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Monday, February 28, 2011

Indian Union Budget 2011: Tax Provisions


Union Budget 2011 was being approached by much curiosity and anxiety. FM Pranab Mukherjee presented the Budget for FY 2011-12 in the Parliament earlier today. As the provisions were rolled out, the Bill turned out to be a mixed bag. The FM had a tough task of balancing the conflicting goals of lower taxation, lower inflation, growth impetus, and budget deficit. Some of the major changes were proposed in the fiscal provisions, as highlighted below.

Indirect Taxes

The indirect tax proposals were designed mainly to hedge the losses arising from the altered direct tax rates. Certain provisions are likely to impact the pockets of an average Indian, nullifying some of the direct tax benefits. Some of the expected changes from the industry point of view have not been considered.

  • Peak Customs Duty remains unaltered at 10%. Export duty on iron ore is enhanced to 20%, while Custom levy on some agricultural equipment is lowered by 0.5% to 4.5%.
  • On one hand, the FM has kept the Central Excise rate at 10%, while on the other Excise exemption is rolled back from 130 items. These will be subject to 1% rate for now.
  • The CENVAT rates also remain unchanged.
  • Mukherjee has decided to continue some of the economic stimulus for the coming year.
  • You will still be paying service tax at 10%, but on 320 services against 117 earlier. The additional services include hotel rent above 1,000 per day, air-conditioned restrobars and large a/c hospitals. 

Direct Taxes

Individuals and HUF

Apparently, Income tax revisions are something to cheer about. The FM has set the grounds for a convergence with the proposed Direct Tax Code, to be implemented in 2012.
  
  • The exemption limit for males under 60 years has been increased from Rs. 1,60,000 to Rs. 1,80,000.
  • Women have to contend with the same tax slabs.
  • There is some good news for taxpayers above 60 as the qualifying age for Senior citizens is reduced from 65 years to 60 years of age. The tax exemption for this section has been extended to Rs. 2,50,000.
  • Taxpayers at 80 and above will be now called ‘Very Senior Citizens’ and they can avail exemption up to Rs. 5,00,000.

Male taxpayers below 60 years
0 – Rs. 1,80,000                 Nil
1,80,001 – 5,00,000            10%
5,00,001 – 8,00,000            20%
8,00,001 and above            30%

Female taxpayers below 60 years
0 – Rs. 1,90,000                 Nil
1,90,001 – 5,00,000            10%
5,00,001 – 8,00,000            20%
8,00,001 and above            30%

Senior citizens (60 years and above)
0 – Rs. 2,50,000                 Nil
2,50,001 – 5,00,000            10%
5,00,001 – 8,00,000            20%
8,00,001 and above            30%

  • Tax Deduction of Rs. 20,000 on long-term infrastructure bonds under section 80 CCF continues.

Corporate Taxpayers
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  • Tax net of MAT (Minimum Alternate Tax) is widened to include developers of Special Economic zones. MAT rate is enhanced from 18% to 18.5%.
  • Tax surcharge of 7.5% on domestic entities is reduced to 5%.
  • Despite industry lobbying for a reduction in corporate tax to 25%, the FM has retained the rate at 30%.
  • The withholding tax on notified infrastructure funds is lower to 5%.
  • Tax deductions are extended to companies operating in economy homebuilding and fertilizers sectors.
  • Tax on dividend repatriated from foreign subsidiaries is reduced to 15%.

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