Budget 2009-10: IT exemption limit increased, corporate tax rate unchanged

With a view to providing interim relief to small and marginal taxpayers and senior citizens, the budget 2009-10 has increased theBudgetpersonal income tax exemption limit by Rs 15,000 from Rs 2.25 lakh to Rs 2.40 lakh for senior citizens. Similarly it has aslo raised the exemption limit by Rs 10,000 from Rs 1.80 lakh to Rs 1.90 lakh for women tax payers and by Rs 10,000 from Rs 1.50 lakh to Rs 1.60 lakh for all other categories of individual taxpayers.

Further, it has also increased the deduction under section 80-DD in respect of maintenance, including medical treatment, of a dependent who is a person with severe disability to Rs 1 lakh from the present limit of Rs 75,000.In the past, surcharges on direct taxes have generally been levied to meet the revenue needs arising from natural calamities.

The Government has set up the National Calamity Contingency Fund to build up resources to meet emergency situations. As a corollary, surcharge on direct taxes should be removed. However, this has to be balanced with the revenue needs of the Government. Therefore, the budget has phased out the surcharge on various direct taxes by eliminating the surcharge of 10 per cent on personal income tax. There is no change in corporate taxation.

Deduction in respect of export profits is available under sections 10A and 10B of the Income-tax Act. The deduction under these sections would not be available beyond the financial year 2009-2010. In order to tide over the slowdown in exports, I propose to extend the sun-set clauses for these tax holidays by one more year i.e. for the financial year 2010-11.

The budget has aslo abolished the Fringe Benefit Tax that wa sintroduced in the Finance Act, 2005 on the value of certain fringe benefits provided by employers to their employees.The budget has also extended the scope of the current provision of weighted deduction of 150% on expenditure incurred on in-house R&D to all manufacturing businesses except for a small negative list.

The budget has extended investment-linked tax incentives to the businesses of setting up and operating ‘cold chain’, warehousing facilities for storing agricultural produce and the business of laying and operating cross country natural gas or crude or petroleum oil pipeline network for distribution on common carrier principle.

Under this method, all capital expenditure, other than expenditure on land, goodwill and financial instruments will be fully allowable as deduction.Further, the period allowed to carry forward the tax credit under Minimum Alternate Tax (MAT) has been extended from seven years to ten years. It has also exempted the income of the NPS Trust from income tax and any dividend paid to this Trust from Dividend Distribution Tax.

Similarly, all purchase and sale of equity shares and derivatives by the NPS Trust will also be exempt from the Securities Transaction Tax. Commodity Transaction Tax (CTT)introduced in The Finance Act, 2008 to be levied on taxable commodities transactions entered in a recognized association has been abolished.

To facilitate the business operations of all small taxpayers and reduce their compliance burden, the budget has proposed to expand the scope of presumptive taxation to all small businesses with a turnover upto Rs.40 lakh. All such taxpayers will have the option to declare their income from business at the rate of 8 per cent of their turnover and simultaneously enjoy exemption from the compliance burden of maintaining books of accounts.

As a procedural simplification, they can also pay their entire tax liability from business at the time of filing their return by exempting them from paying advance tax. This new scheme will come into effect from the financial year 2010-11.It has extended the tax holiday under section 80-IB(9) of the Income Tax Act, which was hitherto available in respect of profits arising from the commercial production or refining of mineral oil, also to natural gas.

This tax benefit will be available to undertakings in respect of profits derived from the commercial production of mineral oil and natural gas from oil and gas blocks which are awarded under the New Exploration Licensing Policy-VIII round of bidding. Further, it has retrospectively amend the provisions of the said section to provide that “undertaking” for the purposes of section 80-IB(9) will mean all blocks awarded in any single contract.

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Pranab Mukherjee, Finance Minister again present Budget 2009-10

• He's the first finance minister to present Budgets on either side of an election and the first to do so after a quarter-century gap.
• When finance minister Pranab Mukherjee rises in the Lok Sabha on Monday to present the Union Budget for 2009-10, he would have earned a unique distinction.
• No other finance minister in independent India has presented an interim Budget before the elections and then followed that up with a regular Budget for the same year after being voted back to power.
• His prime minister, Manmohan Singh (finance minister from 1991 to 1996), presented the Interim Budget for 1996-97 before the polls, but the Congress lost the general elections held in April-May 1996.
• Palaniappan Chidambaram became the finance minister under the United Front government and presented the regular Budget in July 1996. Yashwant Sinha faced a similar fate.
• As finance minister in the Chandra Shekhar government, he presented the Interim Budget for 1991-92, but his party lost the elections, paving the way for the P V Narasimha Rao government.
• Jaswant Singh also presented the Interim Budget for 2004-05, but the National Democratic Alliance did not return to power after the elections.
• It was Chidambaram, this time under the United Progressive Alliance, who presented the regular Budget for 2004-05.
• There have been nine more Interim Budgets since independence. However, none of these was presented before the elections.
• In fact, the timing of the elections was such that there was no need for an interim Budget before the country went to the polls.
• After the formation of the new government in each of these cases, the finance minister first presented an interim Budget because he needed more time to prepare a regular Budget a few weeks later.
• Mukherjee's other distinction on Monday will be that no other finance minister has presented two Budgets with as large a gap between them as 25 years.
• His last three Budgets were presented between 1982 and 1984.
• Apart from the tinkering with tax rates through exemptions and concessions and placing greater reliance on indirect taxes to raise resources (see table), those Budgets will also be remembered for the economic policy mindset that prevailed during the 1980s.
• His first Budget referred to the government's rationale for seeking recourse to an SDR 5 billion loan from the International Monetary Fund under its extended fund facility.
• The Indira Gandhi government was under attack for seeking the IMF loan that its opponents feared would jeopardise India's economic sovereignty.
• In a bid to assuage such sentiments, Mukherjee said in his Budget speech that the loan 'will help us implement our own policies, which have been sanctioned and approved by our people and Parliament'.
• In his third Budget in 1984, Mukherjee referred to the IMF loan again. But this time he talked about the government's decision to return the last tranche of the loan.
• In a triumphant tone, Mukherjee said, "Belying the prophecies of doom by many a self-styled Cassandra, the economy has emerged stronger as a result of the adjustment effort mounted by us.
• "None of the dire consequences that we were being warned about has occurred. We have not cut subsidies. We have not cut wages. We have not compromised on planning. We have not been trapped in a debt crisis...We have come out of it with our heads high."
• Corporate India will remember Mukherjee's first Budget for a different reason.
• In a bid to attract investments from Indians living abroad, Mukherjee allowed non-resident Indians to buy shares of companies quoted on the stock exchanges subject to specified limits, among many other incentives.
• This policy change led to the controversial takeover bid by London-based Swraj Paul of the Caparo group on DCM and Escorts in 1983.
• The bids finally did not succeed, but India Inc can hardly forget how Mukherjee's first Budget shook its leaders out of their complacence.
• Mukherjee had also extended the scheme for investment allowance for another five years till 1987.
• Investment allowance permitted companies to claim deduction for tax purposes on their capital expenditure according to prescribed rates.
• This was abolished in April 1990. The big question he is likely to answer on Monday is whether investment allowance will be reintroduced in some form.

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