Finance minister Pranab Mukherjee in Budget 2009-10 on Monday has tried to please both corporate India and the aam aadmi by abolishing the controversial fringe benefit tax (FBT) and increasing the personal income tax threshhold and removing the tax surcharge on income over Rs 10 lakh annually.
The exemption for income tax has been hiked by Rs 10,000 for women and individual assessees and by Rs 15,000 for senior citizens. This would give an income tax relief of Rs 1,545 to senior citizens and Rs 1,030 to other assessees. It has also removed the 10% surcharge on income over Rs 10 lakh, bringing down the maximum marginal income tax rate to 30.9% from 33.9%.
Experts note that these relaxations would however help the higher income groups more. ?The withdrawal of surcharge would bring down the income tax by 3% for those earning over Rs 10 lakh every year,? pointed out Kuldip Kumar, executive director, PwC.
But to atone for this, the minister has promised to remove the current income tax return forms with the hugely popular SARAL forms again, albeit in a new avatar.
Meanwhile, although Mukherjee disappointed India Inc by not reducing the corporate tax rate, he has given them a sweetener by abolishing FBT, effective from this fiscal. Reverting to the earlier system, perquisites will be taxed at the hand of employees.
Now, employee stock options will be taxed as the difference between its fair market value on the day it is vested and exercised. Taxable perquisites will include contributions over Rs 1 lakh by the employer in superannuation funds and other perquisites defined by the CBDT.
Reversing another tax proposal of his predecessor, Mukherjee scrapped the commodities transaction tax (CTT). The tax, announced in Budget 2008-09 and levied on transactions like sale and purchase of options in goods, options in commodity derivatives in recognised exchanges at rates between 0.017% and 0.125%, has not been notified yet.
The proposals are expected to dent the Exchequer by Rs 15,000 crore?Rs 3,500 crore by hiking the exemption limit and Rs 10,000 crore by scrapping FBT.
To offset this, Mukherjee hiked the rate of minimum alternate tax to 15% of book profits from the current 10%. As a partial relief, the period allowed to carry forward the tax credit has been increased from seven years to 10 years. Experts point out that the move will hurt corporate India who is still battling the slowdown. ?Given the current cash crunch, this may create liquidity problems for companies,? an analyst said.
The Budget has also expanded the scope of presumptive tax scope all small businesses with a turnover up to Rs 40 lakh.
As a result the Centre?s total direct tax collection has been pegged at Rs 3,60,000 crore for 2009-10, just 4.4% higher than the revised estimate of Rs 3,44,601 crore for 2008-09.
Carrying forward the UPA?s reform agenda, Mukherjee has promised to introduce the Direct Tax Code in the Parliament?s winter session and will release the draft for public discussion in the next 45 days.
To clarify issues on transfer pricing and ?facilitate the investment climate?, the Budget has announced formulation of safe harbour rules and has also proposed the creation of an alternative dispute resolution mechanism within the income tax department to resole them.
Cutting the list of exemptions, Mukherjee has tightened norms for charitable trusts engaged in environment and heritage protection. ?The alternate dispute resolution mechanism and removal of FBT are steps in the right direction. The Budget should also have removed the corporate income tax surcharge,? said Amitabh Singh, partner, Ernst and Young.