Policy >> Union Budget Highlights

Press Release

Being labeled as a ‘feel good’, ‘inclusive’, ‘Santa Claus’, and ‘election year’ budget, there is no doubt that the Finance Minister has been more than liberal in allocating funds to key sectors such as education, agriculture, women’s empowerment, and health. The loan waiver scheme for defaulting farmers is a landmark and the astronomical sum of Rs. 60,000 Crores committed by the UPA Government for this cause, clearly points towards political one-upmanship.

The budget is a charitable one and has many positives including reduction in Excise Duty from 16% to 14% and retention of Customs Duty @10%. These two measures are welcomed by industry as it would reduce prices and continue to provide some protection to products which still attract Customs Duty and are not covered by the ITA-1.

The move to reduce CST to 2% as per plan is also a welcome step. It reduces the burden of a regressive indirect tax. We hope that the country will move as per plan to a countrywide GST in the next couple of years. However, the Electronics Hardware and Component Industry has been urging the government to remove CST completely on its products, to help it fight global competition under a Zero Duty regime. Advancing this step for electronics hardware would have given a fillip to investments in high value add manufacturing. Unfortunately that has not happened.

The changes referred above and also the reduction in personal Income Tax rates are positive and of a macro nature. They should spur overall economic growth and expand demand. The plan to establish a countrywide Skill Development Mission and upgrade ITI’s are constructive steps to support development of industry. However, the much needed sectoral push to electronics hardware, for which there is a dire need, is missing once again. Somehow, the focus and importance of Hardware Manufacturing has once again escaped the attention of the Finance Minister and we largely remain where we were.

The industry is disappointed at the lack of support to encourage high value added manufacturing and investments in electronic components. Demand and imports of electronic products and components are soaring at over 20-25% per annum, the fastest among all manufactured products. The potential of this surge in demand will be harnessed for benefiting our country only if we enable investments and expansion of manufacturing capacity of electronic components, parts and assemblies where most of the value addition takes place.

Though ELCINA supports the largesse showered by the Finance Minister to the poor of the country, a fraction of that amount could give a major push to electronics hardware and create enormous wealth and employment opportunities for its poor workers.

Below we provide some details on the general and sector specific indirect and direct tax changes proposed in the Union Budget 2008-09.

General

• GDP Growth rate projected @ 8.7% in 2007-08 compared to 9.6% in 2006-07
• Avg growth rate in last 4 years is >8.5%
• Growth in Manufacturing Sector decelerated to 9.4% from an unexpectedly high 12% in 2006-07.
• Growth in Services sector estimated @10.7 % compared to 11.2% in 2006-07.
• Emphasis on Inclusive growth, Education, Health and Infrastructure expansion continues
• Concerns about oil prices and food grain prices, overall inflation and sluggish growth of agricultural output
• CST reduced to 2% wef 1-4-08 and re-confirmation of movement towards a consolidated GST by 2010.
• Risk Capital Fund being created in SIDBI for Micro, Small & Medium Enterprises (MSME’s)
• Few inputs added to Notif 25/99 for zero duty imports and additional inputs for Set Top Boxes brought to zero CD
• No additional support or consideration for high value added IT/Hardware manufacturing
• Appreciable increase in Individual Direct Tax Exemption limits
• No change in Corporate Tax A non profit corporation to be established to address the challenge of Skill Development required by India’s growing economy (under Skill Development Mission)
• ITI’s modernization scheme to continue and be expanded
• India to become a knowledge society. New institutes of higher education to be set up including 16 new central Universities, 3 IITs and more.

Customs Tariff (CT) & Excise Duty (ED) Highlights
Customs

• Peak rate of customs duty on non-agricultural products remains at 10%
• Customs duty on project imports attracting 7.5% has been reduced to 5%.
• Customs duty on specified convergence products has been reduced from 10% to 5%.
• Customs duty on specified raw materials and inputs for use in IT/electronic hardware industry has been reduced from 10%/7.5% to Nil, on end-use basis.(Notif no. 25/2008-Cus)
• Customs duty on specified parts of set-top boxes has been reduced from 7.5% to Nil on end-use basis. (Notif no. 21/2008-Cus)
• Customs duty on iron or steel melting scrap has been reduced from 5% to Nil.
• Customs duty on aluminium scrap has been reduced from 5% to Nil.
• Customs duty on phosphoric acid has been unified at 5% irrespective of its use.

Central Excise

• General rate of excise duty (CENVAT) has been reduced from 16% to 14%. The other ad valorem rates of 24%, 12% and 8% remain unchanged.
• Excise duty has been fully exempted on Wireless data modem cards. Consequently, CVD shall also be exempted on imported cards. 4% additional duty of customs will, however, be applicable.
• Excise duty has been reduced from 16% to 8% on MP3/MP4 or MPEG 4 players With or Without Radio/Video Reception facility.
• Excise duty has been reduced from 16% to 8% on specified Convergence Products.
• Excise duty has been increased from 8% to 12% on packaged software.
• National Calamity Contingent duty (NCCD) at the rate of 1% has been imposed on mobile phones. On imported mobile phones, this duty shall be levied as additional duty of Customs under section 3(1) of the Customs Tariff Act, 1975.
• National Calamity Contingent duty of 1% currently leviable on Polyester filament yarn has been withdrawn.

Miscellaneous:

The rate of duty applicable to clearances of goods to domestic tariff area from export oriented units, software technology parks, electronic hardware technology parks etc. has been revised from ‘25% of the basic customs duty + excise duty payable on like goods’ to ‘50% of the basic customs duty + excise duty payable on like goods’.

Consequent upon reduction of excise duty rates on specified goods leviable to excise duty on retail sale price basis, abatement rates for such goods have been revised suitably.

AMENDMENTS IN CUSTOMS ACT AND CENTRAL EXCISE ACT:

• Section 2 of the Central Excise Act, 1944 is being amended to insert an explanation in clause (d) to provide that “goods” include any article, material or substance which is capable of being bought and sold for a consideration and such goods shall be deemed to be marketable.
• Note 16 of Chapter 39 to the Central Excise Tariff Act, 1985 is being amended to specify that the process of lamination or of lacquering shall also amount to manufacture in addition to the process of metallization.
• Notes of certain Chapters in the Central Excise Tariff Act, 1985 are being amended to align the definition of processes amounting to manufacture with the definition of manufacture in section 2 f(iii) of the Central Excise Act, 1944.
• Section 108 of the Customs Act, 1962 is being amended to give all customs officers powers to issue summons.
• The CENVAT Credit Rules, 2004 are being amended to bring in the following changes:
  1. A.Sub-rule (4) of Rule 3 is being amended to provide that in case of National Calamity Contingent duty (NCCD) payable on mobile phones, credit of any duty of excise other than NCCD will not be utilized for payment of the said NCCD.
     This change shall come into effect from 1st March, 2008.
  2. A.Rule 6 is being amended to provide following options to a manufacturer, using common inputs or input services for manufacture of dutiable as well as exempted goods and opting not to maintain separate accounts. Such manufacturers can,-
     • either reverse the credit attributable (to be worked out in a manner prescribed in the rule) to the inputs and input services used in the manufacture of exempted goods; or
     • pay 10% amount of the value (to be determined in accordance with the provision of section 4/4A of the Central Excise Act, 1944) of the exempted goods.
       This change shall come into effect from 1st April, 2008.
• The Central Excise (Determination of Retail Sale Price of Excisable Goods) Rules, 2008 are being issued under section 4A(4) of the Central Excise Act, 1944 to provide the manner of determination of retail sale price, where the same is not declared on the packages or tampered or altered or obliterated.
  This change shall come into effect from 1st March, 2008.

Service Tax

SERVICES RELEVANT TO INDUSTRY WHICH ARE INDIVIDUALLY SPECIFIED AS TAXABLE :

• Services provided in relation to information technology software for use in the course, or furtherance, of business or commerce;
• Services provided in relation to supply of tangible goods, without transferring right of possession and effective control of the tangible goods;
• Services provided in relation to internet telecommunication. Consequently, reference to services provided in relation to internet telephony, being covered as part of internet telecommunication, shall be omitted.

SCOPE OF SPECIFIED TAXABLE SERVICES IS BEING AMENDED AS FOLLOWS:
(1) To include,-

• purchase or sale of foreign currency, including money changing, by an authorized dealer or an authorized money changer, under banking and other financial service;
• purchase or sale of foreign currency, including money changing, by an authorized dealer or authorized money changer, under foreign exchange broker services provided by individual;
• packing together with transportation of cargo or goods, with or without one or more other services like loading, unloading, unpacking, under cargo handling service;
• testing or analysis of information technology software under technical testing and analysis service;
• inspection, examination and certification of information technology software under technical inspection and certification

(2) To omit,-

• from business auxiliary service, reference to information technology service consequent upon notifying information technology software service as a separate taxable service;
• from consulting engineer service, exclusion of computer software engineering consultancy consequent upon notifying information technology software service as a separate taxable service;
• from 39 specified taxable services, reference to service recipient as “client” or “customer” and replace with the words “any person”;

(III) EXEMPTION FROM SERVICE TAX:

• The annual threshold limit of service tax exemption for small service providers is being increased from the present level of Rs.8 lakh to Rs.10 lakh;
• 75% of the gross amount charged as freight for services provided in relation to transport of goods by road in a goods carriage by a goods transport agency (GTA), unconditionally. Consequently, 75% abatement provided under notification No.1/2006-Service tax, dated the 1st March, 2006 is withdrawn.

Service Tax Rules, 1994, are being amended to:

• insert sub-rule (1A) in rule 6 to enable payment of an amount as service tax in advance to the credit of the Central Government and adjust such amount paid towards payment of service tax for the subsequent period;
• increase the monetary limit from Rs.50,000/- to Rs.1,00,000/- for self-adjustment of excess service tax paid [Rule 6(4B)(iii)];
• increase the time limit from 60 days to 90 days for rectification of mistakes and file revised return [Rule 7B];
• empower the Central Excise Officer to reduce or waive the penalty for delayed filing of return, where the gross amount of service tax payable is nil [Rule 7C];

CENVAT Credit Rules, 2004 are being amended to:

• exclude goods transport agency service from the scope of “output service” [Rule 2(p)];
  This change will come into effect from 1st March, 2008.
• allow removal of capital goods outside the premises of the provider of the output service without any time restriction, if the same is for providing output service [Rule 3];
  This change shall come into effect from 1st April, 2008.
• provide following options to a provider of output services, using common inputs or input services for providing taxable as well as exempted services and opting not to maintain separate accounts. Such provider of output services can,-
  • either reverse the credit attributable (to be worked out in a manner prescribed in the rule) to the inputs and input services used for providing exempted service; or
  • pay 8% amount of the value (determined in terms of section 67 of the Finance Act, 1994) of the exempted services [Rule 6];
  This change shall come into effect from 1st April, 2008.

Direct tax proposals

• Threshold limit of exemption from personal income tax in the case of all assesses increased to Rs.150,000. The slabs and rates of tax are:
  • Up to Rs.150,000                  -NIL
  • Rs.150,001 to Rs.300,000     -10 per cent
  • Rs.300,001 to Rs.500,000     -20 per cent
  • Rs.500,001 and above          -30 per cent
• In case of a woman assessee, the threshold limit increased from Rs.145,000 to Rs.180,000; for a senior citizens, the threshold limit increased from Rs.195,000 to Rs.225,000.
• No change in the corporate income tax rates.
• No change in the rate of surcharge.
• Senior Citizen Saving Scheme 2004 and the Post Office Time Deposit Account added to the basket of saving instruments under Section 80C of the Income Tax Act.
• Additional deduction of Rs.15,000 allowed under Section 80D to an individual paying medical insurance premium for his/her parent or parents.
• Crèche facilities, sponsorship of an employee-sportsperson, organising sports events for employees and guest houses excluded from the purview of FBT.
• Rate of tax on short term capital gains under Section 111A & Section 115AD increased to 15 per cent.
• STT paid to be treated like any other deductible expenditure against business income;
• Levy of STT, in the case of options to be only on premium, where the option is not
• exercised; liability to be on the seller; where the option is exercised, levy to be on the settlement price and the liability on the buyer; no change in the present rates.
• Banking Cash Transaction Tax (BCTT) being withdrawn with effect from April 1, 2009.

Relevant Notifications
Notifications
Customs Notifications: :
No. 21/2008-Customs dt. 1st March 2008 – Set Top Boxes
No. 25/2008-Customs dt 1st March 2008 – Additions to 25/99
No. 29/2008-Customs 1st March 2008 – Mobile Phones

Central Excise Notifications::
No. 2/2008-CE dt.1st March 2008 – Revision in Excise Duty to 14%
No. 6/2008-CE dt. 1st March 2008 – Wireless Data cards/ MP3/MP4 etc players
No. 10/2008-CE dt. 1st March 2008 – Sale from EOU/EHTP/STPI to DTA

Please visit the site below for more details & notifications:
http://indiabudget.nic.in