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Key highlights of the proposed Budgetary changes across the taxation basket

By TIOL News Service

NEW DELHI, Feb 28, 2006 : EVEN as market watchers, industrialists, academics and tax experts are debating the merit and hollowness of Budget 2006, here are the highlights of the changes proposed :

  • New services:
  1. ATM operations, maintenance and management;
  2. Registrars, share transfer agents and bankers to an issue;
  3. Sale of space or time, other than in the print media, for advertisements; sponsorship of events, other than sports events, by companies;
  4. International air travel excluding economy class passengers;
  5. Container services on rail, excluding the railway freight charges; business support services; auctioneering;
  6. Recovery agents; ship management services;
  7. Travel on cruise ships; and public relations management services.
  • Leasing and hire purchase to be treated on par with loan transactions, interest and instalment of principal amount to be abated in calculating value of the service.

Direct Taxes

  • Personal income tax or corporate income tax: No Change.
  • One-by-six scheme abolished.
  • Minimum Alternate Tax (MAT) rate increased from 7.5 per cent of book profits to 10 per cent which is only one-third of the normal rate; Long-term capital gains arising out of securities included in calculating book profits;
  • Period to take credit for MAT increased from five years to seven years.
  • Fixed deposits in scheduled banks for a term of not less than five years included in section 80C of the Income tax Act
  • Limit of Rs.10,000 in respect of contribution to certain pension funds removed in section 80CCC subject to overall ceiling of Rs.100,000.
  • Exemption under section 10(23G) removed.
  • Anonymous or pseudonymous donations to wholly charitable institutions to be taxed at the highest marginal rate;
  • Anonymous or pseudonymous donations to partly religious and partly charitable institutions/trusts to be taxed only if the donation is specifically for an educational or medical purpose;
  • Anonymous or pseudonymous donations to wholly religious institutions and religious trusts not to be covered by the new provision.
  • PAN numbers : suo motu in certain cases and to direct persons to apply for PAN in certain cases
  • Banking Cash Transaction Tax (BCTT) to continue for some more time until the Annual Information Returns (AIR) system is able to capture all significant financial transactions.

Customs:

  • Non-agricultural products: Peak rate reduced from 15 per cent to 12.5 per cent;
  • Alloy steel and primary and secondary non-ferrous metals: Duty reduced from 10 per cent to 7.5 per cent; this will also be the rate of duty for ferro alloys
  • Steel Melting Scrap: Raised to 5 per cent and brought on part on par with primary steel
  • Mineral products: Duty reduced to 5 per cent, with a few exceptions.
  • Ores and concentrates: duty reduced from 5 per cent to 2 per cent.
  • Refractories and on number of materials for manufacture of refractories: Reduced to 7.5 per cent
  • Basic inorganic chemicals: Duty to be reduced from 15 per cent to 10 per cent
  • Basic cyclic and acyclic hydrocarbons and their derivatives: to be 5 per cent
  • Catalysts: from 10 per cent to 7.5 per cent
  • Major bulk plastics like PVC, LDPE and PP: Duty to be reduced from 10 per cent to 5 per cent
  • Naptha for plastics : Nil
  • Styrene, EDC and VCM which are raw materials for plastics: 2 per cent
  • 10 anti-AIDS and 14 anti-cancer drugs :Reduced to 5 % (also exempt from excise duty and CVD)
  • Certain life saving drugs, kits and equipment: From 15 per cent to 5 per cent (also exempt from excise duty and CVD)
  • Packaging machines : Duty reduced from 15 per cent to 5 per cent
  • Pipeline projects for transportation of natural gas, crude petroleum and petroleum
    products:
    Concessional project rate of 10 per cent.
  • Vanaspati: Customs duty increased to 80 per cent
  • Clearances by EOUs to the Domestic Tariff Area (DTA): Rates adjusted at 50 per cent of basic customs duty plus excise duty on like goods.
  • Man-made fibre yarn and filament yarn: Excise duty reduced from 16 per cent to 8 per cent;
  • All man-made fibres and yarns: Import duty reduced from 15 per cent to 10 per cent
  • Set top boxes: NIL

Excise

  • Aerated drinks and small cars: Reduced to 16 per cent.
  • Cigarettes: Increased by 5%
  • Packaged software sold over the counter: 8 per cent duty to be imposed
  • Customised software and software packages downloaded from the internet: Exempt;
  • DVD Drives, Flash Drives and Combo Drives: Fully exempted from excise duty.
  • Condensed milk, ice cream, preparations of meat, fish and poultry, pectins, pasta and yeast: Fully exempted
  • Ready-to-eat packaged foods and instant food mixes, like dosa and idli mixes: Reduced from 16 per cent to 8 per cent.
  • Vegetable tanning extracts, namely, quebracho and chestnut: Exempted
  • Footwear with a retail sale price between Rs.250 and Rs.750 : Reduced from 16 per cent to 8 per cent.
  • LPG stoves, compact fluorescent lamps: 8 percent
  • Glassware, ceramicware and plasticware: 16 %
  • Printing, writing and packing paper: Reduced from 16 per cent to 12 per cent.
  • Cess under Oil Industries Development Act: Increased to Rs.2,500 per MT.
  • Computers (enable domestic manufacturers avail CENVAT): Excise duty of 12% reimposed
  • Set top boxes: 16 per cent


Changes in capital market:

  • Limit on FII investment in Government securities increased from $ 1.75 billion to $ 2 billion
  • Limit on FII investment in corporate debt from $ 0.5 billion to $ 1.5 billion
  • Ceiling on aggregate investment by mutual funds in overseas instruments to be raised from $ 1 billion to $ 2 billion with removal of requirement of 10 per cent reciprocal share holding

Defence Expenditure:

  • Increased to Rs.89,000 crore including Rs.37,458 crore for capital expenditure.

Fiscal Consolidation:

  • Rs.94,402 crore to be released as States’ share in gross tax revenues in current year compared to Rs.78,595 crore in 2004-05

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