BUDGET 2010-11 Here is a basic guide to our National Budget, and what’s in it for you… SRINIVASAN S.
Come end of February and every body talks about the Budget. Television and car advertisements talk about “budget shock-free” offers; businessmen wait with bated breath to know what would be the fortunes of their industry in the year ahead; corporate house and individuals in general get eager to know what would be the tax impact on their income; and on the previous day people queue up before petrol bunks in anticipation of price increase.
What is it?
To simply put it, the National Budget is presented by the Central Government and it estimates the Central Government’s inflow and outflow of cash during the oncoming financial year i.e April to Mar.
Outflows: The outflow is broadly classified as plan and non-plan expenses:
Plan expenses are to fund the expenses and investments planned under the Nation’s Five Year Plan.
Non-plan expenses are the recurring expenses (revenue) and capital expenses (to buy assets) incurred to run various ministries and departments of the Government and also towards payment of interest for the borrowings of the Government. These expenses include subsidies given to various sectors like agriculture and household fuel.
Inflows: The inflow can be in the nature of revenue receipts that occur year after year or capital receipts that could be in the nature of disposal of assets or one-time collections. Revenue receipts consist of tax revenue and non-tax revenue. Income tax, customs and excise duty collections come under tax revenue and dividends and interest earned by the Government come under non-tax revenue.To bridge the gap between outflow and inflow, the Government resorts to loans from its own people or from foreign countries. These loans come under the Capital Inflow so that the overall inflow and outflow balances out.
It is the excess of Outflow over Inflow. Greater the Fiscal Deficit, greater is the accumulation of Government borrowings and it takes the Government towards the bankruptcy. Greater the Fiscal deficit, greater is the rising prices (inflation) and the interest rate in the country.
A whopping Rs. 11,08,749 crores of outflow and the outflow exceeding the inflow by way fiscal deficit is estimated to be Rs.3,81,408 crores. This fiscal deficit is about 5.5 per cent of the Gross Domestic Product (GDP), a basic measure of a country’s overall economic output. GDP is the market value of all final goods and services made within the borders of a country in a year. Comparatively speaking, our budget is about seven times bigger than Singapore’s budget and the USA’s national budget is about 15 times bigger than our budget.To achieve the projected inflow, every year the Government announces a slew of tax related policies in the Budget. With reference to the outflow, the budget announces allocations to various sectors like defence, agriculture and infrastructure. These policies and announcements make the budget saucier and attracts a lot of debate from the common man to corporate houses.
This year, on the personal taxation front, lower tax rates have been extended for higher slabs of income. For example, an individual with an annual income of Rs. 5 lakhs would save Rs.20, 600 of income tax. Additional Tax benefit has been extended for investment in infrastructure bonds up to Rs.20, 000. On the corporate tax front, the Minimum Alternate Tax has been increased to 18 per cent from the existing 15 per cent, not a very welcome measure.On the Indirect tax front, customs duty (on import) on crude oil has been increased by five per cent and the excise duty (on manufacture) has been increased by Rs.1 on petrol and diesel. This step has resulted in the overnight price increase of diesel and petrol.
The standard rate excise duty applicable to several manufactured items has been increased from eight per cent to 10 per cent. Based on duty related policies, prices of cigarettes, gold, silver and large cars would go up. Service tax (tax on services) has been enhanced to cover air travel and rail freight traffic, making flying expensive and commodities using rail more expensive. Generally, fuel price hike and increase on indirect taxes would increase the prices of goods of day-to-day consumption. However, measures in the budget to contain fiscal deficit and decent allocations towards infrastructure sector would achieve long term wellness of the economy.Many of the budget announcements would take finality after the Parliament passes the Finance Bill and the President gives his final approval.
Travel: Excise duty on large cars, sports and multi-utility vehicles up by two per cent. The excise duty on petrol products up by Re 1. Meaning, your ride just got expensive, but not to worry since stiff competition is sure to keep things in check in the form of some discount offers.
Pricey jewellery: Customs duty on precious metals has gone up, while branded jewellery has been exempt from excise duty, forcing you to cut down your expenditure on this front too. Too bad if you love decking up. And an exemption on branded jewellery will make no difference now, will it?
Munchies: A two per cent excise duty hike will make chocolates and biscuits tad expensive. This will subsequently affect allied industries like chocolate cakes and ice creams too.
Toys and books: They have been exempted from excise duty and the government’s allocation for education has gone up by 25 per cent.
Mobile phones and services: They enjoy continued exemption from basic, CVD and special additional duties meaning it continues to remain affordable
The author is the Founder Partner, Sundar Srini & Sridhar Chartered Accountants
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