In
the General Budget for 2005-06, the Finance Minister, Shri P.Chidambaram has
announced a number of initiatives to mount an assault on poverty and
unemployment. The National Food for Work Programme will be converted into the
National Rural Employment Guarantee Scheme with an allocation of Rs.11,000
crore. A National Rural Health Mission will be launched for training health
volunteers, providing more medicines and strengthening the primary and
community health system. Coverage of
the Antyodaya Anna Yojana will be extended to 2.5 crore families. The
Integrated Child Development Services (ICDS) scheme will be expanded with
creation of 1,88,168 additional Anganwadi centres. Supplementary nutrition norms under the Scheme will be doubled
and the Centre will share half of the States’ costs. Allocation under the Mid-Day Meal Scheme will be increased from
Rs.1,675 crore in 2004-05 to Rs.3,010 crore in 2005-06. A non-lapsable fund
called ‘Prarambhik Shiksha Kosh’ will be created for funding the Sarva Shiksha
Abhiyan with an allocation of Rs. 7,156 crore.
Total Sanitation Campaign will be extended to all districts. Rajiv Gandhi National Fellowship will be
introduced for SC and ST students for pursuing M.Phil and Ph. D courses in
selected universities. A Backward Regions Grant Fund will be established with
an allocation of Rs. 5,000 crore for 2005-06. A number of measures have been
announced for the welfare of minorities especially for their educational
development. Equity support for the National Minorities Development and Finance
Corporation will be increased. Special
plan assistance will be provided under a Reconstruction Plan for Jammu and
Kashmir. A special package of Rs.450
crore for highway development in the North-Eastern Region has also been
announced. A corpus of Rs.8000 crore
will be provided for the Rural Infrastructure Development Fund (RIDF).
The
Finance Minister spelt out the goals of the Government under the “Bharat
Nirman” plan to be implemented over a period of four years for building infrastructure specially in rural areas. These include bringing an additional one
crore hectares under assured irrigation, connecting all villages that have a
population of 1000 (500 in hilly/tribal areas) with a road, constructing 60
lakh additional houses for the poor, providing drinking water to the remaining
74,000 habitations, reaching electricity to the remaining 1,25,000 villages and
offering electricity connection to 2.3 crore households and giving telephone
connectivity to the remaining 66,822 villages.
On
the investment front, Shri Chidambaram said that an equity support of Rs.14,040
crore and loans of Rs.3,554 crore would be provided to Central Public Sector
Enterprises including Railways in 2005-06.
Listing the steps to be taken for boosting
agricultural growth, the Finance Minister announced that Rs.630 crore will be
provided to the National Horticulture Mission.
A new scheme for Development/Strengthening of Agricultural Marketing
Infrastructure, Grading and Standardization will be introduced. A National
Project for repair, renovation and restoration of water bodies will be launched
in March, 2005. Under the pilot project, about 700 water bodies in 16 districts
of 9 States will be covered. An outlay
of Rs. 180 crore has been proposed in 2005-06 for flood management and erosion
control in the Ganga basin and in the Brahmaputra and Barak valleys. Agricultural credit of Rs.108,500 crore will
be disbursed in the current year and the credit flow will increase by another
30% in 2005-06. The number of borrowers
from public sector banks will increase by another 50 lakh. The National Agricultural Insurance Scheme
will continue for Rabi and Khraif 2005-06. Micro Finance Development Fund will
be redesignated as the Micro Finance Development and Equity Fund with an
increased corpus of Rs.200 crore. A
Knowledge Centre will be set up in every village by the 60th
anniversary of Independence Day. Rs.100
crore will be provided out of the RIDF for the purpose.
As
regards the manufacturing sector, the Finance Minister announced the launching
of a Manufacturing Competitiveness
Programme to help small and medium enterprises. An allocation of Rs.435 crore
has been made for the Technology Upgradation Fund (TUF) in the Textiles
Sector. A 10 percent capital subsidy
scheme will be introduced for the textile processing sector. A cluster development approach will be
adopted for the production and marketing of handloom products. A number of steps have also been announced
for the welfare of handloom weavers. As
regards the sugar industry, NABARD will work out a scheme for providing a
financial package with a two year
moratorium on principal as well as interest.
An interest rate of 2 percentage points below the bank rate will be made
applicable to outstanding loans as on October 21, 2004. Corpus for research and development fund for
pharmaceuticals and biotechnology will be increased in phases. As regards small and medium enterprises, 108
items have been identified for dereservation.
Provision for promotion of SSI Schemes will be enhanced to Rs.173
crore. Units in knowledge-based
industries will be provided equity support.
100 ITIs have been identified for upgradation.
A
number of steps were announced for strengthening the infrastructure. A provision of Rs.1,200 crore has been made
for Universal Service Obligation Fund
in 2005-06 for telecommunications. BSNL
will provide public telephones in the next three years to the remaining 66,822
revenue villages. The National Highway
Development Project III will be launched to target selected high density
highways. Rs.1,400 crore will be
provided for four-laning 4,000 kms. in 2005-06. Rs. 1,100 crore will be provided for rural electrification in
2005-06. The aim is to cover 1.25 lakh
villages in 5 years. Creation of rural
electricity distribution backbone has been envisaged with 33/11 KV substation
in each block and at least one distribution transformer in each village. About 15 lakh houses will be constructed
during the next year under Indira Awas Yojana.
The allocation has been increased to Rs.2,750 crore. A financial Special
Purpose Vehicle will be established to finance infrastructure projects that are
financially viable. A few growth poles
applying the principles of Provision of Urban Amenities in Rural Areas clusters
will be taken up in 2005-06 as pilot projects.
An outlay of Rs.5,500 crore has been made under the National Urban
Renewal Mission to cover the 7 mega cities and some other towns.
The
Finance Minister proposed introduction of some amendments to the Banking
Regulation Act, 1949 to remove the lower and upper bounds to the statutory
liquidity ratio and to allow banking
companies to issue preference shares. Amendments will also be introduced to the
Reserve Bank of India Act,1934 to remove
the limits of the cash reserve ratio (CRR).
Shri
Chidambaram also announced steps to strengthen the capital market. FIIs will be permitted to submit appropriate
collateral when trading in derivatives on the domestic market. SEBI will be asked to permit mutual funds to
introduce Gold Exchange Traded Funds for enabling any household to buy and sell
gold in units for as little as Rs.100.
An
additional grant of Rs.100 crore will be provided for making Indian Institute
of Science, Bangalore, a world class university.
Gross
Budgetary Support for the Plan in 2005-06 works out to Rs.172,500 crore. This represents an increase of 16.9%.
Support for the Central Plan has been enhanced to Rs.110,385 crore representing
an increase of 25.6%. On priority sectors
and flagship programmes falling under the National Common Minimum Programme, an
additional sum of Rs.25,000 crore has been proposed in the next year. The
allocation for defence in 2005-06 will be increased to Rs.83,000 crore. The allocation for education will be
Rs.18,337 crore and for rural development Rs. 18,334 crore. The estimated expenditure on health and
family welfare is Rs.10,280 crore.
The
Finance Minister announced that a mechanism would be put in place to
measure the development outcomes to all
major programmes. Schemes will not be
allowed to continue from one plan period to the next without independent and in
depth evaluation.
The
Finance Minister said that despite the high growth rate, several disturbing
trends came to notice in May, 2004.
These included liquidity overhang, inflationary pressures, deficiency in
the south-west monsoon and decline in business confidence. However, the UPA
Government rose to the challenge. Growth rate in 2004-05 has been estimated at
6.9% with the manufacturing sector expected to grow at 8.9%. Inflation has been reined in and business
confidence restored.
Presenting
his tax proposals, the Finance Minister underlined the Government’s intention,
as announced by the Prime Minister, to undertake major tax reform to improve
the tax to GDP ratio, expand the tax payer base, increase tax compliance and
make tax administration more efficient.
Indirect
Taxes
Customs:
Declaring
his intention to advance the Government’s policy of making the customs duty
structure closer to that of our East Asian neighbours, the Finance Minister
announced the reduction of peak rate for the non-agricultural products from 20
per cent to 15 per cent. He also proposed to reduce the customs duties on
selected capital goods and parts thereof to below 15 per cent, to 10 per cent
in some case and to 5 per cent in some others. There was a good news for the
textile and food processing industries as the Minister announced his proposals
to reduce the customs duty on textile machinery as well as the duty on
refrigerated vans from 20 per cent to 10 per cent. This, he said, would help
these industries to acquire a competitive edge in the post-quota regime.
The
Minister also proposed to reduce the customs duty on seven specified machinery
used in leather and footwear industry from 20 per cent to 5 per cent. Duty on
ethyl vinyl acetate (EVA), an input for the footwear industry, is also proposed
to be reduced from 20 per cent to 10 per cent.
Recognising
Pharmaceuticals and biotechnology as sunrise sectors, Shri Chidambaram proposed
to reduce the customs duty on nine specified machinery used in these sectors to
5 per cent. Duties on specified parts of battery operated road vehicles and for
printing presses are also to be reduced from 20 per cent to 10 per cent.
The
Minister also announced reduction of duties on primary and secondary matters
from 15 per cent to 10 per cent. Industrial raw materials including catalysts,
refractory raw materials, basic plastic, molasses and industrial ethyl alcohol
will be liable to a reduced customs duty at the rate of 10 per cent. Duty on
lead is also to be reduced to 5 per cent. Duty on coking coal with high ash
content will also go down to 5 per cent.
Duty
on polyester and nylon chips, textile fibres, yarns and intermediates, fabrics
and garments is proposed to be reduced from 20 per cent to 15 per cent.
Duty
on specified capital goods and all inputs required for the manufacture of
Information Technology Agreement (ITA) bound items is proposed to be removed
while a CVD of 4 per cent only is to be levied on the imports of ITA bound
items and their inputs that attract nil duty. The Finance Minister announced
that credit for the CVD will be available against payment of excise duty. However, IT software is proposed to be
exempt from the proposed CVD.
The
Minister said that he did not propose to make any change in the customs duty
applicable to agricultural goods but has decided to increase the duty on cut
flowers from 30 per cent to 60 per cent. The duty rate on cloves however has
been reduced to 35 per cent as there is little domestic production. Import duty
on atmospheric drinking water is proposed to be reduced from 20 per cent to 5
per cent with a view to encourage imported technology to produce pure drinking
water.
Excise Duties:
On
the excise front Shri Chidambaram declared the Government’s intention to bring
as many goods as possible to the CENVAT rate of 16 per cent. Accordingly duty
on polyester filament yarn, tyres and air conditioners have been reduced from
20 per cent to 16 per cent. Duty on motor cars and aerated drinks, however,
will continue to be at 24 per cent for some more time to come, the Minister
said.
With
a view to prepare the textile industry to meet the challenges of the post-quota
regime, the Minister gave the option to independent texturizers to avail the
exemption route or pay 8 per cent excise duty with CENVAT credit.
Surcharge
of Rupee 1 per kg on tea, duty of Rupee 1 per kg on refined edible oils and
Rupee 1.25 per kg on vanaspati is to be abolished, as these products are used
by the common citizens.
With
a view to provide some tax relief to the small scale industry (SSI), the
Finance Minister proposed to raise the ceiling for SSI exemption based on
turnover from Rs 3 crore per year to Rs 4 crore per year. Excise duty on iron
industry has also been reduced to the normal level of 16 per cent.
Duty
on molasses has been proposed to be increased from Rs.500 per MT to Rs.1000 per
MT to adjust partially for a hefty increase in molasses prices. The Minister
also proposed to increase the specific duty on cement clinkers from Rs.250 per
MT to Rs.350 per MT as an anti-avoidance measure.
In
order to raise addition resources for the National Highways Development
Project, the cess on petrol and diesel is proposed to be increased by 0.50
paise per litre.
With
a view to fund health care, the Minister proposed to tax goods such as
cigarettes etc which are health hazards. Accordingly, specific rate on
cigarettes is to be raised by about 10 per cent and a surcharge of 10 per cent
is to be imposed on ad valorem duties on other tobacco products including
gutka, chewing tobacco, snuff and pan masala. However, bidis are not to be
subject this levy.
Taxes on Petroleum Products:
The
Minister proposed to make major changes in the customs and excise duty rates on
petroleum products keeping in view Lahiri Committee’s report. Accordingly, the
customs duty on crude petroleum is to be reduced from 10 per cent to 5 per cent
while there will be no customs duty and excise duty on LPG for domestic
consumption and on subsidized kerosene. Customs duty on other petroleum
products, including motor spirit (MS) and diesel (HSD) is to be reduced from 20
or 15 per cent to 10 per cent. The Minister proposed to fix the excise duties
on petrol and diesel as a combination of ad valorem and specific duties.
The
Minister said that consequent upon the changes made in customs and excise
duties, the drawback rates for exported goods will be reviewed and
modifications, wherever necessary, will be notified by April 30, 2005. The
Minister also proposed to set up an advisory committee to advise the Government
on the extent of abatement for both excise duty and service tax as a trade
facilitation measure.
Noting
that the services sector accounts for about 52 per cent of the GDP, the Finance
Minister expressed the necessity to cast the net wide and to include some
additional services in the service tax net. However, as a relief to the small
service providers, the Minister proposed to exempt from service tax those
service providers whose gross turnover does not exceed Rs.4 lakh per year.
Direct
Taxes:
Income Tax:
Coming to
direct taxes, Shri Chidambaram announced a large measure of relief to personal
income tax payers by proposing to alter the tax brackets as part of the major
overhaul of direct taxes. The new tax brackets and the new rates are as under:
Upto
Rs.1 lakh Nil
Rs.1
lakh to Rs.1.5 lakh 10 per cent
Rs.1.5
lakh to Rs.2.5 lakh 20 per cent
Above
Rs.2.5 lakh 30 per cent
The level
at which the surcharge of 10 per cent will apply is to be raised to Rs.10 lakh
taxable income. The threshold exemption level for women is fixed at Rs.1.25
lakh while the exemption level for senior citizen would be fixed at Rs.1.5
lakh.
While the
standard deduction is proposed to be removed, other sort of exemptions are also
proposed to be cleaned up. Recognising the necessity to encourage savings by
way of tax relief as an inducement to
save, Shri Chitambaram proposed to allow the tax payer greater flexibility in making
savings/investment decisions. Accordingly, every tax payer is to be allowed a
consolidated limit of Rs.1 lakh for savings which will be deducted from the
income before tax is calculated. All prevailing sectoral caps will be removed.
The debate under Section 88 is being eliminated and Section 80L is being
omitted to reflect the new regime. However, deductions on housing loan
interest; medical insurance premia; specified expenditure on disabled
dependent; expenses for medical treatment; deduction in respect of interest on
loans for higher studies; and deduction to a person with disability will
continue to receive the same tax treatment as prevails today, Shri Chidambaram
said.
Shri
Chidambaram also proposed to set up a committee of experts to work out the road
map for moving towards an Exempt Exempt Tax (EET) system for all kinds of
savings in conformity with the best international practices in the complex
issue of tax treatment of savings.
The
exemption from tax on interest earned on accounts maintained by Non-Resident
Indians will continue.
The
Minister also proposed that benefits that are usually enjoyed collectively by
the employees and cannot be attributed to individual employees shall be taxed
in the hands of the employer. However, transport services for workers and staff
and canteen services is an office or factory will be outside the tax net. The
tax will be called Fringe Benefit Tax and the rate will be 30 per cent on an
appropriate defined base.
Corporate Tax:
Shri Chidambaram has proposed a corporate tax
structure under which the corporate
income tax rate for domestic companies will be 30 per cent plus a surcharge of
10 per cent. The rate of depreciation will be 15 per cent for general machinery
and plant, but the initial depreciation rate will be increased to 20 per cent.
The Minister said that this will give the Corporate Sector a nearly 3 per cent
relief in tax rate and will ensure equity among all sections of corporate tax
payers besides encouraging new investments. The requirement of 10 per cent
increase in installed capacity for availing of the benefit of initial
depreciation is proposed to be removed.
Withholding tax on technical services is also to be reduced from 20 per
cent to 10 per cent with a view to encourage technological upgradation.
The
Minister also announced extention of the terminal date on exemptions given for
specific purposes from March 31, 2005 to March 31, 2007. These include weighed
deduction of 150 per cent of expenditure on in house research and development
facilities of companies engaged in the business of certain notified products
including biotechnology; pharmaceuticals; electronics etc.; deduction of
profits of new undertakings in Jammu & Kashmir; and 100 per cent deduction
of profits of companies carrying on
scientific research and development and approved by the Department of
Scientific and Industrial Research.
Extension
of tax exemption on agreements to acquire aircraft or aircraft engines on lease
upto September 30, 2005, was also proposed by the Finance Minister.
The Minister
proposed a nominal increase from 0.015 per cent to 0.02 per cent in the rates
of securities transaction tax (STT) for all categories of transactions.
The
Finance Minister also proposed to amend the Income Tax Act with the provision that trading in derivatives
in specified stock exchanges will not be treated as “speculative transactions”
for the purposes of the Income Tax Act.
Mobile
telephone is to be removed from the one-in-six criteria for filing income tax
returns. Instead, payment for electricity of more than Rs.50,000 per year is to
be included.
Two anti
tax-evasion measures are also to be introduced. These are (i) a tax to be
levied on withdrawal of cash on a single day of over Rs.10,000 or more from
banks at the rate of 0.1 per cent and (ii) banks to be required to report all
deposits which are exempt from TDS on interest.
In
pursuance to the international practice, Shri Chidambaram proposed to establish
large tax payer units (LTUs), as a measure of facilitation, in major cities to begin
with. Help Centres for small taxpayers are also to be set up in cooperation
with industry associations, professional bodies and NGOs.
Shri
Chidambaram concluded his Budget Speech by quoting Dr.Amartya Sen that
development is a process of expanding the real freedom that people enjoy, but
freedom depends also on other determinants, such as social and economic
arrangements (for example, facilities for education and health care) as well as
political and civil rights. The UPA Government accepts this ethical dimension
to the discussion of economic issues and in this Budget he has attempted to
reflect that dimension, he said.
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SB/OK/AK/SKA/SKS
(Release ID :7371)