Budget 2012 : Summary

budget 2012Finance Minister Pranab Mukherjee on Friday announced marginal tax reliefs for individual tax payers.

Presenting Union Budget 2012-13 in Lok Sabha, Mukherjee said income upto Rs 2 lakh would be tax free; income from Rs 2 to 5 lakh would be taxed at 10%; from Rs 5 to 10 lakh at 20%; and income above Rs 10 lakh would attract tax of 30%.

In other tax measures, Mukherjee announced that interest from savings account up to Rs 10,000 would be tax free. Also, apart from medical insurance, an additional Rs 5,000 would be exempted for preventive health check-ups.

Senior Citizens have been exempted from filing advance tax.

Meanwhile, Service Tax has been hiked from 10% to 12%. Also, its net has been widened and all services barring 17 would now be taxed. Corporate Tax structure has been left unchanged.

Mukherjee said India continues to remain among front-runners in economic growth. Mukherjee however said the economic growth is estimated at 6.9 percent during the current fiscal year which was “disappointing”. The Finance Minister also exuded confidence that headline inflation would moderate in the next few months and remain stable.

Income Tax proposals:

  • Personal Income Tax slabs for individuals relaxed
  • Exemption limit enhanced from Rs 1.8 lakh to Rs 2 lakh
  • Upper limit of 20% tax raised from Rs 8 lakh to Rs 10 lakh
  • New Slabs as follows:
  • Upto Rs 2 lakh – Nil
  • Rs 2-5 lakh – 10%
  • Rs 5–10 lakh – 20%
  • Above Rs 10 lakh – 30%
  • Interest from savings account up to Rs 10,000 to be exempt from tax
  • In addition to medical insurance, an additional Rs 5000 to be exempted for preventive health check-ups
  • Senior Citizens exempted from filing advance tax
  • Age limit for senior citizens reduced from 65 to 60 for several tax benefits
  • Deduction of of 50% for investments up to Rs 50,000 in equity by new investors with an annual income up to Rs 10 lakh
  • Compulsory reporting of assets sold abroad

Corporate Tax

  • Corporate Tax structure left unchanged
  • Withholding tax on certain overseas borrowings reduced to 5% from 20%
  • Securities Transaction Tax cut by 20% for stock market orders

Service Tax

  • Service Tax rate up from 10% to 12%
  • Higher Service Tax to add Rs 186.6 bn in revenue
  • Duty-free baggage allowance for Indians increased to Rs 35,000
  • Duty-free baggage allowance for children increased to Rs 15,000
  • Proposal to tax all services except negative list
  • Exempted services include:
  • Government services
  • Pre-school, school education, recognised education at higher levels and approved vocational education
  • Renting of residential dwellings, entertainment and amusement services to be exempt
  • Public transportation to be exempt from service tax
  • Agricultural activities and animal husbandry to be exempt from service tax
  • Health care
  • Charities, religious persons
  • Sportspersons
  • Performing artists in folk and classical arts
  • Individual advocates providing services to non-business entities
  • Independent journalists
  • Services related with animal care and car parking
  • Services of business facilitators and correspondents to banks and insurance companies
  • Construction services relating to specified infrastructure, canals, irrigation works, post-harvest infrastructure, residential dwelling, and low-cost mass housing up
  • to an area of 60 sq. mtr.
  • Exemption for the monthly charges payable by a member to a housing societyup from Rs 3,000 to Rs 5,000
  • Industry related with cinematographic films
  • To set up a Study Team to examine the possibility of a common tax code for service tax and central excise
  • New scheme to simplify refunds

Indirect Taxes

  • Standard Excise duty raised from 10% to 12 %
  • Merit Excise duty raised from 5% to 6 %
  • Lower merit rate raised from 1% to 2 %
  • Lower merit rate for coal, fertilisers, mobile phones and precious metal jewellery retained at 1%
  • Excise duty on large cars up from 22% to 24%
  • Customs duty cut to 2.5% on sugarcane planter, root or tuber crop harvesting machine and rotary tiller and weeder
  • Customs duty cut to 5% on specified coffee plantation and processing machinery
  • To extend project import benefit to green house and protected cultivation for horticulture and floriculture
  • Customs duty cut to 5% on some water soluble fertilisers and liquid fertilisers
  • Customs duty cut to 2.5% on urea
  • To extend concessional import duty for Mechanised Handling Systems and Pallet Racking Systems in mandis or warehouses for horticultural produce
  • Imports of equipment for initial setting up or expansion of fertiliser projects fully exempt for three years
  • Steam coal fully exempt, concessional CVD of 1% for two years
  • Natural Gas and Liquified Natural Gas exempt
  • Uranium concentrate, Sintered Uranium Dioxide in natural and pellet form exempt
  • Customs Duty on Mining machinery cut to 2.5%
  • Customs Duty on Railways safety equipment cut to 7.5%
  • Import Duty on road, tunnel boring equipment fully exempt
  • Parts of aircraft, testing equipment and tyres exempt
  • Customs Duty on coating material for manufacture of electrical steel cut to 5 %
  • Nickel ore and concentrate and nickel oxide/ hydroxide fully exempt
  • Customs Duty on non-alloy, flat-rolled up at 7.5%
  • Automatic shuttle-less looms fully exempt
  • Automatic silk reeling and processing machinery fully exempt
  • Second-hand textile machinery to attract basic duty of 7.5 %
  • Duty on wool waste and wool tops cut to 5%
  • Duty on Titanium dioxide cut to 7.5%
  • Aramid yarn and fabric used for the manufacture of bullet proof helmets fully exempt
  • Duty on branded ready-made garments up at 12 %
  • Waste Paper fully exempt
  • LCD and LED TV panels fully exempt
  • Memory card for mobile phones fully exempt
  • Duty on Adult diapers cut to 5%
  • Duty on bicycles increased to 30%
  • Duty on bicycle parts increased to 20%
  • Excise Duty on hand-made matches cut to 6%
  • Six specified life-saving drugs/ vaccines for HIV-AIDS, renal cancer etc fully exempt
  • Customs Duty on Soya protein concentrate and isolated soya protein cut to 15% and 10% respectively
  • Iodised salt to have concessional basic customs duty of 2.5%
  • Customs Duty on Probiotics cut to 5%
  • Solar energy equipment to be fully exempt
  • Excise duty on LED lamps cut to 6 %
  • Hybrid vehicle batteries to be fully exempt
  • Customs duty on gold bars, gold coins increased to 4%
  • Customs duty on non-standard gold increased to 10%
  • Customs duty on platinum increased to 4%
  • Basic duty on gold ore, concentrate and dore bars increased to 2%
  • Excise duty on refined gold increased to 3 %
  • Polished, coloured gem stones to attract 2% duty
  • Excise duty on cigarettes to attract ad valorem component of 10% on existing rates
  • Excise duty on hand-rolled beedis increased to Rs 10 per thousand
  • Excise duty on machine-rolled beedis increased to Rs 21 per thousand
  • Duty increased on pan masala, gutkha, chewing tobacco, unmanufactured tobacco and zarda scented tobacco in pouches
  • Cess on Crude petroleum oil increased to Rs 4,500 per metric tonne
  • Customs Duty on large cars/ MUVs/ SUVs with value exceeding USD 40,000 enhanced from 60 per cent to 75 per cent ad valorem
  • Packaged cement to have unified rate of 12 % + Rs 120 PMT for non-mini cement plants and 6 % + Rs 120 PMT for mini-cement plants
  • Non-branded jewellery to attract excise duty of 1%
  • Branded silver jewellery fully exempt
  • Building of commercial vehicle bodies to attract an ad valorem rate of 3%

Other Tax provisions

  • Rate of withholding tax on interest payments on ECBs to be cut to 5 % for 3 years in following sectors:
  • -Power
  • -Airlines
  • -Roads and Bridges
  • -Ports and Shipyards
  • -Affordable Housing
  • -Fertilizer
  • -Dams
  • Restriction on Venture Capital Funds to invest only in nine specified sectors to be removed
  • To remove cascading effect of Dividend Distribution Tax in a multi-tier corporate structure
  • Continue to allow repatriation of dividends from foreign subsidiaries of Indian companies to India at a lower tax rate of 15 % for one more year
  • Investment linked deduction of capital expenditure incurred to be provided at 150 % for:
  • -Cold chain facility
  • -Warehouses for storage of food grains
  • -Hospitals
  • -Fertilisers
  • -Affordable housing
  • New sectors to be added for investment linked deduction:
  • -Bee keeping and production of honey and beeswax
  • -Container freight station and inland container depots
  • -Warehousing for storage of sugar
  • To extend the weighted deduction of 200% for R&D expenditure for further five years
  • Weighted deduction of 150% on expenditure incurred for agri-extension services
  • Turnover limit for compulsory tax audit of accounts as well as for presumptive taxation is proposed to be raised from Rs 6 mn to 10 mn for SMEs
  • Exemption of capital gains tax on sale of a residential property, if the sale consideration used for subscription in equity of a manufacturing SME company
  • Weighted deduction at the rate of 150% of expenditure incurred on skill development in manufacturing sector
  • Securities Transaction Tax cut by by 20 per cent (from 0.125 per cent to 0.1 per cent) on cash delivery transactions
  • To extend the levy of Alternate Minimum Tax on all persons other than companies, claiming profit linked deductions
  • To introduce a General Anti Avoidance Rule in order to counter aggressive tax avoidance schemes

Tax Reforms

  • Advanced pricing agreement in DTC to be in Financial Bill
  • New tax exemption on individual share invest with lock-in
  • GST network to become operational from Aug
  • GST under progress, talks on with states for drafting law
  • To examine Parliamentary panel report on Direct Tax Code
  • Rajiv Gandhi Equity Saving Scheme launched
  • Rajiv plan equity invest lock-in period to be 3 years
  • Rs 50,000 tax exempt for share invest in new Rajiv plan
  • Tax exemption on individual share invest below a million rupees
  • Tax free infra bonds Rs 600 bn to be issued in FY 13
  • To allow Rs 100 bn NHAI tax free bonds in FY 13
  • To allow Rs 100 bn IRFC tax free bonds in FY 13
  • To allow Rs 50 bn HUDCO tax free bonds in FY 13
  • To allow Rs 50 bn SIDBI tax free bonds in FY 13
  • To allow Rs 100 bn power sector tax free bonds in FY 13
  • To okay Rs 50 bn National Housing Bank tax free bonds
  • 1% loan sop plan for home loans up to Rs 2.5 mn
  • Interest subvention on low cost homes extended by a year

Growth and Divestment

  • Past year was supposed to be year of recovery
  • This year’s performance turned out to be disappointing
  • We were facing several challenges; global situation a dampener
  • GDP estimated to grow 6.9% in 2011-12
  • FY 13 GDP seen 7.6%, plus or minus 0.25%
  • Proposes Mid-term fiscal goals
  • Aim to raise Rs 300 bn through sales of stakes in state run companies next fiscal
  • Aim to raise Rs 140 bn through sales of stakes in state companies this fiscal
  • Agri, Services performing well
  • Industry pulled down growth in past two years
  • Industry now showing signs of recovery
  • FY 12 Services growth at 9.4%
  • FY 12 Industry growth at 3.9%
  • FY 12 Agri growth at 2.5%
  • Need to improve supply side of economy
  • India still front runner in world in terms of growth; share of trade has increased
  • Crude oil prices to cross USD 115/barrel
  • Five main objectives:
  • Focus on domestic demand driven growth recovery
  • Create conditions for rapid revival of high growth in private investment
  • Address supply bottlenecks in agriculture, energy and transport sectors, particularly in coal, power, national highways, railways and civil aviation
  • Intervene decisively to address the problem of malnutrition especially in the 200 high-burden districts
  • Expedite coordinated implementation of decisions being taken to improve delivery systems, governance, and transparency; and address the problem of black money and corruption in public life

Black Money

  • 82 Double Taxation Avoidance Agreements
  • 17 Tax Information Exchange Agreements
  • Compulsory to declare sale of assets abroad
  • Dedicated exchange of information cell for speedy exchange of tax information with treaty countries
  • India 33rd signatory to the Multilateral Convention on Mutual Administrative Assistance in Tax Matters
  • Directorate of Income Tax Criminal Investigation established in CBDT
  • To lay on the table of the House a white paper on Black Money in the current session of Parliament
  • Allowing for reopening of assessment upto 16 years in relation to assets held abroad
  • Tax collection at source on purchase in cash of bullion or jewellery in excess of Rs 200,000:
  • Tax deduction at source on transfer of immovable property (other than agricultural land) above a specified threshold
  • Tax collection at source on trading in coal, lignite and iron ore
  • Increasing the onus of proof on closely held companies for funds received from shareholders as well as taxing share premium in excess of fair market value
  • Taxation of unexplained money, credits, investments, expenditures etc., at the highest rate of 30 per cent irrespective of the slab of income

Fiscal Health & Estimates

  • Aim to trim fiscal deficit
  • To make amendments to Fiscal Responsibility and Budget Management Act (FRBM Act)
  • Current account deficit 3.6%
  • Fiscal deficit 5.9% of GDP this FY
  • Expect fiscal deficit at 5.1% of GDP next FY
  • Concept of effective revenue deficit to be fiscal parameter
  • Expect gross tax receipts at Rs 10.78 tn next FY, up 15.6%
  • As a percentage of GDP, gross taxes to be 10.6 % in FY 13
  • Total spending Rs 14.49 tn next FY
  • Non-Plan spending Rs 9.69 tn next FY, 8.7% higher than revised estimates
  • Net tax to Centre in FY 13 at Rs 7.71 tn
  • Expect non-tax revenue at Rs 1.64 tn next FY
  • Non-debt Capital Receipts at Rs 416.50 bn
  • Plan expenditure at Rs 5.21 tn, 18% higher than estimates
  • Direct tax collection fell short by Rs 320 bn
  • Total Debt stock at 45.5 % of GDP
  • Effective Revenue Deficit at Rs 1.85 tn or 1.8% of GDP

Farm & Food

  • Agri to be on govt priority list
  • To increases outlay for agriculture by 18% to Rs 202.08 bn
  • India to be self sufficient in urea manufacturing in 5 years
  • Announces 2 new handloom mega clusters
  • To set up 3 technical assistance centres for textiles
  • Allot Rs 700 mn for Maharashtra power loom cluster
  • East Indian states produced 7 mn tones more of paddy
  • Rs 5 bn pilot plan in 12th plan for geo textiles in NE
  • Allocated Rs 3 bn for FY 13 irrigation plans
  • Allot Rs 10 bn to up kharif output in NE FY 13
  • Allot Rs 4 bn to up kharif output in NE FY 12
  • Allot 5 bn for aquaculture FY 13
  • NABARD to give rural banks Rs 100 bn for short term loans
  • To move bill for NABARD Act amendment
  • 3% rate subvention for farmers repaying loans on time
  • Rs 5.75 tn farm credit target in FY 13
  • Rs 2 bn for R&D of seeds and farm research
  • Allocation to farm development plan RKVY hiked to Rs 92.17 bn
  • To set up govt owned irrigation promotion company
  • To add 5 mn tones grain storage capacity in FY 13
  • To start national food processing mission in FY 13
  • Micro-irrigation allotment up 13% to Rs 142.42 bn


  • Headline inflation was major cause of concern
  • Inflation likely to moderate in FY 13
  • Inflation largely structural in nature
  • Headline inflation is beginning to stabalize
  • Prolonged period of high inflation tends to get generalized
  • Inflation driven by farm supply constraints
Budget 2012 : Summary
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