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Persons with a taxable income of over Rs 1 crore annually may breathe easy when Finance Minister P Chidambaram presents his first interim Budget on Monday. A surcharge of 10 per cent introduced in the last Budget on such income may not be extended for another year. Though there were only 42,800 people with income exceeding Rs 1 crore last year, Chidambaram's interim Budget may make the next government a little poorer as a major chunk of the personal income tax comes from people earning more than that. As per a Standing Committee report, 63 per cent of the total tax collected in 2011-12 came from people earning more than Rs 20 lakh.
The relief is also likely to be extended to the corporate sector. A surcharge of 5 per cent and 3 per cent levied on domestic and foreign companies, respectively, may not continue for another year as the government gets ready to face the polls in about two months. In Budget 2013-14, the surcharge in case of dividend distribution tax was also increased from 5 per cent to 10 per cent. The interim Budget may also bring relief to gold importers as the customs duty on the yellow metal is likely to be reduced by at least two to eight percentage points. Currently, the import duty on gold is 10 per cent.
"The finance ministry is considering slashing the import duty on gold," a government official, who did not wish to be identified, told Business Standard.
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Customs duty on gold has gone up from 2 per cent to 10 per cent in the last two years as the government tried to bring down the current account deficit (CAD) which swelled to an all-time high of 4.8 per cent of GDP in 2012-13. The trade deficit remained almost flat at $30.02 billion in the third quarter against $29.95 billion in the second quarter. In the second quarter, CAD was $5.2 billion or 1.2% of GDP. Now, assuming that services exports do better in the third quarter as the global economy is showing signs of improvement, CAD will be around $5.2 billion.
Admitting that the higher duty and other restrictions on gold imports have led to 1-3 tonnes of gold smuggled into the country every month, the finance minister had recently said the curbs would be reviewed by the end of the year but only after making sure that the government had got a firm grip on CAD. The announcement may come as part of the interim Budget along with some taxation changes.
Chidambaram has already hinted at some changes in the interim Budget not requiring amendment to the law. While introducing the additional surcharges on income last year he had said these would be in force only for one year. But since tax rates are not part of the Income Tax Act, nothing stops the finance minister from extending it for another year or letting it get lapsed.
"Rates of tax are in the schedule. So, if the government wants it can alter the rates," said Sudhir Kapadia, national tax leader, EY.
The interest subvention scheme for short-term crop loans, on the other hand, may continue and farmers repaying loans on time would be able to get credit at 4 per cent per annum. The scheme, which was earlier meant for loans extended by state-run lenders, was extended to private banks last year. However, some other one-time tax benefits such as those to first-home buyers taking loans of up to Rs 25 lakh may not be extended as that would require an amendment to the law. Such home buyers were allowed an additional deduction of interest of Rs 1 lakh in the last Budget.
One area where the industry expects the finance minister to provide relaxation is tax sops to the power sector. The eligible date for projects in the power sector to avail of the benefits under Section 80-IA of the Income-tax Act is being extended year after year, but since it can be done only by amending the law, Chidambaram might leave it to the next finance minister to take a call in the full Budget in June-July.
"It is an expectation from the industry that the sunset clause for the power sector be extended by another year to March 2015. But since there is no liability to pay the tax in the first three months of the financial year, the issue can be addressed in the full Budget later," Kapadia said.
He added the finance minister, if he chooses to, can make a policy statement indicating a desire to continue the power sector holiday benefits by another year to be validated in the Budget to be presented later.
