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A Review of Union Budget 2012-2013

Union Budget, which is a yearly affair, is a comprehensive display of the Governments finances. It is the most significant economic and financial event in India. The Finance Minister puts down a report that contains Government of Indias revenue and expenditure for 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 Governments finances, in which revenues from all sources and expenses of all activities undertaken 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 doesnt 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. But Congress 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%

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 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. For Male Income Up to 200000.Rs. Nil Nil Nil 200001.Rs to 500000.Rs 10% .30% 10.30% 500001.Rs to 1000000.Rs 20% .30% 20.60% More Than 1000000.Rs 30% .30% 30.90%

Tax Rate Cess Effective Tax Rate Gain

Nil

2060.Rs

2060-10300.Rs

2060022600.Rs

For Female Income Up to 200000.Rs. Nil Nil Nil 200001.Rs to 500000.Rs 10% .30% 10.30% 500001.Rs to 1000000.Rs 20% .30% 20.60% More Than 1000000.Rs 30% .30% 30.90%

Tax Rate Cess Effective Tax Rate Gain

Nil

1030.Rs

1030-9270.Rs

19570-

21630.Rs For Senior Citizen Income Up to 250000.Rs. Nil Nil Nil 250001.Rs to 500000.Rs 10% .30% 10.30% 500001.Rs to 1000000.Rs 20% .30% 20.60% More Than 1000000.Rs 30% .30% 30.90%

Tax Rate Cess Effective Tax Rate Gain For Very Senior Citizen Income

Nil

Nil

0-8240.Rs

18540-20600.Rs

Up to 500000Rs. Nil Nil Nil

500001.Rs to 1000000.Rs 20% .30% 20.60%

More Than 1000000.Rs 30% .30% 30.90%

Tax Rate Cess Effective Tax Rate Gain

Nil

0-8240.Rs

18540-20600.Rs

Tax exemptions on Saving bank interest up to Rs 10,000 3

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 to 2 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 2012 It 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 specifically exempt. 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 agriculture 5. 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 by radio 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 distribution utility; 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

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 less Than 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 its 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 will have 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%

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-today 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 wont 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 6

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 wont 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 lets 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 todays 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 enhancement has 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.

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 small interest. 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 in delivery base buying. Rajiv Gandhi Equity Saving Scheme to allow for income tax deduction of 50 per cent to new 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 in interest of retail investor in equity market. IPO of 10 crore and above will only be in electronic form. This step will cause reduction in cost 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 the service 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 8

(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 equipped with growing competition. National Skill Development Fund allocated Rs.1,000 crore. This will cause improvement in skill 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. Indias 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 proposed to 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. 9

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 one year 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 tax avoidance 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 become operational 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 page are 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 raised from 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 10

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 installation of 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 thirdparty maintenance, 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 we consider 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. Nothing was 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 in household 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, reason was 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 & dont contribute to income tax honestly,When government will 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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