Chidambaram’s bonanza for middle class

In a politically-crafted budgetary exercise ahead of the general election next year, Union Finance Minister P. Chidambaram on Friday announced a massive Rs.60,000- crore loan waiver programme to rid four crore farmers of their financial liability.

The Minister also gave higher-than-expected exemptions to income-tax payers along with restructuring of tax slabs. He put no fresh burden on the corporate sector even as he scaled down excise duties on a number of items to stimulate demand, production and economic growth.

Striving to placate not only the aam aadmi but also all other sections, Mr. Chidambaram, while presenting the Union budget for 2008-09 — the fifth and final budget of the UPA government before the next general elections — sought to slash the excise duty to bring down the prices of drugs, small and hybrid cars, two and three-wheelers, water purification devices, breakfast cereals and a number of other products to make them more affordable.

The only consumers who will be hit are smokers of non-filter cigarette as the duty on it has been brought on a par with the filter variety.

With the objective of pepping up demand and kick-starting the manufacturing sector to its earlier high growth momentum, Mr. Chidambaram proposed an across-the-board reduction in the general Cenvat (Central value-added tax) to 14 per cent from 16 per cent, while keeping the peak rate of customs duty unchanged.

However, to prop up the petroleum sector in view of the spiralling world oil prices, unbranded petroleum products have been put under specific rates of duty in place of the current ad valorem rates.

With the government already having benefited from the Banking Cash Transaction Tax (BCTT) by way of annual information returns (AIR) for trailing black money transactions, the controversial levy is proposed to be withdrawn with effect from April 1, 2009.

However, on the lines of the Securities Transaction Tax (STT) levied on stock market deals, a new Commodities Transaction Tax is being introduced on commodity dealings.

In a bonanza for the middle class, Mr. Chidambaram raised the income-tax exemption limit to Rs. 1.50 lakh from Rs. 1.10 lakh and also restructured the tax slabs. Accordingly, taxable incomes between Rs.1,50,001 and Rs.3,00,000 would attract a tax of 10 per cent; between Rs. 3,00,001 and Rs.5,00,000 would be in the 20 per cent tax bracket, while for Rs.5,00,001 and above, the tax would be 30 per cent.

This would work out to a maximum tax saving of about Rs. 44,000 for the year. Besides, mediclaim policies for the parents of tax-payers would be deductible from the taxable income.

More pleasing is the relief accorded to women tax-payers and senior citizens above 65 years. For the two categories, the income-tax exemption limit has been raised from Rs 1.45 lakh to Rs 1.80 lakh and from Rs 1.95 lakh to Rs 2.25 lakh respectively. Two popular savings schemes for senior citizens have also been included for exemption from income-tax.

What should bring some more cheer to Central government employees is his announcement that the Sixth Pay Commission report would be out by March 31.

As for the corporates, even while keeping both the tax rates and surcharge unchanged, Mr. Chidambaram proposed exemption for crèche facilities, sports sponsorship and guest houses from the purview of the Fringe Benefit Tax (FBT). He, however, imposed a higher tax of 15 per cent on short-term capital gains, against the existing 10 per cent.

In his bid to garner resources for funding the farm loan waiver as also a number of social sector schemes, the Minister included four more services under the tax net: the asset management service provided under the ULIP, the services provided by stock and commodity exchanges and clearing houses as also customised software. As for the budget estimates, Mr. Chidambaram pegged the Plan expenditure at Rs 2,43,386 crore, while estimating the non-Plan expenditure at Rs 5,07,498 crore.

Fiscal position

While claiming a significant improvement in the fiscal position, he said the revenue deficit for the current fiscal would be 1.4 per cent, against the estimated 1.5 per cent. The fiscal deficit would also be lower at 3.1 per cent against an estimated 3.3 per cent.

With further progress during 2008-09, the revenue deficit is estimated at one per cent of the GDP, while the fiscal deficit has been pegged at 2.5 per cent of the GDP.

Mr. Chidambaram declared that he would achieve the target of fiscal deficit under the FRBM Act and also left for himself some headroom. “In the case of revenue deficit, I will meet the target of annual reduction of 0.5 per cent. However, because of the conscious shift in expenditure in favour of health, education and the social sector, we may need one more year to eliminate the revenue deficit. In my view, this is an entirely acceptable deferment,” he said.

News Source : Samachar