It was a realist budget in the difficult economic and political environment. Effort was made towards fiscal consolidation, infrastructure development, revival of manufacturing sector, easing of credit facilities, direct transfer of subsidy etc. Major Tax proposals are as follows:
1. Central Excise
- Standard rate of Central Excise duty increased from 10% to 12%. The goods which were attracting rate of 5% shall attract 6% rate. The rate of 1% has been increased to 2%, except for coal, article of jewellery and mobile handsets.
- Excise duty structure of Cement has been revised. Portland cement has been notified under Section 4A for MRP based valuation with abatement rate of 30%. On large cars rate of duty have been revised upwards to 24% and 27% for engine capacity higher than 1500cc.
- Excise duty structure on cigarettes has been changed. Further cigarettes have been notified under Section 4A for RSP based valuation. Duty rate of other tobacco product has also been increased. Rate of duty on pan masala/guthka units operating under compounded levy scheme has also been revised upwards.
- Rate of duty on branded garments has increased from 10% to 12%. However, abatement rate has been revised to 70%, leading to reduction in effective rate of duty from 4.5% to 3.6%. Changes have also been proposed in duty structure of footwear industry. Rate of cess on crude petroleum increased from Rs. 2500/MT to Rs. 4500/MT.
- Above changes shall be effective from today midnight.
- Important legal changes proposed are making Central Excise offences cognizable, making the bail provisions difficult which effectively overrule recent Omprakash Judgment of Supreme Court. Confusion in classification of polished marble has been clarified. Rule 3(5) and 3(5A) are being amended to prescribe that in case the capital goods on which Cenvat credit has been taken are cleared after being used then the amount payable shall be either the amount calculated on the basis of Cenvat credit taken at the time of receipt reduced by a prescribed percentage or the duty on transaction value whichever is higher. Rule 14 is being amended to substitute the word “or” with “and” so that interest is not payable on credit wrongly taken unless the same is utilized.
- There is no change in peak rate of Custom duty. Custom duty fully exempted on coal, LNG, Import by thermal power companies, LCD & LED panels, Mobile phone parts, aircraft parts, equipment of solar thermal projects, Initial setting up and substantial expansion of fertilizer projects, Coal mining projects, Tri-band phosphor, Waster paper etc.
- Custom duty was reduced on rail equipment, iron ore mining equipment, cigarettes, specified machinery, titanium dioxide etc.
- On standard gold and platinum rate of basic custom duty has been increased from 2% to 4%. On non standard gold, rate has been increased to 5% to 10%. On gold ores/concentrate rate has been increased from 1% to 2%. Basic customs duty of 2% is being imposed on cut and polished coloured gemstones.
- The duty-free allowance under the Baggage Rules is being increased from 25000 to 35000 for passengers of Indian origin and from ` 12000 to ` 15000 for children upto 10 years of age.
- Rate of calculation of custom duty has been clarified to avoid double calculation of education cess. A new section 28AAA is being inserted to provide for recovery of duties, from the person to whom the instrument such as duty credit scrips was issued, where the instrument was obtained by means of collusion or wilful mis-statement or suppression of facts by the such person without prejudice to any action that may be taken against the importer.
- It also provides that all offences punishable with a term of imprisonment of three years or more under section 135 shall be cognizable.
3. Service Tax
- The changes in the Service Tax is far reaching. The rate of service tax is being restored to the statutory rate of 12%. Composition rate have also been changed:- For life insurance: 3% for the first year premiums while retaining the rate @1.5% for the subsequent years(simultaneously restoring full Cenvat credit); Money changing: raising the existing rates proportionately by 20%; Distributor or selling agent of lotteries: Raising the specified amounts proportionately and suitably rounded off to Rs 7,000 and 11,000; For works contracts from 4% to 4.8%.
- In the new system, service tax will be levied on all services provided in a taxable territory other than the services specified in the negative list. ‘Service’ has been defined in clause (44) of the new section 65B and means – any activity, for consideration, carried out by a person for another, and includes a declared service. The said definition further provides that ‘Service’ does not include – any activity that constitutes only a transfer in title of (i) goods or (ii) immovable property by way of sale, gift or in any other manner, a transaction only in (iii) money or (iv) actionable claim, any service provided by an employee to an employer in the course of the employment and ees payable to a court or a tribunal set up under a law for the time being in force.
- The definition of service is very wide. Negative list of services includes services provided by the government, Services provided by RBI, Services provided by foreign diplomatic missions, Services related to agriculture, Trading of goods, Selling of space or time slots for advertisement, Payment of toll, betting gambling or lottery, entry to entertainment, transmission or distribution of electricity, specified services related to education, renting of residential property, financial services, transportation of passengers, transportation of goods, funeral services.
- The definition of service is too wide. At the same time negative list is full of inclusion, exclusions and proviso. Then there is a list of declared services. Is it going to simplify the service tax structure- only the time can tell.
4. Income Tax
- There has been no change in Corporate Tax rate.
- the rate of withholding tax on interest payments on external commercial borrowings is proposed to be reduced from 20 per cent to 5 per cent for three years for power, airlines, roads and bridges, ports and shipyards, affordable housing, fertilizer and dams. Investment linked deductions have been provided for specified sectors. For SMEs, the turnover limit for compulsory tax audit of accounts as well as for presumptive taxation is proposed to be raised from 60 lakh to 1 crore.
- Security Transaction Tax has been reduced to 0.1%.
- Alternate Minimum Tax (AMT) has been extended to persons other than companies claiming profit linked deductions. General Anti Avoidance Rule (GAAR) in order to counter aggressive tax avoidance schemes has been introduced. Advance pricing agreement provisions has been introduced.
- Exemption limit in Individual Tax rate has been increased to 2 Lakhs. Income in the slab 2-5 lakhs shall attract rate of 10%, 5-10 lakhs at the rate of 20% and above 10 lakhs at the rate of 30%. A deduction of upto 10,000 for interest from savings bank accounts has also been allowed.
5. Tax Reforms
- Implementation of the Direct Tax Code (DTC), the proposed reforms in the direct tax system, will miss the deadline of April 1, 2012. FM said the government was taking steps for early implementation of the policy, however no timeline was given.
- FM also said that the government was working for the early implementation of proposed reforms in the Indirect Tax system. The Minister said that the government would set up a GST network by August, 2012 to fecilitate information in transparent manner.
- On the whole a good budget with emphasis on revenue and growth.
Written by:- Advocate Rajesh Kumar. The author can be contacted on The author can be contacted on firstname.lastname@example.org , Web: www.rajeshkumar.co.in