Special Issue on

Union Budget 2009-10

On 6th July, our Finance Minister Mr. Pranab Mukherjee, presented Union budget 2009-10. The major Highlights
of Union Budget are as follows-

It is a statement of projection of the government expenditure and receipts over the forthcoming
fiscal year.

1 2 3 4 5 6 7 8
 Budget Special
Notes for Receipts
(1) REVENUE RECEIPTS: It consists of items that do not increase liability or decrease the assets-
Tax Revenue: A compulsory and legal levy on a person by the government
Taxes are of two types: direct and indirect tax.
Direct tax: Like income tax, corporation tax (tax on company profits), property tax, wealth tax, capital gain tax, etc.
are those taxes where the impact and incidence are on the same person. The burden is borne by the same person on
whom it is levied. The burden of tax cannot be shifted
Indirect Tax: Like excise duty, sales tax, VAT , custom duties, are those taxes where the impact and the incidence
are not at the same point (or person). The burden is not borne by the person on whom it is levied first. Thus one per-
son initially pays it but the burden is wholly or partially passed on to some other individual who ultimately bears it.
They are also called taxes on expenditure.
Non tax revenue: Any income which is not a compulsory levy by the government. Classification of Non tax reve-
nue is as follows:

COMMER- ADMINISTRATIVE REVENUE INTERESTS

CIAL REVE- AND DIVI-
NUE DENDS
It is the income It is earned Via performing the administrative functions the gov- Government re-
of the govern- ernment earns some revenue ceives interest
ment earned by FEES: it is the payment earned for rendering services on investments
supplying e.g. license fees , school and college fees etc made or loans
goods and ser- FINES and PENELTIES: imposed for the infringement of law. granted and also
vices electric- FORFEATURE: ceasing of property as a result of non payment earns dividends
ity , railway of taxes or etc on acquisition
services etc ESCHEATS: acquisition of property of a person who dies with- of shares of a
out any legal heir. company

(2) CAPITAL RECEIPTS: They are those items that either decrease assets or increase the liabilities
Recoveries of loans: it means the receipt of loans that the government granted in the past. It decreases the debtors
value of the government. Thus it is decrease in assets
Disinvestment: it implies selling of stakes in PSU units of the government. It implies selling of assets.
Borrowing and other liabilities: it implies if government takes loans. It increases the liability of the government.
Notes for expenditure:
Revenue expenditure: it implies those expenditure that don’t affect the assets or liabilities position of the govern-
ment. E.g. interests , payments of salaries , general social economic and defense services ,subsidies , grants to states
and U.T. and foreign governments
Capital expenditure: it implies that expenditure of the government that either increase the assets or decrease the li-
abilities of the government. E.g. Loans to state and UT , FG etc( increase in assets) and Repayment of loans ( decrease
of liabilities)

1 2 3 4 5 6 7 8
 Budget Special
GDP forecasted = 5856569 crores
Various deficits:
Fiscal Deficit (FD)= total expenditure – revenue receipts – capital expenditure excluding borrowings
1020838 – 614497 – (4225 + 1120) = 400996
FD as a percentage of GDP = 400996 / 5856569 * 100 = 6.84%
Revenue deficit (RD) = revenue expenditure – revenue receipts = 897232 - 614497= 282735
Revenue Deficit as a percentage of GDP = 282735 / 5856569 *100 = 4.8%
Primary deficit (PD) = fiscal deficit – interest payments = 400996 – 225511 = 175485
PD as a percentage of GDP = 175485 / 5856569 * 100 = 3%

Impact of Budget on Different Sectors

INFORMATION TECHNOLOGY

Sl BUDGET PROPOSAL IMPACT

1 Abolishment of FBT +ve for the sector – would reduce

2 Sun-set clause for deduction in respect of export prof- +ve for export oriented IT companies Infosys, TCS,
its under sections 10A and 10B of the Income-tax Act Mahindra Satyam, and Tech Mahindra etc. but benefit
being extended by one more year i.e. for the financial more mid-tier companies
year 2010-11.
3 Minimum Alternate Tax (MAT) increased to 15% -ve for the sector - would increase tax outgo for
from 10% smaller and Mid tier IT companies , however increase
in the number of years for carried forward of tax credit
from 7 years to 10 years would offset some impact.
4 On packaged or canned software, Counter Veiling +ve for Software providers
Duty (CVD) and excise duty exemption to be provided
on the portion of the value
which represents the consideration for transfer of the
right to use such software, subject to specified condi-
tions

HOTELS

Sl BUDGET PROPOSAL IMPACT

1 Outlays for Common Wealth Games, 2010 to be +ve for tourism and hotel companies in NCR
stepped up from Rs.2,112 crore in Interim Budget to
Rs.3,472
Crores in regular Budget 2009-10

1 2 3 4 5 6 7 8
 Budget Special
EDUCATION

Sl BUDGET PROPOSAL IMPACT

1 Allocation in ICT increased to Rs.900 crore +ve for the overall education sector

2 MAT increased to 15% from 10% -ve – would increase tax outgo for companies like
NIIT, however increase in the number of years for car-
ried forward of tax credit from 7 years to 10 years
would offset some impact. No major impact for other
players
like Educomp and Everonn.
3 The overall Plan budget for higher education is to be +ve for Everonn, Educomp, Core Projects, NIIT
increased by Rs 2,000 crore over Interim B.E. 2009-
10.
4 Rs.827 crore allocated for opening one central Univer- +ve for Educomp, NIIT, Core Projects
sity in each uncovered State. Rs.2,113 crore allocated
for IITs and NITs which includes a provision of
Rs.450 crore for new IITs and NITs.

MEDIA AND ENTERTAINTMENT

Sl BUDGET PROPOSAL IMPACT
1 Abolishment of Fringe Benefit Tax (FBT) +ve for the sector – would reduce the operational and
compliance issues associated with FBT
2 Customs duty, on LCD Panels for manufacturing of +ve for Videocon
LCD televisions, to be reduced from 10% to 5%
3 Extension of stimulus package comprising waiver of +ve for the sector specially for Print media companies
15% agency commission on DAVP advertisements & like HT media, DCHL and Jagran Prakashan.
a 10% increase in the DAVP rates to the Print Media.

BANKING & FINANCIAL SERVICES

Sl BUDGET PROPOSAL IMPACT
1 No Securities Transaction Tax (STT) on sale/purchase +ve for financial services
of shares by NPT
2 Exemption from service tax (leviable under Banking +ve for Banks having presence in foreign exchange
and other financial services or under Foreign exchange transactions like ICICI Bank, Axis Bank, HDFC Bank,
broking service) being provided to interbank purchase SBI, etc
and sale of foreign currency between scheduled banks.
3 Time given to the farmers having more than two hec- +ve for PSU Banks as it would lead to deferment of
tares of land to pay 75 per cent of their overdues un- NPA
der Debt Waiver and Debt Relief Scheme extended
from 30th June, 2009 to 31st December, 2009.

1 2 3 4 5 6 7 8
 Budget Special
AUTOMOBILES
Sl BUDGET PROPOSAL
1 Increase in agriculture credit target by 13% to
Rs.3,25,000 cr from Rs.2,87,000cr in 2008-09
2 Allocation to NHAI for the NHDP is stepped up by
23%.
3 Excise duty on petrol driven trucks/ lorries to be re-
duced from 20% to 8%. Excise duty on chassis of such
trucks/
lorries to be reduced from ‘20% + Rs.10000’ to ‘8% +
Rs.10000’.
4 Ad valorem duty on vehicles of engine capacity below
2000 cc has been unified at Rs. 15,000 per unit
IMPACT
+ve for the sector - would continue to drive demand
for tractors and is a positive for companies like M&M.
+ve for the sector – would will increase the highway
network in India and is positive for demand growth for
commercial vehicles in the long term.
+ve Bosch Ltd.
+ve for companies like M&M, Tata Motors, Ashok
Leyland.

FMCG
Sl BUDGET PROPOSAL IMPACT
1 MAT increased to 15% from 10% -ve for the sector - Dabur India and Godrej Consumer
Products are currently under MAT that may see an ad-
verse earning impact.
2 Abolishment of FBT +ve for the sector - companies like HUL, ITC,
Dabur India and retail companies like Pantaloons, Vis-
hal retail would benefit
3 Allocation under NREGS increased by 144 per cent to +ve for the sector
Rs.39,100 crore

PHARMACEUTICALS
Sl BUDGET PROPOSAL IMPACT
1 Amendment in IT section - 10AA(7), 100% profit ex- +ve for companies like Divis Laboratories and
emption effective from FY2011 for business units op- Biocon as they currently operates from their SEZs
erating from SEZs
2 Abolishment of FBT +ve for the sector
3 MAT increased to 15% from 10% -ve for for companies like Sun Pharma, Dishman,
Cadila and Biocon

TEXTILE
Sl BUDGET PROPOSAL IMPACT
1 Restoration the rate of 8% central excise duty on man- -ve for companies like Aditya Birla Nuvo, Indo Rama,
made fibre & yarn etc
2 Reduction in the basic customs duty from 15% to 10% +ve for the sector
on wool waste & cotton waste

3 The 2 % interest subvention on pre-shipment credit to +ve for the sector

employment-oriented export sector has been extended
till March 31, 2010

1 2 3 4 5 6 7 8
 Budget Special

INFRASTRUCTURE
Sl BUDGET PROPOSAL IMPACT
1 IIFCL to evolve a Takeout financing scheme in con- +ve for infrastructure companies like HCC, Nagarjuna
sultation with banks to facilitate incremental lending Construction
to infrastructure sector.
2 IIFCL will refinance 60% of commercial bank loans +ve for infrastructure companies.
for PPP projects in critical sectors which involves Rs.
1,00,000 crores.
3 Allocation to NHAI for the NHDP is stepped up by +ve for companies like Reliance Infra, Gammon India,
23% Nagarjuna Constructions, IVRCL,etc.
4 Allocation for Railways increased from Rs.10,800 +ve for companies like BEML, Kalindee Rail, Tita-
crore in Interim B.E. 2009-10 to Rs.15,800 crore in garh Wagons
B.E. 2009-10
5 Provision for the project BRIMSTOWA initiated in +ve for Mumbai based companies like Reliance Infra-
2007 and funded through Central Assistance to ad- structure, Patel Engineering
dress the problem of flooding in Mumbai, enhanced
from Rs.200crore (Interim 2009-10) to Rs.500crore in
(2009-10 BE).
6 Allocation for Bharat Nirman increased by 45 per cent +ve for the sector
in 2009-10 over B.E. 2008-09.

TELECOM
Sl BUDGET PROPOSAL IMPACT
1 Exemption of 4% CVD, on mobile accessories, parts +ve for telecom companies like RCOM, TTML, Bharti
& components for another 1 year Airtel and mobile phone manufacturers.

OIL & GAS

Sl BUDGET PROPOSAL IMPACT
1 Extension of the tax holiday under section 80-IB(9), to +ve for Exploration cos Reliance Industries and Cairn
the mineral oil & natural gas India
2 Blueprint to be developed for long distance gas pipe- Companies like GAIL, Jindal Saw, Welspun Gujarat
lines leading to a National Gas Grid to facilitate trans-
portation of gas across the country

POWER
Sl BUDGET PROPOSAL IMPACT
1 Reduced the basic customs duty on permanent mag- +ve for Suzlon Energy
nets from 7.5% to 5%

1 2 3 4 5 6 7 8
 Budget Special
Goods and Service Tax (GST)

One of the biggest taxation reforms in India -- the Goods and Service Tax (GST) --
is all set to integrate State economies and boost overall growth. GST will create a
single, unified Indian market to make the economy stronger. Finance Minister
Pranab Mukherjee while presenting the Budget on July 6, 2009, said that GST
would come into effect from April 2010.

The implementation of GST will lead to the abolition of other taxes such as Octroi,
Central Sales Tax, State-level sales tax, entry tax, stamp duty, telecom license fees,
turnover tax, tax on consumption or sale of electricity, taxes on transportation of
goods and services etc., thus avoiding multiple layers of taxation that currently exist
in India.

What is GST?
Goods and Services Tax -- GST -- is a comprehensive tax levy on manufacture, sale and consumption of goods and
services at a national level. Through a tax credit mechanism, this tax is collected on value-added goods and services at
each stage of sale or purchase in the supply chain. The system allows the set-off of GST paid on the procurement of
goods and services against the GST which is payable on the supply of goods or services. However, the end consumer
bears this tax as he is the last person in the supply chain.

Experts say that GST is likely to improve tax collections and boost India's economic development by breaking tax bar-
riers between States and integrating India through a uniform tax rate. It is expected to help build a transparent and cor-
ruption-free tax administration. GST will be is levied only at the destination point, and not at various points (from
manufacturing to retail outlets).

How will it benefit the Centre and the States?

It is estimated that India will gain $15 billion a year by implementing the Goods and Services Tax as it would promote
exports, raise employment and boost growth. It will divide the tax burden equitably between manufacturing and ser-
vices.

What are the benefits of GST for individuals and companies?

In the GST system, both Central and State taxes will be collected at the point of sale. Both components (the Central
and State GST) will be charged on the manufacturing cost. This will benefit individuals as prices are likely to come
down. Lower prices will lead to more consumption, thereby helping companies.

What type of GST is proposed for India?

India is planning to implement a dual GST system. Under dual GST, a Central Goods and Services Tax (CGST) and a
State Goods and Services Tax (SGST) will be levied on the taxable value of a transaction.

1 2 3 4 5 6 7 8
 Budget Special

Which other nations have a similar tax structure?

Almost 140 countries have already implemented the GST. Most of the countries have a unified GST system. Brazil
and Canada follow a dual system where GST is levied by both the Union and the State governments.

France was the first country to introduce GST system in 1954.

What will be the rate of GST?

The combined GST rate is being discussed by government. The rate is expected around 14-16 per cent. After the total
GST rate is arrived at, the States and the Centre will decide on the CGST and SGST rates. Currently, services are
taxed at 10 per cent and the combined charge indirect taxes on most goods are around 20 per cent.

Will goods and services cost more after this tax comes into force?

The prices are expected to fall in the long term as dealers might pass on the benefits of the reduced tax to consumers.

Why are some States against GST; will they lose money?
The governments of Madhya Pradesh, Chhattisgarh and Tamil Nadu say that the information technology systems and
the administrative infrastructure will not be ready by April 2010 to implement GST. States have sought assurances
that their existing revenues will be protected. The central government has offered to compensate States in case of a
loss in revenues.

Some States fear that if the uniform tax rate is lower than their existing rates, it will hit their tax kitty. The government
believes that dual GST will lead to better revenue collection for States. However, backward and less-developed States
could see a fall in tax collections. GST could see better revenue collection for some States as the consumption of
goods and services will rise.

What are the items on which GST may not be applied?

Alcohol, tobacco, petroleum products are likely to be out of the GST regime.

Compiled By– Kushal K. Shah (2011 Batch)

Vivek Kumar Bhukania (2011 Batch)

Vivek Ganatra (2010 Batch)

1 2 3 4 5 6 7 8