Dr. Tejinder Singh Rawal
Economist and Chartered Accountant
The FM's plans to boost spending on irrigation and roll out more jobs and loans for farmers to spur the rural economy and lift farm sector growth to 4 percent are commendable steps. India's farm sector, which accounts for 16.3 percent of the country's GDP, grew at a sluggish 1.6 percent in the fiscal year to March 2009 against growth of more than 4.9 percent posted since 2005/06. The increased allocation of Rs.5,000 crores for railways, 23 percent for national highways, higher allocation for gas grid, Rs.7,000 crores for rural electrification and 87 percent increase in the Jawaharlal Nehru National Urban Renewal Mission should generate employment and serve as a growth stimulus. In a recessionary period increasing government spending is the right approach, however the in the scenario of high fiscal deficit the FM had a very limited elbow room which he has used to his advantage.
The urban middle class benefits to a great extent. The annual minimum amount not taxable has been marginally increased by Rs.10,000 i.e. from Rs 150,000 to Rs. 1,60,000. Corresponding for ladies this limit has increased from Rs 180,000 to Rs 190,000. For senior citizens, the amounts have increased by Rs 15,000 i.e. from Rs 225,000 to Rs 240,000. The good news is that 10% surcharge on income above Rs 10,00,000 has been removed, bringing the peak rate down to 30.9% against 33.99%
Increasing the advance tax payment limit from Rs 5000 to Rs 10000 should benefit small businesses. Taxpayers owning specified assets, get a relief as the wealth tax exemption limit of Rs 15,00,000 has been doubled to Rs 30,00,000 after a 17 year gap, which is a welcome move.
The proposal to cover all fields of studies including vocational studies pursued after schooling for the purpose of interest deduction is great step. The most welcome change is the complete removal of the Fringe Benefit Tax (FBT). As the FBT provisions were felt to be too onerous and generated a huge administrative burden on companies, there was a pressure to abolish the same.
It was good to leave corporate tax rate unchanged. At this stage a hike in taxes could derail the recovery process, while cutting it further would have meant higher fiscal imbalance. In any case, doing away with the much-hated Fringe Benefit Tax should bring cheers to the industry.
Any gift of a property in certain specified cases will also now attract income tax in the hands of the recipient. Earlier this was restricted only to cash sums.
The stock market reacted negatively since there was no big bang announcement. However, the FM has given enough hints in the speech that radical announcements like increased FDI limits and disinvestments are in the offing. It may take some time for the market to realise that the budget has been extremely market friendly.
