Budget Highlights

Highlights
Taxes
· Surcharge of 10% on personal income tax removed
· No change in Corporate taxes
· Increase exemption on personal income tax by Rs 15,000 to Rs 2,40,000 for senior citizens
· Increase exemption on personal income tax by Rs 10,000 to Rs 1,90,000 for women
· Increase in exemption on personal income tax by Rs 10,000 to Rs 1,60,000 for all others
· Surcharge of 10% on personal income tax removed
· Propose to phase out surcharge on Direct Taxes
· To remove Fringe Benefit Tax
· To remove Fringe Benefit Tax
· States agree on basic structure of Goods and Services Tax
· To raise Minimum Alternate Tax(MAT) TO 15 % of book profit
· MAT hiked from 10% to 15%
· Commodity Transaction Tax scrapped
· Carry Forward Tax credit on MAT to 10 year
· To exempt Pension trust from Securities Transaction Tax
· To create Alternate Tax disputes resolution mechanism for foreign companies
· Software Technology Parks of India (STPI) extended by a year
· GST to be a dual regime with Central and state terms
· No Securities Transaction Tax (STT) on sale/purchase of shares by NPT

Reforms, Tax reforms
· To work on Saral 2 form to make income tax procedure simple
· Tax reform system to be completed in 4 years
· Balanced approach to financial de-regulation in justified
· Review and aims of the budget
· It a mandate we accept with humility and will do all we can for the welfare of the nation
· Strong mandate for growth
· Sensitive to the challenges of a young India
· The govt has to sustain a growth of 9% create 12 mn jobs per year
· Reduce poverty levels by half by 2014 infrastructure investment to more than 9% by 2014
· Focus to sustaining momentum in exports
· Strengthen primary healthcare delivery
· Plan to strengthen primary health care
· Broaden inclusive growth agenda
· Our target of agricultural growth at 4%
· Signs of revival of domestic industry
· Fiscal deficit has widened from 2.7 % to 6.2% of GDP
· Institutional reforms to bring the fiscal deficit under control

Challenges
· To get the GDP growth to 9% at the earliest
· To deepen the process of inclusive development
· To reenergise govt, govt must provide service with accountability
· Growth driver in the last 5 yrs has been private investment
· Structure of Indian economy has changes in last 10 yrs
· Now services constitutes more than 50% of GDP
· Increase investment in infrastructure to 9% by 2014
· To focus on infrastructure development
· Growth co-operative effort of Centre and States
· Job growth rate hit by dip in GDP
· Integration of Indian economy with the world has opened up new opportunities and new challenges
· Aim to return to FRBM target at the earliest

For revival
· Govt provided three stimulus package
· RBI took monetary measures to meet the needs of productive sector
· This led to fiscal deficit to rise to 6.2% in 08-09
· We achieved a growth of 6.7% of GDP last fiscal
· Signal of recovery visible in the last few months
· Uncertainty about revival of global economy remains

Infrastructure
· We had set up IFFCL to provide financial assistance to infra companies
· IIFCL will be given greater flexibility
· IIFCL will refinance 60% of bank loans in critical sectors
· IIFCL will evolve a take-out financing schemes for incremental funding in infra
· Fiscal stimulus at 3.5% of GDP helped economy revive
· Sensitive to the needs of young India
· Endeavour to make Budget participatory and ensure continuity
· Significant increase in capital inflows needs
· PPP to be encouraged especially in infrastructure
· Need to improve and strengthen regulatory framework
· To speed up Golden Quadrilateral Project
· Total investment of 100000 CFR in infrastructure
· Need to remove bottlenecks for speedy implementation of infra projects
· Highways allocated 23% more than 08-09
· Rs 15800cr for Railways
· JNURM allocation increased by 80% to Rs 12887 cr
· Basic amenities for urban poor to get more than 3000 cr to make country slum free in 5 yrs
· Provision for housing urban poor at Rs 3973 cr
· Allocation to NHAI increased to 23& Y-O-Y
· Fiscal deficit has widened to 6.7% of GDP
· Target agriculture credit inflows ay Rs 3.25 lakh cr
· · Focus of NCC, Gammon for highway development
· JNNURM to get more than Rs 12000 cr up 87%
· Basic amenities for urban poor to get more than 3000 cr to make country slum free in 5 yrs.
· Provision for housing urban poor at Rs 3973 cr
· Allocation to NHAI increased to 23& Y-O-Y
· Fiscal deficit has widened to 6.7% of GDP
· Target agri credit inflows ay Rs 3.25 lakh cr
· Focus of NCC, Gammon for highway development
· Rural electrification allocation up 27%

Agriculture
· Interest subvention scheme for agriculture loans to continue
· 60% population depended on agri
· Sustained increased in plan allocation
· Target credit flow Rs 325000 cr
· Loans upto 3 lakh at 7% per annum
· Those who pay their loans in time will get loans at 6%
· Task force set up to look into farmer suicides in Maharashtra
· Rajiv Gandhi Krishi Vikas Yojana allocation up by 30%
· Fertilizer subsidy to go to farmers directly
· To move towards Nutrient based subsidy regime
· Additional allocation of Rs 1,000 crore for accelerated irrigation project
· Central assistance for storm-water drainage project increased to Rs 500 crore from Rs 200 crore in the interim Budget

Exports
· Market development assistance schemes allocation up by 180% to 124 cr
· Interest subvention extended to march 2010 for employment extensive export sector
· Special fund for small industries development bank of Rs 400 cr
· Focus to sustain momentum in exports
· 2% Interest subvention for exporters
· Extension of interest subvention scheme extended upto March 2010 to cover sectors like handicrafts and handlooms
· Allocation for market development assistance scheme enhanced by 148 per cent
· To set up handloom mega clusters in Rajasthan, West Bengal and Tamil Nadu
· Export Credit Guarantee scheme extended till March 2010

Oil and gas
· Domestic oil prices should be in sync with global crude
· National gas grid to be set up
· Outlay for Assam Gas Project increased
· Effective interest rate is 8% for farmers with foreclosures
· Expert group to be set up petro product pricing
· Domestic oil prices should be in syncy with global crude
· To develop National Gas Grid

PSUs, banks and Insurance
· To hike promoter shareholding in PSUs
· Encourage people participation in disinvestment
· Banks and insurance will remain in public sector and will get all support
· Banking network to be expanded
· One banking centre in every block planned
· 160% hike in ADPRP
· Capital in fusion in PSU banks to keep them competitive

Inclusive development
· Creating entitlements backed by legal authority to provide basic facility to the aam aadmi
· NREGA gave employment to 4.4 cr household
· Reserve wage of RS 100 per day as an entitlement under NREGA
· Rs 39100 cr for 09-10 for NREGA an increase of 140%
· NREGA allocation increase at 144%
· New scheme PMAGY for integrated development of under developed villages

Pilot project this year
· Poverty eradication goal by 2014-15
· Interest subsidy to poor families for loans upto Rs 1 lakhs

Pension
· Substantially improve pension for armymen
· Pension benefit extended to war wounded being liberalised
· One Rank One Pension committee recommendations accepted

National Food Security
· BPL entitled by law for Rs 25 kg of rice/wheat at Rs 3 kilo
· Bharat Niraman allocation up 45%
· PM Gram Sadak Yojana allocation up to Rs 12000 cr
· Indira Gandhi Awas Yojana allocation up by 63%

Women and child development
· Focus on women self help groups
· 22 lakhs such groups of women active today, aim to link such self help groups to banks
· Corpus for such schemes to be raised to Rs 500 cr in this fiscal
· Aim to reduce female literacy by half in 3 years
· New scheme to give interest subsidy to poor students pursue any recognised course

Climate change
· Rs 562 cr for national river and lakes conservation

To build accountable institutions:
· RTI act an important step in ushering in accountability
· Unique ID project is major step in this regard: it also marks a beginning of the private involvement in projects of national importance

Police and security
· Rs 430 cr for police modernisation
· 1 lakh housing units for central paramilitary forces
· Borders: 2284 cr for strengthening of borders

Education
· Rs 50 crore for Chandigarh University
· Interest subsidy on loans for higher education
· Rs 2130 crore to set upto more IITs and IIMs
· Spending on higher education raised to Rs 2010 crore

Minorities
· Allocation hiked from Rs 1000 cr to 1700 cr in 09-10
· Scholarships for minorities
· AMU to get Rs 25 cr for each of its new campuses
· Rs 1740 crore outlay for minorities

Budget estimates
· Rs 1020838 cr total budget allocation for 09-10
· Out this more than Rs 6000 cr is planned expenditure while the rest is non-plan
· Increase in non-plan expenditure was due to pay commission and food subsidy
· Interest payment consists of 36% of non-plan expenditure
· Defence outlay up from Rs 105600 cr in 08-09 to 104703 cr in 09-10
· Total tax receipts expected at Rs 641079 cr
· Revenue deficit is estimated at 4.8% and 4.6 as per provisional account for 09-10
· Revenue deficit as percentage of GDP is pegged at 6.8%
· To spend Rs 10.20 lakh crore as total expenditure in 2009-10, crossing the Rs 10 lakh mark for the first time in history
· Increase in plan expenditure 34 %, non-plan at 37 %
· Revenue deficit projected at 4.8% in FY 10
· Fiscal deficit projected at 6.8 % in FY 10

Others
· DEPB scheme for print media extended
· Stimulus package for print media extended to Dec 31
· Hike in allocation for management of Mumbai Floods
· New project for modernisation of employment exchange
· A national web portal for the same
· New programme for rehabilitation of those effected by cylone Alia

Budget expectations of the mutual fund industry

In recognition of the important role of the mutual funds (MFs) in mobilising savings, the avowed policy of the Government has always been to provide complete tax exemption to the equity fund vehicle, with no taxes being levied both on the asset accretion stage and at the time of distribution of returns to the investors. However, the introduction of Securities Transaction Tax (STT) upset the apple cart for MF investors in the equity schemes and created anomalies in the taxation dispensation applicable to such investors, rues Amit Bherwani, a senior tax professional in Ernst & Young.
The MF industry has come a long way with the total assets under management by the industry currently pegged at over Rs 6 lakh crore as per a recent report, he informs, in the course of a pre-Budget email interaction with Business Line.
“MFs channelise long-term savings into equities and provide the small investors a safer route for participation in the equities market. But, there are some anomalies that the industry expects the Finance Minister to clarify, during this Budget.”
Excerpts from the interview.

On STT.
The tax-induced distortion through STT levy needs correction. While, on the face of it, the levy of STT at 0.25 per cent on one leg (redemption) of the transaction by a MF investor may appear to be on par with the STT levy at 0.125 per cent on both the buy and sell legs of transaction put through by a direct equity investor, a closer look will clearly show that there is no parity, and that the MF investor is actually in a tax-disadvantaged position.
This is because MFs at the first instance pay the STT at the time of purchase and sale of securities from the equity market. Further, when the investor redeems his investment, there is again a 0.25 per cent STT levied on the redemption.
Thus, far from encouraging small investors to channelise their savings by investing in equities through MFs, the two-stage STT levy actually discourages an investor to take the MF route.
Consider the distributions by an equity fund, which are exempted from Dividend Distribution Tax (DDT) on account of the fact that the dividends received by the fund have already suffered DDT. On the same analogy, when the MFs themselves have already paid STT while transacting in equities on behalf of the investors, there is no reason why the MF should be further subjected to STT levy at the stage of redemption of units by the investors.

On DDT exemption.
As noted earlier, the equity-oriented mutual funds enjoy complete exemption from the levy of DDT on the distribution made to the investors. However, as per the existing definition of an equity fund, it is applicable to only those funds that have a direct 65 per cent investment in the domestic companies.
While this does benefit a majority of the equity fund schemes, two niche segments – the Fund of Fund (FOF) scheme and the overseas equity scheme – do not qualify for the exemption. The former because it does not have a ‘direct’ investment in domestic equities, but instead invests in other equity schemes, and the latter because it does not invest in ‘domestic’ equities.
Given that both FOF schemes and overseas equity funds are tailored to offer risk-diversification avenues to the investor, which is one of the fundamental objectives of a MF investment, there is a fair case for including the above categories of schemes for the DDT exemption.

On REMFs.
Traditionally, gold and real estate have been the two most-aspired asset classes for the Indian investor community. While we have seen the launch of Exchange Traded Funds in gold, which provides an alternative, hassle-free ‘dematerialised’ option for investing in gold, a collective investment option for participating in the real estate sector is still missing from the scene.
The SEBI has initiated the right moves to introduce guidelines for the Real Estate Mutual Fund (REMF) product; unfortunately, this initiative has not made much headway on account of various reasons, among them being uncertainties around the tax treatment of REMF.
An initial indication that REMF would be treated on par with equity fund has not been followed-up with the necessary amendment to the tax law. This year’s Budget may hopefully clear the tax uncertainty hurdle, to pave the way for the launch of REMF schemes in India.

Source: http://www.hindu.com/thehindu/holnus/006200907060942.htm

Look beyond the Budget

You are probably reading this article a few hours before the Finance Minister will present the new government’s first budget to the parliament. This is easily the most anticipated budget in many years, although I can’t quite figure out how much of the anticipation is justifiable and how much is mere hype.
All things considered, I fear that the hype has overtaken reality. Expectations, at least in the media, are now so high that the FM has little chance of actually being able to live up to them. It seems inevitable that many pundits will declare the budget a disappointment. Or perhaps I’m wrong and the congress’ post-electoral honeymoon is still going strong.
Either way, it’s being taken as a given that this budget is crucially important for investors, that the kind of person who reads this newspaper should probably listen carefully to every pronouncement and then rush to act upon it. In my view, nothing could be further than the truth. I don’t mean that the budget is not important, but that its real impact on your investments will be not of the sort that’s going to show up in an afternoon’s time. As it is every year, there will be a cycle of overreaction and corrections in which some predictions will turn out to be true and some false, probably on a random basis. If you look back on previous budgets, there’s never any sensible investing action that can be taken with any degree of confidence after listening to something in the speech.
However, this applies only to the direct and immediate impact on stock prices. The government’s actions on regulations and taxation are perfectly capable of changing the investing landscape in one stroke. This is precisely what is happening to mutual fund investing right now. Come August 1, new regulations issued by SEBI last week will completely transform equity fund investing in India. These changes will require a wrenching change in the business practices (and perhaps even business design) of fund distributors and fund companies. And while the changes will be beneficial for investors, the new rules will probably require them to become more knowledgeable about what they are doing.
As every mutual fund investor must know by now, SEBI has abolished entry load on mutual funds. Entry loads, generally around 2 to 3%, were deducted by fund companies from the investment in order to pay commission to the fund distributor.
This upfront commission was one of the two main payment streams from the fund to the distributor, the other being the so-called trail commission, which is paid at a rate of about 0.75% per annum. However, the upfront commission is effectively the biggest factor behind bad advice being given to equity fund investors. This commission structure means that it’s in the fund distributors’ interest to continuously make you sell your existing holdings and buy something else. This ‘churning’ was rampant in the fund industry.
Distributors of all sizes and scale from the soloist in your neighbourhood to the big banks’ wealth management units were guilty of this. All this is likely to stop now. SEBI’s new rules stipulate that the distributor will be paid directly by the investor whatever amount the two settle between them as a fair payment for services and advice rendered.
The new rules are based on the timetested principle of ‘He who pays the piper calls the tune.’ Earlier, the fund company paid the distributor and he was effectively their sales agent. Now, you pay him and he should hopefully be your advisor. Of course, he now has two paymasters because he gets the trail commission from the fund company. However, these commissions also have to be revealed to the customer under the new rules.
I expect the fund distribution market will soon get sorted out on the basis of service level and investment size. Investors will effectively pay less if they have larger investments or can get by with lower service levels. Online investing, which is inherently lower cost, should also become more attractive. In any case, the new rules will drive investors towards more awareness and distributors towards more openness. And that can’t be a bad thing.

Source: http://economictimes.indiatimes.com/Features/Investors-Guide/Look-beyond-the-Budget/articleshow/4742613.cms