Income tax exemption limit for individuals has been raised from Rs 1.6 lakh to Rs 1.8 lakh, giving a relief of Rs 2000 to every tax payer, in the Budget for 2011-12 which widened the service tax net to cover more services that will raise the cost of air travel, hotel accommodation and those who drink in AC restaurants.
Presenting his third Budget in the Lok Sabha, finance minister Pranab Mukherjee preferred not to roll back central excise duty levels to November 2008 and kept it at 10 per cent while he levied a nominal one per cent central excise duty on 130 items that will enter the tax net.
Basic food and fuel items will continue to be exempted while the new levy will not apply to precious metals and stones. Jewellery made of gold, silver and precious metals sold under brand name would be covered by the new levy.
Minimum Alternate Tax on book profits of companies has been raised from 18 to 18.5 per cent and the lower rate of excise duty raised from 4 to 5 per cent.
Mr Mukherjee's income tax sops included reducing eligibility age of senior citizens from 65 to 60 and enhancing the exemption limit for them from Rs 2.40 lakh to Rs 2.50 lakh. He also created a new category of 'Very Senior Citizens' of 80 years and above who will be eligible for a higher exemption limit of Rs 5 lakh.
The minister estimated a net revenue loss of Rs 200 crore in the Budget. The proposal related to indirect taxes are estimated to result in a net revenue gain of Rs 11,300 crore, including Rs 4000 crore on service tax expansion, while the proposals on direct taxes are expected in a revenue loss of Rs 11,500 crore.
The Budget for 2012 pegs the fiscal deficit at 4.6 per cent of GDP for 2011-12 which works out to Rs 4,12,817 crore. Gross tax receipts are estimated at Rs 9,32,440 crore, an increase of 24.9 per cent over Budget estimates for 2010-11.
Net non-tax revenue receipts for the next financial year are estimated Rs 1,25,435 crore. The total expenditure proposed for 2011-12 is Rs 12,57,729 crore. Plan expenditure will be Rs 4,41,547 crore, an increase of 18 per cent and non-Plan expenditure will be Rs 8,16,182 crore, an increase of 10.9 per cent over Budget estimates of 2010-11.
Defence expenditure for the next year has been pegged at Rs 1,64,415, an increase of Rs 17,071 crore over the last financial year.
This includes a capital expenditure of Rs 69,199 crore. "Needless to say, any further requirement for the country's defence would be met," Mukherjee said.
The Budget has raised allocation for social sector spending by 17 per cent to Rs 1,60,887 crore and the allocation for Bharat Nirman programme by Rs 10,000 crore.
Allocation for infrastructure has been increased by over 23 per cent to Rs 2,14,000 crore and the credit to farmers hiked by Rs 1 lakh crore to Rs 4,75,000 crore. The Budget assumes open market borrowing of Rs 3.43 lakh crore. Extension of nutrient-based subsidy to cover urea is under active consideration.
In a boost to housing sector finance, the Budget continued the scheme of intra-subvention of one per cent on housing loans and liberalised it by extending it up to Rs 25 lakh from the present Rs 10 and Rs 15 respectively.
Air travelers will pay Rs 50 more on domestic trips and Rs 250 on international journeys by Economy Class as the Service Tax has been raised. Travel in higher classes in domestic journeys would be taxed at the standard rate of 10 per cent to bring it on par with international higher class travel.
Spreading the Service Tax net further, the Finance Minister proposed to include hotel accommodation in excess of Rs 1000 per day and service provided by AC restaurants serving liquor. Hotels with a declared tariff of Rs 1000 per day will have to pay Service Tax with an abatement of 50 per cent, which will mean an effective burden of five per cent of the amount charged.
AC restaurants with licence to serve liquor will now be paying Service Tax with an abatement of 70 per cent, which will mean effective burden of 3 per cent of the bill only.
The Finance Minister also proposed various measures to achieve a closer fit between the present Service Tax regime and its successor Goods and Services Tax (GST). The new services to be covered are hospitals with 25 or more beds with central AC, life insurance in the area of investment on the lines of ULIPs, legal services provided by business entities to individuals as well as representational and arbitrational services by individuals to business entities.
However, there shall be no tax on services provided by individuals to other individuals. The Minister announced a broad set of financial sector reforms, saying he proposed to move the legislations relating to insurance laws, LIC, revised pension fund bill, banking laws amendment bill, State Bank of India Subsidiaries Bill and a bill on Factoring and Assignment of Receivables.