Policy >> Union Budget Highlights 2011-12

Overview of the Economy

• The Indian economy has come full cycle after the recession of 2009 and is on track for achieving a brisk growth rate of 9% during the coming year.
• The Advance Estimates for Gross Domestic Product (GDP) growth for 2010-11 are pegged at 8.6% in real terms compared to 7.2 per cent during 2009-10. The Indian economy is expected to maintain a brisk growth rate at ~9 per cent in 2011-12.
• Inflation and specially, high food prices have been the principal concern this year and the government has been taking monetary policy measures to moderate inflation in coming months. The results of such measures have not had the desirable impact till date.
• The performance of Exports has been very encouraging growing by 29.4 per cent, while imports have recorded a growth of 17.6 per cent during April to January 2010-11 over the corresponding period last year.
• Average inflation expected lower next year and current account deficit smaller.

• Fiscal Deficit has been successfully reduced to 5.1% compared to the Budget Estimate of 5.5 per for 2010-11.
• The budget further proposes to reduce Fiscal Deficit to 4.6 per cent of GDP for 2011-12 and further to 3.5 per cent by 2013-14.
• Effective Revenue Deficit” estimated at 2.3 per cent of GDP in the Revised Estimates for 2010-11 and 1.8 per cent for 2011-12.
• For 2011-12, the Gross Tax receipts are estimated at Rs 9,32,440 crore and Non-tax revenue receipts at Rs 1,25,435 crore.
• Against the above Total expenditure is proposed at Rs 12,57,729 crore with an Increase of 18.3 per cent in total Plan allocation and Increase of 10.9 per cent in the Non-plan expenditure.

Consolidating Growth

Tax refoms

• Direct Taxes Code (DTC) to be finalised for enactment during 2011-12. DTC proposed to be effective from April 1, 2012.
• Areas of divergence with States on proposed Goods and Services Tax (GST) have been narrowed. As a step towards roll out of GST, Constitution Amendment Bill proposed to be introduced in this session of Parliament and implement GST by April 2012.
• Significant progress in establishing GST Network (GSTN), which will serve as IT infrastructure for introduction of GST.

Investment Environment

Foreign Direct Investment

All FDI related regulations have been consolidated into one comprehensive document, which is reviewed every six months. This will enhance clarity and predictability of our FDI Policy to foreign investors. Discussions are underway to further liberalise the FDI policy.

Foreign Institutional Investors will be permitted to subscribe to SEBI registered mutual funds as long as they meet KYC requirements for equity schemes. To enhance flow of 2 funds to infrastructure sector, the FII limit for investment in corporate bonds issued in infrastructure sector being raised.

Infrastructure and Industry

• The government has continued its thrust on infrastructure development while allocating Rs 2,14,000 crore for the sector which is an increase of 23.3 per cent over 2010-11. This effort will be further boosted with the announcement of a new comprehensive policy for further developing PPP projects.
• India Infrastructure Finance Company Limited (IIFCL) will achieve a cumulative disbursement target of Rs 20,000 crore by March 31, 2011 and Rs 25,000 crore by March 31, 2012.
• To boost infrastructure development, tax free bonds of Rs 30,000 crore proposed to be issued by Government undertakings during 2011-12.

National Manufacturing Policy

Without spelling out the details the Budget has stated the governments intention to boost the manufacturing sector and increase its share in GDP from about 16 per cent to 25 per cent over a period of 10 years. Government will come out with a manufacturing policy to achieve this goal.

There is also a proposal to set up two Committees for greater transparency and accountability in the government’s procurement policy and for allocation, pricing and utilisation of natural resources.

Exports

No specific steps have been announced for promotion of exports and possibly this is because that is an ongoing exercise and exports performance has been very good. Focus has been on simplification of procedures and of the 23 suggestions made by Task Force on Transaction Cost, constituted by the Department of Commerce, 21 suggestions already implemented. It is estimated that these reforms will result in mitigation of transactions costs to the tune of Rs 2100 Crores.

There is a proposal to introduce self assessment of import and export consignments by the Customs Department and further modernization of the Customs administration. The budget also proposes to introduce a scheme for refund of taxes paid on services used for export of goods.

Education The government has continued its thrust on education with increased allocation to this vital sector of our country

• Budget Allocation for education increased by 24 per cent over current year to Rs. 52,057 crores.
• Sarva Shiksha Abhiyan to implement the right to compulsory education for children has been allocated Rs 21,000 crore which is 40 per cent higher than Budget for 2010-11.
• Pre-matric scholarship scheme to be introduced for needy SC/ST students studying in classes IX and X.

Innovations

• National Innovation Council set up under Mr. Sam Pitroda to prepare a road map for innovations in India. This will include State Innovation Councils in each State and Sectoral Innovation Councils aligned to Central Ministries.
• Special grant provided to various universities and academic institutions to recognise excellence.

Skill Development

• Additional Rs 500 crore proposed to be provided for National Skill Development Fund during the next year.
• An international award with prize money of ` 1 crore being instituted for promotingvalues of universal brotherhood as part of National celebrations of 150th Birth Anniversary of Gurudev Rabindranath Tagore.

Environment and Climate change

• Rs. 200 crore proposed to be allocated for Green India Mission from National Clean Energy Fund.
• Rs 200 crore proposed to be allocated for launching Environmental Remediation Programmes from National Clean Energy Fund.

Improving Governance

UID Mission

• From 1st October, 2011 ten lakh Aadhaar numbers will be generated per day. IT Initiatives
• Various IT initiatives taken for efficient tax administration. These include e-filing and e-payment of taxes, adoption of ‘Sevottam’ concept by CBEC and CBDT, web based facility for tax payers to track the resolution of refunds and credit for pre-paid taxes and augmentation of processing capacity.
• Under Mission mode projects, funds released to 31 projects received from States/ UTs for computerisation of Commercial taxes. This will allow States to align with roll out of GST.
• Bill to amend the Indian Stamp Act proposed to be introduced shortly.
• A new scheme with an outlay of Rs 300 crore to be launched to provide assistance to States to modernise their stamp and registration administration and roll out e-stamping in all the districts in the next three years.
• A new simplified form ‘Sugam’ to be introduced to reduce the compliance burden of small tax payers falling within presumptive taxation …and more

Black Money

• Plan allocation for school education increased by 16 per cent from Rs.26,800 crore in 2009-10 to Rs.31,036 crore in 2010-11.
• In addition, States will have access to Rs.3,675 crore for elementary

Micro, Small & Medium Enterprises

• Five fold strategy to be put into operation to deal with the problem of generation and circulation of black money.
• Various Tax Information Exchange Agreements (TIEA) and Double Taxation Avoidance Agreements (DTAA) concluded. Foreign Tax Division of CBDT has been strengthened to effectively handle increase in tax information exchange and transfer pricing issues.
• Enforcement Directorate strengthened three fold to handle increased number of cases registered under amended Money Laundering Legislation.
• Finance Ministry has commissioned study on unaccounted income and wealth held within and outside the country. ……and more.

Tax Proposals

Direct Taxes

The surcharge on corporate tax on domestic companies will be cut from 7.5% to 5%. However, the Minimum Alternate Tax goes up to 18.5% from 18% to keep the effective level of taxation for MAT companies the same. Companies will welcome the relief.
Individual taxpayers get a slightly higher basic deduction of Rs 1.8 lakh; every taxpayers get small relief of Rs 2,000.
Senior citizens get a bonanza. Apart from an increase in the exemption limit to Rs 2.5 lakh, the entitlement age for senior citizens is now 60, not 65. A new class of super senior citizens aged above 80 gets an even higher IT exemption limit of Rs 5 lakh.

• Exemption limit for the general category of individual taxpayers enhanced from Rs 1,60,000 to Rs.1,80,000 giving uniform tax relief of Rs 2,000.
• Exemption limit enhanced and qualifying age reduced to 60 yrs for senior citizens.
• Higher exemption limit for Very Senior Citizens, who are 80 years or above.
• Current surcharge of 7.5 per cent on domestic companies proposed to be reduced to 5 per cent.
• Rate of Minimum Alternative Tax proposed to be increased from 18 per cent to 18.5 per cent of book profits.
• Tax incentives extended to attract foreign funds for financing of infrastructure.
• Additional deduction of Rs 20,000 for investment in long-term infrastructure bonds proposed to be extended for one more year.
• Lower rate of 15 per cent tax on dividends received by an Indian company from its foreign subsidiary.
• Weighted deduction on payments made to National Laboratories, Universities and Institutes of Technology to be enhanced to 200 per cent.
• System of collection of information from foreign tax jurisdictions to be strengthened.

Indirect Taxes

• To stay on course for transition to GST.
• Central Excise Duty to be maintained at standard rate of 10 per cent.
• Reduction in number of exemptions in Central Excise rate structure.
• Nominal Central Excise Duty of 1 per cent imposed on 130 items entering in the tax net.
• Lower rate of Central Excise Duty enhanced from 4 per cent to 5 per cent.
• Peak rate of Custom Duty held at its current level.

Excise

The base excise rate stays at 10%, but exemptions on some 130 items are being withdrawn on which a basic rate of 1% is being levied. Another 240 items that are still exempt will be attracting tax when the goods and services tax is introduced next year. This can have a negative impact and push up inflation.

• Full exemption from excise duty is being withdrawn on microprocessors for computer, other than motherboards, floppy disc drive, hard disc drive, CD-ROM drive, DVD drives/DVD writers, flash memory and combo drives meant for fitment inside the CPU or laptop. These goods will attract a concessional rate of excise duty of 5%.
• Excise Duty on LEDs reduced to 5 per cent and special CVD being fully exempted.
• The concessional rate of excise duty of 4% is being increased to 5%. Accordingly, items such as prepared foodstuff like sugar confectionary, pastry and cakes; starches; paper and articles of paper; textile intermediates & textile goods; drugs, medical equipments etc. would now subject to the enhanced rate of duty of 5%.
• An excise duty of 1% without Cenvat credit facility is being imposed on about 130 specified items, which were hitherto either fully exempt from excise duty or chargeable to nil rate of excise duty. General SSI exemption would be available to all products covered under this new levy.
• A concessional rate of excise duty of 10% is being prescribed for hydrogen vehicles based on fuel cell technology.
• Excise duty is being reduced from 10% to 5% on hybrid kits for conversion of fossil fuel vehicles to hybrid vehicles. Parts of such kits would also attract 5% duty.

Amendments in Central Excise Act, 1944

• Section 4A is being amended to substitute the reference to Standards of Weight & Measures Act, 1976 with Legal Metrology Act, 2009 with effect from 01.03.2011

Customs

• The basic customs duty rates of 2%, 2.5% and 3% are being unified at the median rate of 2.5%.
• Basic Custom Duty reduced for various items to encourage domestic value addition vis-à-vis imports, to remove duty inversion and anomalies and to provide a level playing field to the domestic industry.
• Rate of Export Duty for all types of iron ore enhanced and unified at 20 per cent ad valorem. Full exemption from Export Duty to iron ore pellets.
• Basic Custom Duty on two critical raw materials of cement industry viz. petcoke and gypsum is proposed to be reduced to 2.5 per cent.
• Cash dispensers fully exempt from basic Customs Duty.
• Full exemption from basic Customs Duty and a concessional rate of Central Excise Duty extended to batteries imported by manufacturers of electrical vehicles.
• Exemption granted from basic custom duty and special CVD to critical parts/assemblies needed for Hybrid vehicles.

Electronics Hardware

• A concessional import duty structure of 5% CVD and Nil SAD is being prescribed on parts of inkjet and laser-jet printers imported for manufacture of such printers.
• Full exemption from basic customs duty is being extended to parts/components required for the manufacture of PC connectivity cable and sub-parts of parts & components of battery charger, hands-free head phones and PC connectivity cable of mobile handsets including cellular phones.
• Full exemption from SAD presently available upto 31.03.2011 on parts, components and accessories for manufacture of mobile handsets including cellular phones is being extended upto 31.03.2012.
• Full exemption from customs duty is being extended to additional specified capital goods and raw materials for the manufacture of electronic hardware.
• A concessional import duty structure of 5% CVD and Nil SAD is being prescribed on parts for manufacture of DVD writers, Combo drives and CD Drives subject to actual user condition.

Concessions to Environment-friendly Items

• Concessional CVD @5% (by way of a central excise exemption) and full exemption from SAD is being provided to LEDs used for manufacture of LED lights and light fixtures.
• Basic customs duty is being reduced from 10% to 5% on solar lantern or lamps.
• Full exemption from customs duty is being extended to toughened glass and silver paste imported for manufacture of solar cells or solar modules on actual user basis.

Automobiles

• Full exemption from basic customs duty and SAD and concessional CVD @5% (by way of a central excise duty exemption) is being extended to specified parts of the hybrid vehicles, namely, battery pack, battery chargers, AC/DC electric motors and motor controllers. The concession is subject to actual user condition and will be available till 31st March 2013.
• The customs duty dispensation and concessional CVD @5% at (1) above is also being made available to import of spare battery packs for the electric vehicles by importers which are registered with the agencies notified for Central Financial Assistance (CFA) scheme of the Ministry of Non-conventional & Renewable Energy (MNRE).

Special Economic Zones

• Levy of 18.5% Minimum Alternate Tax on developers of SEZ and units operating in them.
• Withdrawal of tax exemption under Section 10A / 10B of STPI Act.
• All clearances from SEZ into DTA are being exempted from SAD provided they are not exempt from the levy of VAT/ Sales Tax.
• The CVD exemption currently available to Plastic materials reprocessed in India out of the scrap or the waste of goods falling under specified chapters is being extended to domestic tariff area clearances of such plastic materials manufactured in SEZ units also.

Capital Goods/Infrastructure

• Full exemption from basic customs is being provided to cash dispensers. Parts required for the manufacturer of cash dispensers are also being exempted from basic customs duty on actual user basis.

Metals

• Full exemption from basic customs duty is being extended to stainless steel scrap.
• Basic customs duty on ferro-nickel is being reduced from 5% to 2.5%
• Copper dross, copper residues, copper oxide mill scale, brass dross and zinc ash are being exempted from levy of SAD.
• Basic customs duty on vanadium pentoxide and vanadium sludge is being reduced from 7.5% to 2.5%.
• Exemption from basic customs duty is being provided on the value of gold and silver contained in the copper concentrate.

Miscellaneous

• Certain notifications are being amended retrospectively to allow exports made under the EPCG scheme to simultaneously avail of benefits under Export Reward Schemes such as Served From India Scheme, Focus Market Scheme etc

Excise

Service tax stays at the same level as before at 10%, but several new services have been brought within its ambit. Among them: hotels with tariffs above Rs 1,000 (5% service tax), restaurants with bar and A/C (3%), hospitals with more than 25 beds and with A/C (5%), and air travel (Rs 50 more for domestic, Rs 250 for international). Business class air travel will attract a full

• Standard rate of Service Tax retained at 10 per cent, while seeking a closer fit between present regime and its GST successor.
• Hotel accommodation in excess of Rs1,000 per day and service provided by air conditioned restaurants that have license to serve liquor added as new service for levying Service Tax.
• Tax on all services provided by hospitals with 25 or more beds with facility of central air conditioning.
• Service Tax on air travel both domestic and international raised.
• Services provided by life insurance companies in the area of investment and some more legal services proposed to be brought into tax net.
• All individual and sole proprietor tax payers with a turn over upto Rs 60 lakh freed from the formalities of audit.
• To encourage voluntary compliance the penal provision for Service Tax are being rationalised. Similar changes being carried out in Central Excise and Custom laws.
• Exemption from service tax on the membership fees under ‘Club or association service’ is being given to the associations or chambers representing

Scope of Certain existing services is being expanded or altered as follows:

• The scope of the ‘Club or Association Service’ is being expanded to include service provided to non-members within its ambit
• The definition of ‘Business Support Services’ is being amended to include the services provided by way of operational or administrative assistance in any manner.
• The scope of Legal consultancy services is being being expanded by bringing within its ambit the;
  1. service provided by a business entity to individuals in relation to advice, consultancy or assistance in any branch of law, in any manner;
  2. representational service provided by any person to any business entity (representational services, provided to individuals will continue to be exempt), and
  3. service of ‘arbitration’ provided by an arbitral tribunal to any business entity.

Exemptions

• Exemption is being provided to services provided by an organizer of business exhibitions in relation to business exhibitions held outside India.
• An abatement of 25% from the taxable value is being provided for the purpose of levy of service tax under ‘Transport or goods through coastal and inland shipping’.
• Exemption is being provided to services provided within a port or other port of an airport under the ‘Works contract’ service for specified purposes.
• Value of air freight included in the assessable value of goods for charging customs duties is being excluded from taxable value for the purpose of levy of service tax under the ‘Transport of goods by air’ service.
• Services related to transportation of goods by road, rail or air when both the origin and the destination are located outside India is being exempted from service tax.
• A modified scheme is being introduced to refund service tax to SEZ units and developers and notification No.9/2009-ST is being superceded. In the modified scheme, ‘wholly consumed’ services are being defined in the notification in order to extent ‘outright exemption’ and to permit refund of all other services on a proportionate basis.

Withdrawal or Amendments of Exemptions

• The rates of service on travel by air are being revised as follows:
  1. Domestic Travel (Economy class) : from Rs.100 to Rs.150
  2. International Travel (economy class) : from Rs.500 to Rs.750
  3. Domestic Travel (except economy class) : 10% (Standard rate)
  (The above changes will come into effect from 01.04.2011)

List of Important Notifications

Inclusion of items for benefits under Notification No. 25/99 based on ELCINA’s recommendations
ELCINA had represented to the Finance Ministry for inclusion of items for benefits under Notification No. 25/1999-Customs dated 28th February 1999. The list of items included are given below (refer Notification No.14/2011-Customs dt. 1st March 2011):

(For Fuses)
In the said notification, in the Table, in LIST A,-
(ii) against S. No. 133,-

1. for the entry in column (3), the entry “Zinc of purity 99% or above in rod, wire or Strip form (plated or unplated); Zinc wire/ Zinc- Aluminium wire with dia upto 5 mm; Tin-Zinc wire with dia upto 3mm” shall be substituted;
2. in the entry in column (4), for the words “capacitors”, the words and figures “capacitors; blade fuses 1 to 40 Amps” shall be substituted;

1. in column (3),-
   (i) for the entry in column (3), the entry “Silver Copper Alloy wires; Glass tubes of sizes between 2 mm to 6mm outside diameter, in cut lengths upto40mm; Brass Fuse Caps; Polymeric Positive Temperature Coefficient Chips; Ceramic Tubes; Blade Fuse Body” shall be substituted;
2. in column (4), for the words “PPTC resettable fuses” , the words “PPTC resettable fuses, blade fuses 1 to 40 Amps ” shall be substituted;

(For Degaussing Coils & DY for CPT)
(v) after S. No. 235, and the entries relating thereto, the following S. Nos. 236 and 237 and entries shall be added, namely:-

(1)	(2)	(3)	(4)
“236	85469090	Polyster insulation tapes	Degaussing coil and other wound components
237	7605 or 854419	Aluminium wire of purity 99.9% or more of dia upto 3 mm; Copper clad Aluminium wire of purity 99.9% or more of dia upto 3 mm	Deflection Yokes for Colour Picture Tubes”

Customs Notifications
Notification No. 14/2011-Customs dt. 1st March, 2011 amends Notification No. 25/1999-Customs, dated the 28th February, 1999 to expand the list of specified raw materials eligible for customs duty exemption

Notfn no. 18/2011-Customs dt. 1st March 2011 substitutes the words “produced or manufactured in”, with the words “cleared from” (exemption for goods brought from a special economic zone to any other place in India)

Notification No. 19 /2011-Customs dt. 1st March, 2011 amends Notification No. 23/2010- dated 27th February, 2010, expanding the scope of the exemption to “parts or components for the manufacture of battery chargers, PC connectivity cables and hands-free headphones of such mobile handsets and sub-parts for the manufacture of such parts and components”

Notfn no. 20/2011-Customs dt. 1st March 2011 amends Notification no. 20/2006 dt. 1st March 2006 to include the following items for exemptions from special duty of customs:

• 8443 99 Parts of inkjet and laser-jet printers
• 8541 40 20 Light emitting diodes (electroluminescent) imported for manufacture of
• LED Lights or fixtures.
• Any chapter Parts of DVD Drive or DVD Writer, Combo Drives, CD-ROM Drives

Excise Notifications
Notification No. 6 /2011- Central Excise dt. 1st March 2011 makes further amends to Notification No. 6/2006-Central Excise, dated the 1st March, 2006 regarding concessional rates of duty, exemptions, etc.

Service Tax Notifications
Notification No. 17/2011-ST dt. 1st March 2011 specifies exemptions of taxable services received by a unit in an SEZ

ELCINA
New Delhi
28th February 2011