Ashok Dasgupta

Marginal relief to `aam aadmi', but many sections may have reason to be displeased

NEW DELHI: In a highly calibrated budgetary exercise, Finance Minister P. Chidambaram on Wednesday announced a comprehensive package for agriculture and related activities with the objective of easing supply-side bottlenecks in future. He meanwhile put in place a slew of "anti-inflationary" measures along with the much-needed push to certain other sectors of the industry to sustain the high-growth momentum of the economy.

In doing this, Mr. Chidambaram sought to ensure marginal relief to the "aam aadmi" and all other taxpayers by way of a small hike in the exemption limit. But he appeared to displease many other sections, mainly the corporates, by increasing the dividend distribution tax and including the Employees' Stock Option Plan, or ESOPs, under the Fringe Benefit Tax (FBT) regime.

Although Prime Minister Manmohan Singh as well as Mr. Chidambaram sought to explain the seemingly "harsh" budget proposals as measures to contain inflation and sustain the high-growth trajectory of the economy while trying to ensure more "inclusive" growth, not many seemed to buy that logic.

Income tax rates

Presenting Budget 2007-08 in the Lok Sabha, Mr. Chidambaram kept the personal income-tax and corporate tax rates unchanged. But he sought to raise the threshold exemption limit by Rs. 10,000, thus providing a tax relief of Rs. 1,000 to all taxable individuals. In effect, while the general threshold limit stands raised to Rs. 1.1 lakh, the new limit for women will be Rs 1.45 lakh and for senior citizens Rs. 1.95 lakh.

More than neutralising the relief although Mr. Chidambaram refutes this the education cess is proposed to be increased from 2 per cent to 3 per cent to net an additional Rs. 5,000 crore, to be utilised to fund secondary and higher education.

As a part of the anti-inflationary measures, Mr. Chidambaram rationalised the customs duty from the peak rate of 12.5 per cent to 10 per cent and announced cuts in the excise levy on a number of critical items. He also announced a ban on futures trading on staple food items such as wheat and rice in commodity exchanges.

As for the corporates, Mr. Chidambaram chose to increase the dividend distribution tax (DDT) from 12.5 per cent to 15 per cent. Money market mutual funds and liquid mutual funds will attract a tax of 25 per cent for dividend distribution.

Overall, the direct tax proposals are estimated to net an additional Rs. 3,000 crore as revenue while the indirect ones are revenue neutral.

Mr. Chidambaram, however, sought to remove the income-tax surcharge on firms and companies with a taxable income of Rs. 1 crore or less, and gave a five-year tax holiday for the construction of new hotels in the National Capital Territory of Delhi.

As is the practice, Mr. Chidambaram imposed an additional levy on tobacco products such as cigarettes and even bidis, in the name of better health of the people.

As for the FRBM targets, Mr. Chidambaram noted that both the revenue and fiscal deficit targets were being adhered to.

  • Finance Minister's Budgetspeech - Full Text
  • UnionGeneral Budget 2007-2008: Photo Gallery

    More In: Today's Paper