BUDGET 2006 !!! Lets Discuss......

milind20

milind20

Milind Gandhi
Guys, I am sure before joining BMS everyone of us would never have even bothered to know what does budget mean?? But things have changed and changed for the better. Now, I am dead sure everyone knows what does a budget mean and what implications does it have. We had studied Budget 2005 extensively (at least I had, honestly).

Now that BUDGET 2006 is round the corner, being management students, let us take a complete and comprehensive look at the Budget. In this thread we will post your pre-budget expectations, budget implication on different sectors, overall budget review, all positive and negative points of the budget.

So let us take the initiative and provide a complete picture of Budget 2006 !!!
Lets start with the pre-budget expectations. What do you expect from the Finance Minister???
 
well budget-making is not at all easy, rite guys?? just like i expect it to be a favourable budget, 1 bn other Indians wud want it to be in their favour.....so it is definitely not easy to make all ppl happy....

me personaly i want the fin min to focus more on the education system and the cost factor. i mean the cost of education has gone up like anythng..... today annual MBA course fees have shot up beyond 2-3 lakhs wich is definitely out of reach of many middle class families....

also i want more money allocated towards infrastructure development of big cities like Mumbai so as to enable it to fight against disasters like 26/7....

property prices are at an all time high and hence i wud like to see the fin min takin some stand against this..... it is becomin really impossible for a lower middle class person to stay in a big city....

man !!!! being the finance minister of india is the last thing i wud thnk of.....
 
Expectations :

Education sector : More govt masters and degree colleges .

Better defence infrastructure.

Removal of VAT .

Shifting focus from mumbai and Cities to rural india.
 
Me and My Group Members was Doing a Project On Export Oriented units and got a Very good Info on
PROCEDURES FOR EXPORT ORIENTED UNIT’S, EHTP AND SEZ UNITS AS PER -ELCINA PRE BUDGET RECOMMENDATIONS 2006-07

Draft SEZ Rules:
While drafting the Rules for Special Economic Zones (SEZ), there was a proposal for a minimum limit of 50 acres of land for developing sector specific SEZ. This sounded a positive step for faster growth for electronics manufacturing. However, in the final draft, the minimum proposed limit has been raised to 250 acres

Suggestion:
ELCINA recommends that the original figure of 50 acres be maintained and with a view to encourage SME’s, a minimum limit of 25 acres be fixed for electronic hardware units.


Procurement of materials on CT- 3 & Procurement Certificates for Export Oriented Units:
[A] Presently Export Oriented Units are required to get a Procurement Certificate for every consignment imported under concessional duty vides Not.25/99. This results in a lot of paper work and loss of time. The problem gets further compounded for those units which are located in remote areas and far away from Excise office. The amount of time and effort involved in this exercise considering the number of procurements a unit has to make and for each consignment one has to get a certificate from Excise Department is huge. This requirement increases the transaction time and adds to the cost.



Suggestion:
The main purpose sought to be served by Procurement certificate is to ensure that EXPORT ORIENTED UNIT is registered, the material proposed to be procured is covered by LUT and necessary Bond is executed by the unit. We suggest that PC/CT-3 should be issued based on estimated quarterly requirement of the Unit. The Unit should keep account of the material received against each PC/CT- 3 which can be audited by the Department from time to time. In case an annual audit is not sufficient, the Department may verify and audit records once in a quarter for all procurements made during this period.

Export Oriented Units manufacturing telecom equipment can import material without duties based on “Procurement Certificate”. The same “procurement certificate” cannot be entertained by a 100% EXPORT ORIENTED UNIT in India (making and exporting telecom components) to supply as a Deemed Export to the telecom equipment manufacturers.

Suggestion:
There is need to provide Deemed Export benefit in this case and allow use of the PC to buy from local telecom component mfrs which will accelerate use of indigenously produced equipments.


Re-warehousing of Materials procured by Export Oriented Units :
When the inputs are to be procured by 100% Export Oriented Units, whether imported or indigenously sourced, the present procedure requires verification & re-warehousing of goods by Central Excise & Customs authorities. This procedure adds to the transaction processing time and transaction cost. The problems are compounded with holidays and non-availability of concerned officials at times when the pressure is to manage working capital effectively. Export Oriented Units have to live with situations when material is available in the factory but cannot be used and, In the bargain, export commitments cannot be honored, leading to drop in exports.

Suggestion:
We suggest that the receiving of goods and re-warehousing be allowed on self declaration basis. It is recommended that present procedure be dispensed with, at least for units with a good track record. This will improve the through put time and increase the competitiveness of the industry. This would be similar to facility of self sealing for export and duty payment on monthly basis.

ELCINA learns that the above suggestions have already been accepted and incorporated (for status holders) in the Foreign Trade Policy in 2004. However, the instructions are still awaited from CBEC without which the declaration in FTP has resulted in no relief.

Job-work for EXPORT ORIENTED UNIT units:
There is no denying the fact that if the Indian Industry is to measure up to the global challenge, it has to deliver the best quality products and services at a competitive prices. In order to ensure this, the industry needs to outsource certain manufacturing processes from outside units for cost benefit and such other considerations.
Presently EXPORT ORIENTED UNIT units are required to get permission from the AC/DC which is time consuming.





Suggestion:
It is submitted that the out-sourcing has become imperative world-wide. In many cases, it is not possible to wait for approval as the time available for completing the order is often very tight. The suggestion is that this should be allowed on intimation basis.
The units are anyway expected to keep complete account of the material.
Sale of Raw-Material by Export Oriented Units:
For sale of raw material from EXPORT ORIENTED UNIT, presently the procedure requires permission from jurisdictional AC/DC. The sale of raw material is required because of certain materials getting obsolete due to fast changing requirements of the customers and also internal process and product quality upgradations. This is also a fact that it is difficult to get good buyer for obsolete material. Sometimes due to delay in approvals, the opportunity is lost and the unit has to bear the brunt of whole cost of obsolescence which could have been partly recovered.

Suggestion:
Approval requirement should be done away with. But the unit should make a report in the monthly return

Availability of Bonding Facility:
After passing of the Bill of Entry, the same is sent to the Customs House for bonding activity, which takes more time due to physical constraints and leads to delays in the total clearance

Suggestion:
The bonding facility should be available at all Airports.



Stamp Duty by Maharashtra Government:
The stamp duty at port is to be paid to collecting authority for each consignment. This is required to be paid in person for each consignment adding additional one day for clearance.

Suggestion:
Single window for all charges like duty, warehouse charges, stamp duty, port charges etc.


EXPORT ORIENTED UNIT Registration & Green Card Registration:
Presently green card is issued by SEEPZ authority and one has to register for EXPORT ORIENTED UNIT at all the ports of imports separately. After revalidation of green card, the same procedure is followed. This takes 7-10 days at SEEPZ and again registration required to be done at each port which takes 7-10 days at each port resulting in: More documentation Delay in procedures Stops clearance till registration is completed, since original documents are required for registration at all ports.

Suggestion: After issue of Green Card by SEEPZ, the EXPORT ORIENTED UNIT registration should be automatically valid at all ports.


Excise Duty on EXPORT ORIENTED UNIT Goods sold to DTA (U/S 3 of Central Excise Act 1944):
50% of effective duties – in comparison with normal traders – should be allowed for Export Oriented Units. Currently because of various amendments and anomalies in Notification No.23/2003-CE dt 31-3- 2003, this is not available to Export Oriented Units, especially where the basic customs duty in NIL. The anomaly is that it has been prescribed wef. 6-9-2004, that the 50% duty should not be less than the Excise Duty leviable on such goods made outside the 100% EXPORT ORIENTED UNIT.
Thus when BCD was 10%, EXPORT ORIENTED UNIT was paying 16.352% on sale to DTA, where as imported goods were paying 32.704%.
When BCD became Nil, EXPORT ORIENTED UNIT’s paid 10.32% against 20.64% paid on imports. From 6-9-2004, EXPORT ORIENTED UNIT has to pay 16.32% against 21.39% on imports. This has eroded the competitive position of EXPORT ORIENTED UNIT’s considerably.

Suggestion:
To discourage trading in cheap goods, imports into the country with NIL basic duty,this notification needs amendment to grant 50% effective duty benefit to Export Oriented Units.

Sales Tax on local procurement:
CST reimbursements are not allowed on building material like steel, cement etc. to Export Oriented Units. Exemption should be provided from CST. Alternatively, this benefit should be given to boost manufacturing and facility building with the country.

Inter Unit Transfer:
Inter-unit-transfers between two Export Oriented Units (of the same organization) should at least be allowed to avoid excess inventory holding and consequent cost impact. Unnecessary imports and foreign exchange loss can be avoided with better materials management processes centrally for all EXPORT ORIENTED UNIT units of the same organization. Production line stoppages can also be avoided, if material is allowed to be transferred between two Export Oriented Units of the same organization. This facility needs to be extended to all exporters, which will lead to an acceleration of exports.
Income tax is also charged on such inter-unit transfers whenever specific permission is granted for such transfers. As this is not a ‘sale’, no income tax should be levied on such transactions.
 
Budget 2006 is round the corner.....and i m sure many of us still have some doubts regarding some terms used and regarding the budget speech....
this file contains a write-up on "How to read a budget" it also includes some budget glossary which is really helpful....
 

Attachments

my expectations and opinion abt Budget 2006...

well..opinion..1st...

i hv seen tht this time...the Finance minsiter will b focusing more on reducing duties n taxes ...quotas n all...for imports....related 2 various sectors...viz...tlecom...automobiles...also..openin up of banking and insurance sector 2 FII...by reducin interest rates...n investment pattern...being made more simpler...also...excise on 4 wheelers r being planned reduce it 2 16% from 24%...so enefits 2 tht sector...also...emphasis is being given 2 infrastructure...on large scale..

so lookin a the above few things tht i noticed durin this week..on various News channels n all....i think...this time bugdget is givin more emphasis on overall economy n sectors...rather thn fulfillin common man needs 2 some extent...( it will..hpe so...give more emphasis...lets c)

now expectations...

Focus on following
1. Infrastructure
2. Rural Development
3. Education fees reduction...
4. reducin duties on FMCG products imported...
5. support 2 entertainment sector...( industry )


thts all for now frm my side

Regards
Vishal
 
THR SHULD BE MORE EMPHASIS ON MANUFATURING SECTOR RATHER THN ONLY ON IT SECTOR.

MY EXPECTATIONS :-
1) INFRASTRUCTURE DEVELOPMNT,
2) RURAL DEVELOPMENT
3) SPORTS DEVELOPMENT
 
Highlights of the Union Budget 2006-07

Finally the Finance Minister Mr. P. Chidambaram has presented his budget with much expectations. Has he managed to please one an all?? We will soon find out....

It was not possible to post the entire budget speech which ran into 19 pages.... here is an overview of the budget.............
(www.ibnlive.com) CNN IBN - the new news channel is really very good....

Gross Capital formation up 30 pc in FY 05

Savings up 21.9 pc of GDP

Gross capital formation up 30 pc in FY 05

Agricultural growth up by 2.1 pc

AIM 10 pc economic growth

Non-food credit growing by 25 pc

Gross capital formation up 30 pc in FY 05

90 pc golden quadrilateral completed by 90 pc in June 2006

GDP growth target for tenth plan at 8 pc

11, 7000 spent on rural employment scheme

Govt determined to take growth rate to 10 per cent

Manufacturing sector to grow at 9.4 per cent in FY 06 07

Highway scheme progressing at 4.4 km per day

96 per cent of GQ to end by June 2006

Food grain output this year at 209.5 mt

8.7 lakh rural houses constructed by bharat nirman

Inflation at 4.02%

5083MW more power to be added in 2006

10,366 villages electrified this year

Rs 11,700 cr to be spent on rural employment

Govt's aim is to ensure monetary stability and managing external debt

Education outlay Rs 24,115 crore

Rs 3010 crore outlay for midday meal scheme

Rs 944 crore has been given for irrigation

Rs 720 cr for rural sanitation

Hyderabad Metro rail to be considered

Old age pension (above 75 years) - Rs 200 per month

Five lakh additional class rooms to be constructed

1.5 lakh additional teachers to be appointed

Allocation for education increased by 31.5 pc to Rs 24,150 crore

Allocation for healthcare raised by 22 pc to Rs 12, 546 crore

Destitute pensioner to get Rs 400 per month with the help of states

Rs 10,041 cr for Sarva Shikhsha Abhiyan

Massive polio immunisation programme from 2007

54 pc hike for Bharat Nirmal Programme at Rs 18,696 crore

Incentive for girl child who passes 8th standard - Rs 3000 award after she turns 18

Gender budgeting on in 32 ministries

Rs 24,115 crore for education

Rs 4680 cr outlay for drinking water

Total budget for Northeast will be Rs 12,041 crore

Rs 1,350 crore for the ministry of NE development

Rs 16.4 cr for National Minorities Development Corporation

Rs 8207 crore for rural health spending

LPG included in list of declared goods under CST Act

Rs 4,680 crore for Rajiv Gandhi water drinking plan

Rs 16,000 cr allocation for PSUs

Expert body to be set up for jems and jewelery sector

Farmers to receive short term credit at 7 per cent

Gross budgetary support for Plan expenditure up 20.4 pc at Rs 1,74,725 crore

Special tea fund of Rs 100 cr for Assam,TN,Kerala, Uttaranchal

Stress on development of micro-finance sector

Rs 4,595 cr for urban renewal mission

Programme for reconstruction of calamity-hit areas.

Rs 28,737 crore allocated for gender budgeting

Allocation for national Urdu education programme increased to Rs 13 crore

Rs 10, 000 cr allocation for rural infrastructure

Special schemes for STs and SCs for their development.

India to be made manufacturing hub for textiles, steel

India to be made manufacturing hub for metals and petro products

Maulana Azad Educational Foundation corpus for minority welfare doubled to Rs 200 crore

New towns to be established on specific themes

Farm credit to benefit Allahabad Bank and SBI

Govt aims to double farm credit in three yrs

More infrastructure to benefit cement industry

Outcome of Budget to be tabled on March 17

1,000 schools for SCs, STs, OBCs and minorities girls

Foreign tourist arrival 3.92 million in 2005

Agricultural credit proposed to be increased to RS 175,000 crore

50 lakh additional farmers to be covered

Agricultural insurance scheme to continue

Central horticulture institute in Nagaland

FDI flow put at $4 billion up to November, 2005

Budgetary loan for PSEs has been fixed at Rs 16901 crore

Budgetary loan of Rs 2791 crore for Railways

4.7 pc growth in power generation in 2005

Rs 4,481 crore allocated for improving 20,000 water bodies

National fisheries development board to be set up

82 power projects under construction

4 new hotel management institutes in Chattisgargh, Haryana, Jharkhand and Uttaranchal.

Five ultra-mega power projects before Dec 2006

Rs 597 cr for non-conventional resources

Tourism plan spending at 830 cr

National Highway Authority of India to be restructured

2 pc of the borrowers' interest liability up to Rs 1 lakh principal of crop loans taken for kharif and rabi this year is to be reimbursed to farmers before March 31 this year

Allocation for Rural Infrastructure Development Fund has been stepped up to Rs 10,000 crore in 2006/07

Textile upgradation fund allocation to be raised to Rs 55 crore

12 textile industry parks to be set up

An allocation of Rs 189 crore provided for this

A National Jute Board to be set up

Like woolmark, there will be a handloom mark to certify quality

A window to be created for equity participation and viability gap funding for the growth of sunrise IT sector

Tax rationalisation for jewelry and gems import

Food Processing Sector to be a priority sector for bank credit

15 tourist areas to be developed

Services sector put on par with manufacturing sector

SMEs in service sector to get the status of SSI in manufacturing sector

Rs 1500 cr allocation to boost telephone connectivity

Plan allocation for shipping up 37 pc

Bill on cellular telephony in rural areas soon

40,000 more villages to be electrified under Rajiv Gandhi Gramin Vidhyutikaran Yojana

82 power projects are in various stages of implementation in the country to overcome power shortage

Work on to identify a deep draft port in West Bengal

To promote India as a semi-conductor hub

Introduction of a comprehensive bill on insurance in 2007

Biotechnology will be the big focus in FY 06-07

180 items to be de-reserved from SSI list

Thrust industries: textile and food processing

Rs 97 crore for upgrading IITs

FII investment limit in stock markets will be raised from $1.75 billion to $2 billion

National e-governance plan to be approved shortly

Telephone connection on demand in rural areas in three years

Raise in the aggregate investment of overseas investors from $1billion to $1 billion

An investment protection fund under the aegis of SEBI would be set up

Rs 100 crore special grant for Punjab Agricultural University

Food fertilizer and petroleum industries to be under subsidies

Defence budget raised to Rs 89,000 crore in 2006-07 from Rs 83,000 crore last year

Rs 37,458 crore would be capital expenditure in defence

Thrust on farm sector positive for fertilizer companies

Govt urges consensus in Parliament on subsidies in fertiliser, petrol and food

Allocation to the states from the central pool up to RS 1,03,710 cr from Rs 94,402 cr

Revenue deficit to be 2.1 per cent of GDP

Fiscal deficit 3.8 per cent of GDP im 2006-07

After 20 years, gross fiscal deficit is less than gross budgetary deficit

Plan expenditure has gone up to 30.6 per cent

Gross tax revenues increases by 19.4 pc in 2004-05

Customs primary and non-primary steel and alloy products down to 7.5 pc from 10 pc

Customs on mineral products down to 5 pc from 15 pc barring some items

Customs duty on ores and concentrates reduced to 2 pc from 5 pc

Customs duty on refractories reduced to 7.5 pc

Customs duty on 10 anti-AIDS and cancer drugs down to 5 pc

Customs duty on life-saving drugs down to 5 pc from 15 pc

Rs 300 cr as VAT compensation to states

Customes duty on ferrous alloy down to 7.5 pc from 10 pc

Peak customs duty reduced from 15 to 12.5 pc

Customs duty on naptha reduced to nil

Duty on packaging machines reduced to 5 pc

Duty on major bulk plastics down from 10 to 5 pc

4 pc CVD on all imports

Countervailing duty on most imports

Excise duty on small cars reduced to 16 pc

Duty on aerated drinks cut to 16 pc

Duty on footwear priced between Rs 250 and Rs 750 down from 16 pc to 8 pc

Duty on printing paper reduced to 12 pc

Import duty on manmade fibre cut from 15 pc to 10 pc

Customs duty on packaging machines reduced from 15pc to 5 pc

8 pc excise duty on packaged software

Excise duty on compact fluorescent lamps cut from 16 pc to 8 pc

Nil customs duty on set-top boxes

Duty on instant food cut to 8 pc

Cess on domestically-produced petroleum crude raised from Rs 1800/t to Rs 2500/t

Entire amount to be absorbed by oil producing companies

Excise duty on cigarettes increased by five per cent

Many tax exemptions in customs and excise to be removed barring SSI

No change in rates of personal or corporate income taxes

No new taxes are being imposed

One-by-six scheme for filing of income tax returns abolished

Excise duty on cigarettes up 5 pc

MAT rate inc from 7.5 pc to 10 pc

April 1, 2010 date for introduction of GST

Service tax raised to 12 pc

Bank Fds upto 5 yrs is included in 80-C reduction

Samll cars ice cream get cheaper

Rs 10,000 tax exemption limit for pension funds

FDs in scheduled commercial banks with five year maturity will get tax exemption under Section 80C

Rs 10,000 exemption limit for investment in pension funds under Section 80CCC removed

These investments would be brought under Sec 80C subject to a ceiling of Rs 1 lakh

Minimum alternate tax

Banking cash transcation tax to continue

Customs duty on vanaspati raised to 8 pc

Constituency allowances of MLAs to be treated for income tax purposes

Constituency allowances of MPs to be treated for income tax purposes

More transactions to come under PAN

Banking cash transaction tax introduced last year will continue

Fringe Benefit Tax modified

Threshhold limits of FBT raised

FBT will remain as it is

FBT is justified for ensuring horizontal equity
 
Service Tax hiked to 12%

Having noted that service sector contributed as much as 54 per cent of the GDP, Finance Minister P Chidambaram today proposed to raise service tax rate from 10 per cent to 12 per cent and widen the net to double the collections to Rs 34,500 crore in 2006-07.

During 2005-06, the government is likely to collect Rs 23,000 crore (revised estimates) against the budget estimate of Rs 17,500 crore.

The increased service tax rate would be applicable from the date of enactment of the Finance Bill 2006, he said in his 2006-07 budget presentation.

The Minister has brought 15 new services in the net and new areas include share transfer agents, registrars, ATMs, sale of space for advertisement other than in print media, sponsorship of events other than sports, international air travel other than economy class, public relation (PR) services and internet telephony, among others.

Credit card, debit card and other payment card-related services have been brought under the service tax net.


MAruti, Santro cut prices after budget

Indian car market leader Maruti Udyog on Tuesday announced a price cut ranging between Rs 13,000-22,000 across five models, including 'M800' and 'Alto', following the cut in excise duty on small cars.
"Maruti prices will reduce from tomorrow," company managing director Jagdish Khattar said, immediately after the Finance Minister announced that excise duty on small cars will come down by eight per cent to 16 per cent.

The price cut on the popular 'M800' will be around Rs 13,000, hatchback 'Alto' by Rs 15,000, and on 'WagonR' between Rs 15,000 and Rs 22,000, Khattar said.

"We will incur a loss of Rs 30-40 crore because of this though it would be good in the long term," Khattar said.

The other two models where prices will be cut are the 'Zen' and 'Omni' van.

Excise cut: Santro prices to drop by Rs 23,000

Minutes after Finance Minister P Chidambaram announced an eight per cent cut in excise duty on small cars, car major Hyundai today announced a Rs 23,000 cut in prices of its flagship 'Santro' car.

"The Santro will cost Rs 23,000 less from tomorrow," Hyundai India President BVR Subbu said.

Welcoming the Finance Minister's announcement, he said it would give a fillip to the small car segment. "We hope that it leads to a significant growth in demand for small cars." Subbu said.
However, prices of other Hyundai models will remain unaffected, Subbu added.
 
What will cost less

Small cars
Aerated drinks
Footwear
DVD Drives, Flash Drives and Combo Drives
Condensed milk
Ice cream
Preparations of meat, fish and poultry
Pectins, pasta and yeast
Ready-to-eat packaged foods and instant food mixes, like dosa and idli mixes
10 anti-AIDS drugs and 14 anti-Cancer drugs
Writing paper
Fluorescent lamps
LPG stoves
Vanaspati
Bulk plastics like PVC, LDPE and PP
Packaging machines

What will be dearer

Cigarettes
IT products
Packaged software sold over the counter
Glassware
Computers
Set top boxes
ATM operations, maintenance and management
Registrars, share transfer agents and bankers to an issue
Sale of space or time, other than in the print media, for advertisements
Sponsorship of events, other than sports events, by companies
International air travel excluding economy class passengers
Container services on rail, excluding the railway freight charges
Business support services
Auctioneering
Recovery agents
Ship management services
Travel on cruise ships
Public relations management services
 
Budget and Markets....

Sensex touches new peak of 10,354.12 in early trade:
The Bombay Stock Exchange Sensex on Tuesday shot up by 72 points to touch a new peak of 10,354.12 during morning trading ahead of the presentation of Budget.
The benchmark 30-share index opened above 10,300 level at 10,308.71 against Monday's close of 10,282.09. It later surged up to an all-time high of 10,354.12 before being quoted at 10,338.87 at 10.15 am, up by 56.78 points over previous close.

The market is driven by sustained FII inflows into equity during the last week. Foreign Institutional Investors reported net investments of Rs 1001 crore on February 24.


Sensex sets new record in post-Budget trading:
The Sensex closed at a record high on Tuesday as investors welcomed proposals to boost the economy outlined in the Budget for the next fiscal year starting April 1.

They said that automobile, banking and consumer stocks posted the strongest gains after favourable proposals for those industries were announced.

The benchmark BSE Sensex index rose 88.15 points or 0.86 per cent to a second-straight record high of 10,370.24.

New intra-day high:
The Bombay Stock Exchange benchmark Sensex on Tuesday took off by over 140 points to a new intra-day high of 10,422.65 point.

The indices touched a new peak following hectic buying by major market players in blue-chip shares, despite the Budget proposing a hike in securities transaction tax.

The major support came in from auto and cement segments, which received a boost in the Budget with a cut in excise duty for small cars and focus on infrastructure.

The 30-share index was up by 141 points an hour before close of trading, though shares lost some ground earlier.

The second largest National Stock Exchange index Nifty also climbed to a record intra-day high of 3090.30 points.

In the auto segment, shares of Bajaj, Maruti and Tata Motors marched upwards, while ACC, Grasim and Larsen and Toubro and Gujarat Ambuja Cement climbed in the cement segment.
 
Budget and Taxpayers....

No change in personal income tax rates:
There will be no change in the rates of personal income tax or corporate income tax. Announcing this in Lok Sabha today while presenting the Budget proposals for 2006-07, Finance Minister P Chidambaram said no new taxes are being imposed.

The Minister abolished one-by-six scheme under the Income Tax Act obliging certain categories of persons to file returns.

Responding to the demand for tax exemption on fixed deposits of certain tenure, the Finance Minister proposed to include investments in fixed deposits in scheduled banks for a term of not less than five years in Section 80C of the Income Tax Act.

He also proposed to remove the limit of Rs 10,000 in respect of contribution to certain pension funds in Section 80CC, subject to the overall ceiling of Rs.One lakh.

The Finance Minister also proposed to remove the exemption under Section 10(23G), which he said, was not relevant when interest rates are moderate.
 
Dear All,
Please see the Budget 2006 Highlights & its effect on IT Industry.



Budget 2006 Highlights: – The IT Industry Perspective
by MarketFlash Bureau Delhi


The following are the highlights of the Union Budget 2006-07 from the IT industry perspective.


Focus on IT manufacturing – The Ministry of IT & Communications to announce a policy package for manufacturing of highly capital intensive IT products such as semiconductors, Assembly, testing, Manufacture of Wafers, Flat LCD/OLED/Plasma displays and storage devices. The Government to consider Gap funding of such projects through IIFCL in a timeframe of three years.



Rs.1,500 Crore allocation from the Universal Service obligation fund for improving rural telephony. Ministry of IT & Communications to bring a Bill to amend the Indian Telegraph Act for extending financial support for infrastructure for cellular telephony in rural areas.



The National e-Governance plan with 25-mission mode projects to be launched in 2006-07. Several citizens’ services to be brought on-line.



April 01, 2010 set as the deadline for the Goods and Service Tax (GST).



Customs Duty



Customs Duty reduced from 15% to 12.5%. However all products listed under the IT Agreement of the WTO continue to attract nil customs duty.


Additional customs duty of 6% and 7% imposed last year (July 26, 2004) on CPU box and finished computer (CPU box with monitor, mouse and keyboard) respectively abolished.


Customs Duty on MP3 players and MPEG4 players reduced from 15% to 5%.


Additional Duty of 4% in lieu of state VAT of 4% to continue on all ITA listed items. The 4% Additional duty has now been extended to all imports but does not apply to items that are at nil customs as well as nil excise duty/CVD. Therefore, the Additional duty of 4% does not apply to the following:


Microprocessors
Hard disk Drives
Floppy Disk Drives
CD Rom Drives
DVD Drives
Flash Drives and
Combo Drives


The 4% Additional duty will not apply to Cellular phones as they are at nil customs and nil excise duty


DTA access from EOU/EPZ/EHTP/SEZ exempted from 4% Additional duty provided such goods are not exempted from VAT/Sales Tax.


Customs duty on Set-top box reduced to nil from 15%. This is to align the duty structure of the set-top boxes not covered within the scope of IT Agreement with those of covered within the said ITA list.


Excise Duty



12% Excise Duty imposed on PC



Nil excise duty will be applicable on the following input components of a PC:



· Microprocessors

· Hard disk Drives

· Floppy Disk Drives

· CD Rom Drives

· DVD Drives

· Flash Drives and

· Combo Drives



8% excise duty imposed on packaged software/canned software. However this does not apply to software downloaded from internet and also to application software, which is custom built.



Excise duty on MP3 and MPEG4 players reduced from 16% to 8%



Cellular phones, Radio trunking terminals and parts and accessories of cellular phones to attract nil excise duty.



16% excise duty imposed on non-ITA listed set-top boxes.



On DTA access from EOU/EHTP/STP an aggregate of 25% of customs duty and full excise duty to be charged instead of earlier 50% customs duty and full excise duty. (This is a modification to the earlier version of the EHTP as in the subsequent version allows 100% DTA access is permitted on payment of full customs and full Excise duty).



Service Tax



Rate of Service Tax increased from 10% to 12%



Scope of Service tax extended to 15 new services such as services provided by a Registrar to an issue; by a share transfer agent; Operation, management and maintenance of ATM machines; business support services; event sponsorships, public relation services; internet telephony services; credit card related services etc.



Exemption on taxable services with respect to ERP solution services provided by management consultants withdrawn



Exemption on taxable services with respect to call centers or medical transcription Centre withdrawn.



Penalty at the rate of rupees two hundred for every day of failure to pay service tax or at the rate of two percent of the tax per month, which ever is higher shall be imposed for failure to pay service tax by the due date.



Income Tax



No change in rates of personal taxation and corporate taxation. Corporate tax to continue at 30%.



Rate of Minimum Alternate Tax (MAT) revised from 7.5% to 10%.



Fringe Benefit Tax (FBT) to continue.



State VAT & CST



Most states have introduced VAT; by and large IT products attract 4% VAT



The Empowered Committee of State Finance Ministers has recommended that Central Sales Tax (CST) be phased out. The Ministry of Finance and the Empowered committee to come to a consensus on making good the revenue loss to the states due to the proposed phase out.



Modernisation of Tax Administration through IT implementation by 2006



745 Income Tax offices in 510 locations being networked to enable e-filing of IT returns.



550 Customs and Excise offices in 245 locations being networked to enable customs clearance, risk management and e-filing of excise returns.





Duty Structure on IT products Post Union Budget 2006-07

(effective March 01, 2006)





S. No.
Item
HSN
Basic Customs

Duty
Excise/CVD
Additional Duty in Lieu of VAT/Sales Tax

1.
Computers – Full system with Monitor, Keyboard and Mouse
84.71
0%
12%
4%

3.
Other Finished Goods – Monitors, Printers, Keyboards etc.
84.71
0%
16%
4%

4.
HDDs/FDDs/CD-ROM Drives/DVDs/Flash Drives/Combo Drives
8471.70
0%
0%
0%

5.
Other Storage Devices
8471.70
0%
16%
4%

6.
Microprocessor
8473.30
0%
0%
0%

7.
ICs
85.42
0%
16%
4%

8.
Parts of 8471 (except ink cartridges, ink spray nozzle and Populated PCBs)
8473.30
0%
16%
4%

9.
Ink cartridges and ink spray nozzle
8473.30
0%
16%
4%

10.
Motherboard & Populated PCBs
8473.30
0%
16%
4%

11.
Routers and Modems
85.17.50
0%
16%
4%

12.
Set-top boxes
8517.80 &

85.28
0%
16%
4%

14.
Colour Data Graphic Display tube
8540.40
0%
16%
4%


MP3 & MPEG4 Players
8519.9940/

8520.9090/

8521.9090
5%
8%
4%


Mobile Phones and Radio Trunking Terminals
852520
0%
0%
0%


Parts and Accessories of Mobile phones
8529.9090
0%
0%
0%


Packaged Software
8524
0%
8%
0%


Application Software
8524
0%
0%
0%


Note:



The 2% education cess continues on Excise.
Tax Computation eg:
Finished Computer import (FoB USD 100): 100 X 1.12 X 1.04 = 116.48
Printer Import (FoB USD 100): 100 X 1.16 X 1.04 = 120.64
Mobile Phone Import (FoB USD 100): 100 X 1.0 X 1.0 = 100
 
Union Budget 2006-07 was largely a non-event. There were no announcements made by the finance minister that would have a telling effect on most of the sectors. Nonetheless, in this article, we try and bring out 10 key things that would affect you directly/indirectly.

Direct taxes: The FM has left the personal income tax and corporate tax rates for FY07 unchanged.

Service tax net widened: The FM has brought new services under the tax net, which would increase the costs of operation for an individual. Amongst the new services included are, ATM operations, credit card/debit card/charge card or other payment cards related services, internet telephony service, international air travel excluding economy class passengers and travel on cruise ships.

One-by-six scheme: The government has taken a significant step by abolishing the one-by-six scheme. This scheme was in existence so as to bring a larger number of persons under the tax net. It must be noted that under this scheme, any person who satisfies even one of the six indicators (owns or leases a car, occupies an immovable property, travels abroad, annual electricity bill of Rs 50,000 per annum, holds a credit card, has a club membership) is liable to file an income tax return.

Since it is relatively easy for the authorities to collect the details of the members or users of these facilities, the authorities can keep a track of the persons and can make them comply with filing of income tax returns. However, the rationale of this step, considering that the number of people of people filing income tax returns in the country is still quite low, continues to elude us.

Securities Transaction Tax: If you are buying or selling equity shares, then the STT (transaction tax) burden has gone up from 0.02 per cent to 0.025 per cent (up 25 per cent) of transaction value. In our view, while long-term investors in equities would not be affected by such a move, it is the trader community that stands to lose.

Investments in mutual funds: Definition of open-ended equity-oriented schemes of mutual funds in the Income tax Act aligned with the definition adopted by SEBI. Thus, open-ended equity-oriented schemes and close-ended equity-oriented schemes shall be treated at par for exemption from dividend distribution tax.

Tax benefits on fixed deposits: Meeting, to a certain extent, the expectations build up on this front, the FM has included investments in fixed deposits in scheduled banks for a term of not less than 5 years in Sec 80C of the Income Tax Act, wherein the taxpayer is allowed certain tax relief as a deduction from his/her taxable income.

Changes in Sec 80CCC: The limit of Rs 10,000 in pension funds under Section 80CCC has been removed but these investments would be brought under Sec.80C subject to a ceiling of Rs 1 lakh.

Bank Cash Transaction Tax: This is to continue for some more time until the Annual Information Returns system is able to capture all significant financial transactions.

Compact cars to become cheaper: Reduction in excise duty for compact cars would make these more affordable to the extent the auto manufacturer passes on the same to the consumer.

Cigarettes to become expensive: With the FM raising the excise duty on cigarettes by 5%, more likely than not, the same would be passed on to the customer, making the pursuance of this habit a tad expensive.
 
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