Self Study 3

8/2/2019 Self Study 3

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A Review of Union Budget 2012-2013

Union Budget, which is a yearly affair, is a comprehensive display of the Government’sfinances. It is the most significant economic and financial event in India. The Finance

Minister puts down a report that contains Government of India’s revenue and expenditurefor one fiscal year. The fiscal year runs from April 01 to March 31. The Union budget is preceded by an Economic Survey which outlines the broad direction of the budget and the

economic performance of the country. The Budget is the most extensive account of the

Government’s finances, in which revenues from all sources and expenses of all activitiesundertaken are aggregated. It comprises the revenue budget and the capital budget. It also

contains estimates for the next fiscal year called budgeted estimates.

Generally union budget is presented in the month of February but this year the date of presentation was little differ. The date of budget was deferred due to elections in five

states as code of conduct of the elections commission of India doesn’t allow making policy

statements. So the dates of union budget 2012-13 are announced after the completions of elections. This year union budget is presented in the month of March. This year budget was

presented on 16.03.2012 by the Finance minister Pranab Mukherji.

In this year many people were expecting much more benefits from the government but The

budget did not live upto the expectations of many people because rising inflation had

created an expectation among people that this time they will get some major relief from

taxation and were expecting exemptions upto 3 lacs income and big raise in 80C limit. ButCongress wastes this last change which they had to give people a small reason to like them.

Following are the top most points I extracted for you from the budget 2012.

Change in Tax Slabs Income tax exemption for health check-ups upto Rs 5,000 under section 80D

Tax exemption for Direct Equity Investments if income is less than 10 lacs

Tax exemptions on Saving bank interest upto Rs 10,000

Life Insurance deduction available only if premiums are below 10% of Sum

Assured

Service Tax increased from 10% to 12%

TDS @1% at the time of real estate sale above 50 lacs

Increase in Excise Duty from 10% to 12%

For Medical Insurance – Senior citizen age reduced from 65 yrs to 60 yrs

Tax Benefit on Infrastructure bonds removed DTC not coming this year.

EPF (Provided Fund) Interest cut from 9.5% to 8.25%

Securities Transaction Tax (STT) reduced from 0.125% to 0.1%

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Change in Tax Slabs

Most of the people have demanded to increase tax exemption limit from1.80 Lac to 3 Lac

in this budget, but tax limit was enhanced by only 20000 Rs for Male and 10000 Rs for female. Now new lax exemption limit for individual is 2 Lac. The differential tax slabs for

men and women have been removed. With this new tax slab new income tax liability &

gain for individual who has income in range of 10% slab with this new tax slab change willsave 2,060 Rs & individual in highest slab 30% will be able to save 22,600 Rs. As

differential tax slab for male and female is removed Female in lowest tax slab 10% will be

able to save 1,030 Rs. Please refer to following table for detail gain and tax liabilities.

For Male

Income Up to

200000.Rs.

200001.Rs to

500000.Rs

500001.Rs to

1000000.Rs

More Than

1000000.Rs

Tax Rate Nil 10% 20% 30%

Cess Nil .30% .30% .30%

Effective TaxRate

Nil 10.30% 20.60% 30.90%

Gain Nil 2060.Rs 2060-10300.Rs 20600-

22600.Rs

For Female

Income Up to200000.Rs.

200001.Rs to500000.Rs

500001.Rs to1000000.Rs

More Than1000000.Rs


Cess Nil .30% .30% .30%

Effective Tax

Rate

Nil 10.30% 20.60% 30.90%

Gain Nil 1030.Rs 1030-9270.Rs 19570-

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21630.Rs

For Senior Citizen

Income Up to250000.Rs.

250001.Rs to500000.Rs

500001.Rs to1000000.Rs

More Than1000000.Rs


Cess Nil .30% .30% .30%

Effective Tax

Rate

Nil 10.30% 20.60% 30.90%

Gain Nil Nil 0-8240.Rs 18540-20600.Rs

For Very Senior Citizen

Income Up to500000Rs.

500001.Rs to1000000.Rs

More Than1000000.Rs

Tax Rate Nil 20% 30%

Cess Nil .30% .30%

Effective Tax

Rate

Nil 20.60% 30.90%

Gain Nil 0-8240.Rs 18540-20600.Rs

Tax exemptions on Saving bank interest up to Rs 10,000

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Till now all the interest income earned from your saving bank was taxable. However

now saving bank interest income upto Rs 10,000 will not be taxed. Not that it is

applicable for Saving bank account, Post Office Saving account and all co-operative

bank accounts. But I doubt how many people will really be able to take full benefit of

it, because to earn 10,000 interest in saving bank, you need to keep anywhere close to2 lacs or 2.5 lacs, which does not happen with most of the people. A lot of people

anyways never paid any tax on the interest from saving bank and might be fearful if

some one catches them, now law itself asks them now to pay upto 10,000.

Service Tax increased from 10% to 12%

The peak rate of service tax has been increased to 12% from 10% from 1 April 2012It has been proposed to introduce the levy of service tax based on a Negative List, as per

which .All services would be taxable unless included in Negative List or specificallyexempt. Nine declared services such as renting of immovable property, construction of complex, temporary transfer of IPR, agreeing to an obligation to refrain from an act or

tolerate an act to also attract service tax 17 services to be included in the Negative List,

including services provided by Government, RBI, local authority, trading of goods and any process amounting to manufacture etc. The negative list shall comprise of the following

services, namely:––

1. Services by Government or a local authority

2. Services by the Reserve Bank of India;

3. Services by a foreign diplomatic mission located in India;

4. Services relating to agriculture5. Trading of goods;

6. Any process amounting to manufacture or production of goods;

7. Selling of space or time slots for advertisements other than advertisements broadcast byradio or television;

8. Service by way of access to a road or a bridge on payment of toll charges;9. Betting, gambling or lottery;

10. Admission to entertainment events or access to amusement facilities;

11. Transmission or distribution of electricity by an electricity transmission or distributionutility;

12. Services by way of—

pre-school education and education up to higher secondary school or equivalent;

education as a part of a curriculum for obtaining a qualification recognized by any

law for the time being in force;

education as a part of an approved vocational education course;

13. Services by way of renting of residential dwelling for use as residence;

14. Services by way of—

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extending deposits, loans or advances in so far as the consideration is represented

by way of interest or discount;

inter se sale or purchase of foreign currency amongst banks or authorized dealers of foreign exchange or amongst banks and such dealers;

15. Service of transportation of passengers, with or without accompanied belongings, by—

a stage carriage; railways in a class other than—

first class; or

an air conditioned coach;

metro, monorail;

inland waterways;

public transport, other than predominantly for tourism purpose, in a vessel of lessThan fifteen tone net; and

metered cabs, radio taxis or auto rickshaws;

16. Services by way of transportation of goods—

by road except the services of—

A goods transportation agency; or

A courier agency;

by an aircraft or a vessel from a place outside India to the first customs station of

Landing in India; or

by inland waterways;

17. Funeral, burial, crematorium or mortuary services including transportation of the

deceased.

TDS @1% at the time of real estate sale above 50 lacs

A lot of people will cry hearing this one and will not appreciate this move by govt, but it’s

for good. As per this budget, now whenever you sell your residential flat/house/plot (any

kind of real estate) and the selling price is more than 50 lacs, you will have to compulsorily pay TDS @1% . This is actually a big problem, because it might happen that even though

the sale value is above 50 lacs, but after indexation and your decision to use the funds in

next house purchase, your overall tax out of the transaction might be Zero, but still you willhave to pay 1% TDS. So in worst case you will have to claim that tax amount back by

filing a return. Note that property registration will not be permitted without proof of

deduction and payment of this TDS , so you cant escape it, incase you thought you thought

you will escape somehow. All the registration offices across the country will be following

this one.

Increase in Excise Duty from 10% to 12%

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Excise duty is the tax paid by manufacturers on production of any kind of goods. So now

that is increased from 10% to 12%. So it means that manufacturers pay more tax and

recover that same additional burden from consumers, which in turn means that a lot of goods will get costlier, it would include daily use items and what we consume in day-to-

day life.

Tax Benefit on Infrastructure bonds removed

2 yrs back Tax Saving Infrastructure bonds were introduced and apart from 80C (1,00,000),additional 20,000 was eligible for tax exemption. However this year this benefit is not

extended and now there is no tax exemption on Infrastructure bonds. However companies

are allowed to issue 60,000 crore worth of bonds compared to 30,000 crore worth bond last

year.

Securities Transaction Tax (STT) reduced from 0.125% to 0.1%

Whenever an equity transaction is done, STT transaction tax is applicable and you have to pay it. It was 1.25% earliar, but now its reduced to 1%. So it means you will have to pay

less for your equity transactions. Good for those who buy/sell stocks/mutual funds

frequently or in big quantities.

EPF (Provided Fund) Interest cut from 9.5% to 8.25%

EPF interest rate cut was not part of this Budget, but it happened just one day before

Budget, and as this is an important update, you better know that EPF interest rate is

reduced from 9.5% to 8.25% now and it will be applicable from next year. Last year itself

the EPF interest rate was increased to 9.5% . This is a very steep cut and really won’t

make any salaried person happy. Not sure what is the reason to keep it below PPF interest

rates.

DTC not coming this year

DTC (Direct tax code) will not be implemented this year, which was very obvious – thanks

to Anna Hazare, Food security bill and other issues which made sure govt has no time for DTC. What this means is that Tax Saving Mutual funds (ELSS) are still a tax saving option

for 2012-2013 and you can invest in them and claim tax benefit next year also.

Life Insurance deduction available only if premiums are below 10% of Sum Assured

This is a little hidden clause and not highlighted by media, but as per the budget, any life

insurance policy issued on or after 1st Apr 2012, will be eligible for “tax exemption each

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year [80C] and “no tax on maturity [ section 10(10D) ]” only if the yearly premium in all

the years are below 10% of Sum Assured. Currently this percentage is 20%. So for

example if you buy a life insurance policy with premium of Rs 20,000 for a Sum Assured

of Rs 1,00,000, then it will not qualify for tax exemptions because here premium is 20%

of sum assured. However existing policy holders dont have to worry about this, their

policies won’t be affected.

Some Other Changes

No Advance Tax for Senior Citizens if no income under head “Income from

Business”.

The amount of goods you can bring from outside India increased to Rs. 35,000

from the earlier Rs. 25,000.

Tax filing compulsory for any resident who holds a property outside India even if the taxable income in India is below the limit.

Under Section 80G, any donation made above 10,000 has to be done by any mode

other than cash. Till now you could donate through cash by cash, but now that limit is

there

Union Budget 2012-13 & its impact on following

For Tax Payer:-

Most of the people have demanded to increase tax exemption limit from1.80 Lac to 3 Lac

in this budget, but tax limit was enhanced by only 20000 Rs/- for Male and 10000 Rs/- for

female. Now new lax exemption limit for individual is 2 Lac. The differential tax slabs for men and women have been removed.

With this new tax slab let’s look at your new income tax liability & your gain. For

individual who has income in range of 10% slab with this new tax slab change will save

2,060 Rs/- & individual in highest slab 30% will be able to save 22,600 Rs/-.

As differential tax slab for male and female is removed Female in lowest tax slab 10% will

be able to save 1,030 Rs/-. Please refer to following table for detail gain and tax liabilities.

In today’s situation value one thousand or two thousand rupee is nothing hence according

to us this tax relief given by finance minister is negligible. Yes upper limit enhancementhas given tax saving of 20,660 Rs/-.

Basket of 80C qualify for deduction of 1 lakh remain unchanged, keeping same investment

options open like PPF, EPF, Life insurance premium, NSC,ELSS, Tution Fees, Five year

fix deposit, SCSS, Home loan principal payment and national pension scheme.

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Section 80 D basket is enhance by additional 5,000 Rs/- for amount paid on preventive

health check-up of self or parents.

Additional Deduction is given for interest up to Rs.10,000 from savings bank accounts. As

you are aware that most of saving bank returns are less than 6% which will not beat even

inflation so it is not carrying any meaning to keep amount in bank for earning smallinterest.

For Equity Market:-

Reduction of Security transaction Tax on delivery based sale and purchase of shares from

0.125 to 0.1 %. This will cause transaction cost to come down but according to us this

reduction is negligible and only beneficial to long term investor or investor who deal indelivery base buying.

Rajiv Gandhi Equity Saving Scheme to allow for income tax deduction of 50 per cent tonew retail investors, who invest upto Rs 50,000 directly in equities your annual income

should be less than 10 Lac. This according us is good step which may cause increase ininterest of retail investor in equity market.

IPO of 10 crore and above will only be in electronic form. This step will cause reduction incost of issuing shares and opens door for more retail investor from tire 2 towns.

For Individual Buyers:-

With new tax proposal Service tax rate is raised from 10% to 12% hence most of theservice we pursue we have to pay 2% more tax. Standard rate of excise duty is raised from

10% to 12%. Import duty on Gold is double 4% which will cause increase in import cost

and reduction in demand.

Ultimate after this budget following things will become Costlier:-

(1) Gold, Dimond

(2) Imported Items

(3) Foreign travel

(4) Air condition, Fridge

(5) Car

(6) Luxurious Items

(7) Mobile Bill, Hotel Food Bill

(8) Branded Cloths

(9) Cigarettes

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(10) Gym and Beauty parlor Service

Following things will become Cheaper:-

(1) Medicine

(2) Mobile

(3) LCD, LED TV

(4) Salt

(5) Education

(6) Movie Tickets

For overall Indian Economy:-

Disinvestment of PSU to raise fund up to Rs.30,000 crore. This step will cause boost in

share market and retail investor will get chance to purchase PSU shares. Infusion of

Rs.15,888 crore in public sector banks and financial institution cause bank to be equippedwith growing competition.

National Skill Development Fund allocated Rs.1,000 crore. This will cause improvement inskill and employability of people. Growth in 2012-13 estimated at 7.6 percent; expect

inflation to be lower.

Key Features of Budget 2012-2013

Overview of the Economy

GDP growth estimated at 6.9 per cent in real terms in 2011-12. Slowdown in comparison to

preceding two years is primarily due to deceleration in industrial growth. India’s GDP

growth in 2012-13 expected to be 7.6 per cent +/- 0.25 per cent.

TAX PROPOSALS FOR DIRECT TAXES

Tax proposals for 2012-13 mark progress in the direction of movement towards

DTC and GST.

Proposal to allow individual tax payers, a deduction of upto `10,000 for interest

from savings bank accounts. Proposal to allow deduction of upto `5,000 for preventive health check up.

Senior citizens not having income from business proposed to be exempted from

payment of advance tax.

Restriction on Venture Capital Funds to invest only in 9 specified sectors proposedto be removed.

Proposal to continue to allow repatriation of dividends from foreign subsidiaries of

Indian companies at a lower tax rate of 15 per cent upto 31.3.2013.

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Proposal to extend weighted deduction of 200 per cent for R&D expenditure in an

in-house facility for a further period of 5 years beyond March 31, 2012.

Proposal to extend the sunset date for setting up power sector undertakings by oneyear for claiming 100 per cent deduction of profits for 10 years.

Turnover limit for compulsory tax audit of account and presumptive taxation of

SMEs to be raised from `60 lakhs to `1 crore. Exemption from Capital Gains tax on sale of residential property, if sale

consideration is used for subscription in equity of a manufacturing SME for

purchase of new plant and machinery.

Proposal to provide weighted deduction at 150 per cent of expenditure incurred on

skill development in manufacturing sector.

Reduction in securities transaction tax by 20 per cent on cash delivery transactions.

Proposal to extend the levy of Alternate Minimum Tax to all persons, other than

companies, claiming profit linked deductions.

Proposal to introduce General Anti Avoidance Rule to counter aggressive taxavoidance scheme.

A net revenue loss of `4,500 crore estimated as a result of Direct Tax proposals.

TAX PROPOSALS FOR INDIRECT TAXES

GST network to be set up as a National Information Utility and to becomeoperational by August 2012.

Overwhelming response to the new concept of taxing services based on negative

list.

Proposal to tax all services except those in the negative list comprising of 17 heads.

Number of alignment made to harmonize Central Excise and Service Tax. A

common simplified registration form and a common return comprising of one pageare steps in this direction.

Revision Application Authority and Settlement Commission being introduced in

Service Tax for dispute resolution.

Study team to examine the possibility of common tax code for Central Excise and

Service Tax.

New scheme announced for simplification of refunds.

Rules pertaining to point of taxation are being rationalized.

To maintain a healthy fiscal situation proposal to raise service tax rate from 10 per

cent to 12 per cent, with corresponding changes in rates for individual services.

Proposals from service tax expected to yield additional revenue of `18,660 crore.

Given the imperative for fiscal correction, standard rate of excise duty to be raisedfrom 10 per cent to 12 per cent, merit rate from 5 per cent to 6 per cent and the

lower merit rate from 1 per cent to 2 per cent with few exemptions.

Excise duty on large cars also proposed to be enhanced.

No change proposed in the peak rate of customs duty of 10 per cent on

nonagricultural goods.

Agriculture and Related Sectors

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Basic customs duty reduced for certain agricultural equipment and their parts;

Full exemption from basic customs duty for import of equipment for expansion or

setting up of fertiliser projects upto March 31, 2015.

Infrastructure

Proposal for full exemption from basic customs duty and a concessional CVD of 1

per cent to steam coal till 31st March, 2014.

Full exemption from basic duty provided to certain fuels for power generation.

Railways

Basic custom duty proposed to be reduced for equipments required for installationof train protection and warning system and upgradation of track structure for high

speed trains.

Roads

Full exemption from import duty on certain categories of specified equipment

needed for road construction, tunnel boring machines and parts of their assembly.

Civil Aviation

Tax concessions proposed for parts of aircraft and testing equipment for thirdpartymaintenance, repair and overhaul of civilian aircraft.

What common man wants which is not present in budget:-

(1) Analysis of every now and then increasing price of Petrol, Diesel & Gas. If weconsider previous year price of petrol & gas was revised two to three times causing petrol

price nearly 70 Rs/- Liter,Which was around 50 Rs/-. No analysis was given why this price

has gone up and what is projection of price in next year.

(2) Price of Milk was increased so many times in 2011-12 and reach to around 20 Rs/- per 500 ml. For so many of us this has caused major impact in household budget.

(3) Edible oil Tin price was around 1400 Rs/- in 2011-12 but now it is about to reach

2000 Rs/- difference is only 600 Rs/- but for common man it may be unbearable. Nothingwas mention about price rise in pervious or this year budget about this.

(4) You might have observed so many vegetables like onion has shown so many time

price rise and fall and common man could not understand how much to budget inhousehold for vegetables (basic need).

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(5) Many Education institute still ask for donation, Still fees of education are increasing

like anything which is going beyond reach of common man.

(6) We have heard in budget that medicine will be cheaper this year but anyone has

thought of that every year we see rise of 10-15% medical services for various surgeries and

medical tests.

(7) Real estate price is going up and up every year we see 10-25 % rise in price, reasonwas given that this rise is because of rise in raw material price but does government really

take steps to control this price, so that common man can purchase his basic need.

(8) Most of income tax contribution is coming from salaried people mostly all business

person deals in black money & don’t contribute to income tax honestly,When governmentwill make provision to kill this black money?

Bibliography

Websites

www.india.com

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www.eximguru.com

www.marketresearch.com

www.economictimes.indiatimes.com

www.thehindu.com

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