The build-up to the Budget was like the expectation before the release of a Rajnikanth blockbuster: new government, new thinking, new approach and a workaholic Prime Minister with the rub-off effect across Ministries. Finally, post-release of the Budget, the euphoria died down and at first blush, it looks like just another Budget. At best, this can be described as a five-day Test match with some baby steps taken on Day 1. Some key features have been discussed below.
As far as direct tax proposals go, marginal relief has been granted to individual taxpayers by increasing the basic exemption limit and incentivising savings by increasing the deduction limits under Section 80C from Rs. 1 lakh to Rs. 1.5 lakh. Ideally, these steps should be inflation-adjusted rather than announced in Budgets.
The much-awaited withdrawal of retrospective amendments on indirect transfer has been revisited. A committee will be constituted to review the pending cases and a fact-specific analysis will be undertaken before determining the tax implications. While in spirit it is laudable, one has to wait for the implementation to see how effective it is.
Extension of the advance ruling mechanism to resident assessees is the most welcome feature of the Budget proposals — the details of the same are yet to be spelt out.
Other key proposals include modification in the manner of computing the dividend distribution tax, which will now result in a greater tax outflow in the hands of the company distributing the dividend. Additionally, the rate of tax applicable on long-term capital gains arising out of the transfer of mutual fund units will be increased from the current 10 per cent to 20 per cent. The above measures (including increasing the period of holding required for classifying unlisted securities and mutual fund units as long term) send mixed signals to potential investors who wish to capitalise on the secondary market. To give a fillip to small-scale industries, investment allowance for new plant and machinery is available even for investment beyond Rs. 25 crore as against the existing Rs. 100-crore threshold limits. This is targeted clearly to incentivise the ailing manufacturing sector.
On the indirect taxes front, the expectation of a roadmap for bringing in the Goods and Services Tax, while articulated in the economic surveys, finds minimum reference in the Budget speech. However, there have been duty rationalisation measures on the customs front, with basic customs duties reduced or rationalised for manufacture of products such as soaps, solar power products, cathode rays, LEDs and LCDs.
Similarly, attempts have also been made to rationalise and bring on a par customs duty rates on import of various types of coal, a subject matter of intense litigation in the recent past. As regards service tax, the tax base is sought to be broadened by proposing to levy service tax on sale of space/time in online and out-of-home media and provision of radio cab services, which were hitherto part of the negative list of services. To conclude, one may say that 64 years of Budget-making has taken a heavy toll on this country. The process itself is tiring and cumbersome. It is time now to seriously think of a Budget once in two years and regular monitoring of the progress rather than have an annual Budget. Also some interlinking with the State Budgets would also bring in the necessary harmony with the functioning of the States.
(The author is a tax partner, EY)
