The D-day has come and
it has gone. Sensex has gone up by more than 500 points & at the time of
writing this article has come down to an increase of 122 odd points. So why did
the market react this way.
Well the stock market
was expecting some negative news from the FM in the form of higher excise duty,
increase in service tax rates etc. that did not materialize. Not much was
expected on the Income Tax front but FM was kind enough to extend the basic
exemption limit. This caused an over positive reaction by the stock market in
the earlier part of the day by over 500 points. But later, as analysts started analyzing
the budget & reading the fine print, they realized that this is a very very
balanced budget & nothing extra ordinary has been promised in the budget
yet. The FM might take some drastic steps later to which he has just provided
indications in his budget for now.
Some Highlights of the Budget relevant for the Indian Investor:
A.
Direct Taxes
1.
Basic
exemption limit for retail Investor increased from current Rs. 1.60 lac to Rs.
1.80 lacs wef April 1, 2011; this shall result in savings of Rs. 2,000 per
annum for all assesses.
2.
Basic
exemption limit for Senior Citizens increased from current Rs. 2.40 lacs to Rs.
2.50 lacs wef April 1, 2011; not only that, the definition of Senior Citizen
has been changed to include assesses above Rs. 60 years of age (this was 65
years earlier); a very positive step..
3.
A
new category of assesses has been created, Very Senior Citizens > 80 years and
a basic exemption limit of Rs. 500,000 has been granted to them. Again, a very positive step that finally recognises Senior citizens..
4.
Surcharge
on income tax for Corporate has been brought down from 7.5% to 5.0%. Good for corporates as it will reduce there tax burden, though nominally.
5. Minimum Alternate Tax (MAT) on Companies has been marginally increased from 18% currently to 18.5% wef April 1, 2011.
5. Minimum Alternate Tax (MAT) on Companies has been marginally increased from 18% currently to 18.5% wef April 1, 2011.
So, in
all, the Income tax changes, though nominal, are on the positive side. The
reason only nominal changes are made is because the FM has promised to stick to
the April 1, 2012 deadline of bringing in the Direct Tax Code.
B.
Indirect Taxes
1. Excise
Duty rates have been kept unchanged for most products barring a few exceptions
2.
Peak
Customs duty rates are also kept unchanged
3.
Even
Service tax rates are kept unchanged @ 10%
(the above means that the taxes on most goods & services, barring few, have not changed; again good for the layman)
4.
However,
airline travel cost will increase as service tax will now be levied on air
tickets…
Again,
just like Direct Taxes, no major change on the Indirect taxes front. The reason
only nominal changes are made is because the FM has promised to usher in the
GST regime in the current session of the parliament. So it is wait & watch
on both the direct taxes & indirect taxes front & big moves will only
be made later...
Two
Noteworthy changes in the budget:
1. One Major change that
might have got unnoticed by many is that FM
has allowed Foreign Citizens, who fulfill the KYC norms, to invest in Mutual
Funds in India. The good part is that this will bring in more inflows
in the ailing MF Industry & to our stock market which is good for the
Indian investor… Indeed one bold step by the FM in the budget...
2. FM has allowed govt.
infrastructure companies to bring out
Infrastructure bonds worth Rs. 30,000 crore that retail investors can also invest
in. This is a great way of using Investors money to invest in the
country’s Infrastructure sector. A win-win situation for both…
Besides the above two
remarkable changes, all other bold steps have been postponed to posterity. For
now, to sum up, a very very balanced but uneventful budget by a mellow but highly experienced Finance
Minister.
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