Pranab Mukherjee presented the Union Budget 2012 in the backdrop of ‘a year of recovery interrupted?. India?s GDP growth slowed down to 6.9% in the current fiscal from 8.4% in the previous two fiscals primarily due to weak industrial activity coupled with a contraction in investments. Several additional factors contributed to this slowdown ? persistent and high inflation, monetary tightening, expansion of trade deficits, weakening of the rupee, negative global developments and domestic political uncertainty.

The Budget this year aims to revive India?s growth story through policy measures designed to bring about equitable growth to all stakeholders of the economy. While corporate tax rates remain unchanged, there is relief on the personal tax front with the raising of the exemption limit from R1,80,000 to R2,00,000 and a further widening of the income tax slabs.

Infrastructure development is a key focus of the Budget, both in terms of policy measures such as the setting-up of infrastructure debt funds to tap overseas markets as well as tax policy measures.

Among these is the enhancement of the ceiling on tax-free bonds for financing infra projects from R30,000 crore to R60,000 crore.

Funding for infrastructure projects is also sought to be boosted through a reduction in the withholding tax rate on ECBs (external commercial borrowings) for such projects from 20 to 5%. Proposed extension of investment linked incentives under section 35AD of the Income-Tax Act to setting up and operating of inland container depots and container freight stations will also aid the development of logistics infrastructure.

The finance minister has also accorded due priority to the power sector by allowing additional depreciation of 20% of new plant and machinery for power projects. The tax holiday accorded to the power sector has also been extended by a year to March 31, 2013.

The government had announced the National Manufacturing Policy in November 2011 with the objective of reviving growth in the manufacturing sector.

The Budget introduces an exemption from capital gains tax arising from the sale of residential property to an individual or HUF (Hindu Undivided Family) where the proceeds are re-invested in the equity of a start-up SME (small and medium enterprises) in the manufacturing sector. A weighted average deduction of 15% is also proposed for expenses incurred by companies on skill development in the manufacturing sector. The removal of restriction on venture capital funds to invest in only nine sectors as well as the removal of the cascading effect of dividend distribution tax (DDT) in multi-layered structures will remove tax impediments for the free flow of capital.

The finance minister has also sought to promote equitable growth by curbing the generation and circulation of black money. The measures for this include compulsory filing of return of income by residents who have overseas assets even if there is no taxable income.

The TDS (tax deduction at source) net has been widened to collect taxes on the sale of immovable property. Similarly, tax collection will now apply to the purchase of bullion or jewellery in excess of R2,00,000.

The introduction of advance pricing agreements is a welcome measure for bringing in certainty on the tax front for foreign investors.

There are however, some provisions which cast a shadow on investments ? for example, retrospective amendments to cover indirect transfers, introduction of general anti-avoidance rules, widening of definition of royalty. These changes are bound to raise questions on the certainty of tax policy in India, a critical element for a stable economic environment.

Overall, direct tax proposals carry the right objective of providing a growth stimulus in critical sectors. However, it is the retrospective amendments that have the effect of souring an otherwise tasty direct tax curry.