The big 4’s verdict

Country managing partner, Ernst & Young

Budget ’11 A Fine Balancing Act

The Budget reaffirms the Government’s priorities of sustaining the current economic growth and ensuring inclusive development. Fiscal consolidation and rising inflation, necessitating a review of the government spending while keeping the GDP on the high growth path are huge challenges. It is commendable that the FM has chosen to address the situation through greater expenditure restraint compared to enhancement of tax burden. The reaffirmation by the FM about the implementation of the Direct Taxes Code from 2012 has signaled that tax policy is gaining stability. In keeping with the thinking of phasing out the surcharge under the DTC, the lowering of the surcharge on domestic companies from 7.5% to 5% is a welcome measure, even with the base MAT rate being hiked from 18 to 18.5%. The marginal relief provided to the individual taxpayers by enhancing the exemption limit from existing R 1.6 lakhs to 1.8 lakhs is a positive move that would put some extra funds in the common man’s pocket. Budget 2011 has introduced MAT on LLPs which will restore the earlier inefficiencies. Infrastructure projects which are otherwise eligible for tax incentives shall be taxable under MAT at the rate of 20% on such incomes. The MAT provisions so introduced for LLPs provide for taxation of tax deductions / incentives claimed under normal provisions. An interesting change from the current MAT framework for companies is a different way of computing income

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