Full text of Pranab Mukherjee's budget 2010-11 speech: Part B

117.     While formulating them, I have been guided by the principles of sound tax administration as embodied in the following words of Kautilya:

"Thus, a wise Collector General shall conduct the work of revenue collection.... in a manner that production and consumption should not be injuriously affected.... financial prosperity depends on public prosperity, abundance of harvest and prosperity of commerce among other things."

118.     I had stated last year that tax reform is a process and not an event.  The process I had outlined in the area of direct taxes was to release a draft Direct Taxes Code along with a Discussion Paper.   In the area of indirect taxes, the reform initiative was the introduction of a Goods and Services Tax. I have presented the developments in both reform initiatives in Part 'A' of my Speech.

119.     We have continued on the path of computerisation in core areas of service delivery in the administration of direct taxes.  This will reduce the physical interface between taxpayers and tax administration and speed up procedures and processes. The Centralised Processing Centre at Bengaluru is now fully functional and is processing around 20,000 returns daily. This initiative will be taken forward by setting up two more Centres during the year.

120.     As a part of Government's initiative to move towards citizen centric governance, the income tax department has introduced "Sevottam", a pilot project at Pune, Kochi and Chandigarh through Aayakar Seva Kendras.  These provide a single window system for registration of all applications including those for redressal of grievances as well as paper returns. This year the scheme will be extended to four more cities.

121.     To achieve the roll-out of GST by April 2011, the indirect tax administrations at the Centre and the States need to revamp their internal work processes based on the use of Information Technology. I am happy to inform Honorable Members that project ACES - Automation of Central Excise & Service Tax, has already been rolled out throughout the country this year. This will impart greater transparency in tax administration and improve the delivery of taxpayer services. Similarly, a Mission Mode Project for computerisation of Commercial Taxes in States has been approved recently. With an outlay of Rs.1133 crore of which the Centre's share is Rs.800 crore, the project will lay the foundation for the launch of GST.

122.     I mentioned last year, that the income tax return forms should be simple and user friendly. The income tax department is now ready to notify SARAL-II  form for individual salaried taxpayers for the coming assessment year. This form will enable individuals to enter relevant details in a simple format in only two pages.

123.     To expeditiously resolve disputes with taxpayers I propose to expand the scope of cases which may be admitted by the Settlement Commission to include proceedings related to search and seizure cases pending for assessment. I also propose to expand the scope of Settlement Commission in respect of Central Excise and Customs so that certain categories of cases that hitherto fell outside its jurisdiction may be admitted.

124.     Last year, amendments to the statute enabled Government to enter into tax treaties with specified territories besides sovereign states. We have commenced bi-lateral discussions to enhance the exchange of bank related and other information to effectively track tax evasion and identify undisclosed assets of resident Indians lying abroad. 

Direct Taxes

I shall now deal with direct taxes.

125.     Last year I provided relief to individual taxpayers by enhancing the exemption limit for all taxpayers and withdrawing the surcharge on personal income tax. Taxpayers have responded positively to these concessions by contributing a higher level of taxes.  There is a persuasive case for further relief by broadening the current tax slabs which I propose as follows:

Income upto Rs.1.6 lakh                                                     Nil

Income above Rs.1.6 lakh and upto Rs.5 lakh               10 per cent

Income above Rs.5 lakh and upto Rs.8 lakh                   20 per cent

Income above Rs.8 lakh                                                      30 per cent

126.     The proposed broadening of tax slabs will provide substantial relief to a large number of taxpayers.

127.     To promote savings as well as to ensure their utilisation for the thrust area of infrastructure, I propose to allow a deduction of an additional amount of Rs.20,000 for investment in long-term infrastructure bonds as notified by the Central Government.  This would be over and above the existing limit of Rs.1 lakh on tax savings.  I am sure that these reliefs will put more money in the hands of individual taxpayers for both consumption as well as saving.

128.     Besides contributions to health insurance schemes which is currently allowed as a deduction under the Income-tax Act, I propose to allow contributions to the Central Government Health Scheme also as a deduction under the same provision. 

129.     Taking forward my initiative of phasing out surcharge, I propose to reduce the current surcharge of 10 per cent on domestic companies to 7.5 per cent.  At the same time, I propose to increase the rate of Minimum Alternate Tax (MAT) from the current rate of 15 per cent to 18 per cent of book profits. This will further promote inter-se equity among corporate taxpayers.

130.     The President, in her address to the Parliament in June 2009, had declared this decade as the Decade of Innovation. Last year, I extended the scope of weighted deduction on expenditure incurred on in-house research and development (R&D) to all manufacturing businesses except for a small negative list.  To further encourage R&D across all sectors of the economy, I now propose to enhance the weighted deduction on expenditure incurred on in-house R&D from 150 per cent to 200 per cent. I also propose to enhance the weighted deduction on payments made to National Laboratories, research associations, colleges, universities and other institutions, for scientific research from 125 per cent to 175 per cent.

131.     Currently, any payment made to an approved scientific research association is eligible for weighted deduction. The income of the approved scientific research association is exempt from tax. I propose that payments made to approved associations engaged in research in social sciences or statistical research would be allowed a weighted deduction of 125 per cent. The income of such approved research associations shall be exempt from tax.

132.     In my Budget Speech last year, I stated that profit linked deductions are inherently inefficient and liable to misuse. To incentivise businesses in priority sectors, I introduced investment linked deduction as an alternative to profit linked deduction.  To give a boost to investment in the tourism sector which has high employment potential, I propose to extend the benefit of investment linked deduction under the Act to new hotels of two-star category and above anywhere in India.

133.     To provide one time interim relief to the housing and real estate sector which was impacted by the global recession, I propose to allow pending projects to be completed within a period of five years instead of four years for claiming a deduction on their profits. I also propose to relax the norms for built-up area of shops and other commercial establishments in housing projects to enable basic facilities for their residents.

134.     All businesses with a turnover exceeding Rs.40 lakh are currently required to have their accounts audited.  A similar provision also applies to all professions whose receipts exceed Rs.10 lakh.  I, as Finance Minister, had introduced these limits in my budget of 1984.  It is high time to reduce the compliance burden on small taxpayers.  I, therefore, propose to enhance these limits to Rs.60 lakh in the case of businesses and Rs.15 lakh in the case of professions.  

135.     To facilitate the business operations of small taxpayers, I had extended the scope of presumptive taxation to all small businesses with a turnover of up to Rs.40 lakh.   To further reduce the compliance burden on small taxpayers, I now propose to enhance this limit to Rs.60 lakh. 

136.     The threshold limits of payments below which tax is not deductible at source have remained unchanged for a long time.  I propose to rationalise these thresholds. 

137.     Relaxing the current provisions on disallowance of expenditure, I propose to allow deduction of such expenditure, if tax has been deducted at any time during the financial year and paid before the due date of filing the return. This will allow most deductors additional time up to September of the next financial year.  At the same time, I propose to increase the interest charged on tax deducted but not deposited by the specified date, from 12 per cent to 18 per cent per annum. 

138.     Last year, I had provided for the taxation of the newly introduced Limited Liability Partnership (LLP) on the same lines as exists for a general partnership firm. To facilitate the conversion of small companies into LLPs, I propose that this will not be subject to capital gains tax.

139.     Under the current provisions of the Act, "the advancement of any other object of general public utility" cannot be considered as "charitable purpose" if it involves  carrying on of any activity in the nature of trade, commerce or business. I have received representations from many organisations seeking some relaxation in this restriction. I propose that this restriction would not be applicable if the receipts from such activities do not exceed Rs.10 lakh in the year. 

140.     My proposals on direct taxes are estimated to result in a revenue loss of Rs.26,000 crore for the year.

Indirect Taxes

141.     The major objectives that have guided me in the formulation of my proposals on indirect taxes are the need to achieve some degree of fiscal consolidation without impairing the recovery process and moving forward on the road to GST.

142.     Unlike the time I presented the last Budget, symptoms of economic recovery are more widespread and clear-cut now. The three fiscal stimulus packages that the Government introduced in quick succession have helped the process of recovery significantly. The improvement in our economic performance encourages a course of fiscal correction even as the global situation warrants caution. Therefore, I propose to partially roll back the rate reduction in Central Excise duties and enhance the standard rate on all non-petroleum products from 8 per cent to 10 per cent ad valorem. The specific rates of duty applicable to portland cement and cement clinker are also being adjusted upwards proportionately. Similarly, the ad valorem component of excise duty on large cars, multi-utility vehicles and sports-utility vehicles which was reduced as part of the first stimulus package, is being increased by 2 percentage points to 22 per cent.

143.     In the wake of spiralling petroleum prices, Government provided full exemption from basic customs duty to crude petroleum and proportionately reduced the basic duty on refined petroleum products in June, 2008. Compared to the international price of the Indian crude basket of US$ 112 per barrel at that time, the prices are much softer at present. In view of the pressing need to move back to a fiscal consolidation path, I propose to restore the basic duty of 5 per cent on crude petroleum; 7.5 per cent on diesel and petrol and 10 per cent on other refined products. I also propose to enhance the Central Excise duty on petrol and diesel by Re.1 per litre each.

144.     Since I quit smoking many years ago, I would urge others to also follow suit, as smoking is injurious to health. To this end, I am making some structural changes in the excise duty on cigarettes, cigars and cigarillos coupled with some increase in rates. I also propose to enhance excise duty on all non-smoking tobacco such as scented tobacco, snuff, chewing tobacco etc. In addition, I propose to introduce a compounded levy scheme for chewing tobacco and branded unmanufactured tobacco based on the capacity of pouch packing machines.

145.     Let me now turn to some much-needed incentives in thrust areas for sustainable growth and development.

 

Agriculture & Related Sectors

146.     In supporting the strategy outlined for development of agriculture earlier in my speech, I propose to address a few key areas that call for focused attention. These are:

(i)       A strong supply chain for perishable farm produce to reach consumption and processing centres promptly;

(ii)      Infrastructure and technology to convert such produce into value-added products; and

(iii)     Infusion of technology to augment agricultural production.

147.     Similar attention needs to be paid to related sectors such as apiary, horticulture, dairy, poultry, meat, marine and aquaculture.

148.     For achieving these objectives, I propose to provide:

•         project import status with a concessional import duty of 5 per cent for the setting up of mechanised handling systems and pallet racking systems in 'mandis' or warehouses for food grains and sugar as well as full exemption from service tax for the installation and commissioning of such equipment.

•         project import status at a concessional customs duty of 5 per cent with full exemption from service tax to the initial setting up and expansion of

»      Cold storage, cold room including farm pre-coolers for preservation or storage of agriculture and related sectors  produce ; and

»      Processing units for such produce.

•        full exemption from customs duty to refrigeration units required for the manufacture of refrigerated vans or trucks.

149.     I also propose to provide:

•         concessional customs duty of 5 per cent to specified agricultural machinery not manufactured in India;

•         central excise exemption to specified equipment for preservation, storage and processing of agriculture and related sectors and exemption from service tax to the storage and warehousing of their produce; and

•         full exemption from excise duty to trailers and semi-trailers used in agriculture.

150.     Concessional import duty was provided to specified machinery for use in the plantation sector in the year 2003. This exemption is to lapse in July 2010.  The modernization of this labour-intensive sector is yet to reach the expected level. I propose therefore, to extend it up to March 31, 2011 along with a CVD exemption. I hope this will provide sufficient time for the sector to achieve the desired objective.

151.     One of the prerequisites for agricultural productivity is access to good quality and disease-resistant seeds. I propose to exempt the testing and certification of agricultural seeds from service tax.

152.     I also propose to exempt the transportation by road of cereals and pulses from service tax. Their transportation by rail would remain exempt.

153.     I propose two measures under the Central Excise law to ease the cash flow position for small-scale manufacturers hard hit by the economic slowdown. First, they would be permitted to take full credit of Central Excise duty paid on capital goods in a single instalment in the year of their receipt. Secondly, they would be permitted to pay Central Excise duty on a quarterly, rather than monthly basis. These measures that come into effect on the April 1, 2010 should provide them considerable relief.

 

Environment

154.     Harnessing renewable energy sources to reduce dependence on fossil fuels is now recognised as a credible strategy for combating global warming and climate change. To build the corpus of the National Clean Energy Fund announced earlier, I propose to levy a clean energy cess on coal produced in India at a nominal rate of Rs.50 per tonne. This cess will also apply to imported coal.

155.     In pursuance of Government's resolve to implement the National Solar Mission, I propose to provide a concessional customs duty of 5 per cent to machinery, instruments, equipment and appliances etc. required for the initial setting up of photovoltaic and solar thermal power generating units. I also propose to exempt them from Central Excise duty. Similarly, ground source heat pumps used to tap geo-thermal energy would be exempt from basic customs duty and special additional duty.

156.     Wind energy has shown promising growth in the country in recent years. As a measure of further relief, I propose to exempt a few more specified inputs required for the manufacture of rotor blades for wind energy generators from Central Excise duty.

157.     LED lights are staging a debut as a highly energy-efficient source of lighting for streets, homes and offices. Central Excise duty on these is being reduced from 8 per cent to 4 per cent at par with Compact Fluorescent Lamps.

158.     Full exemption from Central Excise duty was provided to electric cars and vehicles that offer an eco-friendly alternative to petrol or diesel vehicles. The manufacturers of such vehicles have expressed difficulty in neutralising the duty paid on their inputs and components. I propose to remedy this by imposing a nominal duty of 4 per cent on such vehicles. I also propose to exempt some critical parts or sub-assemblies of such vehicles from basic customs duty and special additional duty subject to actual user condition. These parts would also enjoy a concessional CVD of 4 per cent.

159.     The humble cycle rickshaw is now being acclaimed as an environment-friendly means of transport. CSIR has developed an innovative product called 'soleckshaw' to replace manually-operated rickshaws. It runs on batteries which are charged by solar power. I propose to provide a concessional excise duty of 4 per cent to this product. Its key parts and components are also being exempted from customs duty. 

160.     To encourage the use of bio-degradable materials, I propose to exempt the import of compostable polymer from basic customs duty.

 

Infrastructure

161.     Strengthening the public transport system is another means of reducing dependence on fossil fuels. I propose to grant project import status to 'Monorail projects for urban transport' at a concessional basic duty of 5 per cent.          

162.     Full exemption from import duty is available to specified machinery for road construction projects on the condition that the machinery shall not be sold or disposed of for a minimum period of five years. In view of representations that this leads to idling of machinery, I propose to allow resale of such machinery on payment of import duty at depreciated value. It is also being clarified that the importer is free to relocate such machinery to other eligible road construction projects.

163.     With the subscriber base growing at 14 million per month, India is one of the fastest growing markets for mobile phone connections in the world. Domestic production of mobile phones is now picking up in view of exemptions from basic, CVD and special additional duties granted to their parts, components and accessories. To encourage the domestic manufacture of accessories, these exemptions are now being extended to parts of battery chargers and hands-free headphones. Also, the validity of the exemption from special additional duty is being extended till March 31, 2011.

 

Medical Sector

164.     Medical equipment, instruments and appliances are subjected to a very complex import duty regime based on several long lists that describe individual items. Multiple rates coupled with descriptions not aligned with tariff lines, result in disputes and at times prevent state-of-art equipment from getting the benefit of exemption. I propose to prescribe a uniform, concessional basic duty of 5 per cent, CVD of 4 per cent with full exemption from special additional duty on all medical equipment. A concessional basic duty of 5 per cent is being prescribed on parts and accessories for the manufacture of such equipment while they would be exempt from CVD and special additional duty. Full exemption currently available to medical equipment and devices such as assistive devices, rehabilitation aids etc. is being retained. The concession available to Government hospitals or hospitals set up under a statute is also being retained.

165.     The manufacturers of orthopaedic implants have represented that their inputs attract a higher rate of duty than the finished product. I propose to exempt specified inputs for the manufacture of such implants from import duty.

 

Infotainment

166.     India is a nation of movie-goers. The film industry has been experiencing difficulties in importing digital masters of films for duplication or distribution loaded on electronic medium vis-a-vis  those imported on cinematographic film, owing to a differential customs duty structure. I propose to rationalise this by charging customs duty only on the value of the carrier medium. The same dispensation would apply to music and gaming software imported for duplication. In keeping with the tradition of Indian cinema, however, I shall provide a surprise ending. In all such cases the value representing the transfer of intellectual rights would be subjected to service tax.

167.     Cable transmission of infotainment is undergoing a transformation with the adoption of digital technology. The multi-service operators need to invest in "Digital Head End" equipment. To enable this, I propose to provide project import status at a concessional customs duty of 5 per cent with full exemption from special additional duty to the initial setting up of such projects.

Precious Metals

168.     The prices of precious metals continue to rise. Since the customs duty is levied on these at specific rates, I propose to index the rates as follows:

•         On gold and platinum from Rs.200 per 10 grams to Rs.300 per 10 grams.

•        On silver from Rs.1,000 per kg to Rs.1,500 per kg.

169.     Gems and jewellery is a traditional item in our export basket. Rhodium - a precious metal used for polishing jewellery attracts a basic customs duty of 10 per cent. This is being reduced to 2 per cent.

170.     To encourage domestic refining capacity for gold, I propose to reduce the basic customs duty on gold ore and concentrates from 2 per cent ad valorem to a specific duty of Rs.140 per 10 grams of gold content with full exemption from special additional duty. Further, the excise duty on refined gold made from such ore or concentrate is being reduced from 8 per cent to a specific duty of Rs.280 per 10 grams.

 

Other Proposals

171.     Full exemption from import duty is available to specified inputs or raw materials required for the manufacture of sports goods which are assuming importance as an item of export. This is being expanded to cover a few more items.

172.     In order to incentivise the domestic production of microwave ovens, I propose to reduce the basic customs duty on one of its key components, namely magnetrons from 10 per cent to 5 per cent.

173.     Presently, there is a value limit of Rs.1 lakh per annum on duty-free import of commercial samples as personal baggage. I propose to enhance this limit to Rs.3 lakh per annum.

174.     Industry has represented that the exemption from special additional duty of 4 per cent based on refunds leads to substantial blockage of funds.  To ease this difficulty, I propose to provide an outright exemption from special additional duty to goods imported in a pre-packaged form for retail sale. This would also cover mobile phones, watches and ready-made garments even when they are not imported in pre-packaged form. The refund-based exemption is also being retained for cases not covered by the new dispensation.

175.     Toy balloons are a source of joy to millions of children. To bring a smile to their mothers' faces, I propose to fully exempt them from Central Excise duty.

176.     Some of the other relief measures that I propose are as under:

•         Reduction in basic customs duty on long pepper from 70 per cent to 30 per cent;

•         Reduction in basic customs duty on asafoetida from 30 per cent to 20 per cent;

•         Reduction in central excise duty on replaceable kits for household type water filters other than those based on RO technology to 4 per cent;

•         Reduction in central excise duty on corrugated boxes and cartons from 8 per cent to 4 per cent;

•         Reduction in central excise duty on latex rubber thread from 8 per cent to 4 per cent; and

•         Reduction in excise duty on goods covered under the Medicinal and Toilet Preparations Act from 16 per cent to 10 per cent.

177.     My proposals relating to customs and central excise are estimated to result in a net revenue gain of Rs.43,500 crore for the year.

 

Service Tax

178.     The service sector contributes nearly 60 per cent of the GDP.   The service tax to GDP ratio however, is only around 1 per cent. This sector thus, has significant potential to augment revenue.

179.     To bridge this gap, I had the option to raise the rate of service tax to 12 per cent as it was before I introduced the third stimulus package.  I am not resorting to this option to maintain the growth momentum and also to bring about a convergence in the rates of tax on goods and services.  I, therefore, propose to retain the rate of tax on services at 10 per cent to pave the way forward for GST.

180.     I had another option - to bring all services under service tax. I am not opting for this either at this stage. I propose, however, to bring certain services, hitherto untaxed, within the purview of the service tax levy. These are being notified separately.

181.     I am also proposing certain legislative changes to plug revenue leakages, to remove distortions and to clarify certain doubts that have arisen over a period of time. I do not want to waste the precious time of the House elaborating the details, as they are available in the Finance Bill and other Budget documents.

182.     Export of services, especially in the area of Information Technology and Business Process Outsourcing, generates substantial employment and brings in foreign exchange. I propose to ease the process of refund of accumulated credit to exporters of services by making necessary changes in the definition of export of services and procedures.

183.     Accredited news agencies which provide news feed online attract service tax. Acknowledging the yeoman services of such news agencies in disseminating news, I propose to exempt such news agencies that meet certain criteria, from service tax.

184.     My proposals relating to service tax are estimated to result in a net revenue gain of Rs.3,000 crore for the year.

185.     Copies of notifications giving effect to the changes in customs, central excise and service tax will be laid on the Table of the House in due course.

186.     My proposals on Direct Taxes are estimated to result in a revenue loss of Rs.26,000 crore for the year. Proposals relating to Indirect Taxes are estimated to result in a net revenue gain of Rs.46,500 crore for the year. Taking into account the concessions being given in my tax proposals and measures taken to mobilise additional resources, the net revenue gain is estimated to be Rs.20,500 crore for the year.

187.     We have emerged from the global slowdown faster than any other nation. I did not hesitate in exercising my judgement on the course of action last year and I have no hesitation in my mind now. Our actions today will determine our tomorrow.

188.     This Budget belongs to 'Aam Aadmi'.  It belongs to the farmer, the agriculturist, the entrepreneur and the investor. The opportunity is great. The time is right. I have placed my faith in the hands of the people who, I know, can be depended upon to rise to any occasion in national interest. I have placed my faith in the collective conscience of the nation that can be touched to scale undreamt of heights in the coming years.

Madam Speaker, with these words I commend the Budget to the House.

Click here for Part A of Budget 2010-11 speech