Financial Daily from THE HINDU group of publications
Saturday, Mar 01, 2003
Industry & Economy - Budget
Jaswant smiles on the salaried
NEW DELHI, Feb. 28
THE Finance Minister, Mr Jaswant Singh, today presented a `play it safe' Budget, side-stepping key recommendations of the Kelkar Task Force but bringing cheer to the salaried class.
With a clear view not to antagonise the middle-class in an election year, the 2003-04 Budget has raised the existing standard deduction limit of Rs 30,000 for salaried employees on annual incomes of up to Rs 5 lakh, against the present ceiling of Rs 1.5 lakh. Further, he has allowed a deduction of Rs 20,000 even on salary incomes above Rs 5 lakh - a facility that is not available now.
The move is contrary to the Task Force's prescription to `eliminate' standard deduction under Section 16 (1) of the Income-Tax Act. Similarly, tax rebates under Section 88 (relating to investments in small savings instruments) and 80L (interest on bank deposits, gilts, small savings, etc.) have not just been retained, but even widened to include new exemptions such as children's education expenses up to Rs 24,000 per family. Mr Singh has also not tinkered with the interest exemption limit of Rs 1.5 lakh given on housing loans for tax deduction purposes. The Kelkar panel had proposed that this limit be pruned to a third.
While not accepting his Advisor's politically unpalatable suggestions, the Finance Minister has, at the same time, not indulged in `cherry-picking' either. Thus, neither have tax rates on individuals or corporates been lowered nor the exemption limits been hiked. The only Kelkar-consistent pronouncements here have been removal of the five per cent surcharge on personal incomes, along with a halving of this rate on corporate earnings.
Also, the 10 per cent dividend tax paid by shareholders has been abolished along with long-term capital gains tax on listed company shares. But here too, there is a departure from the Kelkar panel's script. The 10 per cent dividend tax at the hands of shareholders will be replaced by a 12.5 per cent tax to be paid by the companies themselves on dividends distributed. Even the exemption of long-term capital gains tax will be `reviewed' in next year's Budget. Mr Singh justified the decision to "stay with the basics of the present system of taxation" on grounds that the Task Force's recommendation was an `ideal', which was difficult to achieve in one leap.
"Rates of income tax have remained largely stable since 1997. As stability and continuity are commended as virtues in tax regimes, I intend to be virtuous," he noted.
The Finance Minister also largely refrained from taking other politically sensitive decisions, be it raising LPG and kerosene prices or reforming the food economy. The total food subsidy for 2003-04 is budgeted at a hefty Rs 27,800 crore, against the current fiscal's revised estimate of Rs 24,200 crore. The subsidy bill on LPG and kerosene sold through fair price shops, too, is slated to go up from Rs 6,265 crore to Rs 8,116 crore.
There have been a couple of hard decisions taken though. The administered interest rate on the Public Provident Fund (PPF) and other small savings scheme has been slashed by one per cent.
Farmgate prices of fertilisers have also been hiked moderately.
Mr Singh's Budget proposals on the direct tax front are expected to translate into an annual revenue loss of Rs 2,955 crore. Further, the decision to slash the peak rate of customs duty from 30 per cent to 25 per cent is estimated to make the exchequer poorer by about Rs 2,100 crore.
Over and above these, the Budget has also reduced the excise duty on polyester filament yarn (PFY), motorcars, tyres and air-conditioners from 32 per cent to 24 per cent. The excise cuts will lead to the Centre foregoing another Rs 3,200 crore of revenues.
To make up for these, the Finance Minister has imposed an additional cess of 50 paise per litre on petrol and diesel (over and above the current Re 1), which will yield about Rs 2,600 crore. Besides, he has imposed a drought-related National Calamity Contingency Duty of Rs 50 per tonne on crude petroleum and one per cent on PFY, cars, two-wheelers and multi-utilities, generating Rs 825 crore.
Mr Singh also hopes to raise Rs 850 crore by doubling the four per cent excise on a host of commodities.
In addition to these, the general five per cent tax on services has been enhanced to eight per cent, along with clamping of this tax on 10 new services - including on Internet cafes, coaching institutes, annual maintenance contract providers, etc.
While this would result in higher telephone and insurance premia, among others, it will make the exchequer richer by over Rs 3,200 crore.
Mr Singh's indirect tax proposals will, on the whole, realise an additional Rs 3,294 crore, which would more than offset the losses on account of the direct tax giveaways.
The Centre's fiscal deficit for 2003-04 is estimated to touch Rs 1,53,637 crore or 5.6 per cent of the gross domestic product, compared to the revised figure of Rs 1,45,466 crore (5.9 per cent) for the previous year.
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