Finance

Budget Expectations 2010-11

Some Common Expectations

Income tax exemption limits are expected to go up to give relief to households from rising inflation. Reduction of 30% is expected in the corporate tax.
No changes in direct tax rates are expected till the Direct Tax Code is fully discussed
The Goods and Services Tax (GST), to replace the existing spectrum of indirect taxes levied by the Centre and states, cannot be implemented by April this year. The target date may be put off by a full year. State finance ministers are yet to determine what
GST rates they will levy.
Can Expect higher tax rates and massive disinvestment in the coming Budget to help reduce the huge fiscal deficit from 6.8% of GDP this year to 3% over the next five years. At the same time, outlays on the government’s flagship programmes such as Bharat Nirman and NREGA (National Rural Employment Guarantee Act) may be hiked only modestly, after steep increases last year.
The Central sales tax cut to 1% would likely be abolished when GST is introduced in April 2011.
Service tax rates could be raised to the original level of 12 per cent
Ministries and departments asked for an 82% increase in budgetary support amounting to over Rs 4 lakh crore, the Planning Commission has asked for an 18% hike or a GBS of Rs 3.73 lakh crore. The finance ministry, however, is not likely to go
beyond a 15% increase amounting to Rs 3.25 lakh crore.
Government is planning to rationalize the domestic savings environment by introducing the tax provisions for specified savings instruments, which are currently under EEE regime and hence, is proposing to tax the savings instruments at least at
one stage.
IT sector can expect more projects from central government. According to estimates, there an addressable market of Rs 22,000 crore from the central government in next three to five years, apart from other projects by the central and state governments.
New projects include setting up of state data centres, proposed contracts by agriculture ministry and rail ministry, municipality projects and those under the NeGP. Metro and monorail projects in several cities and weather department’s need to upgrade with the latest technologies. The unique identification (UID) project is another big project that is drawing IT companies.
The government is considering levying between 11% and 14% across the board import duty on foreign generation equipment.
Excise duty for cigarettes likely to be hiked.
Rollback of stimulus for automobile industry: Excise duty was reduced by 4 per cent and service tax by 2 per cent.
Increased allocation under Jawaharlal Nehru National Urban Renewal Mission (JNNURM) for buses. 14) Increase in focus on rural development and increase in allocation for various programmes to enhance rural income.
Stimulus for export sector likely to continue.

Industry Wish list

Expectations – Realty Sector

•	Tax Exemption - an individual gets a tax deduction of up to Rs 1.5 lakhs on interest payments on home loans. The industry has requested the finance minister in a prebudget meeting to hike this limit to at least Rs 3 lakhs
•	There is also a demand to increase the limit of Rs 1 lakh on principal repayments of home loans to Rs 2 lakhs.
•	The industry is asking for income from renting of residential properties to be taxed at a flat 10 percent instead of the present norm of taxing at the marginal rate of 30 percent. Besides this, there is a suggestion that 50 percent of the rental income should be taxed as against the present provision of 70 percent.
•	It is also being suggested that the government should accord infrastructure status to the housing sector
•	Other items on the agenda have been the rationalization of stamp duty across all States, and encouraging States to release land for low and middle income housing schemes
•	House rent allowance (HRA) relief under Section 10(13A) for the salaried should be retained in the new direct tax code

Expectations - Auto Sector

•	Continuation of Stimulus Package for Commercial Vehicle Segment - that includes easier & softer loans, accelerated depreciation and concessional duties would help the segment recover.
•	Increased Export Promotion - The manufacturers & EOUs of auto industry expect specific direct & indirect tax benefits for exports by SMEs and continuation of tax holiday for themselves.
•	Rapid Implementation of Goods & Services Tax (GST)
•	Incentives to be Provided to Specialized Service Companies Undertaking R&D – Budget expectations include specific tax breaks for R&D service providers.

Expectations - Cement

•	Reduction in VAT to 4% to bring the same in line with the VAT on the other construction materials like steel.
•	Reduction in import duty on coal and pet coke to 0%.
•	Expecting Roll-back of excise duty from 8% to 10%. This will be largely neutral as it will be passed on to the end user but marginally negative for south-based companies like India Cements, Madras Cement.

Expectations – Pharma

•	Research tax credits - Government can play its role by providing benefits to units engaged in the business of R&D by way of deduction from profits linked to investments. Further, benefits in the form of research tax credits, which can be used to offset future tax liability,
•	Include expenses related to research done outside R & D lab - Accordingly, industry bodies have sought the inclusion of expenditure incidental to research carried outside R&D facility in India or in any foreign country, within the ambit of weighted deduction.
•	Extend tax holiday to hospitals beyond rural areas Subsidy for rural healthcare infrastructure
•	Harmonize pricing regulations
•	Extend list of life saving drugs
•	Rationalize duty structure - The Government could consider rationalizing the duty structure by making it at par with duty on final output. Another demand has been to increase the abatement limit allowed for computation of excise duty on medicaments, from 35 to 45 percent. Further, industry has sought rationalization of Value Added Tax (VAT) on medicines across states with specific exemption of life saving drugs and life saving medical devices.

Expectations - Metal Sector

•	Lowering of custom duty to zero from 5 per cent and 2 per cent respectively on Stainless Steel scrap and Nickel basically used as raw material for steel making.
•	And when it comes to custom and excise duty on all steel products, steel ministry has proposed to keep the duty structure unchanged
•	For iron ore, steel ministry wants to make more ore available in country and has suggested zero duty instead of the 2 per cent at present for imports
•	Hike in export duty on Iron Ore lumps & fines

Expectations - Hotel

•	Infrastructure status on hotel industry:
•	All new hotel projects will be able to avail of the benefit of deduction of 100% with respect to profits and gains for a period of 10 years. Expectations - Retail Sector
•	The industry has constantly advocated that 100 per cent foreign direct investment (FDI) should be allowed in single-brand retailing. Currently, FDI up to 51 per cent under singlebrand retail trading and 100 per cent in cash-and-carry wholesale formats is allowed under the automatic route.
•	Further, FDI may be allowed in multi-brand retailing, if not completely, then partially to begin with.
•	The industry has pressed the Government for long to give retail its due credit and recognize it as an industry
•	External commercial borrowings (ECBs) are not permitted in the retail sector. The Reserve Bank of India (RBI) liberalized ECB guidelines by permitting hotels, hospitals and software companies to avail ECB up to certain prescribed limits; retail sector has been left out. Liberalization of ECB policies can help the retail players in augmenting their funding requirements.

Expectations - Education Sector

•	Provision for information and communication technologies (ICT) in education
•	A y-o-y increase of 15% in allocation for education.

Expectations - Capital Goods and Engineering Sector

•	The government may increase import duties on foreign power generation equipment sourced in the country as recommended by the Planning Commission. Negative for Power Cos.
•	Further extension of Sec.80 IA by 4 years. This would be positive for companies in power sector.
•	Fund allocation for the Accelerated Power Development and Reform Programme (APDRP) and Rajiv Gandhi Grameen Vidyutikaran Yojana (RGGVY): Continued emphasis on increasing spending in power transmission and distribution (T&D) sector.
•	Increase in excise duties and service tax: Will depend on the ability of the manufacturer to pass on the increase in the cost to Consumers.

Expectations - Banks/Financial services

•	Extension of payment time line for the agricultural debt waiver scheme: Extension of scheme till June 2010.
•	Recapitalization of PSU banks with low Tier-I capital: Further receipt of recapitalization amount out of USD 2-billion loan received from World Bank. Positive for PSU Banks
•	Providing tax breaks on long-term infrastructure bonds issued by banks.
•	FDI limit in insurance sector likely to be increased to 49%.
•	60% of commercial bank loans for public-private partnership (PPP) projects in critical sectors to be refinanced by India Infrastructure Finance Company to be continued.
•	Housing loans up to Rs 3 million would be given priority sector lending status.
•	Measures to ensure higher credit flow to the infrastructure sector.

Expectations – Telecom

•	Tax exemption under 80IA from 5 to 10 years
•	Uniform Licensing may be implemented and increase in service fee
•	Implementation of 3G auction

Expectations – Software

•	Tax exemption for STPI beyond FY2011
•	Clarity on calculation of tax benefits for SEZ units under section 10AA

Economic Advisor C.Rangarajan’s View
According to him nuclear power sector should be opened up for private investments to help the power-starved economy to grow on a sustained basis, he also added that country would not have the energy security required to drive sustained high economic expansion unless it facilitates both public and private investments into the sector.