Budget

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Budget
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R Bupathy Co Presents
Analysis of Union Budget 2006
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Two Indias

• Indias Business Competitiveness
• Indias Human Development Index

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HDI India

• Poverty line 30
• Undernourished 24
• Adult Literacy 65
• Sanitation 28
• Composite HDI 127/ 175

Namibia,Ghana, Morocco, Myanmar, Cambodia,
Swaziland and Botswana for company
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What is a goal?
Goal is a dream with a deadline
Goal for a country
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3
CORE
AREAS
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Indian Economy Pink of health?

• Growth 8.1
• Inflation 5
• Interest rates to harden
• Fiscal and Revenue targets met
• Tax to GDP ratio 10.5

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KEY RATIOS - INDIA 2006
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Lalus Rail Card
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Tax collection proportion
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Service Tax
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Laffers Curve
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Customs

• Peak rate slashed to 12.5
• Introduction of Special CVD of 4. This is
  Cenvatable.
• Import duty incidence increased from 34.44 to
  36.74
• Saving of 2.5 for manufacturers Extra cost of
  2.3 for others.

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Central Excise

• No SED for Small Cars
• Small cars defined w r t length and engine
• No SED on aerated drinks
• Small cars and Aerated drinks attract 16 duty.
• Ice Cream, Pasta etc exempt from duty.

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Central Excise

• Excise Duty on
• Computers 12
• Packaged or canned software 8
• EOU - Change in the methodology of calculation of
  ED for DTA clearances.
• Earlier 50 of the applicable CD (17.22)
• Now 25 of Basic CD Plus CVD at 16.

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Central Excise

• Withdrawal of exemption for
• Goods manufactured without the aid of power.
• Products, like locks, soaps, biscuits
• Certain unbranded items
• SSI benefit
• Rs 1 Crore to continue.

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Direct Tax Proposals

• Business Profits
• Capital Gains
• FBT
• Deductions other amendments
• Procedural Aspects

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Business Profits

• Book profits to include LTCG exempted u/s.10(38)
• Book profit tax increased from 7.5 to 10
• Credit for MAT tax
• - Extended from 5 to 7 years
• - MAT Paid for AYs 2007-08 onwards
• Exempt incomeMethod for allocating exp.-Sec.14A
• Income Tax paid includes tax levied outside India
  Explanation to Sec.40(a)(ii)
• Conversion of interest payable to loan Sec.43B

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Capital Gains

• Notified institutions u/s.54EC restricted to NHAI
  and REC
• Sec.54ED omitted
• Transfer of listed securities / units

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Capital Gains
STT increased by 25 - Heres the Impact
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FBT

• Public proposes
• Deletion of the chapter
• Giving a threshold limit
• Deleting FBT on genuine business exp.

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FBT

• FM disposes
• 1. Contribution to approved super annuation
  fund only in excess of Rs.100000 per employee is
  chargeable to FBT

• 2. Exclusions from sales promotion expenses
• Distribution of free samples of medicines /
  medical equipment to Doctors
• Payment for use of celebrity endorsement and
  brand ambassadors

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VALUATION OF FBT
Activity carried on Business of carriage of
goods / passengers by AirCraft / Ship
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Service Tax

• From 5 in 94 to 8 in 03 to 10 in 04.
• Rate now increased to 12.
• Increase effective once Bill is enacted.
• Rate may be hiked to 16 in the next 2 years to
  merge with rate for ED

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Service Tax

• Introduction of new services.
• Registrar to an issue
• Share transfer agent
• 3. ATM operations
• 4. Recovery Agent service
• 5. Sale of Advertisement space or time
• 6. Sponsorship services.
• 7. Air Transport of international travellers
• 8. Transport of goods in containers by rail

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Service Tax contd.

• 9. Business Support Service.
• 10. Auctioneer Services.
• 11. Public Relation Service.
• 12. Ship management services
• 13. Internet Telephony
• 14. Transport by Cruise or ships.
• 15. Credit card related services
• New services would become taxable after
  enactment of the Finance Bill, 2006.

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Service Tax contd.

• Expansion of scope of existing services
• Management consultancy to include consultancy in
  different areas of management including IT
  resources
• Maintenance or Repair service to include
  management of movable property.

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Service Tax contd.

• Erection, Commissioning, Installation service to
  include erection of prefabricated structures.
• Consulting Engineer Services to include the
  services provided by firm or body corporate.
• Technical Testing service to include clinical
  testing of drugs or formulations.
• These changes would take effect after enactment
  of the Finance Bill, 2006.

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Service Tax contd.

• Withdrawal of exemptions
• Premiums received from reinsurance and premium
  booked outside India.
• 2. All services provided by CA/CWA/CS in their
  professional capacity
• 3. Catering services provided by outdoor caterer
  in railway in academic or medical institutions
• 4. ERP services under Management Consultant
• 5. Call Centres and Medical Transcription Centres
• Change Effective immediately

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Service Tax contd.

• Maintenance of software
• Exclusion clause of IT services under the
  Business Auxiliary services amended.
• Maintenance of software now removed from the
  exclusion.
• Computerized data Processing now a taxable
  service
• Exclusion of IT services restricted to design
  and development of software only.

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Service Tax contd.

• Other changes
• Sec 65 -Club or association would now be
  considered as a separate person and different
  from their members.
• The term Commercial concern to be replaced
  with any person.
• Existing explanation to Sec 65(105) of the
  Finance Act, 1994, to be replaced by Sec 66A.
• Sec 67 amended to levy tax on transactions where
  the value is not ascertainable

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CST / VAT / ST

• LPG for domestic use included in the list of
  Declared goods under Sec 14 of the CST Act,
  1956.
• Restriction under Sec 15 of the CST Act, 1956
  would apply
• Rate of VAT or Sales Tax in states cannot exceed
  4.

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What hasnt changed?

• CST reduction of 2 NOT effected
• Education Cess of 2 continues
• Threshold limit for small service providers
• Export of service Rules, 2005
• Service tax on GTA and abatement
• Controversy on Branded Jewelry.

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INDIA at Mar 05 (Rs. 000 K)
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INDIA CASH FLOW
(Rs. 000 Crores)
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Inside Dalal Street
LOSERS
WINNERS
Food processing Textiles Small Cars G-sec
Oil sector Cigarettes Computer hardware
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How come where gone
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Deduction Other amendments

• Deposit in schedule bank for a period of not less
  than 5 years eligible for deduction u/s.80C
• Contribution to pension fund u/s.80CCC limit
  increased from Rs.10,000 to Rs.1,00,000 per annum
• Aggregate of deductions u/s.80CC, 80CCC 80CCD
  restricted to Rs.1,00,000

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Deduction Other amendments Contd.

• Taxation of Anonymous Donations
• Received by University/Educational
  Institutions,Hospitals Charitable trust
• Taxed at flat rate of 30
• Exceptions
• Trust established wholly for religious purposes
• Impact of this amendment

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Deduction Other amendments Contd.

• Comp of tax payable for calculation of interest
  u/s.234A,234B 234C
• The following amount shall be deducted
• Relief u/s.90, 90A 91
• Tax credit allowed to be set off as per
  sec.115JAA
• Banking Cash Transaction Tax retained
• Notified allowance received disparity between
  MPs MLAs withdrawn
• Exemption from dividend distribution tax extended
  to CE equity oriented fund

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Procedural Aspects

• 1/6 scheme omitted
• Changes as regards PAN
• Class(es) of person specified by notification to
  apply for PAN
• AO may allot PAN to any person
• PAN to be quoted in more documents
• Time limit for completion of assessments/reassessm
  ents reduced by 3 months

Impact
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Procedural Aspects Contd.

• Clarifications as regards to time limit for issue
  of notice u/s.142 wref 01.04.1990
• Deferment of DMAT of TDS TCS Certificates
• Returns through tax return preparers

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Way Forward

• Business of governance
• Tax Agriculture
• Sell unproductive assets
• Legal Reforms
• Labour Reforms
• Infrastructure Reforms

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• THANK YOU