on incomes up to Rs 1.6 lakh, the Budget has proposed the 10% rate on a slab extending up to Rs 5 lakh, as against the current Rs 3 lakh. Likewise, the 20% 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% will be charged only on an income slab of above Rs 8 lakh, whereas this limit is Rs 5 lakh now. In an interview with CNBC-TV18, Subhash Lakhotia, Tax Guru; Sanjay Sinha, CEO of L&T Mutual Fund and Kamesh Goyal, Country Head of Bajaj Allianz Life Insurance evaluate the Union Budget and its impact on your wallet. Below is the edited transcript of Subhash Lakhotia, Kamesh Goyal and Sanjay Sinhas exclusive interview on CNBC-TV18. Also watch the video. Q: Upto Rs 50,000 seems to be the benefitmore so for people who are earning above Rs 5 lakhRs 5 to 8 lakh and of course above Rs 8 lakh as well gets the Rs 50,000 benefit. But under Rs 5 lakh earners seem to be getting a lesser benefit? Lakhotia: Yes, the individuals having income upto Rs 50,000 to Rs 5 lakh will save Rs 20,000 and individuals having income of Rs 8 or 10 lakh they will save nearly Rs 50,000 income tax saving. But the worst part is the common man having income Rs 25,000 per monthhis saving is a big zero. Not a single rupee saving inspite of the fact we are having big rise in inflation and other things in the countryits still the poor man or the common man with income of Rs 25,000 per monthno income tax saving at all because the initial exemption limit has not been changedthats the big problem. Q: When we were talking ahead of the Budget, you had asked for an increase in the exemption limit under 80 C. The FM has left that totally untouched. Lakhotia: No changes made in 80 CRs 1 lakh continues and this Rs 20,000, which has been made is a separate section 80 CCF. That is also only in the case of infrastructure bonds. My emotions are taken away. If he would have increased from Rs 1 lakh to 2 lakhit would have been best one but this Rs 20,000 forced to make the investment in infrastructure bonds only. Q: Maybe somewhere the Minister had the Direct Tax Code in mind. The Direct Tax Code does talk of an exemption increase to Rs 3 lakh for instancethe draft one. The FM hasnt moved anywhere closer to that although on the basic exemption, the FM has tried to move in that directionvery small steps compared to what the Direct Tax Code proposesbut he has tried to move. Lakhotia: Not in the basic exemption, but in the slab rate, FM has moved and thats pretty good. It gives a chance that yes we can expect in the DTC the tax regime of Rs 10 lakh income and 10% tax only because this time the tax slabs have been changed. They are pretty good and very ideal one for the individuals having Rs 10 lakh or so. They are going to be happy. They will be able to fight the inflation as they are facing today. Q: Did you expect even this much from him? Were you surprised? Lakhotia: Not surprised at all because what I expected was for the common man initial exemption limit of Rs 30,000 coupled with standard deduction for salaried employed. Salaried employed the standard deduction is completely missing in this Budget. Q: When we were talking before the Budget, you were hopeful that while the DTC does hang on our head from next year and that might not allow the Minister to tinker around too muchare you disappointed that from an investment category point there hasnt been an expansion of the 80 C window at all? Sinha: Yes one would have expected because as we were discussing that the tax slabs have been tweaked and this tweaking has been to make it come a bit closer to what the DTC proposes to do. One would have expected that the same philosophy would have extended to the
tax benefits that you have under the exempt-exempt and then tax category that the DTC proposes. So on that count one is little disappointed. But if you look at the larger picture, the fact that there is larger disposable income in the hands of people who are probably in the upper income bracket, there could be a possibility of that larger income now getting directed to savings if its not getting consumed. Q: Are you okay with the fact that the category of people who are going to be getting this Rs 50,000 in their wallet are likely to come and invest in financial products? Sinha: If you look at it from one perspective, this category of income generators may not be very large savers. But the FM has is not entirely left them out of the ambit of whatever he could do because the FM has a provision of putting about Rs 1,000 into accounts by way of the New Pension Scheme for the unorganised sector. So to some extent the FM has tried to cover and there the number of people that he proposes to cover is fairly large. Q: But thats not taken offthe New Pension System (NPS) has been a total disaster? Sinha: Absolutely. In fact thats why if there is an incentive that is provided by the government by incentivising people to start by making a contribution on the behalf of the pension saver. Q: But Rs 1,000 a year? Sinha: In the absence of zero, I would say this is better and given the fact that the NPS right now has only few thousand accounts. The amount that has been allocated for this scheme is about Rs 100 crore, which can potentially open 1 million pension savings accounts. I think thats a positive sign. Q: One statement of the FM, which has come in only recently in an interview to Network18, where the Finance Minister has said that issues concerning exemptexempt-tax (EET), which is a big issue, that the exempt-exempt-exempt (EEE) category may go an be replaced by EET. He is re-looking at that, he is taking in the suggestions of the industry. He is just said a while ago. Is that something that heartens you because otherwise from next year onwards we are perhaps now on the path to moving to a DTC regime, which actually says that the only benefits you are going to get is on long-term pension products? Goyal: Absolutely and if you look at it logicallyfor a common man who is investing about Rs 20,00025,000 a year and he moves to an EET regime where even the premium, which he is been paid each year is not getting deducted, then the entire life savings actually becomes meaningless so that is extremely useful. Q: Like Sanjay are you disappointed that he has not expanded the 80 C window and you get nothing out of the infrastructure bond because thats probably going to end-up banks issuing it? Goyal: Not at all. In fact, I would say that the limit of 80 C of Rs 1 lakhif we see it as Mr Lakhotia was saying from a common mans perspectiveI do not think a person who is earning Rs 25,000 a month can actually exhaust the limit of Rs 1 lakh. So if he had expanded the limit under 80 C then the benefit would have again gone to the people who are Rs 5 or 8 lakh income bracket in a year. I am not at all disappointed and even on the infrastructure side, my feeling is that for a life insurance companies and mutual funds, we would actually be allowed to float funds, which would invest in those bonds. Otherwise it will be very difficult for the government to take these bonds to the common man if the life insurance and the mutual fund industry dont take this in a big way. Q: So are you saying this time round these infrastructure bonds will not be issued only by financial institutions and banks like in the earlier days? Goyal: I am saying they will still do the issuance. What we can do is we can float a fund, which will exclusively invest in those instruments. Q: Have you had talks with the government towards this because he has been quite silent on this? Goyal: No, we havent actually but my feeling is I see no reason why he shouldnt allow this because we will still be investing in the bonds issued by those entities. The idea is can we take it public? Q: The idea is will I get the tax benefit if I go through you instead of buying the bonds? Goyal: My feeling is they should and then we can take this as a very big development next year. I am sure if I look it from a life insurance industry, we can definitely generate close to about Rs 5,000 crore on the infrastructure if he allows life insurance companies to float funds for this purpose. Q: Do you fear that if this doesnt happen what Kamesh is saying that we normally are in any case a very risk averse society? Do you fear that I would rather much go and put my Rs 20,000 there and make up that Rs 1 lakh with other incentives that are thrown into it like home loan, education of my children, my standard provident fund deduction rather than going and taking advantage of a mutual fund or of a unit linked insurance policies (ULIP)?
Sinha: We will also have to see what sort of coupon those bonds will have. What sort of lock-in will they necessarily imposewhether that is acceptable to me as an investorwould also be some of the considerations that you would have. Even today you have options within that 80 C, where you have instruments, which do not give you a very attractive rate of return but then there is certain amount of security with them. For example even banks deposits give you section 80 C benefits but why doesnt all the investments flow into that category. I guess there is a healthy appetite for a tradeoff between risk and return. Next page: Answers to all your tax related queries. Ruchira Jalandhar, Jalandhar: Impact on tax slabs for women and senior citizens?
Lakhotia: This time round there is no special mention and thats the reason that throughout India we have been receiving lot of callspeople are thinking that the Finance Minister has made Rs 160,000 for everyone. But I would like to give the happy news to the viewers that on the explanatory memorandum of the Finance MinisterPage 2 clearly speaks about the new income tax rates as are applicable for individuals, the women taxpayers and the senior citizens. It clearly statestalking about the women taxpayersRs 190,000 nil income tax, income between Rs 1,90,001 to Rs 500,000 at 10% and Rs 500,000 to Rs 800,000 at 20% and over Rs 800,000 at 30%. Similarly, happy news for the senior citizensRs 240,000 at nil, Rs 240,001 upto Rs 500,000 at 10% and Rs 500,000 to Rs 800,000 at 20% over Rs 800,000 at 30%. The only big problem, which I feel in the senior citizen point, is age limit continues to be 65 years. I am going to retire 60 yearsI get deduction from the airlines when I am 60, railways I get the deduction at 60 but income taxwhy 65. This the question people are asking, Why the age limit is 65? Nitin Mittal, Mumbai: Tax liability for Rs 6 lakh taxable income and exemption available under Section 80C? Lakhotia: Definitely it will undergo changes but the fact is that he has not kept it in cold storage. I feel it will see the light of the day and I am very much optimistic that from 1 April, 2011 it will be implemented but people expect a little more with regard to the clear-cut roadmap of EET and other things. Talking about the query which we have got of the viewer here from Rs 6 lakh income, Rs 120,000 putting under Section 80 C and the new Section 80 CCF, I would like to tell the views both are two different Sections, one cannot take advantage in the old Section 80 C itself so Rs 120,000 goes away and the balance amount remains Rs 480,000. On this Rs 480,000 if he has got housing loan interest also that will continue to get him deduction and on the balance amount now he will be paying income tax, flat rate 10% only because the income up to Rs 500,000 now is 10% tax only. Narayan Singh, Udaipur: ULIPs will become cheaper? Goyal: This should make a big impact. I personal feeling is that if we look at ULIP for a ten year term or more this could actually increase the income from a customers perspective by close to about 1% each year. So this benefit and along with the new changes with the regulator had brought in from 1 January will make ULIPs much more attractive from a customers perspective. Q: I want you to explain the infrastructure bond deduction a bit more -- its a deduction, right? Lakhotia: It is not a rebate; it has no connection with the present limit of Rs 100,000. This means if I invest the entire Rs 120,000 in the new infrastructure bond I am not going to get the deduction. This is a new Section 80 CCF wherein it is provided that Rs 20,000 exclusively de-marketed for this one single item only. Q: You mean deduction? Lakhotia: Deduction mean deducted from my gross income. Q: Quite like currently I do for my health investment up to Rs 15,000? Lakhotia: Yes, Rs 15,000 plus Rs 100,000 80 C insurance etc same way this Rs 20,000 plain deducted from the income. Q: We have been seeing that Finance Ministers over the years are abandoning their role as being financial planner. What has he done? He has basically said, I am giving you more money. You go decide and figure out how you want to invest it. I am not going to give you more benefit under 80 C and therefore decide for you where you
should really be investing and the choice is really yours as to how you want to put this Rs 50,000 (for above 500,000) to good use. Do you think thats the essence of what he has announced today, I am giving you money. I am not going to decide for you where you invest We always been arguing that your investments should not be driven by purely tax saving. Sinha: Absolutely because if you look at historically many people have created their savings pool in the manner in which the tax benefit was provided at the point of saving. They did not pay attention on the fact as to whether this savings pool was going to meet their financial goals. I think we are now moving more to environment where we should save the way we ought to and not the way where we get more and more tax benefits. So thats way its a healthy thing that the finance ministers are choosing not to be financial planners for the entire nation. Q: Is your only fear though that people should not go and blow-up this Rs 50,000 that they get, they would rather invest? Sinha: I would say there would be transitional benefit of that also because even if they go and spend this there will be a multiplier effect of the economy and while as mutual fund we would like to get the larger share of every pie that the saver would have but the larger growth will happen if the markets are stable and they are moving upwards, which would be a function of how the economy grow. So therefore if they go and blow-up the entire Rs 26,500 crore of tax benefit it has a multiplier which should take the markets up and we should be happy for that too. Q: Not so happy -- probably wanted more? Lakhotia: The point is how I can be happy? Please remember, savings we have seen but what about the inflation? Due to the inflation out of this income tax saving of Rs 50,000, my household expenditure will be additional expenditure of Rs 30,000-40,000. THe amount available for savings will be pretty small. Petrol prices gone up now, so virtually no impact on the net saving, net take-home money surplus available for the investor to save. Q: What you are saying is it looks nice Rs 50,000 on the face of it but given the current circumstances may not actually leave much on the table for the citizens?
Lakhotia: Correct.
Industry chambers hail budget, disappointed at MAT hike

2010-02-26 20:30:00
Industry organisations Friday hailed Finance Minister Pranab Mukherjee for his 'fine balancing act' in presenting a development-oriented budget for 2010-11 but expressed disappointment at the hike in the Minimum Alternative Tax (MAT) and excise duties. The industry has been demanding cut in MAT from the current 15 percent to 10 percent, while the government in the budget 2010-11 has increased it to 18 percent. MAT is a tax that has to be paid by the companies that are enjoying tax benefits or tax exemption under various schemes. 'By and large, the finance minister has provided a stable tax and policy framework for the Indian economy to move forward. However, the industry is disappointed that the finance minister has raised the MAT rate from 15 percent
to 18 percent when industry was demanding a cut down to 10 percent,' said Harsh Pati Singhania, president of Federation of Indian Chambers of Commerce and Industry (FICCI). He said the impact of excise duty hike across the board coupled with increase in excise duty on petrol and diesel will add pressure on the price line in current circumstances. However, he appreciated the need for some fiscal correction. On introduction of Goods and Services Tax (GST) and Direct Tax Code (DTC) from April 1 next year, Singhania said the time given for introducing it was too little. Director general of Confederation of Indian Industry (CII) Chandrajit Banerjee said the finance minister has done a fine balancing act. 'It is visible in the budget proposals where, on the one hand, he has clearly set the roadmap for fiscal consolidation by setting the targets for fiscal deficit reduction over the next three years, raising resources for capital expenditure by setting disinvestment targets and partially rolling back the excise duty stimulus,' he said. 'On the other hand, he has set the stage to address productivity issues in agriculture, putting more disposable income in the hand of aam aadmi, to ensure positive environment for growth,' he added. Another industry organisation, the Associated Chambers of Commerce and Industry of India (Assocham) said the finance minister has 'performed the most balancing act under the given circumstances' by partially rolling out the stimulus package. 'The finance minister has performed the most balancing act under the given circumstances by partially rolling out the stimulus package and at the same time paid adequate attention for development of the social sector and more specifically so for the rural sector,' said Assocham president Swati Piramal. She also welcomed announcements for bringing in more and more services under the purview of service tax while not tinkering with its existing ceiling rate of 10 percent. 'The budget proposals will bring in more money in the hands of individuals as several good measures have been introduced in the Finance Bill in the form of tax reliefs to the general public,' she said in a statement.
The Assocham also welcomed a deadline set for introduction of Goods and Service Taxes (indirect taxes) and Direct Tax Code. 'These would be major tax reforms which will not only provide tax relief to people and industry but also help the government realize higher tax collections,' she added.
Union Budget 2010: Govt allocates Rs 31,036 crore for school education; Educomp, Navneet surge
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MUMBAI: Stocks related to the education sector were in demand after the government allocated Rs 31,036 crore for school education and Rs 3675 crore for elementary education. Following the announcement, shares of Navneet Publications were up 1.81 per cent to Rs 47.80, NIIT advanced 2.17 per cent to Rs 66, Educomp Solutions advanced 1.35 per cent to Rs 686.70, Everonn Education rose 1.96 per cent to Rs 395 and Aptech added 1.46 per cent to Rs 166.35.
Union Budget 2010: NBFCs gain momentum on new banking licenses proposal
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MUMBAI: Non banking financial companies were in demand on Friday in reaction to Finance Minister Pranab Mukherjee's proposal in his Budget speech that new banking licenses would be extended to private banks and NBFCs.
Following the announcement, shares of IDFC surged 5.34 per cent to Rs 160.90, IFCI climbed 7.81 per cent to Rs 51.10 and Reliance Capital advanced 5.72 per cent to Rs 769.35 and Max India rose 4.74 per cent to Rs 203.40.
Union Budget 2010: Key proposals for IT, telecom

Published on Sat, Feb 27, 2010 at 10:51 | Updated at Sat, Feb 27, 2010 at 18:41 | Source : Moneycontrol.com Email
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By PwC The proposal to increase the weighted deduction for in-house research from existing 150% of the expenditure to 200% is a welcome measure. IT companies having units in SEZ and domestic area will now be relieved due to the proposal to remove the anomaly in computing exempt profits effective from AY 2006-07. Increase in the rate of Minimum Alternate Tax from 15% to 18% would entail shelling out a higher amount as these companies are enjoying tax holidays and pay taxes on book profits. Amendment in Export of Service Rules by omitting the requirement of use of services outside India will benefit the industry. Further, simplification of service tax refund rules is expected to increase the cash flow in the hands of exporters and should soften the impact on their reduced margins due to recession in current year. Sectoral inputs for Telecom The extension of exemption from customs duties to include sub-parts and parts of handsfree head phones of mobile handsets and battery chargers and the proposal to increase the weighted deduction for in-house research from existing 150% of the expenditure to 200% should be a boon for local manufacturers. However, increase in excise duty from 8.24% to 10.30% will increase the prices to the consumers
See inflation inching up 0.4% in near-term: Pranab Mukhejee

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The services and manufacturing sector is making up for the degrowth in agriculture, says Finance Minister Pranab Mukherjee in his address to India Inc. Data that came out yesterday showed that the Indian economy grew 6% in the third quarter of financial year 2010 as against 7.9% in the last quarter. Agriculture output in Q3 has come in lower at -2.8% as against -1.4% year-on-year due to drought like conditions across most of India. Allaying concerns that the government would not fall short of its FY10 GDP growth target, the Minister says the government is sticking to its 7.2% number for full year. He says the Budget has addressed some developmental concerns. "Thirty-seven percent of allocations in the Budget are towards the social sector while 24% is towards rural infrastructure." Mukherjee stated that the Agricultural Minister will shortly present a Food Security Act. "The right to food security is a vital target for the UPA government." He feels India can double grain production in a few years. He reiterated the need to take firm steps towards fiscal consolidation and says the Ministry has an open mind on the areas of concern in the Direct Tax code. "It is possible to look into tax issues raised by industry. We want to synchronise DTC with GST." According to him, tax proposals will have some inflationary impact. "But the inflationary impact of tax changes will be absorbed." He sees inflation going up by 0.4% in the near-term.
Budget 2010: Sunset on STPI, EOU schemes

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In an interview with CNBC-TV18, S Mahalingam, Executive Director & Chief Financial Officer of Tata Consultancy Services (TCS) and Bobby Parikh, Managing Partner of BMR & Associates, spoke about the impact of the STPI and EOU benefits lapsing after 2011 and the the key takeaways for the IT sector from Budget 2010. Here is a verbatim transcript of an exclusive interview with S Mahalingam and Bobby Parikh on CNBC-TV18. Also watch the accompanying video.
Q: The sun has finally set on the STPI and EOU schemes. Is there much to write about, for the IT sector as far as the Budget was concerned? Mahalingam: This one was never there. It was an expectation as far as the Budget proposal was concerned. This Budget has been good from a different perspective. If you take the Special Economic Zone (SEZ), the anomaly that was there in the 10 AA, which was given effect to with prospective effect last year. He has not given effect to that with retrospective effect. That is a very positive thing as far as the IT sector is concerned. Q: Is there still a grey area of how the tax statement is going to work for SEZs? Parikh: Not at this point of time. This area was unclear. It was in terms of whether you had a SEZ unit that you use the turnover from that unit as the numerator and what you used as the denominator was unclear. It was clarified in the last Budget to say that you dont look at all your businesses but you look at that undertaking itself, which was what was desired. When they clarified it last year, they did it with effect from last year whereas these units had been set up several years before. So they have clarified that it will have operation from the time that the SEZ regulations came into play. In that sense there is no longer a controversy in terms of what the taxability of SEZ should be. Q: While you are right that the extension as far as STPI benefits were concerned were a hope as far as the industry is but NASSCOM as a body has been lobbying for an extension of STPI scheme largely on account of the small and medium industries. The big boys are already in SEZs. They have already said that they dont really care if the STPI benefits are done away with. How do you actually see this as impacting the growth of the domestic IT business? Mahalingam: There will definitely be some effect. There were two issues as far as this was concerned. One was the tier II and tier III cities on how we were going to handle that. You cannot go and set up an outfit for about 8,000-10,000 people at that place. Therefore, there is going to be an effect. As far as small and medium are concerned, now the only option that they have in terms of growth is to move into an SEZ lease space. Many of these SEZs are outside of town. In a sense that would lead to some additional costs and so on. These were two basic reasons why we had taken it up through NASSCOM. As far as larger players are concerned, they had moved to SEZs a few years back as soon as the SEZ facilities came into being. That should not have very much of an effect. Q: The Finance Secretary and the Finance Minister made it very clear that the profit-linked incentives need to go and only investment-linked incentives will be considered. This ties in with the Direct Tax Code (DTC). There is no clarity yet on how much of the DTC white paper, which was opposed by industry, will be reviewed. From the Chairman of the Central Board of Direct Taxes (CBDT) we understand that a substantive part of it will be reviewed and industry should be a lot happier. What do you make of what you heard, on the back of the changes announced and your hope for the DTC? Parikh: The hope for the DTC is that there is material rethink of what the DTC is going to carry with it because on a number of different issues, there was much pain that the DTC could have created if it was to be introduced in the form in which it had been put out for discussion. All those issues have been discussed on a number of different occasions and they are well known. What was reassuring from different conversations that it did occur during the course of the day, including the conversation which the Finance Minster had, is he has sort of indicated that all feedback is being considered and that there is no intention in their minds of pushing through with the code and making some minor changes, but otherwise substantively keeping it in its current form. Beyond that, hopefully, lots of this feedback does get processed. As to what elements do get processed and what dont is a matter of conjecture. I dont know if we can speculate on that. Q: What is the impact of Minimum Alternate Tax (MAT) since it has been hiked? Are you happy that the Finance Minster has articulated the timeline on the GST and DTC? Mahalingam: As far as MAT is concerned, its a cash flow and a fairly big issue as far as TCS is concerned. It is going to be over Rs 100 crore. The reason I am calling it a cash flow issues is because we are hoping that the set of principles will apply. That is one of the feedbacks we have given as far as the DTC is concerned because that is not allowing for that at this moment in time. As far as MAT is concerned, there is a concern, especially when we move from 10 to 15% and now to 18% in a very short period of time. As far as DTC is concerned, it is a good thing that he made it clear. There are quite a few things that we have raised. There are issues in terms of grandfathering clauses, SEZ and so on, which is very critical because its not a simple problem. Our company has investments or projects worth about Rs 5.000 crore in various stages and so on. That is a very important thing. The other one is MAT and so on. However, it is now clear that its going to be on April 1, 2011, which was what was proposed earlier. It is something that we should sit down and plan. Hopefully, all our feedback will be taken into consideration.
Budget 2010 fine print: Assessing FM's tax agenda
Published on Fri, Feb 26, 2010 at 20:31 | Updated at Sat, Feb 27, 2010 at 18:41 | Source : CNBC-TV18
The Finance Minister, in todays Budget speech announced a roadmap for the muchtalked about Direct Tax Code and Goods and Service Tax (GST). The process of building a simple tax system is near completion, Pranab Mukherjee said on the Direct Tax Code in Parliament today, adding, We aim to implement the Direct Tax Code and GST by April 1, 2011. In a special Budget discussion on CNBC-TV18, V Sridhar, Chairman, CBEC; Rajiv Memani, CEO & Managing Partner, E&Y; Pratik Jain, ED, KPMG; Mukesh Butani, Partner, BMR Advisors expressed their views on the tax proposals made by the FM. Here is a verbatim transcript of the discussion. Also watch the accompanying video. Q: As far as service tax is concerned because the anticipation was that the service tax rate would be hiked by atleast 2%. The finance minister has left it at where it currently is, so is this a signal of the GST rate because thats what the finance minister on our interview has indicated? Sridhar: It was clarified in the speech by the finance minister himself that he had two options whether he could increase the rate from 10% to 12%. But he didnt do it because the CENVAT rate was increased to 10% and he wanted the convergence of service tax rate with the CENVAT rate. So in one sense you could say that its a precursor to the preparation for GST, a unified rate for goods and services that is 10%. Q: So could we say that that is going to be the convergence rate? Sridhar: No, we have not yet reached the stage as to what will be the revenue neutral rate. The discussions are still not over at the state governments. Q: Eight new services have been brought under the net. The Finance minister talked about them but just about everything from air tickets to mediclaim policies are now going to be more expensive. I want to specifically ask you about real estate. We saw the real estate stocks selling off in the markets this afternoon because there was no clarity on construction of new buildings and whether they will attract service tax, I understand that this was a notification of 2005, there has been some additional clarifications this afternoon in the budget. Can you take us through what he situation is? Sridhar: What we have said is, unless the entire consideration of the property is paid, after the completion of construction that is after the receipt of completion certificate from the competent authority, the activity of construction would be deemed to be a taxable service provided by the builder or promoter or developer to the prospective buyer and the service tax would be charged accordingly. Q: So you are saying that I am going to pay more for the house that is under construction? Sridhar: In a sense, yes, because it comes under that heading of construction of service. Q: What is the rationale for this, you are just making it some expensive for people to go out and buy houses, when the government is trying to promote consumption. This seems to not fit in with what you are attempting to do? Sridhar: This is not a new service. This is a service which is already existing and we have provided abatement also. It is not as if the entire value or consideration will be taken. So just to give some clarity to the issue. That is what we have done. You dont seem to be given much clarity though because the markets selling off on that Rajiv Memani go ahead? Memani: We challenge, for example if DLF launches an apartment scheme in Gurgaon and launch a scheme where they want to sell 5000 apartments. For financing that and for greater surety, they would invite, they would put advertisement in the news paper, a lot of people would subscribe to that, they would say okay pay 10% now, 20% when phase I is complete, 30% phase II is complete. So now I as a buyer would have to pay not only stamp duty on that which I have been paying because of the transferable property, but when I read this it appears that I will have to pay service tax as well. Sridhar: That is right. Memani: One of the things, which we have seen, in this Budget is that for the same type of service or the same type of products that has been sold, there is levy of two taxes. Two forms of indirect tax, so it could be stamp duty and service tax. For example in case of copyright, which also you have added,
if I am domestically buying copyright, I have to pay value added tax. So if I am buying copyright of My Name is Khan, I have to pay value added tax on that and now I have to pay 10% service tax on that as well. Especially the real estate piece is really bothering. Q: So respond to this issue as far as double taxation is concerned? Sridhar: In fact this contradiction is sort of inheritant the present system of taxation. Where we have multiplicity of state levies as per as central levy. You mentioned stamp duty, eventually I suppose the solution is to have a goods and services tax when all this taxes can be subsumed and we are left with only one tax. Q: But in the interim why add to the confusion? Sridhar: It is not adding to the confusion. Q: Clearly it is? Jain: The other issue is what happens in situation where the builder has already collected the money, but the construction has not started. The example that Rajiv gave about the DLF apartment, most of the apartments would be sold upfront where they would have collected the money where the construction would happen six months from now. So what happens in those cases because they have already recovered the money, do they charge service tax additionally to the customer or it is exempt? Sridhar: They should tax service tax. Q: They should charge service tax. Butani: The only way to avoid the double levy is for stamp duty to be subsumed, but in the government white paper you are not subsuming stamp duty. So till the time, we roll out GST and the stamp duty you are looking at a clear case of economic double taxation. As a mater of fact we have a better example that this of a person paying taxes twice. Q: You are refusing to have that argument? Sridhar: Because the two are charged on a different heads, one by the state government on the stamp duty other by the central. Butani: It is like the same story that when I buy a prepaid sim card whether I am buying a service or I am buying a product because at this point of time the same wing of the government is levying VAT and service tax. Q: You say this service of promoting of brands will be extended to goods, services, events, businesses entity and then there is this etc, what does it indicate are there more? Sridhar: Actually, the possibility is endless. We have given only some illustrations. These are based on so many things. Some foreigner comes to India and has a Indian type of marriage and then those rights are also sort of sold. Tax will be levied on that so we do not know what the possibilities are. Q: There is a lot more that is coming. Sridhar: Yes it is. Coming between this head only. Q: You Budget it for an increase of Rs 10,000 crore in service tax collections over the revised estimate, would it be safe to assume that it would actually probably be more? Sridhar: You mean for the current year 2009-10. Q: The Budget estimate for next year. Sridhar: Budget estimate is about Rs 7,000 crore more than this year. Q: As far as the direct tax code is concerned, because the Finance Minister very clearly said that the GST is not in my control, but the direct tax code is several consultations have actually taken place, India Inc is not happy with white paper that was released. Out of those nine issues that the Finance Minister himself had said that up for review, how much has actually changed? Moorty: As all of you know the direct tax code is in the public domain. We have invited a lot of reactions from public. Those reactions have been considered both by FM and by the CBDT and we are now going through process by which maximum adjustments can be made. We are open to all the suggestions given by industry. Including the suggestions by MAT? Moorty: I cannot specify, but we are open to suggestions. You will definitely get a direct tax code which will be not be as it is, but which will be different. Q: Are you happy with what you are hearing? Butani: I don't know. I think there were several contentious issues and you have been party to many of the discussions. I just hope that many of the contentious issues are debated before a final decision is taken. But one important signal that is coming from this year's Budget is you have provided for tax incentives on two star hotels and above which is not profit linked. It is investment linked. You are really speaking
the same language as you were speaking in the Direct Tax Code. You have not extended the tax holiday for software technology park. Should I presume that thats governments signal not to extend it at all because you are really doing away now with all the profit linked incentives and veering on what you were talking on DTC. Murthy: With the DTC on the anvil, we are now thinking of doing away with all kinds of profit linked concessions. We are moving towards the time when concessions are going to be investment linked so that we get the taxes, the industry can invest and there will be substantial money. Q: So has the sun finally set as far as the STPI is concerned has the sun finally set because there was no mention as far as this Budget is concerned? Murthy: The FM has taken a stance that there will be no more extension to whatever sun has set. Memani: For EoU and STP's there was a sunset clause which was given in the last Budget. But the worry is the SEZ because it was started with a lot of fanfare that this is going to lead to a lot of employment generation, exports was announced. I think the FM also made a reference to that in the Budget speech. But in the DTC it is being said that it maybe phased out by 2011. So people who are now planning to set up a unit in the SEZ are in a real quandary. One of the things which is really bothering investors because we went out and told investors come to our SEZ and tax holidays and suddenly when someone is about to take a decision or is in the process of taking a decision he suddenly discovers that this will be withdrawn. Right now people dont know what to do. Murthy: The philosophy is very clear and the FM has announced it. So unless there is a change of policy there will be no question of any profit linked concessions. Bhutani: So will that philosophy apply to special economic zones as well because as I heard today the FM said that the government is committed to the SEZ law. Can I presume that the SEZ law talks about virtually an indefinite kind of a tax holiday available. So the same question that Rajiv asked is that are you going to let the FM's statement prevail over the draft direct tax provisions? Murthy: I am speaking to you from the things as they stand as on today. That is, today our policy is we will encourage investment linked concessions. Profit linked as you know and as you know has distortions. Q: Including for SEZ? Murthy: I can't say, it may or may not be. There is still a grey area there because you are saying you cant say or you can say, what is the situation? Murthy: There is a grey area there, but we have taken a policy decision on that matter. Kalhon: There is still time for the DTC to be introduced. So we have received various representations and various points of views. The direction is very clear on the taxation department now that hence forth no more profit linked. Q: So there is a question mark as far as SEZs are concerned? Kalhon: There could be because certain commitments are already there. So, they have to be considered. Jain: I have a question on the coal cess which has imposed, the FM said about Rs 50 per tonne but the notification talks about Rs 100 and it seems to be a proposal. At this point where we need a lot of infrastructure and power, what is the logic of imposing a cess now when the empowered committee is saying that all the cesses and surcharges would be put under GST? Sridhar: Right from the Copenhagen Summit and other issues, climate change and clean energy issues are big issues now. So the government wanted to create a corpus to be utilised for promoting clean energy, alternate resources of energy etc. The quickest way I can say with 36 years of experience that the quickest way to raise revenue is to put a pointed cess to be earmarked for a particular allocation. That was the philosophy behind this coal cess to be imposed as an excise duty. We have taken a what we call a tariff cushion of Rs 100 per tonnne as a statutory rate, but through exemption we have operated at Rs 50 for the moment so that in future we can do it through notification in the middle of the year also. Jain: Do you think this is the right step for GST because under GST there is no place for surcharges and cesses now? Sridhar: Yes. I do agree that the GST philosophy is to merge all taxes and cesses.
Politics of Budget: Did the aam aadmi get his due?

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In an interview with CNBC-TV18, leaders from various political parties, Congress Salman Khurshid, BJPs Arun Jaitley and CPI (M)s Sitaram Yechury come together to discuss the Budget with different perspectives. Here is a verbatim transcript of the exclusive interview on CNBC-TV18. Also watch the accompanying video. Q: At the very top of his speech the minister said that the Budget would reflect the governments vision. To what extent is that vision defined by the fact that he set a date for goods and services tax (GST) and direct tax code (DTC) that he has announced new licenses for private banks that he announced a financial sector legislative reforms commission and perhaps most importantly a status paper in six months curtailing government debt and reducing debt to gross domestic product (GDP) ratio to something like 68% by 201314to what extent is that the heart of your vision? Khurshid: Do not forget that this all shoring up and consolidating the reform that we bought about over the last 10 years. But beyond that I think do not forget that even in difficult time when he was very tight for money and we are just coming out of global recession, we have not skimmed on money for the social sector. He has kept the social sector completely covered and support and that is the part of larger vision of the aam aadmi the Congress party supports. Q: Another way of looking at the vision in the Budget is to point out that the Finance Minister has allocated Rs 1.73 lakh crore for infrastructure, Rs 66,000 crore for rural development, Rs 41,000 crore for National Rural Employment Guarantee Act (NREGA), Rs 48,000 crore for Bharat Nirman and on top of that he has also come up with a national social security fund for the unorganized workers and health insurance for all beneficiaries of NREGA. From your standpoint is that a more acceptable vision? Yechury: From my standpoint I think this Budget and the vision declared a twin objective and the twin objective was to stimulate growth and to curtail inflation. All this was in the name of the aam aadmi. All that you read out now, if you look at it from a macro terms the Budget tells you that the total governmental expenditure slated for the coming year would grow, a increase would be about 8%, in nominal terms. In real terms, if we discount for inflation it could be less than what was spend last year. Therefore, if you look in totality the government has not really expanded its expenditure and that can hardly constitute any stimulus. On the other hand as far as inflation is concerned, you had these hikes, new duties on petroleum prices. You have this new cut in fertilizer subsidyall this is going to contribute to a greater level of inflation. Therefore the vision of higher growth with less or no inflation instead of that we will not be able to realise our growth potential that we have. But we will have to suffer higher prices in the bargain. Q: A third way of looking at the vision that is inherit in this Budget speech is the point that the opposition picked up the fact that petrol and diesel prices are going to be badly hit and that could possibly have a cascading effect not just on the economy but on every single Indian. I
want to come to the substance of that vision if that is the vision in a moments time but first was it appropriate for the opposition to walk out of a Budget speech, were there not suitable more appropriate ways of registering your protest? Jaitley: There are certainly many ways of registering your protest. Two days ago, in the Gujarat assembly when the Budget was presented the Congress party had walked out. Walkout is a part of a parliamentary protest. You sit through 90% of the Budget and when you find that something is very oppressive of the people, a walkout is a legitimate methodology of registering a protest. Let me tell you the principle problem facing this country is that we have entered into an era of food shortages. The second is we have a huge amount of food inflation. This Budget will now translate food inflation into also into a non-food inflation. Sitaram just now mentioned it is the petroleum increase, it is the fertilizer increase, it is the excise duty increase. Mind you on petroleum this is the Pranab Mukherjee installment of the petroleum increase. That is to say, which is revenue-centric. The oil company centric increase which is the Murli Deora version of the petroleum increase is yet to come which could be here anyday. Coupled that together you are no longer food shortage alone, you are no longer food inflation alone, you will have a huge inflationit wont be marginally double digit as 10-11% it could be perhaps much more. For the complete discussion, watch video. Q: You dont seem to be given much clarity though because the markets selling off on that Rajiv Memani go ahead? Memani: We challenge, for example if DLF launches an apartment scheme in Gurgaon and launch a scheme where they want to sell 5000 apartments. For financing that and for greater surety, they would invite, they would put advertisement in the news paper, a lot of people would subscribe to that, they would say okay pay 10% now, 20% when phase I is complete, 30% phase II is complete. So now I as a buyer would have to pay not only stamp duty on that which I have been paying because of the transferable property, but when I read this it appears that I will have to pay service tax as well. Sridhar: That is right. Memani: One of the things, which we have seen, in this Budget is that for the same type of service or the same type of products that has been sold, there is levy of two taxes. Two forms of indirect tax, so it could be stamp duty and service tax. For example in case of copyright, which also you have added, if I am domestically buying copyright, I have to pay value added tax. So if I am buying copyright of My Name is Khan, I have to pay value added tax on that and now I have to pay 10% service tax on that as well. Especially the real estate piece is really bothering. Q: So respond to this issue as far as double taxation is concerned? Sridhar: In fact this contradiction is sort of inheritant the present system of taxation. Where we have multiplicity of state levies as per as central levy. You mentioned stamp duty, eventually I suppose the solution is to have a goods and services tax when all this taxes can be subsumed and we are left with only one tax. Q: But in the interim why add to the confusion? Sridhar: It is not adding to the confusion. Q: Clearly it is? Jain: The other issue is what happens in situation where the builder has already collected the money, but the construction has not started. The example that Rajiv gave about the DLF apartment, most of the apartments would be sold upfront where they would have collected the money where the construction would happen six months from now. So what happens in those cases because they have already recovered the money, do they charge service tax additionally to the customer or it is exempt? Sridhar: They should tax service tax. Q: They should charge service tax. Butani: The only way to avoid the double levy is for stamp duty to be subsumed, but in the government white paper you are not subsuming stamp duty. So till the time, we roll out GST and the stamp duty you are looking at a clear case of economic double taxation. As a mater of fact we have a better example that this of a person paying taxes twice.
Budget 2010: What it means for IT cos
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FM took off on a clean-energy mission, but gave tech companies demands for extension of tax holiday a clear miss. he, however, promised higher public spending on it to improve efficiency. Tech firms' tax rates to go up No proposal to extend the STPI tax holiday, which is set to expire by March next year, is a dampener for Indias $50-billion IT industry. A 3% hike in MAT is expected to impact tech firms profitability, especially that of smaller companies. IT cos to ride on E-Gov projects IT-powered projects to enable tax administration, New Pension Scheme, treasury and Goods & Services Tax will bring in new business for tech vendors, including TCS, Infosys and Wipro. Corporate R&D gets a boost Increased weighted deduction of up to 200% for R&D will encourage Indian pharma companies to shift focus from pure generics business to high-end drug discovery and innovation. Clean energy plan to cut emissions The FM announced specific incentives for Indias renewable energy mission. While The National Clean Energy Fund, with a corpus of around Rs 2,500 crore, will fund research projects in clean technologies, the government will also provide a 5% concession on customs duty for solar products. Simpler tax structure for IT IT/BPO firms will get service tax refunds worth Rs 3,000 crore owing to the new structure. Mobile accessory cos to ring loud Extension of special additional duty (SAD) exemption on mobile phone accessories will boost local manufacturing of battery packs, hands-free and chargers. Global phone majors are likely to increase sourcing of these components from India.
Budget 2010: Experts laud focus on infra, social sector

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Finance Minister Pranab Mukherjee yesterday announced a fiscally conservative and largely no-shocks middle-of-the-road Budget. Not only has he cut the fiscal deficit to 5.5% in the coming year, but has promised to cut the deficit to 4.8% in FY12 and to 4.1% in FY13. To achieve this, he has expectedly rolled back the fiscal stimulus by a bit, by raising excise duties from 8% to 10%. Also, the minimum alternate tax (MAT) has gone up to 18% from 15%. Corporates, however, got some relief from the cut in surcharge on tax. The Government, he said, had allotted Rs 173,552 crore for infrastructure development. The FY11 Budget allocation for the National Rural Employment Guarantee Act (NREGA) stood at Rs 40,100 crore as against Rs 39,100 crore allocated in the previous Budget. Also Read: Infra firms cheer fund allocation in Budget Social sector spend upped to Rs 1.37 lakh crore Highlights of 2010/11 budget presented In an exclusive interview with CNBC-TV18, Kumar Mangalam Birla, Chairman, Aditya Birla Group; Sunil Munjal, MD & CEO, Hero Corporate Services and Kamal Nath, Roads & Highways Minister, discuss the Budget and give their outlook going forward. Below is a verbatim transcript of the exclusive interview on CNBC-TV18. Also watch the accompanying video. Q: You had some time now to digest the fine print, question marks on that fiscal consolidation roadmap whether those targets are achievable or not. In fact he has even been more aggressive than the Thirteen Finance Commission, what is your take? Munjal: If you remember yesterday when we spoke, I had the feeling that we will get presently surprised in the Budget and it did surprise us by the way. Both with the announcing his own form of Fiscal Responsibility and Budget Management (FRBM) and also by announcing numbers of borrowing which are lower than expected. When he announced the fiscal deficit numbers for the year, he has included the off Budget numbers in this. So truly something is going right. So if it is possible to do in this year, I believe with the growth that we are seeing in the economy it is possible to conclude the fall year on year. Q: As far as market borrowing is concerned, the Finance Secretary was pretty confident that they could actually surprise us positively on that lower than estimate market borrowing figures, so that they could even better that, how would you react to that? Munjal: I would be surprised, but pleasantly surprised if they do that actually.
Budget 2010: Experts laud focus on infra, social sector
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Q: The markets giving the Budget a thumbs up, some people calling it a non-damage, nonshock middle of the road sort of Budget, I know you are going to have to defend the Budget, your first comments? Nath: We have really got to recognize what the Budget translates into when we look at numbers in the end all those numbers translate into impacts of various sectors in the economy. We must recognize that we are now moving towards, we have not reached there, but we are moving towards normal times when we are talking to close to 8% growth. This is not 2008-2009. We have to look at fiscal consolidation and this Budget translates into continuing with the momentum of recovery, at the same time leading to fiscal consolidation. There are certain thrust areas. One of the thrust areas is infrastructure where 46% of the plan outlay is on infrastructure. That implies that infrastructure is going to be the driver of growth in the years ahead. Infrastructure is going to be what is going to enable the double digit growth which is also being mentioned by the Finance Minister in his Budget speech. Q: What did you make of the focus on the fiscal roadmap that this government has set out for itself? Birla: Personally, I am very impressed with the Budget. I am very happy with it. I think it is very wholesome. I think that the very important part of the Budget is that it is a very real Budget. It focuses on the real issues, it focuses on the issues that truly need to be addressed, focuses on issues that actually are the road blocks today. So, it reflects a clear understanding on the part of the Finance Minister (FM) of what the issues are that needed to be addressed in this Budget. Q: Infrastructure also got a fairly big thrust, so as the Roads and Highway Minister you must be very happy? Nath: Well of course, what has being provided for the road sector is adequate. The road sector is one most important infrastructure deficits we have and the roads, which are started this year, will require outlays in subsequent years as well, not in the first year only. So the Budget takes into account the necessary needs to bridge this infrastructure deficit especially in the road sector. Q: Yesterday, you said you would even be happy with an imperfect rollout of the goods and services tax, even with October implementation or a mid-year implementation. The Finance Minister, speaking exclusively to CNBC-TV18, has said he does not want imperfect rollout so if that means giving it more time and additional one year he is willing to take that time? Munjal: The first price for all of us would be a perfect rollout. The reason I said even an imperfect one is okay because we want this to come. The words that he mentioned in the Budget speech were we will endeavor to attempt to implement. I am not so sure what he meant. Whether I am reading too much into this or whether he still has doubt on the systems ability to get everything together within this time. By the way he will do it earlier, but we will try and make sure it is done by then. Q: I do not think rolling it out earlier is any sort of suggestion that we got from anybody of the Finance Minister officials that we actually spoke to. Munjal: But I can tell you most states are on now on board and most of the objections that they had about on the implementation many of them have been accounted for in the recommendation of the Finance Commission already. Q: The excise duty, although it has been a partial rollback a surcharge for corporates being brought down from 10% to 7.5%, but Minimum Alternate Tax (MAT) being hiked from 15% to
18%, would you regard any of these changes has been injurious to the kind of recovery that we have seen? Nath: Well no. It has not been increased. We are restoring what was there when we were at 9% growth. We are not restoring fully, we are restoring only 2% of it. So it is not an increase, is a restoration of normal times, coming back to normal times. A partial restoration of what was always there. So let us not say this even when we look at the hike in the excise duty on petroleum products, this excise duty was there. When we had the abnormal increase in petroleum prices, in 2008, we have gone back to the levels which it was in 2008. So we cant be saying we are close to an 8% growth and at the same time saying that we are in abnormal times. These two things just do not work together. Q: What did you make of the emphasis that the Finance Minister has laid on social sector spending, particularly putting more money in the hands of the consumer by tweaking the income tax rate, do you reckon that is going to trigger of consumption? Birla: On social sector, I think this government has clearly been a government that has believed in inclusive growth. I think they have demonstrated that. This Budget is clearly a continuation of that, so no surprises there. But I think some very good initiatives, I think the fact that NREGA (National Rural Employment Guarantee Act) has been enhanced in terms of Budget allocation for it, is a huge positive. We have seen the kind of positive impact it had for us in the last two years. Social security for people working in the unorganized sector is a great idea. That is a big idea depending on how well it is implemented, the fact that you have an additional 1% concession on loans to farmers linked to payment on time. I think that again is a very significant and a very well thought through idea. So I think social sector has again the right punches the right emphasis. The devil will be in the implementation, but in terms of the focus of the Budget, in terms of the areas that he has chosen to allocate finances on, I think it is outstanding. Q: What seems strange really was what they actually went to do, as far as excise and petrol and diesel is concerned, because he talked about the fact that the Kirit Parekh report would be discussed in due course. The final call would be with the Oil Minister Murli Deora and these are past through, so we are going to see a hike of almost Rs 3 for both petrol and diesel? Munjal: I think there is a signal in there. The signal is telling the markets that by the way you need to get use to this. We are going to switch to market based pricing. He also said there will be no oil bonds issue. If no oil bonds are issued where is the subsidy going to be met from. We do not have the cash. He has already said that all the subsidies will be cash based subsidies, so in affect what he is telling us that by the way this is the first step to market pricing of fuel. Q: So you expect more? Munjal: I think they will just open up the markets. It will be what drives the market, what will be the market prices. It may not be more, it may be less, and it depends on what the market is at that point in time.

Budget 2010: Impact On Sectors That Investors Need To Follow

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Budget 2010: Impact On Sectors That Investors Need To Follow

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Budget 2010: Impact on sectors that investors need to follow

28 Feb 2010, 0408 hrs IST, Vikas Agarwal, ET Bureau

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