And now I turn to my tax proposals

Direct Taxes first.

I propose to exempt personal income up to Rs. 3 Lakhs totally from Income Tax, that is those who have income up to Rs. Three lakhs per annum will not have to pay any Income Tax at all.

Income above three lakhs and up to Rs 12 lakhs will be charged at a flat rate of 10% with no surcharge, no exemptions, no cess and of course no stress.

Income above Rs. 12 lakhs and up to Rs. 25 lakhs will be charged at 20%.

For income above Rs. 25 lakhs, the tax rate will be 25%.

All exemptions except a few will be withdrawn.

India Education and health fund: I propose to start this fund initially with donations from Indians in India and abroad who have benefited from education in India.  I would request all NRIs to donate liberally to this fund. I propose to work out a scheme whereby Indian students going abroad, on securing jobs abroad will be compulsorily required to pay an annual tax of 1000 dollars which will be in the form of a donation to this fund. All donations from Residents to this fund will be totally exempted. The fund will be managed by a committee of eminent persons and will be used for promotion of education and health.

Corporate Tax: I propose to exempt corporate income up to Rs. Ten lakhs and have a uniform tax rate of ten percent for income above ten lakhs. I propose to abolish FBT , BTT and all surcharges and cesses.

Indirect Taxes:

Customs : I propose to maintain a uniform rate of 5% Customs duty on all items of permitted imports. On a few selected items, I propose to impose a duty of 15%. There will be no additional duties or cesses, except of course CVD to protect the local industry.

Central Excise: I propose to reduce the Cenvat rate to 3% on all goods except tobacco products, for which the tax would be 50% of the MRP . I propose to abolish the Cenvat credit system. There will be no credit and no exemption except for captive consumption, SSI exemption up to Rs. 2 Crores and exports.

Service Tax: I propose to reduce the Service Tax rate to 3% without Cenvat credit facility. Turnover up to Rs. Ten lakhs in a year will be exempted.

Immunity Scheme: In all pending cases as on 29.2.2008 in income tax, customs, Central Excise and Service Tax with the departmental authorities or appellate tribunals, or courts, the case will be deemed to be settled if the assessee pays 25% of the demanded duty, tax, cess and there will be no penalty or interest. An assessee can also voluntarily declare any tax or duty, not paid in the last ten years and pay 25% of such escaped duty or tax and get immunity from all proceedings including prosecution. Details of the scheme are being worked out and will be announced in a few days.

I hope all the tax payers in the country will cooperate with me and ensure that the lowered taxes are paid truthfully and …………..

Oh! My God! I woke up with a start – that was a stupid dream. I wanted to be fresh for the budget and allowed myself the luxury of an early sleep and this was the speech I heard in my dream. It's only a dream, I sadly realise. But I have a DDT to do before the day starts.

It's the Budget Day – let's have nothing but the budget and let me inform you nothing great has happened yesterday.

Budgets and FMs from 47 thru 08

Have you heard the name of R.K. Shanmugam Chetty ?  May be not a very popular name, but he goes down in history as the Finance Minister who presented Independent India's first Budget on 26.11.1947 and went on to present the next budget on 28.02.1948. As we wait for PC's latest budget, it may be interesting to know a few things about the budgets and the great Finance Ministers who unfolded the great mysteries of the nation's fiscal affairs before a packed Parliament and an anxious nation. The Budget speech is perhaps the most awaited speech in parliament and one which receives the largest coverage – in fact larger than the President's address or the most heated exchanges.  Now that budget speech is telecast live, you can see your MPs in their best in the limelight areas inside Parliament. The seats near and behind the FM's seat are always crowded.

From 1947 till today 70 budgets have been presented by 23 Finance Ministers. They are

1. C. SUBRAMANYAM

2. CD DESHMUKH

3. CHARAN SINGH

4. H.M. PATEL

5. INDIRA GANDHI

6. JASWANT SINGH

7. JAWAHARLAL NEHRU

8. JOHN MATHAI

9. MADHU DANDAVATHE

10. MANMOHAN SINGH

11. MORARJI DESAI

12. N.D. TIWARI

13. P. CHIDAMBARAM

14. PRANAB MUKHERJEE

15. R. VENKATARAMAN

16. RAJIV GANDHI

17. RK SHANMUGAM SHETTY

18. S.B.CHAVAN

19. SACHIDANANDA CHOUDHARY

20. TT KRISNAMACHARI

21. V.P. SINGH

22. YASHWANT SINHA

23. YB CHAVAN

Click here for the year wise budgets and the FMs who presented them.

There is a belief that Dr. Manmohan Singh has presented the highest number of budgets – No, that credit goes to Mr. Morarji Desai who presented a record ten budgets. Dr. Singh is not even in the second place. That place goes to Dr. CD Deshmukh , who had presented seven budgets. Of course both Singh and Deshmukh share a common legacy, the Reserve Bank of India . And with today's budget, PC moves to the second place along with CD Deshmukh .  In the third place is of course the good Doctor Manmohan Singh , who has six budget speeches to his credit. And he shares this honour with Mr. Yashwant Sinha . But Dr. Singh has a perhaps unbreakable record. He is the only Finance Minster to present a budget consecutively for six years each in a different year.

While three Prime Ministers, Jawaharlal Nehru , Indira Gandhi and Rajeev Gandhi presented Budgets as also Finance Ministers, four Finance Ministers went on to become Prime Ministers – Morarji Desai , Charan Singh , VP Singh and Manmohan Singh . Strangely no Finance Minister turned Prime Minister lasted the full term as PM. Dr Manmohan Singh holds the record for the longest duration as PM from the FMs ' Club.  While one FM contested for Presidentship , another, Mr. R Venkataraman went on to become the President of India. The FM's post is a fairly stable one – Prime Ministers choose their FMs well and once chosen, most often they remain chosen. Apart from the Prime Ministers Nehru, Indira and Rajeev who presented their own budgets, the   Finance Ministers who presented only a single budget in their career are Charan Singh, ND Tiwari , Madhu Dandavathe and SB Chavan . But at least two of them will go down in history for their path breaking budgets. Charan Singh abolished Excise duty on tobacco while Dandavathe abolished Gold Control Act.

Budget speeches are often long and boring and Finance Misters though reel out serious statistics about the wealth (or its absence) of the nation, many of them have tried to spice up their speeches with humour, quotes, poetry in Hindi, Urdu and Tamil and the whole country heaves a collective sigh of relief if the FM has not imposed any fresh taxes.  Many Finance Ministers used to carry separately favourite quotes and jokes to intersperse their budget speeches with and these would not form part of the budget speeches printed and circulated, but would be lapped up by the press.  In providing Budget humour, Dr. Manmohan Singh was perhaps the best. In the days when he was accused of bowing to World Bank pressures, in a Budget speech, he said, “ I am doing this under pressure from WB” , “ and WB is not World Bank”, continued Dr. Singh in his serious style, “ but West Bengal”, . While announcing certain benefits for Mumbai, where Dr. Singh lived for a long time, he said, “Voting Congress is not only good politics, but good economics”. Congress had won the civic elections in Mumbai just then.  While giving benefits to the North Eastern states, he said, “ This is in gratitude to the East for providing a home to a homeless Finance Minster”.

While exempting khandasari sugar, Mr. Pranab Mukherjee said, “I am told khanadasari sugar is good for health and if this improves the health of the nation, the credit should come to me and not to my colleague, the honourable Minister for Health'. 

Justifying the increase in the r ate of duty on cigarettes, Y. B. Chavan stated in his budget speech, “There comes perhaps a time in the life of every smoker when the concern for his own health begins to outweigh the loyalty to an old and faithful companion. For those who cannot shake off their consuming passion, there is at least the consolation that the more taxes they pay, the more they serve the common cause. I am, therefore, fortified in my decision to increase once again the taxation on cigarettes by the thought that whichever way my smoking friends react, there would be a net gain to national welfare.”

Even the stiff Morarji had his quota of humour when it came to Budget speeches, “In a situation where both the husband and the wife are tax-payers in their own right, it would be improper for any outsider to decide as to who is dependent on whom. At present, we avoid this ticklish question by allowing both parties to claim a spouse allowance. This still leaves open the question as to who brings more tax benefit to the partnership through marriage. To eliminate this unintended strain on the relationship of marriage, I propose to provide that where both the husband and the wife have taxable incomes, the spouse allowance will be available to neither.”

Pranab Mukherji , while exempting p ressure cookers from excise duty, said, “Housewives in India , as elsewhere, have been complaining for some time about the rise in their expenses. As a measure of economising on their fuel bills without affecting the nutritional and, hopefully, the gastronomic value of what they cook, I propose to exempt totally pressure cookers from excise duties. They would now find someone else in their kitchens letting off steam.”

When Pandit Nehru presented his only budget after the sudden resignation of TT Krishnamachari , he skipped the dots and decimal points. When a member pointed this out, the Prime Minister remained unruffled and said "In matters of high finance, I am a bird of passage."

Yam Raj (death) and kar Raj (tax) are two certainties of life – while Yam Raj comes only once in our life Kar Raj is with us every day – between the two, there is an annual budget – happy budget!

Jurispruden tiol  – Monday' s cases

Before the Budget is ready, have a look at this Supreme Court case, which we could not hold till Monday and so we bring it to you today.

Income Tax - DTAA

Dividend income arising in Malaysia : SC upholds overriding effect of DTAA provisions and rules such income is not taxable in India

IN the latest order involving Double Taxation Avoidance Agreement ( DTAA ), the Apex Court has once again ruled that wherever there is a dispute between the DTAA and the domestic income tax act, the provisions of the treaty will prevail over the domestic Act. In this case, a dispute had cropped up regarding taxability of dividend income derived by the assessee form a Malaysian company. And upholding the HC order which had earlier sustained the Tribunal decision, the Supreme Court has made it clear that in view of the DATA with Malaysia , an income arising in Malaysia cannot be taxed in India under any provisions of the domestic Act.

Until Monday with more

DDT, but be with us – we will bring you the budget – what it reveals and what it conceals

Have a nice weekend.

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