IT relief of Rs 1 lakh for all
New Delhi, February 28
With Rs 1 lakh annual income free from any tax, those earning between Rs 1 and Rs 1.5 lakh will henceforth attract 10 per cent, those in the Rs 1.5 lakh-to-Rs 2 lakh bracket 20 per cent and above Rs 2.5 lakh the maximum 30 per cent.
The practice of standard deduction is being removed. All concessions under Sections 88 and 80L, including IT rebate on premiums paid with regard to LIC policies, stand abolished.
The threshold exemption level for women has been fixed slightly higher at Rs 1.25 lakh and senior citizens’ raised to Rs 1.5 lakh, Mr Chidambaram observed while presenting his second budget of the Congress-led UPA government in the Lok Sabha today.
Emphasising that “taxpayers in every bracket will benefit from my proposals,” the Finance Minister observed that the plethora of exemptions is to promote and induce people to save. In addition, every taxpayer is being allowed a consolidated limit of Rs 1 lakh for savings which will be deducted from the income before tax is calculated.
Income above Rs 10 lakh per annum will be liable to a surcharge of 10 per cent.
There were murmurs of protest from Members of Parliament only on one occasion when Mr Chidambaram suggested a .01 levy on cash withdrawal of Rs 10,000 and above on a single day ostensibly to check black or parallel economy. A person withdrawing Rs 10,000 will have to pay Rs 10 and banks will be required to report to the government all deposits which are exempt from TDS on interest.
Simultaneously, the exemption from tax on interest earned on accounts maintained by non-resident Indians (NRI) will continue.
Besides, six deductions attracting tax rebates will continue. These pertain to interest paid on housing loan for self-occupied house property, medical insurance premia, specified expenditure on disabled dependent, expenses for medical treatment for self or dependent or member of HUF (Hindu Undivided Family), deduction of interest on loans for higher studies and deduction to a person with disability.
The allocation for Defence has been raised in 2005-06 to Rs 83,000 crore compared to Rs 77,000 crore last year. He was happy that after a gap, defence expenditure in current fiscal had matched the budget estimates.
Mr Chidambaram wants to come forward with a “Fringe Benefits Tax” of 30 per cent on an “appropriate defined base” for many perquisites out of the tax net. At the same time, benefits fully attributable to the employee and taxed in the hands of the employee will continue.
While leaving the service tax rate unchanged at 10 per cent, some additional services — such as pipeline transport goods, site formation, membership fees of clubs and associations; packaging and specialised mailing services — would be brought under the tax net.
After succeeding with having gold flows through the official channels alone, the Finance Minister is seeking to introduce “gold units” and create a market for it. Sebi is being asked to permit in consultation with the RBI mutual funds to introduce Gold Exchange Traded Funds (GETFs) with the yellow metal as the underlying asset. This will enable any household to buy and sell gold in units for as little as Rs 100.
For domestic companies, the corporate income tax will be 30 per cent and a surcharge of 10 per cent. The rate of depreciation will be 15 per cent for general machinery and plant. However, the initial depreciation rate will be increased to 20 per cent.
Mr Chidambaram had no doubt that the corporate sector will find the proposed tax structure fair as it gives them 3 per cent relief in the tax rate, encourages new investment and ensures equity among all sections of their ilk.
Significantly, there were no changes in the tax regime applicable to the foreign companies.
A 50 paise additional cess on petrol and diesel has been levied which will be exclusively earmarked for the national highway development programme. Excise duty on some petroleum products, including motor spirit and diesel, reduced to 10 per cent from 15 and 20 per cent, respectively.
The Customs duty structure has been brought in line with that of East Asian countries. The peak rate for non-agricultural products is being reduced from 20 per cent to 15 per cent.
In providing fiscal backup for implementing the National Common Minimum Programme of the UPA government, Mr Chidambaram announced the creation of a non-lapsable fund for Sarva Shiksha Abhiyan as well as a Backward Regions Grant Fund with a corpus of Rs 5,000 crore. For the Sarva Shiksha Abhiyan, the allocation is to be increased to Rs 7,156 crore.
Even as a National Rural Health Mission will be launched, an allocation of Rs 11,000 crore has been made for the National Rural Employment Guarantee Scheme.
The coverage of the Antyodaya Anna Yojana is being extended to 2.5 crore families coupled with a new scheme for the development and strengthening of agricultural marketing infrastructure. Underlining the need to address the problems of farmers with a sense of urgency, he said the Ministry of Agriculture is preparing a roadmap for agricultural diversifaction focussing on fruits, vegetables, flowers, diary, poultry, fisheries, pulses and oilseeds.
A provision of Rs 50 crore has been made for operationalising the National Fund for Strategic Agricultural Research. Public and private investment will be enhanced for creating the infrastructure to support expansion, diversification and value addition.
In the pursuit of “Bharat Nirman” or providing a new deal for rural India, the minister maintained it is an achievable project by fully involving the Panchayati Raj institutions in the planning and implementation.
Mr Chidambaram said special Plan assistance is being provided to Jammu and Kashmir under a recently approved Reconstruction Plan in addition to the state Plan the size of which has been fixed at Rs 4,200 crore for 2005-06. The Baglihar project will be allocated adequate funds next year also.