India Budget

INDIA BUDGET 2007-08

Education & Healthcare prime objectives
Safety net for rural poor widens
Defence spending hiked
Direct tax rates unchanged
Duty on Petrol & Diesel reduced

INDIAN Federal Budget for fiscal* 2007-08 presented by country’s Finance minister P. Chidambaram in Parliament on February 28 reasserts the Congress(I)-led UPA government’s commitment to economic reforms, fiscal prudence and monetary stability. The Budget gives special emphasis to raise the quality of life of the bottom-line people in particular. Prime Minister Manmohan Singh thinks “education and healthcare are prime imperatives as far as this Budget is concerned.”

The allocation for defence to Rs. 96,000 crore. This would include Rs. 41,922 crore for capital expenditure. Any additional requirement for the security of the nation would be provided.

The Budget 2007-08 has taken special care of the rural poor. Revenues are buoyant for the third year in succession. Additional revenues have been generated and have been used to promote inclusive growth, equity and social justice that are at the core of the National Common Minimum Programme.

Reduction of duty on petrol and diesel, expanding the safety net for rural poor, additional 1 percent cess to fund secondary and higher education and expansion of the service tax net are some of the major features of the Federal Budget.

The ad valorem component in the excise duty from 8 percent to 6 percent on petrol and diesel. The peak rate of customs duty for non-agricultural products has been slashed from 12.5 percent to 10 percent. While cigarettes and bidis will cost more, duty on pan masala not containing tobacco has been reduced from 66 percent to 45 percent. Duties on most chemicals and plastics have been reduced from 12.5 percent to 7.5 percent and customs duty on polyester fibers and yarn has also been reduced from 10 percent to 7.5 percent. The Gem and jewellery industry gets relief with duty on cut and polished diamonds reduced from 5 percent to 3 percent. Dredgers have been fully exempted from import duty. Duty on drip irrigation systems, agricultural sprinklers and food processing machinery have been reduced by 2.5 percent. Additional countervailing duty of 4 percent has been completely lifted from crude and refined edible oils.

On the direct tax front, there is no change in the tax rate. However, the threshold limit for income tax payers has been increased by Rs. 10,000, giving every tax payer a relief of Rs. 1000. The new threshold limit for women will be Rs. 1,45,000 and for senior citizens Rs. 1,95,000. Companies with a taxable income of Rs. 1 crore or less, will not have to pay surcharge on income tax. Companies providing cross country natural gas distribution network, including gas pipeline and storage facilities will be entitled to tax concession. To facilitate creation of urban infrastructure, tax-free bonds will be issued through State Pooled Finance Entities.

BUDGET (2007-08) HIGHLIGHTS

GROSS BUDGETARY SUPPORT FOR PLAN TO BE INCREASED TO RS. 205,100 CRORE FROM RS.172,728 CRORE.

NON-PLAN EXPENDITURE TO GO UP BY 6.5% TO RS. 435,421 CRORE.

ALLOCATION FOR BHARAT NIRMAN INCREASED BY 31.6% TO RS. 24,603 CRORE.

ALLOCATION FOR EDUCATION INCREASED BY 34.2% AND FOR HEALTH & FAMILY WELFARE BY 21.9%.

MID-DAY MEAL SCHEME TO COVER CHILDREN OF UPPER PRIMARY CLASSES IN 3,427 EDUCATIONALLY BACKWARD BLOCKS.

NATIONAL MEANS-CUM-MERIT SCHOLARSHIP SCHEME INTRODUCED FOR STUDENTS FROM CLASS IX TO XII; 100,000 SCHOLARSHIPS TO BE AWARDED EVERY YEAR.

NATIONAL RURAL EMPLOYMENT GUARANTEE SCHEME TO BE EXPANDED FROM THE CURRENT 200 TO 330 DISTRICTS .

ALLOCATION FOR SCs AND STs SUBSTANTIALLY INCREASED.

PROVISION OF RS. 108 CRORE FOR MULTI-SECTOR DEVELOPMENT PROGRAMME IN DISTRICTS WITH CONCENTRATION OF MINORITIES.

INTEREST SUBVENTION SCHEME FOR SHORT-TERM CROP LOANS TO CONTINUE.

NATIONAL AGRICULTURAL INSURANCE SCHEME TO CONTINUE IN PRESENT FORM.

DEATH AND DISABILITY INSURANCE COVER THROUGH LIC TO BE EXTENDED TO RURAL LANDLESS HOUSEHOLDS UNDER AAM ADMI BIMA YOJANA

LIMIT OF LOANS UNDER DIFFERENTIAL RATE OF INTEREST SCHEME FOR WEAKER SECTIONS RAISED.

NATIONAL HOUSING BANK TO INTRODUCE REVERSE MORTGAGE FOR SENIOR CITIZENS.

ALLOCATION FOR DEFENCE INCREASED TO RS. 96,000 CRORE.

ALLOCATION FOR E-GOVERNANCE INCREASED FROM RS. 395 CRORE TO RS. 719 CRORE.

GOVERNMENT TO SUPPORT CREATION OF ABOUT 100,000 JOBS EVERY YEAR FOR PHYSICALLY CHALLENGED.

FOR CURRENT YEAR REVENUE DEFICIT TO BE 2% AND FISCAL DEFICIT 3.7% - BOTH LOWER THAN BUDGET ESTIMATES.

EVENUE DEFICIT FOR 2007-08 ESTIMATED AT 1.5% OF GDP AND FISCAL DEFICIT AT 3.3% OF GDP.

PEAK RATE FOR CUSTOMS DUTIES FOR NON-AGRICULTURAL PRODUCTS REDUCED FROM 12.5% TO 10%

CUSTOM DUTIES ON MOST CHEMICALS AND PLASTICS REDUCED FROM 12.5% TO 7.5% .

NO CHANGE IN GENERAL CENVAT OR SERVICE TAX RATES.

AD VALOREM COMPONENT OF EXCISE DUTY ON PETROL AND DIESEL REDUCED FROM 8% TO 6%.

EXCISE DUTY EXEMPTION LIMIT FOR SMALL SCALE INDUSTRY INCREASED FROM RS. 1 CRORE TO RS. 1.5 CRORE.

SERVICE TAX EXEMPTION LIMIT FOR SMALL SERVICE PROVIDERS RAISED FROM RS. 400,000 TO RS. 800,000.

SERVICE TAX EXTENDED TO SOME NEW AREAS.

CENTRAL SALES TAX TO BE REDUCED FROM 4 TO 3%.

NO CHANGE IN PERSONAL INCOME TAX RATES BUT THRESHOLD LIMIT OF EXEMPTION IN ALL CASES INCRASED BY RS. 10,000.

MAXIMUM LIMIT OF DEDUCTION IN RESPECT OF MEDICAL INSURANCE PREMIUM TO BE INCREASED TO RS. 15,000; FOR SENIOR CITIZENS THE LIMIT IS RS. 20,000.

CORPORATE INCOME TAX RATE REMAINS UNCHANGED; SURCHARGE ON INCOME TAX ON ALL FIRMS AND COMPANIES WITH A TAXABLE INCOME OF RS. 1 CRORE OR LESS REMOVED.

FIVE YEAR INCOME TAX HOLIDAY FOR NEW HOTELS IN NCTD.

TAX HOLIDAY FOR UNDERTAKINTGS IN JAMMU & KASHMIR EXTENDED UP TO MARCH 31, 2012.

RATE OF DIVIDEND DISTRIBUTION TAX RAISED FROM 12.5% TO 15% ON DIVIDENDS DISTRIBUTED BY COMPANIES AND TO 25% ON DIVIDENDS PAID BY MONEY MARKET MUTUAL FUNDS AND LIQUID MUTUAL FUNDS.

BANKING CASH TRANSACTIONS TAX EXEMPTION LIMIT FOR INDIVIDUALS AND HUFs INCRASED FROM RS. 25,000 TO RS. 50,000.

ADDITIONAL CESS OF 1% LEVIED ON TAXES TO FUND

SECONDARY AND HIGHER EDUCATION.

EMPLOYEES’ STOCK OPTION PLAN TO BE BROUGHT UNDER FRINGE BENEFIT TAX.

DURING THREE YEARS OF UPA GOVERNMENT, GDP GROWTH RATE IMPROVES FROM 7.5% IN 2004-05 TO 9.2% IN 2006-07; GROWTH RATE IN MANUFACTURING GOES UP FROM 8.7% TO 11.3% AND IN SERVICES FROM 9.6% TO 11.2%.

AVERAGE GROWTH OF AGRICULTURE SECTOR DURING TENTH PLAN ESTIMATED AT 2.3%.

AVERAGE INFLATION IN 2006-07 ESTIMATED AT 5.2-5.4%.

BHARAT NIRMAN MAKES IMPRESSIVE PROGRESS

Dividend distribution tax has been hiked from 12.5 percent to 15 percent. Money market mutual funds and liquid mutual funds will attract 25 percent Dividend Distribution Tax. The scope of Fringe Benefit Tax has been expanded to include employees stock option plan. 1 percent additional cess has been imposed on all taxes to fund secondary and higher education and expansion of capacity by 54 percent for reservation for socially and educationally backward classes.

The total revenue receipts of the Central Government is estimated to be Rs. 486,422 crore and the revenue expenditure at Rs. 557,900 crore. The revenue deficit is estimated at Rs. 71,478 crore, which is 1.5 per cent of GDP. The fiscal deficit is estimated at Rs. 150,948 crore, which is 3.3 per cent of GDP. “We are on course to achieve FRBMA targets”., said the Finance Minister.

The Plan Expenditure for 2007-08 is estimated at Rs. 205,100 crore. As a proportion to the total expenditure (net of the SBI share acquisition) Plan Expenditure will be 32 per cent. On the other hand, non-plan expenditure in the year 2007-08 (net of the SBI share acquisition) is estimated to be Rs. 435,421 crore, which is only 6.5 per cent higher than 2006-07.

* India’s fiscal year is April-March.

SOURCE: Press Information Bureau

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