INDIAN BUDGET 2008-2009
Tuesday, March 4th, 2008Introduction
Major Highlights of budget 2008
Trade, Industry & Infrastructure
Financial sector highlights
Major sectors and Industries influenced on Budget
Small and medium IT enterprises (SMEs)
Corporate taxes & Tax payers
Social sector benefits
Conclusion
Introduction
India has emerged as the second fastest growing major economy in the world with its positive indicators such as a stable 8-9 per cent annual growth, rising foreign exchange reserves, a booming capital market and a rapid rise in FDI in the last year. India’s per capita income has increased at a rapid pace, from US$ 460 in 2000-01 to over US$ 1000 in 2007-08.
Union Finance Minister P Chidambaram revealed the much-awaited General Budget for the fiscal 2008-09 in the Parliament on 29 th Feb, 2008. Chidambaram presented his seventh full budget - two when the United Front government was in power and the remaining five under the United Progressive Alliance government. The Finance Minister presented the Budget against a backdrop of slowing expansion and creeping inflation, which has hit the poor hardest.
Major Highlights of budget 2008
The major highlights of budget 2008, revealed by Union Finance Minister P Chidambaram are:
▪ Tax exemption for women increased to Rs 1.8 lakh
▪ New tax slabs: 10 per cent for 1,50,000 to 3,00,000, 20 per cent for 3,00,000 to 5,00,000 and 30 per cent above 5,00,000
▪ Excise on packaged softwares to be lower from 8 per cent to 12 per cent
▪ No excise duty on refrigerating equipments
▪ Reduced excise duty on two, three wheelers
▪ Excise on small cars cut to 12 pct from 16 pct
▪ Defence allocation up by 10 per cent from Rs 96,000 cr to Rs 1,56,000 cr
▪ PAN sole identification in securities market
▪ Debt waiver scheme and relief to small and marginal farmers Rs 750 crore for upgradation of 300 ITIs in 25 districts.
▪ Custom duty on steel scrapped
▪ Set-top boxes to become cheaper
▪ Implementation of waiver to be completed by June 2008
▪ National Agri Insurance scheme get Rs 640 cr
▪ National Highway development program gets Rs 12,966 cr
▪ Rs 8,000 cr plan for faster power reforms
▪ National housing bank gets Rs 1,200 cr for refinancing
▪ Govt asks commercial banks to add 250 rural household accounts every year in rural and semi-urban banks
▪ States urged to open bidding for 5 more ultra mega power projects
▪ All 30 integrated textile parks approved
▪ Rs 340 cr insurance scheme to cover 17 lakh farmers and weavers
▪ Tea Research association gets Rs 20 cr
▪ Schedule Commercial Banks farm credit 75 per cent
▪ Micro irrigation scheme gets Rs 500 cr to cover 4,00,000 additional hectares
▪ 3 IITs to be set up in Bihar, AP, Rajasthan
▪ 288 public sector bank branches to be opened in areas with concentration of minorities
▪ IT industry gets Rs 100 cr for connecting knowledge institutions
▪ Health covers of Rs 30,000 for workers in unorganised sectors
▪ Agriculture credit to touch 2,40,000 cr in 2008
▪ Total agri production to be 219.32 million tonnes at all time high
▪ Focus on management of supply side of food, market, capital inflows next year
Trade, Industry & Infrastructure
Investment, Infrastructure, Industry and Trade
Saving rate and investment rate estimated to be 35.6 per cent and 36.3 per cent, respectively, by the end of 2007-08; between April- December 2007-2008. FDI amounted to US$ 12.7 billion and FII to US$ 18 billion.
Support to Central Public Sector Enterprises (CPSEs):
▪ Government to provide Rs.16,436 crore as equity support and Rs.3,003 crore as loans to CPSEs in 2008- 09;
▪ 44 CPSEs listed as on date;
▪ Government policy is to list more CPSEs in order to unlock their true value and improve corporate governance.
Rural Infrastructure Development Fund
Corpus of RIDF-XIV to be raised in 2008-09 to Rs.14,000 crore, with a separate window for rural roads.
Manufacturing Sector
Growth in capital goods still very high at 20.2 per cent. Goal to take manufacturing growth rate to double digit through more reforms.
Power
▪ Against Eleventh Plan target for additional power generation capacity of 78,577 MW Commercial Operation Date (COD) on about 10,000 MW to be achieved by end March 2008.
▪ Ultra Mega Power Project (UMPP): Fourth UMPP at Tilaiya to be awarded shortly; Chhattisgarh, Karnataka, Maharashtra, Orissa and Tamilnadu urged to bring five more UMPPs to the bidding stage by extending the required support.
▪ Rajiv Gandhi Grameen Vidyutikaran Yojana to be continued during the Eleventh Plan period with a capital subsidy of Rs.28,000 crore; allocation of Rs.5,500 crore for 2008-09.
▪ Accelerated Power Development and Reforms Project: Rs.800 crore to be provided in 2008-09, A National Fund for transmission and distribution reform to be created.
Roads
National Highway Development Programme (NHDP): Allocation for NHDP enhanced to Rs.12,966 crore in 2008-09 from Rs.10,867 crore in 2007-08; Completion rate in the Golden Quadrilateral is 96.48 per cent and in the North South, East West Corridor project is 23.36 per cent; Special attention being paid toSARDP-NE; programme devised for the North Eastern region; 180 kms of roads completed in 2007-08 and 300 kms. of road targetted for completion in 2008-09.
Oil and Gas
Seventh round of bidding under the New Exploration Licensing Policy; bids invited for 57 exploration blocks; estimated to attract investment of the order of US$3.5 billion to US$8 billion for exploration and discovery.
Coal
53 coal blocks with reserves of 13,842 million tonnes allotted during April-January 2007-08 to Government and private sector companies; new Coal Distribution Policy notified in October 2007; coal regulator to be appointed.
Information Technology
Allocation to the Department of Information Technology enhanced to Rs.1,680 crore in 2008-09 from Rs.1,500 crore in 2007-08; Two Schemes for establishing 100,000 broadband internet-enabled Common Service Centres in rural areas and
State Wide Area Networks (SWAN) with Central assistance under implementation; new scheme for State Data Centres also approved; Rs.75 crore provided for the common service centres; Rs.450 crore provided for SWAN and Rs.275 crore for the State Data Centres.
Textiles
Schemes for Integrated Textile Parks (SITP) and the Technology Upgradation Fund (TUF) to be continued in the Eleventh Plan period; Provision for SITP being maintained at Rs.450 crore in 2008-09; Provision for TUF to be increased to Rs.1,090 crore in 2008-09 from Rs.911 crore in 2007-08.
Handloom sector:
▪ 250 clusters being developed and 443 yarn banks established under the cluster approach to the development of the handloom sector;
▪ Over 17 lakh families of weavers to be covered under the health insurance scheme by March 2008;
▪ Allocation being increased to Rs.340 crore in 2008-09;
▪ Infrastructure and production being scaled up by taking up six centres for development as megaclusters;
▪ Varanasi and Sibsagar to be taken up for handlooms, Bhiwandi and Erode for powerlooms, and Narsapur and Moradabad for handicrafts;
▪ Each mega-cluster to require about Rs.70 crore;
▪ Initial provision of Rs.100 crore made in 2008-09.
Micro, Small and Medium Enterprises
A risk capital fund being created in the Small Industries and Development Bank of India (SIDBI); Credit Guarantee Trust with SIDBI had extended guarantees to 89,129 units for an amount of Rs.2,479 crore as on January 31, 2008; SIDBI to reduce the guarantee fee from 1.5 per cent to 1 per cent and the annual service fee from 0.75 per cent to 0.5 per cent for loans up to Rs.5 lakhs.
Foreign Trade
Relief given to exporters in three tranches amounting to over Rs.8,000 crore; Interest cost of sterilization through market stabilization bonds (MSS), which is in a sense, subsidy to the export sector, estimated at Rs.8,351 crore for the year 2007-08.
Financial sector highlights
Financial Inclusion
Two recommendations of the Committee on Financial Inclusion proposed to be accepted viz
(i) to advise commercial banks, including RRBs, to add at least 250 rural household accounts every year at each of their rural and semi-urban branches;
(ii) to allow individuals such as retired bank officers, ex-servicemen etc to be appointed as business facilitator or business correspondent or credit counselor; banks to be encouraged to embrace concept of Total Financial
Inclusion
Government to request all scheduled commercial banks to follow the example set by some public sector banks and meet the entire credit requirements of SHG members, namely, income generation activities, social needs like housing, education, marriage etc., and debt swapping.
(i) Fund of Rs.5,000 crore to be created in NABARD to enhance its refinance operations to short term cooperative credit institutions;
(ii) Two funds of Rs.2,000 crore each to be created in SIDBI - one for risk capital financing and other for enhancing refinance capability to the MSME sector.
(iii) Fund of Rs.1,200 crore to be created in NHB to enhance its refinance operations in the rural housing sector.
These funds are to be governed by the general guidelines that are now applicable to RIDF with some modifications.
Differential Rate of Interest (DRI) scheme:
Borrower’s eligibility criteria for loan under the DRI scheme to the weaker sections of the community engaged in gainful occupations enhanced.
Capital Markets
▪ Measures to expand the market for corporate bonds: Exchange-traded currency and interest rate futures to be launched and transparent credit derivatives market to be developed with appropriate safeguards; Tradability of domestic convertible bonds to be enhanced through the mechanism of enabling investors to separate the embedded equity option from the convertible bond, and trade it separately; Development of a market-based system for classifying financial instruments based on their complexity and implicit risks to be encouraged.
▪ Permanent Account Number (PAN): Requirement of PAN extended to all transactions in the financial market subject to suitable threshold exemption limits.
▪ National market for securities: Empowered Committee of State Finance Ministers to be requested to work with the Central Government to create pan Indian market for securities that will expand the market base and enhance the revenues of the State Governments.
TAX PROPOSALS
▪ Tax to GDP ratio that was 9.2 per cent in 2003-04, set to rise to 12.5 per cent at the end of 2007-08.
▪ Set to achieve the Budget Estimates of indirect taxes and exceed the Budget Estimates of direct taxes.
Indirect Taxes
Customs duties
▪ No change in the peak rate of customs duty.
▪ Customs duty on Project Imports to reduce from 7.5 per cent to 5 per cent; 4 per cent special CVD to be imposed on a few specified projects in the power sector.
▪ Customs duty being reduced on steel melting scrap and aluminium scrap from 5 per cent to nil.
▪ Customs duty to be reduced from 10 per cent to 5 per cent on certain specified life saving drugs and on the bulk drugs used for the manufacture of such drugs. They are also being exempted from excise duty or countervailing duty.
▪ Specified parts of set top boxes and specified raw materials for use in the IT /electronic hardware industry to be exempted from customs duty.
▪ Customs duty on convergence products to be reduced from 10 per cent to 5 per cent to establish parity between devices used in the information/ communication sector and the entertainment sector
▪ Customs duty removed on helicopter simulators to facilitate training of helicopter pilots
▪ Customs duty reduced on crude and unrefined sulphur from 5 per cent to 2 per cent, in order to support domestic fertiliser production.
Excise duty
▪ General CENVAT rate on all goods reduced from 16 per cent to 14 per cent to give a stimulus to the manufacturing sector.
▪ Excise duty on all goods produced in the pharmaceutical sector reduced from 16 per cent to 8 per cent.
▪ Excise duty reduced on buses and their chassis from 16 per cent to 12 per cent.
▪ Excise duty reduced on small cars from 16 per cent to 12 per cent and on hybrid cars from 24 per cent to the general revised rate of 14 per cent.
▪ Excise duty reduced on two wheelers and three wheelers from 16 per cent to 12 per cent.
▪ Excise duty rates on bulk cement and packaged cement brought on par; bulk cement to attract excise duty of Rs.400 per Metric Tonne or 14 per cent ad valorem, whichever is higher; cement clinkers excise duty at Rs.450 per Metric Tonne.
▪ Excise duty being increased on packaged software from 8 per cent to 12 per cent, bringing at par with customised software attracting a service tax of 12 per cent.
▪ Excise duty on both filter and non-filter cigarettes brought on par by applying higher rates on non-filter cigarettes.
Service tax
▪ Four services brought under service tax net namely,
1. asset management service provided under ULIP,
2. services provided by stock/commodity exchanges and clearing houses;
3. right to use goods, in cases where VAT is not payable;
4. customised software, to bring it on par with packaged software and other IT services.
▪ Threshold limit of exemption for small service providers increased from Rs.8 lakhs per year to Rs.10 lakh per year; about 65,000 small service providers go out of the tax net.
Direct Taxes
▪ Threshold limit of exemption from personal income tax in the case of all assesses increased to Rs.150,000. The slabs and rates of tax are :
– Up to Rs.150,000 NIL
– Rs.150,001 to Rs.300,000 10 per cent
– Rs.300,001 to Rs.500,000 20 per cent
– Rs.500,001 and above 30 per cent
▪ In case of a woman assessee, the threshold limit increased from Rs.145,000 to Rs.180,000; for a senior citizens, the threshold limit increased from Rs.195,000 to Rs.225,000.
▪ No change in the corporate income tax rates.
▪ No change in the rate of surcharge.
▪ Corporate debt instruments issued in demat form and listed on recognised stock exchanges exempted from TDS.
▪ Rate of tax on short term capital gains under Section 111A & Section 115AD increased to 15 per cent.
▪ Commodities Transaction Tax (CTT) to be introduced on the same lines as STT on options and futures.
▪ Banking Cash Transaction Tax (BCTT) being withdrawn with effect from April 1, 2009.
CST and a Roadmap towards GST
▪ Central Sales Tax rate being reduced from 3 per cent to 2 per cent from April 1, 2008.
▪ Roadmap for Goods and Service Tax being prepared for introduction of GST from April 1, 2010.
Major sectors and Industries influenced on Budget
Agricultural sector
The Union government is planning the largest farm-loan relief package in the country’s history totalling at least Rs 32,000 crore. The package, which could end up totalling as much as Rs 90,000 crore depending on the final shape of the proposals, is at the core of efforts by the ruling United Progressive Alliance (UPA), and its largest constituent the Congress, to revive agriculture — and hopefully ride back to power in elections due in about a year.
People familiar with the process of creating the package say it will have several components from a waiver of interest on some loans to the complete writing off of not just stressed assets but even those loans that have been rescheduled. As on March 30, 2007, the exposure of commercial banks to the agriculture sector was Rs 230,180 crore. The total value of agricultural loans could be to the tune of Rs 362,000 crore, including loans of cooperative banks and regional rural banks (RRBs).
The UPA came to power in 2004 riding a promise of a “new deal for rural India” by increasing investment in agriculture and stepping up credit flow to farmers. Commercial banks have non-performing agricultural loans of more than Rs 7,500 crore. However, cooperative banks and RRBs, major dispensers of farm loans, have larger non-performing assets (NPAs) related to agriculture. Industry estimates put overall NPAs in the sector at around Rs 31,000 crore. And at least another Rs 30,000 crore worth of farm loans have been rescheduled thus far under various schemes.
Loans that have not turned into NPAs but are “overdue” for repayment add up to another Rs 40,000 crore. The government plans to address this chunk of more than Rs1 trillion of farm loans through its relief package. The package is being put together by officials from the ministries of finance and agriculture, the banking regulator, Reserve Bank of India (RBI), and the apex agricultural bank National Bank for Agriculture and Rural Development (Nabard), but none of them is willing to go on record with the details given the sensitivity of the subject.
Any package aimed at the agriculture sector has significant political ramifications, especially given that the UPA government could choose to go to the polls before the end of its five-year term. That means, Budget 2008-09 could well be this government’s last. The previous government, the BJP-led NDA lost the last elections after running a high voltage “India Shining” campaign that backfired in rural India.
Currently, farmers get small loans up to Rs 2 lakh at a concessional rate of 7 per cent but government offers 2 per cent subsidy on such loans to banks through RBI. This is not the first time the government has made out concessions to farmers in the budget but what makes the planned package unique is its magnitude.
Finance Minister P Chidambaram announced a Rs 60,000 crore relief package for farmers, including complete waiver of loans given to small and marginal farmers.Presenting his fifth Budget and the last one before the general elections, Chidambaram announced waiver of Rs 50,000 crore worth of loans to small and marginal farmers and a settlement scheme for other farmers that would cost the exchequer another Rs 10,000 crore.
Relief package for farmers
In July 2006, Prime Minister Manmohan Singh announced a relief package for distressed farmers in 31 districts across Andhra Pradesh (16 districts), Karnataka (6 districts), Kerala (3 districts) and Maharashtra (6 districts). The package was worth Rs 16,978.69 crore - Rs 10,579.43 crore as subsidy and Rs 6399.26 crore as loan. The critical component of the package was the waiver of interest on overdue loans up to July 2006 to the tune of Rs 2,718 crore. This was shared equally between the Centre and states.
The government also rescheduled overdue loans to the tune of Rs 9,052 crore over three to five years with a one-year moratorium. And commercial banks committed fresh credit commitments over Rs 20,000 crore to these affected districts. “The first installment of loans rescheduled in 2004 and 2006 would be due by the end of the current fiscal year after the moratorium period is over but the farmers are in no position to pay,” said an agricultural banker.
The government’s concern over farm loans is understandable in the context of a sharp decline in the share of agriculture in India’s GDP, from 41% in 1971-72 to 19.6% in 2005-06 and an estimated 18.5% in 2006-07 and 17.47% in 2007-08. However, in terms of employment, agriculture’s share has declined, but much more gradually, from 73.9% in 1972-73 to 56.6% in 2004-05.
Finance Minister P Chidambaram on 29 th Feb, 2008 announced a Rs 60,000 crore relief package for farmers, including complete waiver of loans given to small and marginal farmers.Presenting his fifth Budget and the last one before the general elections, Chidambaram announced waiver of Rs 50,000 crore worth of loans to small and marginal farmers and a settlement scheme for other farmers that would cost the exchequer another Rs 10,000 crore.
Defence Sector
India’s defence spending is likely to rise by between 8 and 10 per cent in this year’s Budget, not enough to please the armed forces, but enough for a gradual modernisation of the world’s fourth-largest military force. India is emerging as one of the world’s biggest arms buyers, and is planning one of its biggest ever arms purchases, a $10 billion deal to buy 126 fighter jets. US Defense Secretary Robert Gates is in India this week trying to push American bids for that deal.
India raised its defence budget by 7.8 per cent to $22 billion for the year ending March 2008 as part of plans to modernise its 1.3-million-strong military. But it failed to spend around 70 per cent of its $10 billion allocation for capital outlay because of red tape.
India spends around less than 2.5 per cent of its gross domestic product (GDP) on its military, a smaller percentage than is believed spent by rivals China and Pakistan. Although there has been a critical need to augment inventory, modernisation efforts have not been sustained.
In the past year India has cleared a few pending arms deals, buying 347 T-90s tanks from Russia and six C-130J military transport planes from the US firm Lockheed Martin. It also inducted eight British advanced jet trainers into its air force, almost 27 years after it began negotiating the deal. Looking ahead, it plans to spend $30 billion on imports over the next four years to modernise its largely Soviet-era arms.
To overhaul its inventory of ageing fighter aircraft, it wants to buy the 126 new multi-role jets, with the $10 billion outlay likely to be spread over several years. It also wants to arm its navy with long-range maritime reconnaissance aircraft and add more missiles and artillery to its army.
Gem and jewellery sector
The gem and jewellery industry was disappointed with the union budget, saying it would not bring relief to the industry, which is saddled by rupee appreciation. Finance Minister P Chidambaram’s decision to reduce duty on zircons and corals, and halve duty to five per cent on polished cubic zirconia and rough coral would not provide the much-needed boost to the industry.
Mehul Choksi, chairman of Gitanjali Gems Ltd said, that the industry wanted the duty removed on polished coloured gem stones and duty cut on plain gold jewellery below 18 carat. The duty reductions would benefit employment and trading. Sanjay Kothari, chairman, The Gem and Jewellery Export Promotion Council, said that the budget is not going to give a boost to the industry. The industry had greater expectations.
Education Sector
With 11th Five Year plan giving special focus on education, government has alloted over Rs 38,702 crore to the sector in the Union Budget 2008-09, showing a massive increase of over Rs 9,000 crore. A sum of Rs 27,850 crore has been provided for school education as compared to last year’s revised estimate of Rs 23,191.35 crore.
The Mid-day Meal Scheme which would receive Rs 8,000 crore would be extended to all children upto upper primary level (from class I to VIII) in all areas across the country. Allocation for the secondary education has been doubled with Rs 5,139.70 crore in 2008-09 as against Rs 2,465.18 crore last year.
With government proposing to set up high quality model schools, a sum of Rs 582.80 crore has been earmarked for this purpose during the year. Prime Minister Manmohan Singh in his Independence Day address last year had announced setting up of 6,000 new High Quality schools - one in every block of the country.
Tea industry
The mega tea industry in Assam, expressed its satisfaction over the allocations in the union budget for tea research and boosting production. Debeswar Bora of the Assam Tea Planters’ Association (ATPA) said that they are happy as the central government has decided to lay stress on research and development in the tea sector and also earmarked funds for revamping tea bushes and improve overall productivity.
The 2008-09 budget has allocated Rs 400 million ($10 million) for Special Purpose Tea Fund and Rs 200 million ($5 million) for tea research.Assam contributes over 50 per cent of India’s total tea production of 900 million kg per year. The state has over 800 tea plantations.
Textile industry
The textile industry has expressed disappointment at the Union Budget presented, as it was expecting reduction of customs and excise duties on fibres and capital goods, the Confederation of Indian Textile Industry (CITI) said here.
PD Patodia, CITU Chairman said the country’s most labour intensive sector was facing a severe financial crisis and that the cut in duties would have helped in reviving the industry. He said the sector has been going down with each passing day following the rupee appreciation and escalation of interest rates which are the direct results of government policies.
Referring to the allocation of Rs 10.9 billion for Technology Upgradation Fund Scheme (TUFS), Patodia said that this amount will not be sufficient even to service the existing TUFS loans. And in fact, there is a backlog of over Rs.6 billion from the year 2007-08 and the requirements for 2008-09 against existing loans will amount to another Rs 11 billion. Currently, there is a delay of nearly one year in disbursement of TUFS loans and with the small allocation made in the Budget for next year, the delay will only increase in the coming months.
Small and medium IT enterprises (SMEs)
Small and medium IT enterprises here are disappointed with the 2008-09 budget presented by Finance Minister P Chidambaram. The small and medium enterprises (SMEs) were expecting that the software technology park of India (STPI) scheme, which has been offering them various exemptions including 10-year income tax exemption for exports, would be extended beyond 2009.
The big IT companies are moving to SEZs to avail the various tax exemptions being offered by SEZs. Non-extension of STPI scheme may hit 3,000 SMEs in Hyderabad alone. These units, with a turnover of less than Rs.10 million each, employ over 50,000 people. Hyderabad Software Exporters’ Association (Hysea) feel that the SMEs would be badly hit as they spend 55 percent of their revenues on salaries. If the concessions are withdrawn, many units might be forced to shut down the operations.
Sagar, former president of Hysea, said the industry was expecting that the budget would remove the sunset clause under Section 10B of the Income Tax Act, under which no income tax exemption would be available for the exports by the 100 percent export-oriented units after March 2009.
Corporate taxes & Tax payers
Corporate taxes
Corporate taxes will contribute a whopping 24 percent of the government’s annual Budget of Rs.750,884 crore (over Rs.7.5 trillion) for 2008-09 that Finance Minister P. Chidambaram presented in the Lok Sabha .There is a remarkable increase in the plan expenditure to create assets. In the next fiscal, the government will spend Rs.243,386 crore under the plan head against the revised Rs.207,524 crore in 2007-08.
Finance Minister Chidambaram in his budget speech said that the fiscal position of the country had tremendously improved. The revenue deficit for the current year will be 1.4 percent against the budget estimate of 1.5 percent, and the fiscal deficit will be 3.1 percent against the budget estimate of 3.3 percent.
As much as 43 percent contributions to the state coffer come from income, excise and customs taxes, accounting respectively for 15, 13 and 15 percent. Service and other taxes will contribute seven percent. All taxes together account for 74 per cent of the country’s total budget, with the rest coming from borrowings, non-tax, non-debt capital and other liabilities. The non-tax revenues make only 10 percent of the total budget amount.
In 2008-09, the government intends to receive Rs.602,935 crore from the taxes, while the capital receipts would generate Rs.147,949 crore compared to the revised Rs.184,275 in 2007-08. The states’ share of taxes and duties claim 19 percent of the budget funds, followed by defence that gets 11 percent of the total funds.
Compared to the current fiscal year, there is a slight increase in non-plan expenditure in the next fiscal, estimated to be Rs.507,498 crore. It was Rs.501,849 crore in 2007-08. The non-plan expenditures take care of maintenance and other in-built expenses involving salaries and other costs. Chidambaram said that revenue deficit in 2008-09 is estimated to be one percent of the gross domestic product, while the fiscal deficit of 2.5 percent at Rs.133,287 crore.
Tax payers
The working class people will stand to benefit by up to Rs 44,000 a year in income tax following the changes proposed by the Finance Minister in the Union Budget for 2008-09, which also provides for a minimum benefit of Rs 4,000. While raising the income tax exemption limit to Rs 1.5 lakh from 1.1 lakh, Finance Minister P Chidamabaram also provided for lower tax rates for income up to Rs 5 lakh.
Earlier, the minimum exemption limit stood at Rs 1.1 lakh for all classes of individuals. For women, the exemption limit has been raised to 1.8 lakh from 1.45 lakh previously, while for senior citizens it has been hiked from Rs 1.95 lakh to Rs 2.25 lakh.
For an income of Rs 10 lakh a year, an individual would have to pay a tax of Rs 2,05,000, as against Rs 2,49,000 under the previous tax structure. For women assessees, a similar income would attract a tax of Rs 2,02,000 under the new regime, down from Rs 2,45,500 previously, while the tax for senior citizens would drop to Rs 1,97,500 from Rs 2,36,000 earlier.
According to the proposals, income between Rs 1.5-3 lakh will be taxed at 10 per cent, between Rs 3-5 lakh at 20 per cent, while for Rs 5-10 lakh it would be 30 per cent. Based on this structure, an individual having an income of Rs 10 lakh would pay no tax on income up to Rs 1.5 lakh, Rs 15,000 between Rs 1.5 lakh to Rs 3 lakh, Rs 40,000 between Rs 3-5 lakh and Rs 1,50,000 between Rs 5-10 lakh. Previously, the tax amounts for these four slabs were Rs 4,000, Rs 35,000, Rs 60,000 and Rs 1,50,000 respectively.
Social sector benefits
The government has pegged the annual plan outlay for 2008-09 at Rs 3.76 lakh crores, with social sector getting a maximum allocation of Rs 95,919 crore. The central plan outlay has been increased from Rs 2.92 lakh crore in revised estimates (RE) for the current fiscal to Rs 3.76 lakh crore in 2008-09, representing an increase of about 29 per cent. The allocation for social services has been stepped up from Rs 75,162 crore (RE 2007-08) to Rs 95,919 crore, showing a growth of about 28 per cent.
Among other important sectors, the outlay for energy sector has been raised from Rs 72,230 crore to Rs 93,815 crore, while for the transport sector it has been increased from Rs 84,177 crore from Rs 68,930 crore. For rural development, the outlay has been raised to Rs 23,831 crore from Rs 21,147 crore, while for the industry and minerals segment it would be Rs 28,836 crore, up from Rs 17,953 crore. The budgetary support for the central plan outlay has been fixed at Rs 1.80 lakh crore, up from Rs 1.49 crore in the revised estimates.
The internal and external budgetary resources (IEBR) target for 2008-09 has been significantly stepped to Rs 2.00 lakh crore from Rs 1.44 lakh crore, putting much greater onus on public sector enterprises to fund the central plan. The central plan outlay for current fiscal will fall short of the budget estimates by around Rs 28,000 crore. According to the budget documents, the central plan outlay in RE has been estimated at Rs 2.92 lakh crore, much below the budget estimate of Rs 3.20 lakh crore.
Conclusion
With an eye on election and last full budget in the office, finance minister P Chidambaram is expected to cheer all around with Budget 2008-2009. It has helped to raise the exemption limit for income tax and increase in the amount of savings one can make to qualify for tax breaks. It also look into providing options of wider range of tax-free instruments for investments and a reorder in tax slabs.