UNION BUDGET- 2010-2011

Vision & Objective:

 
GDP Growth to be targeted at 9%
Target of Rs 25,000 cr disinvestment this year
Direct Tax Code and GST will be implemented from April 1, 2011
Fertilizer Subsidy to be reduced
GDP to reach 10% in near future
To consider Parikh Report on Fuel Price
FDI Regime to be simplified
Inflation Rate to be lowered in 2 Months
2% interest subvention for Exports extended for one year
Committed to SEZ Growth
 BANKING
 RBI considering issuing banking licences to private companies.
 Non-banking finance companies will also be considered if they meet
the criteria.
 Government to provide Rs16,500 crore to public-sector banks to
maintain tier-I capital.
 This will improve the lending capacity of these banks
 The Budget 2010 has also made additional provisions of capital for
lending to Rural Areas.
 Banking facilities to be provided to all habitations with a population
of 2,000 and more
 INFRASTUCTURE
 Rs. 1.37 lakh crore for Infrastructure
Development

 Railways to be allocated Rs 16,772 crore

 Road Development allocation increased

to 19,894 crore

 20 km National Highway to be built

everyday

 Proposal to hike allotment for renewable

energy by 61%

 To Establish Clean Energy Fund

 More than double allocation for Power Sector

to 5,130 crore
 INFRASTUCTURE
 One-time grant of Rs 200 crore for Tamil
Nadu dor Textiles

 NREGA Allocation at Rs 40,100 crore

 Rs 1200 crore package for drought-hit

Bundelkhand

 Ganages - Rs 500 crore

 Bharat Nirman Yojna - Rs 48,000 crore

 Solar Energy - Rs 1,000 crore

 Tirupur Textile Industry - Rs 500 crore

 Goa - Rs 200 crore special package

 To set up 20,000 MW Solar Power by 2022

 Delhi-Mumbai Industrial Corridor to be set up

TECHNOLOGY

 Unique ID to be given on time

 Tech Advisory Group to set up
under Nandan Nilekani
 Rs 19000 crore allocated for Unique
ID Project
 Rupee to have new Symbol. A new
look Rupee to come up soon.
 RURAL DEVELOPMENT
 For rural development,Rs.66,100 crore have been allocated.
 Allocation for National Rural Employment Guarantee Authority
stepped up to Rs 40,100 crore in 2010-11.
 Indira Awas Yojana's unit cost raised to Rs45,000 in the plains and
Rs.48,500 in hilly areas.
 Allocation for urban development increased by 75% to Rs.5,400
crore in 2010-11.
 An amount of Rs.48,000 crore allocated for rural infrastructure
programmes under Bharat Nirman.
 Banking facilities to be provided to all habitations with a
population of 2,000 and more
 AGRICULTURAL& RELATED SECTOR
 In view of drought and floods, debt repayment period extended to
June 2010.
 Farmers, who repay loan on time, will get a waiver of 2%
 Farmers to get Loans at 5%
 Rs.200 crore to be provided in 2010-11 for climate-
resilient agricultural
initiative
 Five more mega food processing projects in addition to 10 existing
ones.
 Rs 300 crore for Rashtriya Krishi Vikas Yojna
 Rs 400 crore to be allocated for Green Revolution in Eastern India
 Agriculture Loan for Farmers increased to Rs 3,75,000 crore
 EDUCATION & HEALTH
 Allocation for School Education increased from Rs 26,800
crore to Rs 31,036 crore i.e.16 %
 In addition, States will have access to Rs.3,675 crore for
elementary education under the Thirteenth Finance
Commission grants for 2010-11.
 Sarva Siksha Abhiyaan - Rs 36,000 crore
 Allocation for Health at 22,300 crore special focus on AIDS
control and mental health programmes and the prevention of
diabetes and cardiovascular diseases
 National Health Insurance Scheme for NREGA Workers, who work for
15 days in a Month
 An Annual Health Survey to prepare the District Health Profile .
 Plan allocation to Ministry of Health & Family Welfare to Rs
22,300 crore for 2010-11.
 SOCIAL WELFARE
 Plan outlay for Women and Child Development stepped up by almost
50 per cent.
 The ICDS platform being expanded for effective implementation of the
Rajiv Gandhi Scheme for Adolescent Girls.
 “Saakshar Bharat” to further improve female literacy rate launched
with a target of 7 crore non-literate adults which includes 6 crore
women.
 Mahila Kisan Sashaktikaran Pariyojana to meet the specific needs of
women farmers to be launched with a provision of Rs 100 crore as a
sub-component of the National Rural Livelihood Mission.
 Plan outlay of the Ministry of Social Justice and Empowerment
enhanced by 80 per cent to Rs.4500 crore. With this enhancement, the
Ministry will be able to revise rates of scholarship under its post-
matric scholarship schemes for SCs and OBC students.
 Plan allocation for the Ministry of Minority Affairs increased by 50 per
cent from Rs.1,740 crore to Rs.2,600 crore for the year 2010-11.
 ENVIRONMENT AND CLIMATE CHANGE
 National Clean Energy Fund for funding research and innovative
projects in clean energy technologies to be established.
 One-time grant of Rs.200 crore to the Government of Tamil Nadu
towards the cost of installation of a zero liquid discharge system at
Tirupur to sustain knitwear industry.
 Rs.200 crore provided as a Special Golden Jubilee package for Goa to
preserve the natural resources of the State, including sea beaches
and forest cover.
 Allocation for National Ganga River Basin Authority (NGRBA) doubled
in 2010-11 to Rs.500 crore.
 Schemes on bank protection works along river Bhagirathi and river
Ganga- Padma in parts of Murshidabad and Nadia district of West
Bengal included in the Centrally Sponsored Flood Management
Programme.
 A project at Sagar Island to be developed to provide an alternate port facility
in West Bengal.
 FISCAL CONSOLIDATION

YEARWISE FISCAL DEFICIT

6.00 6.70
7 5.50
6 4.80
5
4
3
2
1
0
2008-09 2009-10 2010-11 2011-12

FISCAL DEFICIT

THE GOVERNMENT HAS BUDGETED A FISCAL DEFICIT OF

5.5 % OF GDP FOR 10-11 DOWN FROM 6.7 % LAST YEAR.
Targeting at Disinvestment of Rs 25,000 crores and Auction
of 3G Spectrum
INCOME TAX 2010-11
DIRECT TAXES
The proposed new rates for IT are as follows:

Income Tax Rate

Up to Rs. 1,60,000 Nil

Rs. 1,60,001 to Rs. 5,00,000 10%

Rs. 5,00,001 to Rs. 8,00,000 20%

Above Rs. 8,00,000 30%

 The following table show cases the tax benefit for different income
levels. Including edu cess
(Rs.)

Income Level Old Slabs New Slabs Difference

Male
4,00,000 35,020 24,720 10,300
6,00,000 86,520 55,620 30,900
8,00,000 1,48,320 96,820 51,500
Ladies
4,00,000 31,930 21,630 10,300
6,00,000 83,430 52,530 30,900
8,00,000 1,45,230 93,730 51,500
Senior Citizens 
4,00,000 26,780 16,480 10,300
6,00,000 78,280 47,380 30,900
8,00,000 1,40,080 88,580 51,500
 DIRECT TAXES
 In the words of the finance minister, “ this proposal will bring relief to
about 40 per cent of the current tax payers”.

 Deduction of an additional amount of Rs. 20,000 allowed, over and

above the existing limit of Rs.1 lakh on tax savings, for investment in
long-term infrastructure bonds as notified by the Central Government

 Besides contributions to health insurance schemes which is currently

allowed as a deduction under the Income-tax Act, contributions to the
Central Government Health Scheme also allowed as a deduction
under the same provision.

 On the paperwork front too there is some cheer as the finance

minister has said that a two page SARAL -2 is ready and will simplify
the process of filing our returns.

 Rate of Minimum Alternate Tax (MAT) increased from the current rate
of 15 percent to 18 per cent of book profits.

 Current surcharge of 10 percent on domestic companies reduced to

7.5 per cent.
 DIRECT TAXES

 To further encourage R&D across all sectors of the economy, weighted

deduction on expenditure incurred on in-house R&D enhanced from 150 per
cent to 200 percent.

 Limits for turnover over which accounts need to be audited enhanced

to Rs. 60lakh for businesses and to Rs. 15 lakh for professions.

 If tax has been deducted on payment by way of any expense and is

paid before the due date of filing the return, such expenditure to be
allowed for deduction. Interest charged on tax deducted but not
deposited by the specified date to be increased from 12 per cent to 18
per cent per annum.

 Proposals on direct taxes estimated to result in a revenue loss of Rs.

26,000 crore for the year.
 TAX AUDIT LIMITS INCREASED
Under the existing provisions of section 44AB, every person carrying on
business is required to get his accounts audited if the total sales, turnover
or gross receipts in business exceed Rs. 40 lakh. Similarly, a person
carrying on a profession is required to get his accounts audited if the gross
receipts in profession exceed Rs. 10 lakh. These limits have been increased
to Rs. 60 lakh and Rs. 15 lakh respectively.

CHANGE IN GIFT TAX PROVISIONS

Under the existing provisions of section 56(2)(vii), any sum of money

or any property in kind which is received without consideration or
for inadequate consideration (in excess of Rs. 50,000) is taxable in
the hands of the recipient. Of course, receipts from relatives or on
the occasion of marriage or under a will are outside the scope of this
provision. Nonetheless this law is only applicable to an individual or
an HUF.
 INDIRECT TAXES
 Rate reduction in Central Excise duties to be partially rolled back and
the standard rate on all non-petroleum products enhanced from 8 per
cent to 10 per cent ad valorem.

 The specific rates of duty applicable to portland cement and cement

clinker also adjusted upwards proportionately. Similarly, the ad
valorem component of excise duty on large cars, multi-utility vehicles
and sports-utility vehicles increased by 2 percentage points to 22 per
cent.

 Restore the basic duty of 5 per cent on crude petroleum; 7.5 per cent
on diesel and petrol and 10 per cent on other refined products. Central
Excise duty on petrol and diesel enhanced by Re.1 per litre each.

 Some structural changes in the excise duty on cigarettes, cigars and

cigarillos to be made coupled with some increase in rates. Excise duty
on all non-smoking tobacco such as scented tobacco, snuff, chewing
tobacco etc to be enhanced. Compounded levy scheme for chewing
tobacco and branded unmanufactured tobacco based on the capacity
of pouch packing machines to be introduced.
 CHEAPER PRODUCTS
 CNG, Mobile, Medicines, Refrigerators,
Medical Equipments, Farm Equipments,
Mobile Phones, Mobile chargers,
Watches, Readymade Garments,
Microwave Ovens, Toys, Foreign Farm
Equipments, Set Top Boxes, Water
Purifier, LED Lights

DEARER PRODUCTS

 Petrol, Diesel, Coal, cigarettes, Cement, Large Cars, Jewelry, Gold, TV

Sets, ACs, Silver, Pan Masala
 IMPACT OF INDIRECT TAXES
Proposal - Excise duty has been increased from 8.24% to 10.3%,rolling back
the fiscal stimulus duty concessions.
Impact - Most of the articles purchased for daily use are likely to be dearer by
2.5% to 3%.

Proposal - Construction of new building, intended for sale by builder, during or

after construction, to prospective buyer (except where no money is received
from prospective buyer before grant of completion certificate) will be deemed to
be a taxable service
Impact - Buying a new 2 BHK costing Rs 2.5 crore in Bandra may possibly cost
Rs 2.59 crores.

Proposal - Basic customs duty on gold bars bearing serial numbers (other than
tola bars) and gold coins has been increased by Rs 100 per 10 grams.

Impact - Imported gold bars and coins of 10 grams could be costlier by Rs 110
to Rs 120 per 10 grams.
 IMPACT OF INDIRECT TAXES
Proposal - Imported mobile phones will be exempted from levy of Special
CVD (of 4%).
Impact - Cost of an iPhone imported directly reduced by around 4-5 %.
 TAX REFORMS
DIRECT TAX CODE
What Hon. FM says about DIRECT TAX CODE….

“I am happy to inform the Honourable Members that the process for

building a simple tax system with minimum exemptions and low rates
designed to promote voluntary compliance, is now nearing completion.
On the Direct Tax Code the wide-ranging discussions with stakeholders
have been concluded. I am confident that the Government will be in a
position to implement the Direct Tax Code from April 1, 2011”.
This code if implemented seeks to replace the 48-year-old Income Tax
Act, 1961, which in turn had been largely influenced by Income Tax Act
1922

GOODS AND SERVICES TAX (GST)

Centre actively engaged with the Empowered Committee of State Finance
Ministers to finalise the structure of Goods and Services Tax (GST) as well as the
modalities of its expeditious implementation. Endeavour to introduce GST by
April, 2011
IMPACT OF BUDGET ON VARIOUS SECTORS
AUTOMOBILE
 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
 OIL AND GAS
 Subsidy on petroleum products will be disbursed as cash to oil
marketing companies (OMCs).
 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 under-recoveries in 2010-11 P.
 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 Re 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.
 BANKING AND FINANCE
 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 governments 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 the
recognition of non-performing assets in banks agriculture portfolio
in March 2010.The overall impact is neutral.
 POWER
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 MAT to 18% from 15% 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 per kwh.
There will be a marginal pressure, though, on companies which sale
power in the open market.
 CEMENT
 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.
 STEEL
 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.
 INFRASTUCTURE
 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 alternative tax rate to
18% of book profits, though, will
negatively impact financials of
operational BOT projects.