Untitled Document

THE Union Budget 2009 presented by Finance Minster Mr. Pranab Mukherjee turns out to be “Aam Aadmi Ka Budget” with number of proposals extending benefits to farmers, women and weaker section of the society.

The budget proposes to continue with the current rates of corporate tax and personal tax. However basic exemption limit is proposed to be increased by Rs 15,000 and Rs. 10,000 for senior citizens and women and other category of tax payers, respectively. Generously the Finance Minister has proposed to remove surcharge in phased manner starting with removal of surcharge of 10% on income above Rs. 10, 00, 000 on personal income tax. Consequently post enactment of the Finance Bill, 2009, tax slabs would be as under:

Category	Current Slabs (INR)	Proposed Slabs (INR)	Rate of tax
Resident women below 65 years of age	Upto 180, 000	Upto 190, 000	Nil
	180,000 – 300,000	180,000–300,000	10%
	300,000 – 500,000	300,000 – 500,000	20%
	500,000 and above	500,000 and above	30%
Resident senior citizen	Up to 225, 000	Up to 240, 000	Nil
	225, 000 –300,000	240, 000 – 300,000	10%
	300,000 – 500,000	300,000 – 500,000	20%
	500,000 and above	500,000 and above	30%
Other category of individual tax payer	Upto 150, 000	Upto 160,000	Nil
	150,000 – 300,000	160,000 – 300,000	10%
	300,000–500,000	300,000 – 500,000	20%
	500,000 and above	500,000 and above	30%

Thus above benefit will comparatively result in more tax saving to individuals falling in higher tax bracket. For instance individuals earning below Rs. 10, 00, 000 would be able to save Rs. 1,030; however an individual earning more than Rs. 20, 00, 000 would save comparatively higher sum of Rs. 53, 045.

Further deduction under Section 80-DD of the Income Tax Act in respect of maintenance, medical treatment of dependent is proposed to be increased to Rs. 100, 000 from the present deduction of Rs. 75, 000.

Exceeding to the demand of industry, the Finance Minister has proposed to abolish Commodity Transaction Tax (CTT) and Fringe Benefit Tax (FBT). CTT was to be levied on transaction of purchase or sale in a recognized association of option in goods, or any other commodity derivative. Levy of FBT has resulted into huge administrative and compliance burden on corporate. Since introduction of FBT, industry has been demanding abolishing of the same, which has finally been accepted. Abolishing of CTT and FBT is a welcome step which will go a long way in restoring faith of industry in implementing tax reforms in right earnest.

Another pressing demand of industry of postponement of sunset clause of deduction of income from exports under section 10A and 10B of the Income Tax Act has been met and the benefit has been extended by one more year till FY 2010 – 11. While industry was demanding continuation of benefits for a longer period, proposal as of now is to extend for one more year. It would have been better that at least extension has been given for three years to bring in certainty in this period of economic slowdown which would have gone a long way in boosting export industry of India. Further with sunset being only one year away, no new investments are likely to be made in software and hardware exports industry in the country.

While lots of incentives have been extended to “ Aam Adnmi ” industry has been hit by increase in rate of Minimum Alternate Tax (MAT) from 10% to 15% of book profits. While the proposals have made an effort to soothe the nerves of industry by increasing period of carry forward of losses from seven years to ten years.

As a boost to education sector proposals seeks to extend scope of deduction for interest on education loans availed. Accordingly it is proposed to cover all fields of studies including vocational studies pursued after schooling as against existing provision where deduction is available only if the student pursues full time studies for any graduate or post-graduate courses in the specified fields.

The Finance Minister has proposed to provide investment-linked tax exemption for setting up and operating ‘cold chain', warehousing facilities for storing agricultural produce, etc. in terms of which all capital expenditure, other than expenditure on land, goodwill and financial instruments will be fully allowable as deduction.

Considering large tax dispute with foreign companies with respect to transfer pricing the Finance Minister has proposed to constitutes an alternative dispute resolution mechanism within the Income Tax Department for the resolution of such disputes. Further the CBDT is proposed to be empowered to formulate ‘Safe Harbour' rules. This will facilitate international transaction and encourage investment climate in India.

As part of tax reforms the Government proposes to come out with a proposal for direct tax code and merger of two authorities for Advance Ruling on Direct and Indirect Taxes.

All these are welcome steps and coupled with improvement in efficiency of the authorities, it is expected that the Union Budget would meet target of initiating faster recovery of Indian economy to earlier growth rate.