All Eyes on Palaniappam Chidambaram on Budget Day

AIT News Network

 NEW DELHI.The Budget of  Palaniappam Chidambaram failed to live upto stock market expectations with Sensex slipping further taking a clue from falling global markets. Manufacturers are allowed clearances at existing rates on 28^th February and the changes in duty will be effective 1^st March. The Bills of Entry filed on or after 1^st March will be subject to Import duties announced in Budget and the service tax changes will be effective after enactment of the Finance Act 2007.   

Significant changes in Budget 2007-2008 are as under:

Indirect Taxes:

Customs duties:

·        Reduction in peak rate for non-agricultural products from 12.5% to 10%.

·        Reduction in duty on most chemicals and plastics from 12.5% to 7.5%; on

·        seconds and defectives of steel from 20% to 10%.

·        All coking coal irrespective of ash content to be fully exempt.

·        Reduction in duty on polyester fibres and yarns from 10% to 7.5% and on

·        raw-materials such as DMT, PTA and MEG from 10% to 7.5%; on cut and

·        polished diamonds from 5% to 3%; on rough synthetic stones from 12.5% to 5%; and on unworked corals from 30% to 10%.

·        Dredgers to be fully exempt from import duty.

·        reduction in duty on drip irrigation systems, agricultural sprinklers and food processing machinery from 7.5% to 5%.

·        Reduction in general rate of import duty on medical equipment to 7.5%.

·        Crude and refined edible oils to be exempt from additional CV duty of 4%; reduction in duty on sunflower oil, both crude and refined, by 15 percentage points.

·        Reduction in duty on pet foods from 30% to 20%; on watch dials and movements and umbrella parts from 12.5% to 5%

• concessional rate of 5% duty to be extended to all research institutions registered with the Directorate of Scientific and Industrial Research

• reduction in duty from 7.5% to 5% on 15 specified machinery for pharmaceutical and biotechnology sector.

• Duty of 3% (WTO bound rate) to be levied on all private import of aircraft including helicopters; such import to also attract countervailing duty and additional customs duty.

• Duty of Rs.300 per metric tonne to be levied on export of iron ores and concentrates and Rs.2,000 per metric tonne on export of chrome ores and concentrates.

Excise Duties:

·        Reduction in ad valorem component of excise duty on petrol and diesel from 8% to 6%.

·        exemption limit for small scale industry (SSI) to be raised from Rs.1 crore to Rs.1.5 crore;

·        biscuits whose retail sale price does not exceed Rs.50 per kilogram and all kinds of food mixes including instant mixes to be fully exempt; reduction in duty on umbrellas and parts of footwear from 16% to 8%; on plywood from 16% to 8%; biodiesel to be fully exempt.

·        water purification devices operating on specified membrane based technologies and domestic water filters not using electricity to be fully exempt; exemption on pipes used for carrying water from a water supply plant to a storage facility to be extended to all pipes of diameter exceeding 200 mm used in water supply systems.

·        Reduction in the rate of duty from Rs.400 per metric tonne to Rs.350 per metric tonne on cement sold in retail at not more than Rs.190 per bag; rate of Rs.600 per metric tonne on cement that has a higher MRP.

·        Specific rates of duty on cigarettes to be increased by about 5%; duty (excluding cess) on biris to be raised from Rs.7 to Rs.11 per thousand for non-machine made biris and from Rs.17 to Rs.24 per thousand for machine made biris; duty on pan masala not containing tobacco to be reduced from 66% to 45%; withdrawal of exemption for pan masala containing tobacco and other tobacco products given to units in the North Eastern States.

Service tax :

·        Exemption limit for small service providers to be raised from Rs.400,000 to Rs.800,000

·        services outsourced for mining of mineral, oil or gas; renting of immovable property for use in commerce or business (residential properties, vacant land used for agriculture and similar purposes,and land for sports, entertainment and parking purposes & immovable property for educational or religious purposes to be excluded); development and supply of content for use in telecom and advertising purposes; asset management services provided by individuals; design services; services involved in execution of a works contract with an optional composition scheme under which tax will be levied at only 2% of the total value of works contract.

·        Services provided by Resident Welfare Associations to their members who contribute Rs.3000 or less per month for services rendered, services provided by technology business incubators, their incubatees whose annual business turnover does not exceed Rs.50 lakhs to be exempt for first three years; clinical trial of new drugs to make India a preferred destination for drug testing. 

Direct Taxes

·        Threshold limit of exemption in the case of all assessees to be increased by Rs.10,000 thus giving every assessee a relief of Rs.1,000; in the case of a woman assessee, threshold limit to be increased from Rs.135,000 to Rs.145,000 and in case of a senior citizen from Rs.185,000 to Rs.195,000 giving him or her a relief of Rs.2,000; deduction in respect of medical insurance premium under section 80D to be increased to a maximum of Rs.15,000 and, in case of a senior citizen, a maximum of Rs.20,000.

·        Surcharge on income tax on all firms and companies with a taxable income of Rs.1 crore or less to be removed.

·        Benefit of Section 36(1)(viii) to be available to cooperative banks; to be also allowed deduction in respect of provision for bad and doubtful debts under section 36(1)(viia); amalgamation and de-merger of banking companies is tax neutral - benefit to be extended to cooperative banks.   Concessions under section 80IA for infrastructure facilities to be extended to cross country natural gas distribution network, including gas pipeline and storage facilities integrated to the network; and to navigation channe in the sea.

·        Issue of tax-free bonds through State Pooled Finance Entities formed for raising funds for a group of urban local bodies to be allowed.

·        A benign assessment procedure to be introduced for assessees engaged in diamond manufacturing and trading who declare profits from such activities at 8% or more of turnover.

·        A five year income tax holiday for two, three or four star hotels and for convention centres with a seating capacity of not less than 3,000; they should be completed and begin operations in National Capital Territory of Delhi or in the adjacent districts of Faridabad, Gurgaon, Ghaziabad or Gautam Budh Nagar during April 1, 2007 to March 31, 2010.

·        Concession under section 35(2AB) to be extended for five more years until March 31, 2012.

·        Tax holiday to undertakings in Jammu & Kashmir to be extended for another five years up to March 31, 2012.

·          Minimum Alternate Tax (MAT) to be extended to income in respect of which deduction is claimed under sections 10A and 10B; deduction under section 36(1)(viii) to be restricted to 20% of profits each year.

·        Pass-through status to be granted to venture capital funds only in respect of investments in venture capital undertakings in biotechnology; information technology relating to hardware and software development;nanotechnology; seed research and development; research and development of new chemical entities in the pharmaceutical sector; dairy industry; poultry industry; and production of bio-fuels, and hotel-cum-convention centres of a certain description and size.

·        Limit of Rs.50 lakh per investor per year with respect to capital gains bonds issued by NHAI and REC under section 54EC to continue.

·        Rate of dividend distribution tax to be raised from 12.5% to 15% on dividends distributed by companies; and to 25% on dividends paid by money market mutual funds and liquid mutual funds to all investors.

·        Expenditure on free samples and on displays to be excluded from the scope of Fringe Benefit Tax (FBT); ESOPs to be brought under FBT.

·        Cash withdrawals by Central and State Governments to be excluded from the scope of Banking Cash Transactions Tax (BCTT); exemption limit for individuals and HUFs to be raised from Rs.25,000 to Rs.50,000.

·        An additional cess of 1% on all taxes to be levied

·        List of declared goods under section 14 of the CST Act to be amended to cover all small aircraft with minimum takeoff mass of less than 40,000 kgs operated by scheduled airlines.