Impact of BUDGET on Individuals

Impact of BUDGET on Individuals

Budget 2010-2011

27 February 2010 Ventura Securities Ltd 2

Summary

A Budget with a focus on fiscal consolidation; development of infrastructure and curb on non-plan expenditure. With 46% of the total plan allocation being made for

infrastructure – both in rural and urban areas. Step towards preparing individuals for Direct Tax

Code by offering relief in personal taxes. Concerns on inflation have not been addressed

fully and higher revenue is assumed to come through growth which may or may not happen.

No significant reforms announced.


Key Highlights The Indian GDP expected to grow around 8.5%

with a full recovery breaching the 9% mark in 2011-12.

Steps to control Fiscal Deficit @ 5.5% Target for Fiscal Deficit @ 4.8% and 4.1% in 2011-

12 and 2012-13 respectively. Low Government borrowing at INR 3.45 tn as

compared to estimate of INR 3.98 tn Partial roll-back of stimulus (excise duty hike of

2%) Extremely positive surprise for individuals due to

sharp reduction in tax slabs

Key Highlights

The proposed changes in tax slabs would result in (maximum) savings of Rs. 58,710

New direct tax code / GST to be implemented as per plan from 1 April 2011

Deduction of Rs 20,000/- has been proposed for investments made in notified long term infrastructure bonds. This is in addition to the deduction available under section 80C.

Increase in petrol/diesel prices


Economic Report Card

Key Indicators2004-

052005-

062006-

072007-

082008-

092009-

10

GDP Growth Rate - 9.5 9.7 9.2 6.7 7.2

Saving Rate (% of GDP) 32.2 33.1 34.4 36.4 32.5 -

Capital Formation (% of GDP) 32.7 34.3 35.5 37.7 34.9 -

Food grain Production (Mn. tonne)

198.4 208.6 217.3 230.8 233.9 -

IIP (% of growth) 8.4 8.2 11.6 8.5 2.6 -

Inflation (WPI , % change) 6.5 4.4 5.4 4.7 8.4 1.6

Export growth (USD, % change)

30.8 23.4 22.6 29.0 13.6 -20.3

Import growth (USD, % change)

42.7 33.8 24.5 35.5 20.7 -23.6

Source: Economic Times


Income from Investments Short Term Capital Gain (STCG): Capital Gains on

redemption of units held for a period of LESS than 12 months from the date of allotment. No change (present rate of 15% for equity to continue)

Long Term Capital Gain (LTCG): Capital Gains on redemption of units held for a period of MORE than 12 months from the date of allotment. No change (present rate of NIL for equity to continue)

Dividend Distribution Tax (DDT): Tax charged on dividend in declared in non equity scheme by Mutual Fund House. No change However, reduction in Corporate surcharge from 10% to 7.5%

will reduce DDT burden on investor.

Dividend Distribution Tax (DDT)

Existing DDT Post Budget DDT

Money Market Funds

28.33% 27.68%

Debt Funds (other than money market funds)

14.16% 13.85%

As surcharge on corporate has reduced from 10% to 7.5%. The effective Dividend Distribution Tax (DDT) will also reduce.



What’s Costlier and What’s CheaperWhat’s Costlier ? Why ?

Peak excise duty increased by 2%.

FM proposes excise duty on all non-smoking tobacco such as scented tobacco, snuff, chewing tobacco etc.

Restore the basic duty on crude petroleum, diesel and petrol and other refined products. Central Excise duty on petrol and diesel enhanced by Re. 1 per litre each.

What’s Cheaper ?

Why ?

A concessional basic duty of 5% is being prescribed while they would be exempt from CVD and special additional duty.

Car

Medical equipments

Tobacco

Petrol / Diesel


What’s Costlier and What’s CheaperWhat’s Cheaper ? Why ?

Duty exemptions extended to parts of battery, chargers and hands-free headphones.

Customs duty on gold ore and concentrates reduced. Excise duty on refined gold made from such ore also reduced.

4% exemption from special additional duty to goods imported in a pre-packaged form for retail sale.

Reduction in customs duty on one of its key components from 10% to 5%.

Mobile phones

Jewellery

Watches

Microwave oven

Service Tax – Enlarged Scope

Service Impact Letting out of property for commercial use will attract service tax with retrospective effect ( 1 June, 2007).

Hike in rent for commercial property.

Purchase of property directly from a builder even prior to obtaining completion certificate will attract service tax (loophole from previous budget plugged)

Higher property price if bought directly from builder.

The scope of air passenger transport service is being expanded to include domestic journeys, and international journeys in any class.

Higher Air Travel cost


Service tax to GDP Ratio is at 1% Rate of tax on services retained at 10% Impact of new services added to service tax:

Service Tax – Enlarged ScopeService Impact Certain additional services provided by a builder to the prospective buyers

Home buyers need to pay out more on services offered by a builder.

Transport of goods through railways brought under tax net

Rail transport of goods will become costlier.

Health checkups undertaken by hospitals and payment made by a business entity. (for eg: corporate health check up plans)

Corporate will have to pay more on Employees Health checkup.

Payments made by insurance companies to hospitals under medi-claim policies (cashless facility offered by insurance companies)

Premium of mediclaim plans may go up.

27 February 2010Ventura Securities Ltd 11


Moderation in Income Tax Slabs

Exemption for* Current Post Budget

Women Up to 1,90,000 Up to 1,90,000

Senior Citizen Up to 240,000 Up to 240,000

Tax Rate Tax Slabs

Individuals Current Post Budget

Exemption* Up to 1,60,000 Up to 1,60,000

10% 1,60,001 - 3,00,000 1,60,001 - 5,00,000

20% 3,00,001 - 5,00,000 5,00,001- 8,00,000

30% Above 5,00,001 Above 8,00,001

Note: Education cess @ 3% chargeable to all slabs


Tax Saving

New slabs will SAVE tax of an individual maximum upto Rs. 58,710.

Income Rs. 400,000… savings will be.. Click Here

Income Rs. 800,000… savings will be.. Click Here

Income Rs. 12,00,000… savings will be.. Click Here

Note: Assumed max. deduction of Rs. 1,00,000 under section 80C & Rs. 20,000 under section 80CCF

Click here for Tax Saving Calculator


Taxation of Overseas Individuals The Income Tax Act applies to all persons who

earn income in India, whether they are Resident or Non-Resident.

Resident as well as Non-Resident are eligible for section 80CCF deduction of upto Rs. 20,000 for investment in Infrastructure bonds.

Budget proposes to tax non-residents for interest received effective June 1, 1976


Tax Structure at a Glance

Tax Rates under the Act TDS Rate under the Act

Capital Gain

Residents NRIs / PIOsNRIs / PIOs / other Non FII non-residents

Short Term Capital Gain

Non equity oriented fund

Taxable at normal rates of tax

30% for non residents non corporate

40% for non resident corporate

An equity oriented fund

15% N.A.

Long Term Capital Gain**

Non equity oriented fund

10% without indexation, or 20% with indexation, whichever is lower.

20% for non residents (u/s 195)

An equity oriented fund

Nil N.A

** Capital Gains on redemption of units held for a period of more than 12 months from the date of allotment.


Budget Terminologies Appropriation Bill: This bill is like an approval to the withdrawal of

money from the Consolidated Fund to pay off expenses. It is an instrument that Parliament clears after the demand for grants has been voted by the Lok Sabha.

Deficit/Surplus: When our spending exceeds income, there is a deficit and to fulfill the deficit we may borrow; faced with similar kind of deficit situation by the government; it can either borrow or print money. Surplus is exactly opposite of deficit, it is that economic phenomenon when revenue is more than expenditure.

In a Fiscal budget there are four types of deficits which are as follows:

i. Revenue Deficit: It arises when the revenue expenditure exceeds revenue receipts.

ii. Budget Deficit: It is excess of total expenditure over total receipt, wherein total receipts includes current revenue and net internal and external receipts from the government.


Budget Terminologies iii. Fiscal Deficit: It arises when Total Expenditure exceeds Revenue

Receipts. Fiscal deficit gives the signal to the government about the total borrowing requirements from all sources.

iv. Primary Deficit: It is a nothing but Fiscal deficit minus interest payment.

Current account: This shows the difference between the nation's exports and imports and the import being higher than exports shows deficit and export being more than import shows surplus.

Expenditure: The expenditure is classified as : Revenue and Capital Expenditure and

further as planned and Non planned. i. Revenue Expenditure: It is incurred for the normal functioning of

the government departments and various other services such as salaries to government employees, subsidies, interest payment made to service debt etc.


Budget Terminologies ii. Capital Expenditure: Long-term in nature they are used for

acquiring fixed assets such as land, building, machinery and equipment. Other items that also fall under this category include loans and advances sanctioned by the Centre to the State governments, union territories and public sector undertakings etc.

iii. Plan Expenditure: As the name implies, it is incurred in connection with all expenditures which fall under the purview of Country’s Five year plan.

iv. Non-plan Expenditure: It consists of Revenue and Capital Expenditure on interest payments, Defense Expenditure, subsidies, postal deficit, police, pensions, economic services, loans to public sector enterprises and loans as well as grants to State governments, Union territories and foreign governments etc.

Gross Domestic Product (GDP): Total market value of the goods and services manufactured within the country in a financial year.


Budget Terminologies GDP Growth rate: It measures the growth of the GDP of the economy

compared to the last year. This is a measure of the progress of the economy and is an important economic indicator.

Receipts: Receipts are classified into Revenue & Capital Receipts: Revenue Receipts: Revenue comes from 2 sources: 1. Tax revenue

2. Non Tax revenue Tax Revenue: Tax revenue refers to funds raised through taxes paid

by Public & Corporate Entities. Taxes are of two types Direct & Indirect tax. Direct taxes are Income tax, Wealth tax and Gift tax while Indirect Tax includes Custom Duty, Excise Duty, Service tax etc.

Non Tax Revenue: As the name suggests, Non Tax Revenue is raised through sources other than taxes. This revenue emanates from Public Sector Undertakings (PSUs), State undertakings like railways, State Transport, Telecom, etc. Revenue from social services like education & Public health. Voluntary aid to Government charitable trust /institution, Revenue from public properties etc.


Budget Terminologies Capital Receipt: It includes loan raised by Government of India from

public at large, borrowings from RBI (through sale of Treasury bonds) as well as external borrowings International institution like (IMF, World Bank etc) recoveries from loans granted to states/Union territories, savings invested in PPF.

Per Capita Income: The national income of a country divided by its population.

Subsidies: Financial aid provided by the Centre to any entity to be competitive or to restrict price for the buyer.

Inflation: Inflation rate is the percentage rate of change in the price level of a commodity.


Disclaimer

Ventura Securities Limited. Corporate Office: C-112/116, Bldg No. 1, Kailash Industrial Complex, Park Site, Vikhroli (W), Mumbai – 400079

This report is neither an offer nor a solicitation to purchase or sell securities. The information and views expressed herein are believed to be reliable, but no responsibility (or liability) is accepted for errors of fact or opinion. Writers and contributors may be trading in or have positions in the securities mentioned in their articles. Neither Ventura Securities Limited nor any of the contributors accepts any liability arising out of the above information/articles. Reproduction in whole or in part without written permission is prohibited. This report is for private circulation.

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Impact of BUDGET on Individuals

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