Somesh Arora: A desirable senior citizen Budget 2011-12

As a young boy in 1960’s whenever I heard the song “Mai Kya Karun Ram Mujhe Budhha Mil Gaya”- I would never stop giggling.  With age catching up the wordings of the song was no more a music to my ears. 

However, Railway Budget, the Sixth Pay Commission and now the Union Budget 2011-12 have again changed my perception that post 60 I may be a desirable `Buddha’ (old man).  If there is one striking feature which hits me out in whole of the Budget, then this is the one. Who(other than some age conscious ladies) minds being called a senior citizen five years early in life, if it means getting more tax saving and getting to travel at less price in train with your 58 year companion at a concessional rate.  Now you can marry a much younger at your own peril. Further, the exemption of Rs.5 lakhs for people above 80 years ( to which category I am inclined to assign the nomenclature of ` Grand Senior Citizens’) is surely a bonanza for health conscious and fit senior citizens. A  sure incentive to live long.

The highlights of this Budget to my mind are as under:

(I may be a little biased in my assessment, because, I have always been votary of  those    tax reforms, which go on to decrease the paper work and compliance burden and make life easy for citizens of India.)

Positives:

(a)        Salaried tax payers with entire tax liability through TDS not required filing returns.

 Comments However to make this suggestion meaningful, either banks will have to deduct tax on interest up to 20% or 30% even on deposits including Savings Bank Account, otherwise it will remain a decorative statement of the budget, because every salary tax payer keeps some  amount in his savings account, on the interest of which no TDS is deducted.

(b)       Service Tax Payers with a turnover of up to Rs.60 lakhs exempted from Audit.

Comment: It will have no meaning because under Income-Tax Act, any service provider and professional having receipt of more than 15 lacs is required to be audited. Two wings of Revenue are obviously out of synch with each other.

(c)        Income Tax exemption limit raised across the board to Rs.1.80 Lakhs.

Comment: Inflation offset partially.

(d)       MAT on SEZ Units and Developers @18.5%.

(e)        Comment: It make sense because tax holidays under Income Tax were being allowed for up to 10 to 15 years.  Therefore, exemption even from MAT made no sense. Gives some representational work to all STPI and SEZ related councils for the next year.

(f)        Rs.1000 Crores to be spent for judicial reforms. 

Comment: This is a first time a dedicated  allocation has been made meant for reforming judiciary and introducing E-justice. Some financial justice done to Justice system of India.

(g)        Export duty on Iron Ore hiked to 25%

       Comment: This is the best way possible to reduce, even if not eliminate, the          menace of illegal mining. One political party may have to look away from Reddy Brothers for its financial strength.

(h)       Investment linked incentives of fertilizer companies and affordable housing developers.

Comment: This will dent the high Real Estate price while still making available affordable houses to the masses.

(i)         “SUGAM” Form for Small Business Tax payers to be introduced.

Comment: Its simplicity will be found out from the Blue Print of the form only, otherwise, it may  find its use as a toilet paper in the ` Sulabh’ shouchalya only, like what happened to one version of Saral- which had to be withdrawn.

(j)        Self assessment system to be introduced in customs.

Comments: The system has potential to reduce corruption and make life easy for genuine tax payers and also for custom officers who were being caught frequently by Vigilance Agencies with documentary evidence trail

(k)       Penalties under Section 11AC have been rationalized and power to reduce penalty up to 50% has been provided to the Adjudicating Authorities. Similarly, power to issue Search Warrant under Central Excise is to be vested in Joint/Additional Commissioner instead of Assistant/Deputy Commissioner i.e. in higher authorities.

(l)         Customs refunds can now be claimed within one year.

(m)      Service Tax- Penalty- Penalty under Section 76 is being reduced to 50%, concessional interest to be charged from tax payers whose turnover is less than 60 lakhs in previous year. - Penalty under Section 78 is being reduced to the level of 50% of present penalty.

NEGATIVES:

(a)Service tax on diagnostic Lab:

Comment: This is going to again raise the cost of medical facilities for citizens of the country.  It was estimated that out of total cost of any medical treatment about 40% is generally the cost on account of diagnostic which is going to go up by at least 4%.

(b)Central excise exemption withdrawn from 130 consumer items, which shall be levied to 5% tax:

Comment: This is quietly going to raise the burden on consumer of some of the essential commodities, which were being given on a concessional rate or were liable to no tax on rational basis.  This is going to be the hardest hitting part of the Budget.

Some of these items include:

“Indian Katha”, Fats & Oils, Wool Greases, Prepared or preserved meat, Sausages, Prepared or preserved fishes, Food preparation of flour, Baby Food in retail, Pasta, Roasted Cereals, Ice cream and other edible Ice Candies, Pasteurized Milk, Coal, Lignite, Coke, Human Blood Fractions, Ink of Fountain Pen & Ball Pen, Non-refractory mix and concretes (known as ready mix concrete), Polyethylene Canes, Plaiting materials (including matting & baskets of bamboo etc.), Pulp of Wood Chemical, Envelopes, Letter, Card Board, Post Card of Papers & Paper Stationery, Personal Greetings Cards (with or without message), Visiting Cards, Yarn of Jute and other textiles, Sanitary Towels, Napkins, Bricks of siliceous earth, Globes for lamps and Lanterns, Glasses for lamps & Lanterns including Kerosene, Silver- Semi-manufactured( @10%), Hand operated sewing machine and sewing machine needles, Parachutes and other Aircraft Parts, Crew Ships and Ferry Boats, Light Vessels, Loading Cranes, Mathematical Calculating Instruments, Military Weapons, Buttons of various kinds, Pencil, crayons, Slate pencil, Drawing Chalk etc.

Traditional perfumes like Attar being subjected to duty in the hands of the manufacturer even if bulk to retail packing, labeling or re-labeling etc. is done.

Export duty being levied on the export of de-oiled Rice Bran Cake @10%

(c )  Rate of Interest under Section 11AA and 11AB is being raised to 18%.

Comment: Whatever relief comes by way of discretion to reduce penalties goes by way of raised interest rates. No budget ever leaves a Government poorer.

(d) Ambit of legal services considerably expanded and only services by individual lawyer to individuals shall stand exempted . ( may be till next year).

Comment: Because the lawyers did not put up a strong resistance last time. Therefore, they get a bigger pinch this time.

(e) Health Services- All Clinical establishments with more than 25 beds and Air conditioners in any part covered under Service Tax. 

 Comment : Expect air-conditioners to be replaced with air coolers and Service tax officers coming to count the beds while getting treatment of their kith and kin.

All fees of visiting doctors to clinics covered under Service Tax.

Comment: Expect them to be salaried employees now.

(f) Prosecution provision being brought in Service Tax.

Comment: The image of service tax as a taxpayer friendly tax legislation takes a beating.

(g) Point of taxation rules are being notified to bring clarity as to when the service shall be deemed to have been provided.

Comment: This clarity is going to create a lot of confusion and litigation because the point of ‘provision of service’ has been provided as earlier of the following three dates

(i)         i.e. date on which service is provided or to be provided

(ii)        Date of Invoice

(iii)       Date of payment.

Even I am not clear as to when I become liable to pay tax i.e. when I get engaged with client and start reading the file, when I start appearing in litigation which shall be completed in five to six years or when my client pays my truncated/ heavily negotiated/ paid in instalment fee or even runs away without paying on seeing my bill. Good provision to make some lawyers rich, but then they will also have to shell out tax on their riches.

 While rationalization of penalties on the Service Tax side is a welcome step.  The introduction of Prosecution provision in the same is definitely a retro-step, since, Service Tax Model was being considered as an ideal to show how recovery of tax can be done without putting people in fear of imprisonment.  However, even if the same has been introduced, the authorities at the top will do well to ensure sufficient safeguards, that such provisions are used with lot of discretion and not at the drop of the hat, as the same have been recommended even for failure to supply any information.(which at times can be due to destruction etc. of some records)

 Even though Mr. Chidambaram is no more the FM, he by quoting TIRU-VALLUVAR, prompted me to  buy his book, therefore the parting words of wisdom:

“The King shall impartially enquire and award punishment which should be deterrent but not disproportionate to the offence.  Let there be a severe gesture, but let the blow fall lightly.  Thus shall the king maintain the prosperity of the state.”