Little over a week from now, on July 6th 2009, the Finance Minister Mr. Pranab Mukherjee will present Union Budget 2009-10 in the lower house of the Parliament. Lot of speculations are doing rounds in the National Media on what could be the content of the Union Budget 2009-10. We have collated some of these for your benefit and have analyzed the impact they will make on your pocket, if proposed.
If we go by the President’s address to both houses of the Parliament, the focus of Budget 2009-10 will be on increasing the fund outlay for various Social Schemes. With an already drying sources of revenue due to the impact of Global Recession, the Government will find it hard to manage the Fiscal Deficit. But, experts feel that the Finance Minister will not be perturbed with rising fiscal deficit al least for now. He would not shy away from borrowing more funds to fuel the signs of recovery that Indian Economy is showing.
Direct Tax Slabs may remain unchanged
Under the given circumstance, it would not be conducive to raise the income tax rate or change the slabs. The upcoming Union Budget 2009-10 may not see any change in the Direct Tax Slabs. The tax slabs were changed in Union Budget 2008-09, the move that provided significant relief to all segments of tax payers. This time around, the finance minister may find alternate ways to provide relief to the common man.
Standard Deduction may be re-introduced
In order to provide relief to the salaried class, the government may prefer the route of restoring standard deduction rather than increasing income tax slabs. Finance Minister Mr. Pranab Mukherjee may attempt to put money into the pockets of the salaried class by restoring standard deduction on income tax when he presents the Budget 2009-10.
Additional cess may be imposed
However, the budget may not be altogether painless with the possibility of cesses being increased like a further Rs 1 on every litre of petrol and diesel, or an increase in the education levy.
Surcharge may increase
Some sections of media are also discussing possibility of Government imposing a “rich tax” to mop up the needed resources. One such existing tax is the 10 percent surcharge that is imposed on taxable income over Rs. 10 lacs. Gorventment may increase the Surcharge in the Union Budget 2009-10. This however may not find favor with the congress vote bank, it should be noted that Congress did exceptionally well in the election in almost all constituencies of Delhi and Mumbai, were majority of top tax payers reside. Such a move may not go down well at a time when there is a sense of expectation that UPA’s first budget in its second innings will have a feel-good touch.
Changes in Service Tax
There is a possibility of some changes in areas like service taxes which impact consumer activity but will help government make up a part of what it has given away by way of three stimulus packages since late last year. There may be some other such “adjustments” in the budget’s fine print even as the main task seems to be to get the confidence levels back after the economic downturn.
Additional Tax benefit through new tax saving plans
The government is believed to be mulling over a new tax-saving scheme to garner ‘idle money’ lying with households and elsewhere in the system, primarily to fund building infrastructure.
There have been demands from various sectors for additional tax benefits for citizens and also tapping alternative resources for meeting the government’s spending needs. The scheme could offer tax benefits for investments up to Rs Five Lakh and be instrumental in partly meeting the country’s infrastructure funding needs.
The scheme could serve multiple purposes including giving additional tax benefits to the public, channelizing the huge amount of money lying idle in saving accounts or with households for productive means, that too without adding to the fiscal deficit.
Enhancement of Home Loan Interest component limit
The urban development ministry is pushing a proposal to double the income tax relief on home loan interest payout to Rs 3 lakh and triple the exemption on payment of the principal amount and reduced interest rates for houses up to Rs 30 lakh.
If announced, this Income Tax concession would serve two purposes, firstly it will boost the recession-hit realty sector, secondly it will give relief to households affected by the economic slowdown.
Currently, taxpayers taking housing loans are eligible for Income Tax exemption on interest payment of up to Rs 1.5 lakh every year. Along with this, the repayment of principal amount up to Rs 1 lakh is part of investments eligible for benefit under Section 80c of the Income Tax Act.
Level playing field for New Pension System from Tax point of view
The new pension system launched recently for general public is attracting lukewarm response from citizens, Pension Fund Regulatory and Development Authority (PFRDA) is pressing the need to make the Tax treatment of New Pension Scheme. The regulator has sought tax exemption for individual subscribers at all stages of the pension scheme, i.e. during contributions, returns and withdrawal, in line with other provident fund schemes.
The regulator is expecting that Union Budget 2009-10 would provide tax exemption to individuals at the time of entry to encourage them to opt for the scheme. However, the government might take some more time to provide tax benefits for those opting for NPS at the time of withdrawal.
No change expected in Small Savings, PPF, EPF Interest rates
The government does not seem keen to do much with interest rates on small savings either. It is felt that a fairly vulnerable section depends on returns on fixed investments and has already been hurt by the economic slowdown. This includes pensioners who have been hit by drop in value of mutual funds and who are largely banking on fixed deposits returns.
The Employees’ Provident Fund Organization (EPFO), India’s biggest pension fund, aims to pay 8.5 percent interest to its 40 million-plus subscribers for 2009-10, as new fund managers have helped it earn better returns. EPFO’s advisory body Central Board of Trustees is likely to decide the interest rate on EPF deposits for the fiscal 2009-10 at its meeting on July 4, just two days before Union Budget 2009-10.
Phasing out Securities Transaction Tax
The Securities Transaction Tax (STT) paid by stock market investors is likely to be phased out gradually. The first phase may be announced in the Union Budget 2009-10.
Experts believe that the complete removal of STT is now likely to be timed along with the introduction of the proposed comprehensive Direct Tax Code, which has been in the works for some time now and, among other things, proposes a more efficient method of taxing capital gains on securities.
Further, the Commodity Transaction Tax (CTT) which was introduced not long ago may be abolished in the upcoming Budget 2009-10.