Budget Analysis III: Taxation Measures

Goverments the World over have to raise resources to fund various social security schemes such as poverty allieviation schemes and provision of social infrastructure, and to fund the cost of running the Govt. This purpose can be accomplished through Govt. borrowing or through the measures of Taxation. Taxation is also aimed at equitable distribution of wealth, by taking money from the priviledged class for distribution amongst the less priviledged. India's Gross tax revenue is slated to grow at a slower pace this year, leading to a decline in the Tax/ GDP ratio from 11.5% in 2008-09 t0 10.9% in 2009-10.

Sources of Government's tax revenue can be broadly classified into Direct taxes (Income tax, Wealth tax, Corporate tax etc.) and Indirect taxes (Customs and Excise duties, Service tax). The share of direct taxes is steadily on the increase, budget 2009-10 projects the share of direct taxes at 58% of the total tax collection. According to budget estimates for 2009-10, the direct tax proposals are revenue neutral whereas the Indirect tax proposals would bring in an additional Rs.2000 crores. Let us sum up the impact of current year Tax proposals:

Individual Taxation:

• Basic tax exemption limit raised by Rs.15000 for Senior citizens and Rs.10000 for others.
• 10% surcharge applicable on income above Rs.10,00,000 abolished
• Fringe benefit Tax (FBT) payable by employers abolished. Perquisites to be taxed at the marginal rate of tax in the hands of employees
• Allowance for medical treatment of a dependent with severe disability increased from Rs.75000 to Rs. 1 lac (Section 80DD)
• Deduction for interest on loans for higher education widened to cover all fields of studies after completion of schooling (Section 80E)
• Wealth tax exemption limit raised from Rs.15 lacs to Rs.30 lacs.

Corporate Taxation:

• Minimum Alternate Tax (MAT) on book profits increased from 10% to 15%
• New Pension Scheme (NPS): Income of NPS trust exempted from income tax, DDT and STT.
• Commodity Transaction tax (CTT) abolished
• Easy presumptive tax for small businesses upto turnover of Rs.40 lacs at 8%.

Indirect Taxes: As a result of changes in indirect tax rates LCD TVs, Luxury cars, Branded jewellery and essential drugs become cheaper, whereas Set-top boxes, cotton apparel and branded fuel become dearer. Law firms brought under the purview of service tax.