Friday, February 29, 2008

Budget writes off farm loans, raises outlays, gives tax sops

Finance Minister P Chidambaram presents the Union Budget in Parliament on Friday. Photo: PTI/Doordarshan

New Delhi (PTI): In an election budget that gives largesse to different sections, Finance Minister P Chidambaram on Friday announced a waiver of agricultural loans to the tune of Rs 60,000 crore, raised the income tax exemption threshold to Rs 1,50,000 and slashed customs and excise duties on variety of goods.

Presenting his fifth and last full-fledged budget, he also withdrew the controversial banking cash transaction tax but introduced a Commodities Transaction Tax on the lines of Securities Transaction Tax on options and futures. The Central Sales Tax was reduced from three to two per cent.

Under the income tax proposals that will give a minimum relief of Rs 4,000 to all assessees, incomes between Rs 1,50,001 and Rs 3,00,000 will be 10 per cent, those between Rs 3,00,001 and Rs 5,00,000 will be 20 per cent and above Rs 5,00,001 will be 30 per cent.

Senior citizens will pay no tax up to Rs 2,25,000 and women up to Rs 1,80,000. There will be no change in the corporate income tax or the surcharge rate.

While Chidambaram's direct tax proposals are revenue neutral, those on the indirect taxes side are estimated to result in a loss of Rs 5,900 crore.

Raising the Defence budget by 10 per cent from Rs 95,000 crore to Rs 105,600 crore in the coming year, the estimates of Plan expenditure have been fixed at Rs 2,43,386 crore which will be Rs 32.4 per cent of the total expenditure. Non-Plan expenditure has been estimated at Rs 5,07,498 crore.

The revenue deficit for the current year will be 1.4 per cent against the budget estimates of 1.5 per cent and the fiscal deficit will be 3.1 per cent against an estimate of 3.3 per cent.

Revenue recipts for 2008-09 are projected at Rs 6,02,935 crore and revenue expenditure at Rs 6,58,119 crore.

Consequently, the revenue deficit is estimated at Rs 55,184 crore, which amounts to one per cent of GDP. The fiscal deficit is estimated at Rs 1,33,287 crore which is 2.5 per cent of GDP.

Chidambaram said he would not only achieve the target for fiscal deficit under the Fiscal Responsibility and Budget Management Act but also meet the target of annual reduction of 0.5 per cent in the case of revenue deficit.

"However, because of conscious shift in favour of health, education and the social sector, we may need one more year to eliminate the revenue deficit. In my view, this is an entirely acceptable deferment," he said.

In cheerful news to the Central Government employees, he announced that the Sixth Pay Commission will give its report by March this year.

Faced with problem of farmers' suicides on account of indebtedness, the Finance Minister announced a scheme of debt waiver and relief under which all loans upto March 2007 and overdue upto December last will be covered. Three crore small and marginal farmers will benefit to the tune of Rs 50,000 crore by the waiver while the one-time settlement for other farmers will cost Rs 10,000 crore.

On the indirect tax proposals side, he made no change in the peak rate of customs duties while reduced it on project imports from 7.5 per cent to five per cent. He also proposed to impose a four per cent special countervailing duty on a few specified projects in the power sector.

Manufacturers of sports goods and exports of gems and jewellery, helicopter simulators, domestic fertiliser production will get customs duty sops.

On the excise side, the general Central Value Added Tax (Cenvat) rate on all goods has been reduced from 16 per cent to 14 per cent to give a stimulus to the manufacturing sector.

"The manufacturing sector is the backbone of any economy. It is consumption that drives production and it is production that drives consumption," the Finance Minister said justifying the reasons for reduction in Cenvat.

Goods in pharmaceutical sector, buses and chasis, small and hybrid cars, two-wheelers, paper, paperboard, compositing machines, wireless data cards, packaged coconut water, tea and coffee mixes and puffed rice will become cheaper while non-filter cigarettes will become costlier.

Bulk cement will now attract excise duty of Rs 400 per tonne and cement clinkers Rs 450 per tonne. Packaged software will attract a lesser excise duty of eight per cent from the existing 12 per cent to bring it at par with customised software.

The service tax is being extended to four more services including asset management service provided under ULIP, services provided by stock and commodity exchanges and clearing houses, right to use goods where VAT is not payable and customised software.

The threshold limit for exemption for small service providers will be increased from Rs 8,00,000 per year to Rs 10 lakh per year as a result of which 65,000 small service providers will go out of the tax net.

In a bid to give relief to corporates and firms, creche facilities, sponsorship of employee-sportsperson, sports events for employees and guesthouses will be exempted from the Fringe Benefit Tax.

Union Budget 2008-09

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