Budget2011

There's a lot of talk about whether salaried employees will not need to file returns, because Pronob-da mentioned something in the budget speech. What he said was:

The Board shall soon notify a category of salaried taxpayers who will not be required to file a return of income as their tax liability has been discharged by their employer through deduction at source.

As far as I know, who qualifies has not been announced. But it won't apply to you if:

a) you have a house and rent it out

b) Have capital gains tax of any sort (short-term, long term)

c) Have other income such as interest from bank fixed deposits etc.

We'll know for sure when the final guidelines come out.

Updated: CBDT chief clarifies: (Thanks @pragmatic_d)

"Salaried people, may be up to Rs 5 lakh...they need not file the (income tax) return," CBDT chairman Sudhir Chandra told reporters at the customary post-Budget press conference.

The exemption from filing tax returns come into effect from the assessment year 2011-12.

In case such a salary earner has income from other sources like dividend, interest etc. and does not want to file returns, he will have to disclose such income to his employer for tax deduction, Chandra said.

Ok, so it's fine if you do have other income as long as you disclose it to your employer. Let's wait for the actual notification, too.

Minimum Alternate Tax (or MAT) will apply for SEZ developers as well. Not just the real estate players, even companies like Opto Circuits had gone into developing SEZs. The funda was that if you developed an SEZ, or if you were a unit in an SEZ, you paid no MAT at all, regardless of how much profit you had made. This is a useful way to move money around and make it non-taxable.

Developers in SEZs will now pay MAT as well.

Also such SEZ developers paid no dividend distribution tax (DDT); but from 1 June 2011, they will have to pay 15% DDT.

This affects way too many stocks, if you ask me. I need to find out how to make a list of them without killing myself.

With this budget, the FM has said a lot, but there is a lot that he has left unsaid, which are just as important. But let me cut the bullshit and get to the point: what does this mean for you?

No Large Changes in Direct Taxes

Every year, we come to consider that there will be changes in the tax regime. This year, not so.

The No-tax slab is up to 1.8 lakhs for everyone.

• Upto 1.8 lakhs: no tax. (1.9 lakhs for women)
• 1.8 to 5 lakhs: 10%
• 5 to 8 lakhs: 20%.
• Higher: 30%.

(i.e. nothing else has changed other than the top slab)

Senior citizens may be happy, especially if they just turned 60. The age for "senior" comes down to 60 from 65, and they get the first 2.5 lakhs off tax. Extremely senior citizens who are above 80 get the first 5 lakhs tax free. (Brilliant!) The rest of the tax slabs continue to apply.

No Housing Loan Incentives (or disincentives)

A lot of expectations were in the budget to increase housing loan interest repayment exemptions beyond the 1.5 lakh limit. That has not happened. The Direct Tax Code takes out even the housing loan principal repayments for real estate. Again, a negative in that it was not a positive.

On loans of Rs. 15 lakhs, taken for a house that costs less than 25 lakhs, there will be an interest rate subsidy of 1%. That applied for sub-10-lakh loans on sub-20-lakh property last year.

Infra bonds to stay

20,000 rupees invested in infra bonds are tax-exempt, and that continues for one more year. But there is no increase in the limit.

Surcharges reduced to 5%

If you're a company, you used to pay 7.5% surcharge on your income tax. (30% tax, and then the surcharge, and 3% cess, taking the net to 33.21%). Now you'll pay just 5% surcharge, taking your percentage number to 32.45%. That's a difference in tax of about 0.76%, which might be large if you're a huge company.

If you're a tax free company, you will pay 18.5% as Minimum Alternate Tax, rather than 18%. Eevn with the reduced surcharge, your net impact is higher - at 20.01% versus 19.93% earlier. Again, it depends on how big you are before you think this is not worth sneezing at. (If you really were that big, you wouldn't be reading this blog, but anyway).

Foreigners can invest in Equity MFs

Yeah, now foreign individuals (not just NRIs and PIOs like now) can buy Indian equity mutual funds directly, if they follow KYC guidelines. They can't follow KYC guidelines currently because that process needs a PAN card so don't go jumping around just yet.

Secondly, investors in the US can't buy many mutual funds like Fidelity, Franklin Templeton etc anyway because of US SEC restrictions. Assuming Uncle Sam is not willing to follow Pranab Mukherjee's budget, you don't get no satisfaction, US investors. (This may also apply to Canadian investors, I don't know).

What is unsaid: They still can't buy our debt funds, dammit. Banks are paying over 10% for even 100 day CDs in the money markets, and those guys will love anything that sounds like 5%. But we won't let them in.

Foreigners can buy 5 year plus infrastructure corporate bonds

That limit was $5 billion (with $15B in other corporate bonds), which is now going to be $25B for infra-5-year-plus, making it $40 billion. Again, nice for the infra sector. Doesn't change a thing for any body else.

Service Tax: You'll pay more

Go to an air conditioned restaurant that serves liquor: you'll pay 10.3% service tax. So now there is VAT, Surcharge, Service tax, Service Charges and Cess. I'm learning to cook. (What about takeaways? I don't get service if I took away food no?) Update: it's not 10% tax - 7/10th is 'abated' - so only 3% extra will be payable as service tax.

An centrally air conditioned hospital = 10% service tax. I absolutely hate this. But what to do. Update: it's not 10% tax - 1/2 is 'abated' - so only 5% extra will be payable as service tax.

Take a flight and you'll pay Rs. 50 more for domestic flights. Rs. 250 more for international economy. International business class and above paid 10% service tax anyway, but now you must pay that much even for domestic business class.

Update: Hotels charging more than 1,000 per day have 5% service tax.

ULIPs have to pay service tax on mortality charges. Now all investment products must.

Ask me questions, I will respond!

What is more important in this budget is what WASN'T said, not what was.  But here's the transcript of what I wrote at the Yahoo chat through the budget.

• Welcome to my live chat on Budget 2011. Folks, if you have questions throw it out at http://www.twitter.com/deepakshenoy
• 400,000 crores net borrowing, they say. Upwards of that is bad for bonds.
• That means Bank Stocks will hurt beyond that.
• People in the US don't largely care about the budget, says Samir Arora. So FII selling may not be affected.
• 1 minute to go, if Mr. Mukherjee will be on the dot. Please excuse my misunderstanding of Bengali enunciations.
• GDP numbers = 8.2%
• Food inflation down to 9.3% in Jan 2011, says FM.
• Private investment needs to be moved up.
• We have reached pre-crisis growth momentum.
• Pranob-da is saying everything in one sentence. Consolidation, inflation, growth.
• Sensex is up 120 points, Nifty up 37 points
• "Gap in public accountability". Jeez. It's a chasm.
• 2011-12 is a transition to result-oriented and transparent policy
• The necessary Sonia touching-feet reference has happened. We can now move on.
• 8.6% growth in 2010-11 in real terms. Agri growth 5.4%, industry 8.1% services 9.6%
• Food inflation was bad. Cereals, pulses in the beginning of year. Onion, Milk and chicken at later part.
• Shortcomings in marketing system are there, he says.
• Different arbitrageable prices are not acceptable says FM
• RBI measures will moderate inflation, he says. Ah.
• Exports have grown nearly 30%. $185bn. Imports $276bn, up 18%
• Expectations: 9% GDP growth. with +/- 0.25%
• Lower fiscal deficit and lower inflation seen.
• We have Godly references. Lakshmi and Indra gone. Thank goodness we don't have the 1000 names of Vishnu.
• Each state needs 3% GDP deficit by 2014
• Come on. States to have only 25% of GDP as debt? That's tough. anyways
• Direct Tax Code and GST will be huge reform, moderation of rates, simplification etc.
• Parliament
• GST convergence is happening: In This Session of
• DTC: 2012 seems pukka.
• NSDL to operate IT backbone of GST.Why isn't NSDL public?
• Sensex +148, Nifty +46
• Yay! Subsidy very inefficient admit FM
• Direct transfers are better, says FM. Nandan Nilekani to do direct transfer of subsidy - kerosene, diesel, fertilizer.
• 22K cr. raised from public markets.
• We will maintain that momentum going forward. More public issues next year.
• Mutual Funds to accept direct investment from foreign investors!!!! WOW!
• FII investment in bonds goes to $40 bn! Fantastic.
• Insurance amendment bills will be in.
• banking act to be passed in parliament
• About new banking licences: RBI's proposed changes to the
• 6,000 cr. to public sector banks for tier 1 equity
• anyway.
• CRAR of at least 9%. No big deal. that is there
• women.
• Microfin Equity Fund of 100 cr., 500 cr. to empower
• Lets revive microfinance, says FM.
• Rural Infra Dev. Fund corpus to 18K cr. From 16K cr.
• Additional money is for warehousing.
• SIDBI incremental lending: up to 5000 cr. from 4000 cr. for priority sector lending shortfall funding
• 3000 cr. for handloom cooperatives. Details need to be worked out by yet another committee.
• Minority sector lending up to 13.6%. banks to make it 15%.
• Rural housing fund goes to 3000 cr. from 2000 cr.
• Interest subventions of 1% to be made for 15 lakh loans
• Rural housing fund goes to 3000 cr. from 2000 cr.
• Fin Frauds: Central registration authority to be setup
• Guarantee housing loans by weaker sections of society ?
• Green revolution to be moved up
• Palm oil to be given impetus with more in there
• 300 cr. for implementation of veggie initiatives.Totally random 300 cr. that was.
• Ensure food = balanced nutrition. Thank you, FM bhai.
• 300 cr. to promote higher production of higher nutrition and education. I want more chocolate!
• 300 cr. Everyone, go to gym now.
• National mission for protein supplements is being launched:
• Fodder production acceleration - 300 cr. Number 3 is lucky for Pronob da. Number 420 is lucky for Congress.
• Are we getting Portugal's budget?
• Farmers need access to money.
• Whoa! That is for bank loans.
• Credit increased: 3.75 trillion (lakh cr.) to 4.75 lakh cr.
• Interest subvention, crop loans at 7% to continue.
• 2%!). Nabard: 3000 cr. equity.
• Another 3% subvention for prompt repayers. (up from
• banks.
• 10,000 cr. to Nabard for prio-sector lending shortfall by
• Estimated 40% food wasted in India.
• PPP model is good, it seems.
• IIFC 25,000 cr. by 2012
• Infra dev: tax-free bonds of 30K cr.!
• IRFC 10 k cr, NHAI 10k cr. HUDCO 5 k cr Ports 5k cr.
• Auto market 2nd fastest growing in world.30% this year
• Hybrid and Electric cars: National mission to be launched.
• JNNURM buses and metro projects are on. Okay, we know that.
• Nifty up 75, Sensex +239
• Self assessment in customs duties. What does that mean? I like the sound of it though.
• Black money: Global Crusade against BM. Hajaar work in progress. Yeah, right!
• We have joined global task force for integrity. We will get thrown out soon. Okay, he didn't say the second bit.
• NREGA wages enhanced for inflation."Significant" - what number?
• from 750 pm-> 1500 pm
• Anganwadi workers salary doubled: 1500->3000 pm. Helpers
• Demographic dividend needs education.
• UID access to secondary edu, providing skill: 52,057 cr. (up 24%)
• Sarva Shiksha abhiyaan 21,000 cr. (40% higher) WHOA!
• Innovation: I like that they want to prepare roadmap for innovation in India.
• 100 cr. grant to Kerala Animal science univ. (Yeah, elections are there this year, we know)
• Rs 400 cr. to IIT KGP. Rs 20 cr. IIM Cal.
• 200 cr. to some random univ.These are BIG amounts to totaly weird universities. And small amounts to stuff I know
• 500 cr. to national skill dev. fund.
• Currently: Infra public sector units should do well
• 80 yrs and above: pension amts will increase from Rs. 200 to Rs. 500 per month.(thank you, they say. It pays the cable bill for watching this budget.)
• Watch out folks. What is important is what is NOT said. Watch REC - there are no tax free bonds for it.
• Sensex+88, Nifty +33
• Rs 9 lakh for 100% disability for defence/paramilitary
• UID mission has taken off. 20 lakh aadhaar nos given.
• E-filing and e-payment of taxes have happened
• Need to review stamp act
• deducted simplified return form for presumptive taxed people
• Salaried employees may not need to file returns - if TDS is already
• e-stamping in all states.
• Total plan and non plan transfers up 23%
• 4.6% deficit for next year target that is
• 3.4% for 13-14 target
• Tax proposals coming now
• Exemption limit on tax from 1.6 lakh to 1.8 lakh Yay!
• Senior citizens age reduced from 65 to 60 - fabulous!
• another category 80 years +, 5 lakhs
• MAT increased to 18.5%.This is BAD for power sector and IT
• Bad for anyone that is low tax
• 20k per year infra bonds 2010-11 to continue one more year
• Foreign companies dividends payable to Indian residents taxed at only 15%
• NO major tax incentives in direct tax.
• Direct tax proposals to lose 11K cr.- that never happens. They always make money
• Debt to Gdp = 44.2% in 2010-11.
• another 15 k cr. in t-bills.
• Fiscal deficit is 4.12 lakh cr. Other financing items, net market borrowing was 3.43 lakh cr.
• Very positive for Auto
• Central excise duty not to be changed!!!
• Indirect taxes are on now.
• Tatamotors, maruti, M&M
• Certain exemptions will be removed, but most will only come into GST
• Central excise duty in certain cases is going up - we need the full speech
• Nifty +50 Sensex +150
• This is a non-budget as it was expected to be.
• Fiscal borrowing is less - banks should be doing well.
• Travel service tax will increase? Some part of that was inaudible.
• Rice cakes for fodder: no customs duty; exports duty of 10%.
• Service tax stays at 10%
• Raw silk duty from 30% to 5% customs duty.(buy saris?)
• Export duty for iron ore is up to 20%
• Laserjet and Inkjet printer customs duty down to 5% from 10%
• Hydrogen fuel cell cars - 10% excise
• A/cs will get cheaper. Watch Voltas.
• LED excise duty down to 5% from 14%.Check out TV manufacturers
• Solar cell duties go to nil.
• Would you touch Mirc then? Interesting there
• Heritage work of Indian art - imports for exhibition to general public exempt
• High speed printing equipment duties at 5% stays.
• Excise duty exemptions for film for movies. Currently imported.
• Diapers go down to 1% duty! Wow!
• Hospitals that are central a/c go into service tax
• Hospitals that are central a/c go into service tax but only at 5pc.
• Life insurances apart from ULIPs also will get Service Tax?
• Diagnostic tests = 5pc as well. Except for govt. hospitals.
• Life insurances apart from ULIPs also will get Service Tax?
• Airline companies are falling.
• Service tax = better served with negative list rather than positive list. GST will address that.
• Indirect taxes = Net Rev. Gain of 11300 cr.
• Hotels will lose some - Service tax increased. Watch Indian Hotels, EIH and so on.
• Nifty +70 Sensex +227
• RelCapital, HDFC are beneficiaries
• Foreign nationals to invest DIRECTLY on MFs is a big big thing.
• FMCG should overall benefit. HUL and ITC should be positive.