Exporters reeling under the dollar slide could be in line for a slew of reliefs in the Foreign Trade Policy coming up next month.
The steps being contemplated by the Commerce Ministry range from possible reimbursement of, or rebate on, some of the taxes incurred on export production; to zero duty EPCG (export promotion capital goods) scheme in place of the five per cent concessional duty, possibly for the first time.
These and a dozen other sops are being considered to mitigate exporters’ losses due to the rupee’s 11 per cent appreciation against the dollar, according to a note circulated by the Commerce Minister, Mr Kamal Nath, at a meeting organised by the Federation of Indian Exporters’ Organisation here on Friday.
Export growth
He said he still expected an export growth of 20 per cent this fiscal over 2006-07. The target is $160 billion. “The abatement of service tax on all services related to export production and delivery of exports” is being examined. The Government is also debating a scheme to reimburse or discount even State levies such as octroi, mandi tax, electricity duty that are currently not reimbursed.
Those exporting more than 75 per cent of their production may also get the EPCG benefit without any binding on average EO (export obligation).
Textiles and automobiles may also get the benefit of duty-free import of R&D equipment up to 25 per cent of f.o.b. value.
Mr Nath said, “The worldwide slowdown driven by the US (dollar slide) is a problem but there are other engines of growth” such as Europe, Africa and China. “We are looking at country-specific duties and we are going to have trade agreements.”
With Japan, for instance, there had been a breakthrough in the MFN (most favoured nation) negotiations. Europe and top African countries were the other preferred baskets that were being pursued.
SHORT OF TARGET
Total exports are likely to touch $ 150 billion by the end of March, falling a little short of the targeted $160 billion, according to Mr Sakthivel, Vice-President & FIEO Regional Chairman. He said exports from labour-intensive and employment-intensive sectors like textiles, readymade garments, handicrafts, leather products had declined.
Calling for a dual rate system for exporters, he said, “With the support of the Government, we are sure that exports will accelerate in the last quarter.” He urged the Minister to take up the issue of RTAs (regional trade pacts) that were eating into Indian export markets.
The FKCCI President, Mr S.S.Patil, said infrastructure such as electronic data interchange would cut export cost and bring the $ 200-billion export target for 2008-09 closer.
Saturday, April 12, 2008
Inflation surges to 40-month high
RISING INFLATION :
With no let-up in prices of vegetables, milk, edible oils, fuels and iron and steel, inflation spiked sharply to its highest levels since November 2004, even as fresh industrial production data reflected signs of a pick-up in output.
The easing of concerns about the extent of a slowdown in the broader economy, amid the sustained upward spiral in price levels, increases the odds that the RBI might opt to tighten monetary policy when it holds a review at the end of the month, analysts point out.
The annual Wholesale Price Index-based inflation rose 7.41 per cent during the week up to March 29, up sharply from the previous week’s 7 per cent rise. During the latest week, wholesale prices in the iron and steel category were up a whopping 34 per cent on a year-on-year basis, while edible oil prices shot up 20 per cent.
Among essential items, cereal prices jumped 7 per cent, vegetables were up 16 per cent, while prices of both milk and spices spurted 8 per cent in the wholesale markets. Dairy products were up 9 per cent, while cement prices jumped 5 per cent. In the fuels category, both mineral oil and coal prices were up 9 per cent.
Meanwhile, industrial production grew 8.6 per cent this February from a year earlier, higher than January’s upwardly revised 5.8 per cent rise, according to IIP data released on Friday. This, however, was lower than the 11 per cent recorded during the same month a year ago.
During the month, manufacturing clocked an 8.6-per cent growth, electricity generation was up 9.8 per cent while mining output was up 7.5 per cent.
The strongest growth was in consumer non-durables, including items such as toothpaste and soaps, which rose 11 per cent from February a year ago, while momentum in the capital goods segment picked up, with a 10.4 per cent rise in output after January’s dismal 2.1 per cent (pre-revised). Consumer durables recorded a 3.3 per cent growth.
Ban on exports
Adding to the series of measures already in place to curb rising prices, the Government on Friday announced a ban on cement exports, besides withdrawing export incentives for rice and primary steel items in its new Foreign Trade Policy. The Government has already banned export of non-basmati rice, edible oils and pulses in an attempt to curb inflation.
The Cabinet Committee on Prices is now slated to consider a fresh set of proposals next week, including a ban on steel exports.
The Cabinet panel is also likely to consider proposals like a cut in excise duty on finished steel and scrapping customs duty on imported steel.
‘Global phenomenon’
Responding to the latest inflation numbers, the Centre termed soaring prices as a global phenomenon and said it was taking all possible steps to contain the rise. “The Government has no magic wand to bring down inflation. Due to a rise in prices worldwide, it has become an imported inflation,” the Minister for Science and Technology, Mr Kapil Sibal, said while briefing the mediapersons after a Cabinet meeting here.
With no let-up in prices of vegetables, milk, edible oils, fuels and iron and steel, inflation spiked sharply to its highest levels since November 2004, even as fresh industrial production data reflected signs of a pick-up in output.
The easing of concerns about the extent of a slowdown in the broader economy, amid the sustained upward spiral in price levels, increases the odds that the RBI might opt to tighten monetary policy when it holds a review at the end of the month, analysts point out.
The annual Wholesale Price Index-based inflation rose 7.41 per cent during the week up to March 29, up sharply from the previous week’s 7 per cent rise. During the latest week, wholesale prices in the iron and steel category were up a whopping 34 per cent on a year-on-year basis, while edible oil prices shot up 20 per cent.
Among essential items, cereal prices jumped 7 per cent, vegetables were up 16 per cent, while prices of both milk and spices spurted 8 per cent in the wholesale markets. Dairy products were up 9 per cent, while cement prices jumped 5 per cent. In the fuels category, both mineral oil and coal prices were up 9 per cent.
Meanwhile, industrial production grew 8.6 per cent this February from a year earlier, higher than January’s upwardly revised 5.8 per cent rise, according to IIP data released on Friday. This, however, was lower than the 11 per cent recorded during the same month a year ago.
During the month, manufacturing clocked an 8.6-per cent growth, electricity generation was up 9.8 per cent while mining output was up 7.5 per cent.
The strongest growth was in consumer non-durables, including items such as toothpaste and soaps, which rose 11 per cent from February a year ago, while momentum in the capital goods segment picked up, with a 10.4 per cent rise in output after January’s dismal 2.1 per cent (pre-revised). Consumer durables recorded a 3.3 per cent growth.
Ban on exports
Adding to the series of measures already in place to curb rising prices, the Government on Friday announced a ban on cement exports, besides withdrawing export incentives for rice and primary steel items in its new Foreign Trade Policy. The Government has already banned export of non-basmati rice, edible oils and pulses in an attempt to curb inflation.
The Cabinet Committee on Prices is now slated to consider a fresh set of proposals next week, including a ban on steel exports.
The Cabinet panel is also likely to consider proposals like a cut in excise duty on finished steel and scrapping customs duty on imported steel.
‘Global phenomenon’
Responding to the latest inflation numbers, the Centre termed soaring prices as a global phenomenon and said it was taking all possible steps to contain the rise. “The Government has no magic wand to bring down inflation. Due to a rise in prices worldwide, it has become an imported inflation,” the Minister for Science and Technology, Mr Kapil Sibal, said while briefing the mediapersons after a Cabinet meeting here.
Tuesday, February 26, 2008
Railway Budget (2008 - 2009 ) Highlights
Following are the highlights of Railway Budget 2008-09 presented by the Railways Minister, Mr Lalu Prasad, in Parliament on Tuesday.
Freight traffic crosses target of 785 million tonnes; to touch 790 million tonnes.
Railway Plan size increased from Rs 11,000 crore to Rs 30,000 crore in the last four years.
Posts profit of Rs 25,000 cr in 2007-08.
560 railway station platforms to be lengthened to take long trains.
Middle-level and low-level platforms to be upgraded to high-level platforms in several stations to help commuters.
Doubling of lines to be given priority.
Professional agencies being involved on a pilot basis to ensure cleanliness in running trains.
Second-class Sleeper fares cut by 5%.
AC-1 fare cut by 7%.
AC-2 fare cut by 4%.
AC-3 fare cut by 3%.
Freight on petrol, diesel cut by 5%
Work on automatic signalling to start in new sections.
Smartcard-based ticketing system planned.
Electrification of more routes in North India.
Foot overbridge along high level platforms.
Talks on with foreign cos for new wagon designs.
High level platforms in 135 stations.
Housekeeping in Shatabdis to be outsourced.
Lifts and escalators in 50 stations.
Modular toilets to be introduced in trains.
Rajdhanis, Shatabdis to get modernised coaches.
Touch screens, colour TVs across all major stations.
6,000 automatic ticket sale machines in 2 years.
By 2010 all coaches to be in stainless steel.
Rlys to use call centres for reservations.
16,548 old rail tracks to be renewed.
Ticket confirmation via mobiles likely.
Pvt cos can make terminals on Rly land.
All un-manned crossings to be manned.
Metal detectors, baggage scan at key stations.
Display boards to be set up across stations for convenience of passengers.
'Go Mumbai' tickets to be sold at bus depots.
Delhi-JNPT-NavaSheva western freight corridor cleared.
Multi-level parking at 30 major stations.
Free Rajdhani, Shatabdi travel for Ashok Chakra winners.
New Delhi, Mumbai, Pune to be made world-class stations.
50% concessions for AIDS patients.
Free season tickets for girls till graduation.
Rlys to issue wait-listed e-tickets.
50% concession for senior women citizen.
Arrival time to be printed on tickets.
To link trains via IT, communications in 2009.
10 new Garib Raths, 53 new trains to be introduced.
Amravati-Mumbai Express to run twice a week.
Khajuraho-Delhi to run thrice a week.
Chennai-Salem to have daily frequency
Kurla-Howrah to have twice a week frequency.
Considering a rail link for Ennore port.
To have new wagon leasing policy.
BBU-NDLS Rajdhani thrice a week.
Expanding use of automated signalling system.
Special train between Delhi and Pune for Commonwealth Games.
Freight traffic crosses target of 785 million tonnes; to touch 790 million tonnes.
Railway Plan size increased from Rs 11,000 crore to Rs 30,000 crore in the last four years.
Posts profit of Rs 25,000 cr in 2007-08.
560 railway station platforms to be lengthened to take long trains.
Middle-level and low-level platforms to be upgraded to high-level platforms in several stations to help commuters.
Doubling of lines to be given priority.
Professional agencies being involved on a pilot basis to ensure cleanliness in running trains.
Second-class Sleeper fares cut by 5%.
AC-1 fare cut by 7%.
AC-2 fare cut by 4%.
AC-3 fare cut by 3%.
Freight on petrol, diesel cut by 5%
Work on automatic signalling to start in new sections.
Smartcard-based ticketing system planned.
Electrification of more routes in North India.
Foot overbridge along high level platforms.
Talks on with foreign cos for new wagon designs.
High level platforms in 135 stations.
Housekeeping in Shatabdis to be outsourced.
Lifts and escalators in 50 stations.
Modular toilets to be introduced in trains.
Rajdhanis, Shatabdis to get modernised coaches.
Touch screens, colour TVs across all major stations.
6,000 automatic ticket sale machines in 2 years.
By 2010 all coaches to be in stainless steel.
Rlys to use call centres for reservations.
16,548 old rail tracks to be renewed.
Ticket confirmation via mobiles likely.
Pvt cos can make terminals on Rly land.
All un-manned crossings to be manned.
Metal detectors, baggage scan at key stations.
Display boards to be set up across stations for convenience of passengers.
'Go Mumbai' tickets to be sold at bus depots.
Delhi-JNPT-NavaSheva western freight corridor cleared.
Multi-level parking at 30 major stations.
Free Rajdhani, Shatabdi travel for Ashok Chakra winners.
New Delhi, Mumbai, Pune to be made world-class stations.
50% concessions for AIDS patients.
Free season tickets for girls till graduation.
Rlys to issue wait-listed e-tickets.
50% concession for senior women citizen.
Arrival time to be printed on tickets.
To link trains via IT, communications in 2009.
10 new Garib Raths, 53 new trains to be introduced.
Amravati-Mumbai Express to run twice a week.
Khajuraho-Delhi to run thrice a week.
Chennai-Salem to have daily frequency
Kurla-Howrah to have twice a week frequency.
Considering a rail link for Ennore port.
To have new wagon leasing policy.
BBU-NDLS Rajdhani thrice a week.
Expanding use of automated signalling system.
Special train between Delhi and Pune for Commonwealth Games.
Monday, February 25, 2008
No panic: Mutual funds promise good returns in long-term
Though mutual funds have seen a dip in the net asset value (NAVs) in the last one week due to turmoil in the market, experts said investors should not panic and take a short-term view. With Indian economy expected to grow at 9%, MFs are capable of giving handsome return in medium to long term (three to five years), they added.
Almost all categories of funds have given good return in three to five years period (see chart). On an average, the diversified funds have given a compounded annual return of 48% till Thursday.
In last one week, till Thursday, diversified MFs average NAV has dipped by 15.18%. As sensex gained more than 1,100 points on Friday, it has offset a substantial portion of loss, CEO of a MF said.
During last five years, there were couple of occasions when the sensex fell by over 1000 points. Critics said party is over and investors should exit. But, those who remained invested reaped the benefit.
What happened on Monday and Tuesday , the CEO said, should be taken as an aberration and will be corrected in due course. This kind of situation should be taken as an opportunity to invest. Any investment at lower level will improve the return, he argued.
In three to five years, he said, fund would be able to give more than 20% per annum return. He cautioned that the high return of 49% in the last five years may not be replicated in the next five years as most of the hidden value of the stocks have already been realized. Therefore, he said that if India grows at 9%, there will be companies which will grow at around 25%. So, investors can still manage to earn an annualized return of around 25% to 30% in the medium to long term.
Almost all categories of funds have given good return in three to five years period (see chart). On an average, the diversified funds have given a compounded annual return of 48% till Thursday.
In last one week, till Thursday, diversified MFs average NAV has dipped by 15.18%. As sensex gained more than 1,100 points on Friday, it has offset a substantial portion of loss, CEO of a MF said.
During last five years, there were couple of occasions when the sensex fell by over 1000 points. Critics said party is over and investors should exit. But, those who remained invested reaped the benefit.
What happened on Monday and Tuesday , the CEO said, should be taken as an aberration and will be corrected in due course. This kind of situation should be taken as an opportunity to invest. Any investment at lower level will improve the return, he argued.
In three to five years, he said, fund would be able to give more than 20% per annum return. He cautioned that the high return of 49% in the last five years may not be replicated in the next five years as most of the hidden value of the stocks have already been realized. Therefore, he said that if India grows at 9%, there will be companies which will grow at around 25%. So, investors can still manage to earn an annualized return of around 25% to 30% in the medium to long term.
Ideal investment for Long-term investor
Systematic investment in balanced funds is good for long-term investor
If you want to maintain a simple portfolio and yet have the benefits of diversification, a systematic investment in balanced funds is a great option
As an investor, if you are saving regularly for the long-term and want a low-involvement, hassle-free instrument, then balanced funds are the right choice.
Balanced (mutual) funds have been around for over a decade — and manage assets of over Rs 16,000 crore between them. They, by mandate, invest at least 65% of their portfolio in equities, and up to 35% in debt and related instruments. In practice, the equity component of most balanced funds varies between 65% and 80%, depending on the fund manager’s outlook of the markets. Long-term and discerning investors would no doubt have heard of the UTI Balanced Fund and Prashant Jain’s HDFC Prudence Fund.
Of course, today, there are over 15 balanced funds offered by different fund houses. They have systematic investment plans (SIP), growth/dividend options, and all the other investor-friendly features provided by ‘pure’ equity and debt funds.
But how effective are balanced funds from a tax, load and performance point of view, compared to, say, investing partly in equities and partly in debt? For those who do not wish to enter into nitty-gritties, here’s the simple answer: if you want to maintain a simple portfolio, and yet have the benefits of diversification, a systematic investment in balanced funds is a great option.
Also Read
à UTI, HDFC & ICICI may post over Rs 100-cr profits in FY08
à MFs crash but still promise long term gain
à MFs defy turbulent times at D-Street; pump in over $5 bn
à SEBI should look at phenomenon of MFs investing in their group cos
à No panic: Mutual funds promise good returns in long-term
If you are the more discerning and involved kind, you might want to synthetically ‘manufacture’ a balanced fund type of portfolio instead; by investing in two or more funds, each of ‘pure’ equity and debt nature. If you want some mathematics around, how we came to this, then read on!
For a fair comparison, we consider a Rs 100 investment for three years in a balanced fund on the one hand; and compare it with a combination of two investments for the same duration — of Rs 65 in an equity fund and Rs 35 in a debt fund. Of course, if your desired asset allocation is far different from this (say you are risk averse and want to stay away from equity markets), you should not consider balanced funds. We assume an annualised equity market return of 15% and a debt market return of 7%. Thus, the balanced fund return, ceteris paribus, is expected to be 12.2%, before load and tax.
Nature of portfolio
Balanced funds would invariably invest the equity component of the portfolio in a well-diversified basket of securities, in different sectors. This is ideal for an investor who wants to participate in the long-term growth of the economy, without any active sector or stock preference. Indeed, balanced funds are best suited for such investors. For someone wanting to take sector calls or ride a mid-cap rally, a ‘pure’ (sector or mid-cap) equity fund exposure is called for.
A balanced fund would invest in debt securities of intermediate duration (1-4 years). Thus, they are sensitive to interest rate movements, but not overly so. Hence, as with equity, they are again suitable for investors without a clear researched view on rate cycles.
Transaction costs
In any mutual fund investment, there are two kinds of transaction costs — viz entry/exit loads (for purchase or redemption of fund units) and the expense ratio (annual cost of fund management).
Let us examine each of these in the illustration given above. Most balanced funds, unfortunately, charge the same entry load as equity funds (2.25%).
Thus, in our numerical example, of the Rs 100 invested in the balanced fund, only Rs 97.8 would go towards allotment of units. In our synthetic example, the entire Rs 35 would go into debt units (there being no entry load), and Rs 63.57 towards equity units. Thus, in the synthetic case, we have escaped paying entry load on the debt part of the investment. This difference gets magnified with time, due to compounding.
The other major cost — the expense ratio — is (at least currently) similar in the balanced and synthetic fund scenario. In fact, the difference between funds of similar category exceeds the difference between the equity and balanced categories. So, we ignore this term in the comparison.
Tax implications
There are two tax structures in mutual funds, depending on whether a fund is classified as debt or equity. The following table summarises the currently prevailing tax structure:
Thus, equity funds enjoy beneficial tax treatment. Here, balanced funds enjoy the beneficial treatment of being taxed like equity funds and, in this, they clearly score over the synthetic portfolio we had manufactured, where the debt portion would be taxed at a higher rate.
Balanced funds have higher transaction costs, but are beneficial from a tax perspective. Let us now examine the net impact of all these factors on returns earned by a typical investor.
The accompanying table shows the net impact in both the balanced fund investment and the synthetic portfolio; for the period of three years, given the equity and debt returns as assumed above. As can be seen there, the synthetic portfolio outperforms, but by a very small margin. For all practical purposes, a good balanced fund can easily perform as well as a synthetically-made portfolio with similar debt to equity ratio. And we do have such excellent balanced funds in today’s mutual fund market!
As an investor, if you are saving regularly for the long term and want a low involvement hassle free instrument, balanced funds are for you. If you otherwise have a lot of debt investment (Bank FD, PPF, NSC, liquid funds, etc) then you might be better off going for 100% equity oriented funds instead. In either case, you can be comfortable in the knowledge that the benefits of one option over another are not overwhelming; and in most cases not even significant.
If you want to maintain a simple portfolio and yet have the benefits of diversification, a systematic investment in balanced funds is a great option
As an investor, if you are saving regularly for the long-term and want a low-involvement, hassle-free instrument, then balanced funds are the right choice.
Balanced (mutual) funds have been around for over a decade — and manage assets of over Rs 16,000 crore between them. They, by mandate, invest at least 65% of their portfolio in equities, and up to 35% in debt and related instruments. In practice, the equity component of most balanced funds varies between 65% and 80%, depending on the fund manager’s outlook of the markets. Long-term and discerning investors would no doubt have heard of the UTI Balanced Fund and Prashant Jain’s HDFC Prudence Fund.
Of course, today, there are over 15 balanced funds offered by different fund houses. They have systematic investment plans (SIP), growth/dividend options, and all the other investor-friendly features provided by ‘pure’ equity and debt funds.
But how effective are balanced funds from a tax, load and performance point of view, compared to, say, investing partly in equities and partly in debt? For those who do not wish to enter into nitty-gritties, here’s the simple answer: if you want to maintain a simple portfolio, and yet have the benefits of diversification, a systematic investment in balanced funds is a great option.
Also Read
à UTI, HDFC & ICICI may post over Rs 100-cr profits in FY08
à MFs crash but still promise long term gain
à MFs defy turbulent times at D-Street; pump in over $5 bn
à SEBI should look at phenomenon of MFs investing in their group cos
à No panic: Mutual funds promise good returns in long-term
If you are the more discerning and involved kind, you might want to synthetically ‘manufacture’ a balanced fund type of portfolio instead; by investing in two or more funds, each of ‘pure’ equity and debt nature. If you want some mathematics around, how we came to this, then read on!
For a fair comparison, we consider a Rs 100 investment for three years in a balanced fund on the one hand; and compare it with a combination of two investments for the same duration — of Rs 65 in an equity fund and Rs 35 in a debt fund. Of course, if your desired asset allocation is far different from this (say you are risk averse and want to stay away from equity markets), you should not consider balanced funds. We assume an annualised equity market return of 15% and a debt market return of 7%. Thus, the balanced fund return, ceteris paribus, is expected to be 12.2%, before load and tax.
Nature of portfolio
Balanced funds would invariably invest the equity component of the portfolio in a well-diversified basket of securities, in different sectors. This is ideal for an investor who wants to participate in the long-term growth of the economy, without any active sector or stock preference. Indeed, balanced funds are best suited for such investors. For someone wanting to take sector calls or ride a mid-cap rally, a ‘pure’ (sector or mid-cap) equity fund exposure is called for.
A balanced fund would invest in debt securities of intermediate duration (1-4 years). Thus, they are sensitive to interest rate movements, but not overly so. Hence, as with equity, they are again suitable for investors without a clear researched view on rate cycles.
Transaction costs
In any mutual fund investment, there are two kinds of transaction costs — viz entry/exit loads (for purchase or redemption of fund units) and the expense ratio (annual cost of fund management).
Let us examine each of these in the illustration given above. Most balanced funds, unfortunately, charge the same entry load as equity funds (2.25%).
Thus, in our numerical example, of the Rs 100 invested in the balanced fund, only Rs 97.8 would go towards allotment of units. In our synthetic example, the entire Rs 35 would go into debt units (there being no entry load), and Rs 63.57 towards equity units. Thus, in the synthetic case, we have escaped paying entry load on the debt part of the investment. This difference gets magnified with time, due to compounding.
The other major cost — the expense ratio — is (at least currently) similar in the balanced and synthetic fund scenario. In fact, the difference between funds of similar category exceeds the difference between the equity and balanced categories. So, we ignore this term in the comparison.
Tax implications
There are two tax structures in mutual funds, depending on whether a fund is classified as debt or equity. The following table summarises the currently prevailing tax structure:
Thus, equity funds enjoy beneficial tax treatment. Here, balanced funds enjoy the beneficial treatment of being taxed like equity funds and, in this, they clearly score over the synthetic portfolio we had manufactured, where the debt portion would be taxed at a higher rate.
Balanced funds have higher transaction costs, but are beneficial from a tax perspective. Let us now examine the net impact of all these factors on returns earned by a typical investor.
The accompanying table shows the net impact in both the balanced fund investment and the synthetic portfolio; for the period of three years, given the equity and debt returns as assumed above. As can be seen there, the synthetic portfolio outperforms, but by a very small margin. For all practical purposes, a good balanced fund can easily perform as well as a synthetically-made portfolio with similar debt to equity ratio. And we do have such excellent balanced funds in today’s mutual fund market!
As an investor, if you are saving regularly for the long term and want a low involvement hassle free instrument, balanced funds are for you. If you otherwise have a lot of debt investment (Bank FD, PPF, NSC, liquid funds, etc) then you might be better off going for 100% equity oriented funds instead. In either case, you can be comfortable in the knowledge that the benefits of one option over another are not overwhelming; and in most cases not even significant.
Shall we expect less taxed living after Budget
Finance Minister P Chidambaram might spread cheer all around with Budget 2008-09, the last full-fledged Budget of the UPA government. A hike in the income-tax exemption limit, a higher ceiling for tax-saving investments along with a wider range of products under this category, and a rejig in tax slabs are some of the key proposals being considered by the UPA government. Corporate tax payers can expect some relief in the form of removal of surcharge.
The finance ministry, which is giving final touches to the tax proposals, is likely to raise the income-tax exemption limit from Rs 1,10,000 to Rs 1,25,000. Though there is a strong pitch from all corners to raise the limit to Rs 1,50,000, the fear of a big erosion in the tax base may prompt the government to follow a conservative approach.
A final call on direct taxes will be taken at “the highest political level”, since this will be the UPA government’s last full Budget, sources said. Budget 2009-10 will be a vote on account, as a new government has to be put in office by May 2009.
Direct tax collections have been buoyant this fiscal year, registering a growth of over 40% to Rs 2,18,538 crore in the first 10 months. An increase of Rs 15,000 in the exemption limit will make every taxpayer richer by Rs 1,500 while a rise of Rs 40,000 will provide a relief of Rs 4,000. An increase in the current investment exemption limit of Rs 1,00,000 to Rs 1,50,000 is also being considered with a view to channelise some savings into the infrastructure sector.
Keeping this in mind, the government could provide tax reliefs to investments in special infrastructure bonds and dedicated funds. Recently, the government had expanded the basket of products eligible for tax exemption by adding a senior citizen scheme and a five-year post office time-account to the basket.
Sources said the finance ministry considering whether the current personal tax slabs should be rejigged. The slabs were introduced three years ago, but the Prime Minister’s Economic Advisory Council has suggested a change in the structure. At present, those in the income bracket of Rs 1,10,000-1,50,000 attract 10% tax while those earning between Rs 1,50,001 and Rs 2,50,000 attract a tax rate of 20%. Income above Rs 2,50,001 is taxed at 30%.
The government is also reviewing the 10% surcharge. In the last Budget, the finance minister had partially relieved companies with an income of Rs 1 crore or less and individuals with income below Rs 10 lakh of this burden.
This year’s Budget also comes against the backdrop of the sixth Pay Commission recommendations. Though the commission is to submit its report by April this year, the finance minister is expected to make an announcement on government employees’ pay revision in this Budget.
The finance ministry, which is giving final touches to the tax proposals, is likely to raise the income-tax exemption limit from Rs 1,10,000 to Rs 1,25,000. Though there is a strong pitch from all corners to raise the limit to Rs 1,50,000, the fear of a big erosion in the tax base may prompt the government to follow a conservative approach.
A final call on direct taxes will be taken at “the highest political level”, since this will be the UPA government’s last full Budget, sources said. Budget 2009-10 will be a vote on account, as a new government has to be put in office by May 2009.
Direct tax collections have been buoyant this fiscal year, registering a growth of over 40% to Rs 2,18,538 crore in the first 10 months. An increase of Rs 15,000 in the exemption limit will make every taxpayer richer by Rs 1,500 while a rise of Rs 40,000 will provide a relief of Rs 4,000. An increase in the current investment exemption limit of Rs 1,00,000 to Rs 1,50,000 is also being considered with a view to channelise some savings into the infrastructure sector.
Keeping this in mind, the government could provide tax reliefs to investments in special infrastructure bonds and dedicated funds. Recently, the government had expanded the basket of products eligible for tax exemption by adding a senior citizen scheme and a five-year post office time-account to the basket.
Sources said the finance ministry considering whether the current personal tax slabs should be rejigged. The slabs were introduced three years ago, but the Prime Minister’s Economic Advisory Council has suggested a change in the structure. At present, those in the income bracket of Rs 1,10,000-1,50,000 attract 10% tax while those earning between Rs 1,50,001 and Rs 2,50,000 attract a tax rate of 20%. Income above Rs 2,50,001 is taxed at 30%.
The government is also reviewing the 10% surcharge. In the last Budget, the finance minister had partially relieved companies with an income of Rs 1 crore or less and individuals with income below Rs 10 lakh of this burden.
This year’s Budget also comes against the backdrop of the sixth Pay Commission recommendations. Though the commission is to submit its report by April this year, the finance minister is expected to make an announcement on government employees’ pay revision in this Budget.
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