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Financial Bill, 2006-2007...Government of India

The following are the proposals announced by Union Finance Minister of India, in the Parliament on 28th Feb. 2006. Changes in Fringe Benefit Tax...as compare to Financial Bill, 2005-2006

Fringe Benefit Tax introduced last year as a revenue raising measure; justified on the principles of horizontal equity and vertical equity; on review, following changes being proposed:

B)Value the benefit in the form of 'tour and travel' at 5 per cent instead of 20 per cent;

C)Value benefit in the form of 'hospitality' and 'use of hotel boarding and lodging facilities', in case of airline companies and shipping industry, at 5 per cent instead of 20 per cent;

D)Exclude expenses on free samples of medicines and of medical equipment distributed to doctors;

E)Exclude expenses incurred on brand ambassador and celebrity endorsement; and

F)Prescribe a threshold of Rs 100,000 under section 115WB(1)(c) so that only a contribution by an employer to an approved superannuation fund in excess of Rs 100,000 per year per employee to attract FBT.

G)Under section 80C there is already exemption up to Rs 100,000 for contribution by an employee to an approved superannuation fund.

H)Effective FBT rate on hospitality reduced to 1.68% from 6.73%.

I)Free sample exclusion from FBT to benefit pharma companies.

Proposals on Direct (Income) -Tax

A)No changes in the rates of personal income tax, which will remain as they are currently.

B)No change in corporate income tax rate.

C)No new taxes on income.

D)One by six scheme for filing of income tax returns has been abolished.

E)Services tax net to be increased which include ATM operations, maintenance and management, share transfers, registration, international air travel excluding economy class, sponsorship other sports events, auctioneers, ship management and travel on cruise.

F)25 per cent across the board increase in securities transaction tax.

G)Cooperative lending banks and rural development banks to be exempted from taxes under Section 80(B).

H)Fixed deposits in scheduled commercial banks with at least five year maturity will get tax exemption for savings under section 80C of Income Tax Act.

I)The Rs 10,000 exemption limit for investment in pension funds under Section 80CCC has been removed but these investments would be brought under Sec.80C subject to a ceiling of Rs 1 lakh.

J)Donations to only religious institutions will be exempted from tax.

K)Minimum alternative tax on corporates increased from 7.5 per cent to 10 per cent.

L)More transactions to come under PAN.

M)Constituency allowances of MLAs to be treated as constituency allowances of MPs for income tax purposes.

N)Banking cash transaction tax introduced last year will continue.

O)Fringe Benefit Tax modified. Threshold limits raised, but FBT will remain as it is justified for ensuring horizontal equity.

P)Minimum alternative tax on corporates increased from 7.5 per cent to 10 per cent.

Proposals on Indirect -Tax

A)Excise duty on cigarettes increased by five per cent.

B)Many tax exemptions in customs and excise to be removed barring SSI.

C)April 1,2010 has been fixed as the date for introduction of goods and services tax.

D)Peak customs duty for non agriculture products reduced from 15 to 12.5 per cent.

E)Customs Duty on primary and non-primary steel and alloy products reduced from 10 per cent to 7.5 per cent.

F)Duties on mineral products reduced from 15 to five per cent, barring some items.

G)Duty on ores and concentrates reduced from five to two per cent.

H)Duty on refractories reduced to 7.5 per cent.

I)Customs duty reduced on ten anti-AIDS drugs and 14 anti-cancer drugs to five per cent.

J)Customs duty on packaging machines reduced from 15 per cent to five per cent.

K)Four per cent countervailing duty on all imports to be levied with few exceptions.

L)Customs duty on bulk plastics reduced from 10 per cent to five per cent.

M)To protect vanaspati industry, customs duty to be increased to 80 per cent on its imports.

N)Import duty on all man made fiber has been reduced from 15 per cent to 10 per cent.

O)Excise duties on man-made fibers and filament yarn reduced from 16 per cent to eight 8 per cent, since it provides growth and employment.

P)Eight per cent special additional duty on aerated soft drinks and small cars withdrawn and they will attract only 16 per cent CENVAT excise duty instead of 24 per cent earlier.

Q)Reduction of duty on footwear priced between Rs 250 and Rs 750 from 16 per cent to eight per cent.

R)Duty on specialized writing paper reduced form 16 to 12 per cent.

S)Excise duty on compact fluorescent lamps reduced from 16 to eight per cent.

T)Cess on domestically produced petroleum crude has been raised from Rs.1800 per tonne to Rs.2500 per tonne but the entire amount to be absorbed by oil producing companies

Other Highlights of General Budgets...Others Proposals

1.The defence budget raised to Rs 89,000 crore (Rs 890 billion) in 2006-07 from Rs 83,000 crore (Rs 830 billion) in the current year. Of this Rs 37,458 crore (Rs 374.58 billion) would be capital expenditure.

2.Rs 100 crore special grant for Punjab Agricultural University as a centre of excellence for its commendable work in agricultural research.

3.500 ITIs to be upgraded in five years. Work has already started in 100 ITIs and would be taken up in the remaining 400 institutes soon. Rs 97 crore (Rs 970 million) allocated in 2006-07.

4.Special assistance of Rs 848 crore (Rs 8.48 billion) for Jammu and Kashmir for its reconstruction fund, including Rs 230 crore (Rs 2.30 billion) for Baglihar project. This will be in addition to 2006-07 state plan of Rs 2,300 crore (Rs 23 billion).

5.Rs 10 crore (Rs 100 million) allocated for preparatory work for celebrating the 150th anniversary of the First War of Independence of 1857 in a befitting manner.

6.To safeguard old art forms, Vedic chanting and Ram Lila have been declared UNESCO heritage and will be granted Rs 5 crore (Rs 50 million).

7.Comprehensive Insurance Regulatory and Development Authority bill to be introduced in 2006-07 incorporating the recommendations of K P Narasimhan Committee on insurance sector revamp. The committee has already submitted its report to government and IRDA is studying its recommendations.

8.An Investors Protection Fund will be set up and funded by fines and penalties to safeguard the interests of retail investors.

9.FII investment limit in stock markets will be raised from $1.75 billion to $2 billion to deepen, strengthen and broaden the market.

10.Raise in the aggregate investment of overseas investors from $1 billion to $2 billion is proposed.

11.An investment protection fund under the aegis of SEBI would be set up.

12.Rs 50 cr (Rs 500 million) for Mumbai, Kolkata, Chennai varsities.

13.Eighty two power projects are in various stages of implementation in the country to overcome power shortage. This when completed in 1 to 3 years will generate 33,000 mws of power in PSUs and 6500 mws in private sector. Of this, 15,000 mw of power generation is to be installed by March 2007.

14.Five mega power projects of Rs 4000 crore (Rs 40 billion) each is to be set up for which clearance is to be given by March 31, 2006. Of this, one each will come in Chhattisgarh and MP. The remaining three will be in coastal areas of Maharashtra, Karnataka and Gujarat.

15.NHAI to be reconstituted to make it more effective.

16.A new deep draft port to be set up in West Bengal. A study is to be conducted.

17.The National Institute of Port Management in Chennai to be renamed as National Maritime Academy and converted into a Central University with branches in Mumbai, Viskhapatnam and Kolkata.

18.Old age pension to be increased to Rs 200 per month for above 75 years of age.

19.Allocation for it put at Rs 1430 crore (Rs 14.3 billion) from the Centre and the state government to provide matching contribution.

20.Rajiv Gandhi drinking water program to get Rs 4680 crore (Rs 46.8 billion) next year as against Rs 3645 crore this year.

21.National Health Mission allocation increased to Rs 8207 crore (Rs 82.07 billion) in next fiscal from Rs 6,553 crore (Rs 65.53 billion) this year.

22.Government plans to eradicate polio by December 2007, Chidambaram said.

23.The Finance Minister said that Rs 14,300 crore (Rs 143 billion) for rural employment program would be scheduled during 2006-07, out of which Rs 11,300 crore (Rs 113 billion) for NREG program and Rs 3,000 crore (Rs 30 billion) for SGRY.

24.New towns to be established on specific themes.

25.For gender budgeting under various heads, Rs 28,737 crore (Rs 297.37 billion) has been allocated.

26.Special schemes to be announced for STs and SCs for their development.

27.India to be made a manufacturing hub for textiles, steel, metals and petroleum products.

28.Maulana Azad Educational Foundation corpus doubled to Rs 200 crore (Rs 2 billion) for greater financial support to organizations involved in minority welfare.

29.Allocation for national Urdu education program increased to Rs 13 crore (Rs 130 million) from Rs 10 crore (Rs 100 million) this year.

30.One thousand schools for girls of SCs, STs, OBCs and minorities to be set up.

31.A girl child will get Rs 3,000 deposited in a bank account after she enrolls for eighth class examination and the amount would be given when she becomes a major.

32.Separate window for tenant farmers to ensure loan share. Agri credit proposed to be increased to Rs 175,000 crore (Rs 1750 billion) next year as against Rs 1,41,500 crore (Rs 1415 billion), covering additional 50 lakh farmers.

33.Farmers to receive short term credit at 7 per cent.

34.Budgetary loan for PSEs has been fixed at Rs 16901 crore (Rs 169.01 billion) including Rs 2791 crore ( Rs 27.91 billion) for Railways.

35.Ninety-six per cent of the golden quadrilateral would be completed by June 2006 and the corridor would be completed by the end of 2008.

36.Six lakh hectares of irrigation potential expected to be created this year. Rupees nine hundred and forty-four crore (Rs 9.44 billion) released this year under the Accelerated Irrigated Benefit Program.

37.Allocation on education increased by 31.5 per cent to over Rs 24,150 crore (Rs 241.5 billion) and that for healthcare raised by 22 per cent to Rs 12, 546 crore (Rs 125.46 billion).

38.Entire Rs 1,100 crore (Rs 11 billion) for rural electrification released this year and 10,366 villages to be electrified.

39.Five lakh additional class rooms to be constructed and 150,000 additional teachers to be appointed.

40.Larger budgetary support will be given to Bharat Nirmal Programme: Rs 18696 crore (Rs 186.96 billion) to be given which represents a hike of 54 per cent.

41.Total budget for north-eastern region will be Rs 12,041 crore (Rs 120.41billion) including Rs 1,350 crore (Rs 13.5 billion) for the ministry of north-east development.

42.A massive immunization program will be launched to eradicate polio completely by 2007.

43.Allocation for mid-day meal scheme to be enhanced to Rs 4813 crore (Rs 48.13 billion) next fiscal as against Rs 3014 crore (Rs 30.14 billion) this year.

44.Gross budgetary support for annual plan expenditure has been raised to Rs 1,74,725 crore (Rs 1747.25 billion) for 2006-07 as against Rs 1,43,497 crore (Rs 1434.97 billion), an increase of 20.4 per cent.

45.Likewise for the central plan increased to Rs 1,31,285 crore (Rs 1312.85 billion) next fiscal.

46.Eight flagship program of the UPA including Sarva Shiksha Abhiyan and Mid-Day Meal Scheme will get a total allocation of Rs 60,015 crore (Rs 600.15 billion) in 2006-07 as against Rs 34,927 crore (Rs 349.27 billion) in the current year.

47.Metro in Hyderabad to be considered.

48.Old age pension to be increased to Rs 200 per month for above 75 years of age.

49.Allocation for it put at Rs 1430 crore (Rs 14.3 billion) from the Centre and the state government to provide matching contribution.

50.Rajiv Gandhi drinking water programme to get Rs 4680 crore (Rs 46.8 billion) next year as against Rs 3645 crore this year.

51.National Health Mission allocation increased to Rs 8207 crore (Rs 82.07 billion) in next fiscal from Rs 6,553 crore (Rs 65.53 billion) this year.

52.Government plans to eradicate polio by December 2007, Chidambaram said.

53.The Finance Minister said that Rs 14,300 crore (Rs 143 billion) for rural employment programme would be scheduled during 2006-07, out of which Rs 11,300 crore (Rs 113 billion) for NREG programme and Rs 3,000 crore (Rs 30 billion) for SGRY.

54.New towns to be established on specific themes.

55.For gender budgeting under various heads, Rs 28,737 crore (Rs 297.37 billion) has been allocated.

56.Special schemes to be announced for STs and SCs for their development.

57.India to be made a manufacturing hub for textiles, steel, metals and petroleum products.

58.Maulana Azad Educational Foundation corpus doubled to Rs 200 crore (Rs 2 billion) for greater financial support to organizations involved in minority welfare.

59.Allocation for national Urdu education programme increased to Rs 13 crore (Rs 130 million) from Rs 10 crore (Rs 100 million) this year.

60.One thousand schools for girls of SCs, STs, OBCs and minorities to be set up.

61.A girl child will get Rs 3,000 deposited in a bank account after she enrolls for eighth class examination and the amount would be given when she becomes a major.

62.Separate window for tenant farmers to ensure loan share. Agri credit proposed to be increased to Rs 175,000 crore (Rs 1750 billion) next year as against Rs 1,41,500 crore (Rs 1415 billion), covering additional 50 lakh farmers.

63.Farmers to receive short term credit at 7 per cent.

64.Budgetary loan for PSEs has been fixed at Rs 16901 crore (Rs 169.01 billion) including Rs 2791 crore ( Rs 27.91 billion) for Railways.

What they have to say about the Financial Bill, 2006-2007

Saroj K Poddar, President, FICCI: The most significant points in the Budget are the enhanced allocations for infrastructure like roads. I am sure this will drive growth. We are also glad that Finance Minister P Chidambaram has announced a series of incentives in the agriculture sector. He has made good allocation for agriculture. This will increase agricultural output and it will in turn help develop the rural areas.

One area of concern in the Budget is power generation. The finance minister has now announced five new power projects, and we hope these new projects will accelerate growth in the industrial sector. But our concern is whether the power projects will be executed on time.

It is also great that Chidambaram has not touched income tax rates. I believe reducing the excise tax rates will lead to more manufacturing. The finance minister's idea to introduce goods and services tax by 2010 is a good move forward.

R Seshasayee, Vice President, CII: I feel overall the Budget is good. The good news is that we must celebrate the tax-GDP ratio of 10 per cent. It proves our economy has arrived. The disappointing factor is the continuation of bank withdrawal tax. Another good thing about the Budget is that it continues to put emphasis on education. The overall approach is good for economy and country if we continue to pay more attention on education.

The above mentioned proposals are as presented by Union Finance Minister of India Mr. P. Chidambaram in Parliament on 28th Feb. 2006. These proposals are debatable and subject to change.

Compiled and prepared by: Sanjeev Sharma (Himachali)
Chandigarh-India
(Mobile: +91-9876328841)
(E-mail: ss_himachali@yahoomail.com; sanjeev.himachali@gmail.com)
(Blog: http://sanjeevhimachali.blogspot.com)