Dr. Sanjiv Agarwal
At last the budget day arrived and we have heard the budget speech of Finance Minister. Some of us could also read few relevant papers of budget document. On macro view, the budget seems to be an non event so far as providing impetus and further fuel to the economy is concerned, there being no major policy steps in taking a leap into the next decade. This opportunity could have been used, more so 2012 being first year of the new five year plan.
The economy certainly is not in good shape. India had a slow recovery and a slower growth in current fiscal. Inflation continues to be a worry and will continue to be so. While GDP grew @ 6.9 percent in financial year 2012, service sector grew by 9.4% and service sector is the only sector which propelled the economy on recovery path. As such, service tax also contributed significantly. Unfortunately, the budget is a blow on service sector. Corporate sector has also been disappointed with no major reliefs and incentives in taxes or otherwise. Capital markets too have responded negatively.
However, in personal taxation, some relief, as expected has been showered on individuals and senior citizens. Basic income tax exemption limit has been enhanced from Rs. 1.80 lakh to Rs. 2 lakh providing a maximum marginal relief of just Rs. 2000 in tax. 20 percent tax slab limit goes up from Rs. 8 lakh to Rs. 10 lakh which may provide a tax relief upto Rs. 4000 only. Interest upto Rs. 10,000 on savings bank will not be taxable. Senior citizens will not have to pay advance tax if they do not have any business income. There is no major relief in tax rate or other taxes to corporates. The limit for tax audit has been hiked from Rs. 60 lakh to Rs. one crore.
The indirect tax proposals will add to inflation as general rate of excise duty has been increased from 10 to 12 percent. Similarly, Service Tax rate has been hiked by 20% flat from 10 to 12 percent and all cesses still continue. Besides, all services, for the first time, have been brought under Service Tax net, of course subject to a negative list. This is a major shift and challenge in Service Tax area Thus, all services would be taxable hence forth, unless it is specified in the negative list.
While government has once again filed to lay a clear road map for GST, it should have deferred such drastic changes till the GST introduction. It appears that FM too has relied upon Service Tax, being the most milking cow, among all taxes.