SIMPLYFYING THE BUDGET

We had huge expectations from Budget 2010. It was a difficult task for Mr. Mukherjee as he had to satisfy people’s needs as well as control the fiscal deficit.

Let us analyse some of the major points of Union Budget 2010 (Fiscal Year 2010-11):

1. Change in tax slabs

Tax Slabs 2009-10	Tax Slabs 2010-11
Rs. 1,60, 000 – Nil 1,60,000 to 3,00,000 – 10% 3,00,000 to 5,00,000 – 20% 5,00,000 + - 30%	Rs. 1,60, 000 – Nil 1,60,000 to 5,00,000 – 10% 5,00,000 to 8,00,000 – 20% 8,00,000 + - 30%

Analysis – Pros: Relief for common man. If a Person earns Rs. 10,00,000, he has to pay Rs.154000 as tax in 2010-11 compared to Rs.2,04,000 which he would be required to pay in 2009-10.

Cons: May Result in loss of revenue for the government. But looking from a different point of view, it has been seen that as and when the tax brackets have been widened, no. of persons paying taxes have increased. So, it might not be a negative at all.

2. Reduction of Surcharge on corporate tax

The surcharge on corporate taxes has been decreased from 10% to 7.5%. If a company pays Rs.4 crores as tax, it has to pay Rs.40 lakhs as surcharge. Now, it has to pay Rs.30 lakhs as surcharge.

Pros: This is a welcome step as far as corporates are concerned. More disposable income will result in investing in new projects and ventures, which in turn will create more jobs.

Cons: It will result in loss of Government’s Revenue.

3. Increament in Minimum Alternate Tax

Last budget, we saw a hike in MAT rate. This year too, FM has increased the rate from MAT from 15% to 18%.

Pros: Increase in Revenues for Government as companies have to pay more tax (MAT) now.

Cons: Extra burden especially for medium and small enterprises because it has been seen that many of them fall under MAT bracket.

4. Extra deduction if invest in Long Term infra bonds

Apart from deductions under section 80C, if a tax payer invests in long term infrastructure bonds, he can get a deduction upto Rs.20000.

Pros: Huge boost for infrastructure sector. For a taxpayer, he can save tax upto Rs.6000.

Cons: Cannot think of it right now.

5. Excise Duty increased

Excise Duty (the tax that has to be paid on manufacturing of goods) has been increased from 8% to 10%. It is being seen as a rollback of fiscal stimulus.

Pros: Augment Government revenues.

Cons: It will inflate prices of goods.

6. Extra excise on petrol and diesel

Extra Excise duty of Re.1 will be charged on petrol and diesel.

7. Service Tax unchanged

Service Tax has not been touched. It remains at 10 percent. FM has intimated that more services will be brought under the reach of the Act.

Pros: Relief for taxpayers. Its increment could have hurt taxpayers in a big way. From mobile bills to restaurant bills, we pay service tax on many items that we are using.

Cons: Cannot think of it at present.

8. Licenses will be given to private players and NBFCs to enter into banking foray

Pros: More Job opportunities will be created. Financial Inclusion will be strengthened.

Need: Strong monitoring

9. Direct Tax code and GST given a deadline

10. Government determined to raise Rs.25000 crores from Disinvestment

Mr. Pranab Mukherjee estimates the fiscal deficit of India to be at 5.5 % for 2010-11 and 4.8% the year thereafter. Fiscal consolidation is on cards as it was evident from certain hard decisions that were taken during the budget.

Stock Market gave a big thumbs up to the budget as it looked progressive and also offered higher disposable income in the hands of the consumers.

Swaminathan Aiyar, the economist rated the budget and gave 6 out of 10. He said it is a middle road budget. FM has promised to control the deficit but was disappointed on certain fronts. Hiking fdi limit in insurance sector to 49% and reducing public sector share in PSU banks etc. were unheard of.

All in all, it was a budget where Finance Minister has given signs of financial stimulus rollback and has also given reasons for a common man to smile. (Smokers will be unhappy though as cigarettes will be costlier). I would give 7 out of 10 for this budget.

Please note the views expressed are personal and open to disagreements and criticisms.

Saurav Tibrewal

Co-ordinator, Cash-o-nova, The Finance Club

Indian Institute of Foreign Trade

MBA(IB) 2009-11 Batch

Contact: 9311580251