Budget Update 2011

The latest expectations from the budget, which built over past few weeks of speculation, were:
• Banking licenses were being looked at with a glare of expectation to be thrown some light upon.
• Separate exemption for life insurance of up to Rs.50, 000 was being sought.
• Increased exemption in health insurance exemption from Rs.15, 000 to Rs.50, 000.
• Dilution of tax slabs were expected to be raised to Rs.2 lakh for general category, Rs.2.5 lakh for women and Rs.3 lakh for senior citizens.
• The exemption limit for various allowances set in 1997 at Rs.800 for transport, Rs.100 for school fees and Rs.300 for hostel was expected to increase to Rs.4000 for transport, Rs.500 for fees and Rs.2000 for hostel.
• Reimbursement of medical expenses was expected to increase to Rs. 50000 from the current Rs. 15000.
• Raising the Rs.1 lakh limit for 80C to Rs.2 lac.
• Deduction up to Rs 20,000 for investing in infrastructure bonds was being expected to be raised to Rs.30000
• Housing loan exemption limit for self-occupied property which is currently Rs.1.5 lakh was expected to be raised to Rs.3 lakh
• Medical treatment of disabled dependents which is currently Rs.50000 was expected to be raised to Rs.75000 under 80DD.
• It was expected pre-budget that the banks would be allowed to raise funds through infrastructure bonds
• Since financial inclusion is a long standing driver for the government, much was expected on this front too.
• Abolition of 3% education cess was expected.
• GST was most likely expected to come-up this budget.
• FDI in retail was expected to be announced.
• Raise in excise duty on two-wheelers and cars was expected to be brought.
• Sops for affordable housing under `Housing For All` were expected. Last year, housing loans under INR 10 lakh were given an interest rate cut of 1%. Similar measures were expected to come along
• It was expected that housing sector growth would on priority to be provided Interest rates relief through Banks (a small percentage) given the speculation & outstretched prices which had dented sector sentiments the last fiscal.
• A regulatory body e.g. Real Estate Regulatory Authority was expected to be brought up and regulate the real estate sector in wake of recent corporate governance issues.
• Simplification in transaction costs (which currently include stamp duty) and giving developers a set-off or credit on the taxes paid on construction material and services was expected which would decrease overall construction costs, a respite to investors of real estate. Also, creation of a nation-wide, unified taxation system, which currently differs between states, was expected.
• Beside Special Residential Zones (SRZs) was expected be taken off the drawing board and finally implemented, and developers who focus on ultra-low-cost housing, either through SRZs or otherwise, expected more sops.
• In addition to this the service taxes charged on additional services given by the builder were expected to be done away with.
• Presently, short-term capital gain in MF debt schemes are being taxed at individual tax slabs and these were expected to be altered
• Budget was expected to announce significant measures such as allowing banks to provide guarantees for bonds issued by companies, to deepen the corporate bond market. Bank guarantees help improve the risk profile of a company and enable it to access the market. at cheaper rates. This is likely to increase retail investor participation in otherwise sluggish corporate bond market in India.

As compared to this the budget announcements had the following contents:

• Credit flows to farmers will be raised from Rs 3.75 lakh crore to Rs 4.75 lakh crores and the allocation under Rashtriya Krishi Vikas Yojana will be raised from Rs 6755 crore in the current year to Rs 7860 crore. An additional Rs 300 cr will be provided to promote pulses cultivation in rain-fed areas and another Rs 300 cr to promote farm product cultivation. In joy for anganwadi workers, their remuneration is being raised from Rs 1500 to Rs 3,000 per month. Anganwadi helpers will get Rs 1,500 from Rs 750.
• Old age pension to persons of over the age of 80 will be raised from Rs 200 to Rs 500.
• 20 percent hike in health budget for 2011-2012.
• Allocation of Rs 1.64 lakh crore for defence
• Rs 9 lakh compensation will be given to men of defence and central paramilitary forces for permanent disability and on being discharged from service.
• The tax exemption limit for general category has been raised from Rs 1,60,000 to Rs 1,80,000.
No change in tax exemption limit for women. For senior citizens, exemption age limit has been reduced from 65 to 60. Their tax exemption limit will be Rs 2,50,000. Apart from this, a new exemption bracket has been created for those above 80 years of age. Their tax exemption limit will be Rs 5,00,000.
• Surcharge for companies cut to 5 per cent, from 7.5 per cent.
• A new revised income tax return form 'Sugam' to be introduced for small tax papers.
• Direct Tax Code will be implemented from April, 2012 and the Goods and Services Tax Bill is to be introduced in Parliament this year.
• Service tax widened to cover hotel accommodation above Rs 1,000 per day, A/C restaurants serving liquor, some category of hospitals, diagnostic tests.
• Service tax on air travel increased by Rs 50 for domestic travel and Rs 250 for international travel in economy class. On higher classes, it will be 10% flat.
• There is a proposal to introduce self-assessment of customs duty wherein importers and exporters will themselves assess payment of duty.
• There will be change in excise duty. The standard rate of central exercise duty will be maintained at 10%. A 1% central excise duty on 130 items entering the tax net. Basic food and fuel and precious stones, gold and silver jewellery will be exempted and there will be no change in CENVAT rates.
• A new scheme is to be introduced for refund of service tax on the lines of drawback of duties. Also, capital investment in fertiliser production will be considered as infrastructure sub-sector.
• Tax-free bonds of Rs 30,000 cr will be issued for infrastructure development which will cover Warehousing Corporation, NHAI, IRFC and HUDCO.
• A Rs50cr grant is being allocated to Aligarh Muslim University centres in Murshidabad in West Bengal and Malappuram in Kerala. Also, the government has decided to allot Rs 200 cr to IIT Kharagpur.
• Predicting growth patterns over the next fiscal, Pranab said the overall economic growth in the current fiscal was expected at 8.6 %, agriculture growth at 5.4 %, industry at 8.1 % and services 9.3 %. In the next fiscal, economic growth was likely to be 9%, he said.
• Raised foreign institutional investor limit in 5-year corporate bonds for investment in infrastructure by $20 billion.
• The budget aims to provide Rs 201.5 billion capital infusion in state-run banks in 2011-12 and Rs 3 billion for 60,000 hectares under palm oil plantation