India’s tax-gdp ratio has improved from 9.2% in 2003-04 to 11.5% in 2008-09. The government wishes to simplify the tax structure. A new direct tax code will be released for public comments within 45 days and the new code will be finalised during the winter session of parliament. A Goods and Services Tax to be introduced from April 2010, but will comprise of a Central GST and a State GST.
Direct Taxes
Individual
- Personal income tax enhanced by Rs 15,000 for senior citizens and Rs 10,000 for other tax payers. The 10% surcharge on personal income, on income above Rs 10 lakh, will be removed.
- Tax deduction on interest paid on education loans, extended to all categories of educational loans, including for vocational courses
Investors
- New Pension System does not get equitable treatment with the EPFO, whose subscribers get an exempt-exempt-exempt status. NPS will continue to be on an exempt-exempt-tax basis. However, its transactions will be exempt from securities transaction tax, its income will be exempt from tax and dividends paid to it will not attract tax.
- Commodity transaction tax has been abolished.
Corporate
- Corporate Tax rate remains the same. Fringe benefit tax has been removed. Minimum Alternate Tax (MAT) has been hiked to 15% from 10%.
- The sunset clauses under Section 10A and Section 10B has been extended by a year.
- Inhouse R&D benefits to be extended to all industries, except for a few.
- Investment-linked tax concessions provided to: cold chains, warehousing for storing agri-produce, laying of natural gas pipelines for transportation on a common-carrier principle. All capex will be allowed as a deduction.
- Presumptive taxation extended to all businesses with a turnover of Rs 40 lakh.
- Section 80-IB (9) tax benefit to oil and exploration companies has been clarified as covering natural gas too.
- Environmental and heritage trusts to also get an income tax exemption.
Indirect Taxes
Customs
- Basic customs duty of 5% imposed on set-top boxes
- Customs Duty on LCD panels has bee cut from 10% to 5%
- Mobile phone parts and accessories to get exemption from countervailing duty for one more year.
- The influenza vaccine and nine life-saving drugs used for treating cancer and arthritis to attract a 5% duty instead of 10%.
- The duty on gold bars will double, at Rs 200 per 10gms and at Rs 500 per 10gms on other gold items (excluding jewellery). Silver will now attract duty at the rate of Rs 1000/ kg duty. The rates have been doubled for all these items.
Central excise duty (CENVAT)
- All items that have been paying excise duty at 4% will now have to pay 8%. Several items have been exempted from this, like pharmaceuticals, food, mass consumption items, paraxylene and paper & paperboard.
- Duty rates on textile products have been reworked. Cotton textile makers have the option of paying 4% excise on their products. Manmade fibre and yarn will now have to pay excise at 8%.
- The IT industry has been having problems after the issue of levy of service tax on software services. The government has exempted them from paying excise duty and CVD on packaged software, in such projects.
- The construction industry will now be able to get a full exemption on goods manufactured at site, including pre-fabricated concrete slabs used for construction at the site.
- All large cars will now have to pay Rs 15,000 as addition duty, instead of the two levels of Rs 15,000 and Rs 20,000 that is in practice.
- Petrol driven trucks will have to pay excise at the same rate of 8% as on diesel trucks.
Service Tax
- Exporters availing transport services will not have to pay service tax on these services, and then claim a refund.
- Service tax on transportation will now be applicable to goods being transported by the Indian Railways and through the coastal route.
- Service tax to be imposed on lawyers but individual lawyers and individual litigants will be exempt. The burden will fall mostly on corporate law firms and on companies who employ them.
- Private contract bus contractors will not have to pay service tax.
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