Reviving Tax Structure of India

Introduction to Tax Structure

It is said that, "Human is a Social animal." And said very correctly. Human is an animal that lives in a society. Being an animal, it always tries to suppress other humans, and being in society it tries to protect the co-humans. The main aim of society hence is to protect the humans from other humans. Hence the difference between evil and good created, and a system was created to punish the evils. Then an Organisation was setup that will look into the system, implement the system to protect co-humans. This giant organisation has been named as Government. 

Those who were rich felt the threat of theft and all kinds of insecurity. And they needed governance more. Hence they used to donate to the Government for security. Later, the purpose of Government changed, and they needed more money. Again, some people refused to support the Government. Hence the Tax structure took birth. 

Main object behind the tax structure was to collect more money from the rich to run the Government. But later, it was thought that more a people spends, or uses the facilities should be taxed more. 

It gave rise to two basic kinds of tax. 1. Direct Tax - Assuming that rich should pay more. 2. Indirect Tax - Assuming that those who spend more should be taxed. 

Allmost all the nations of this world have designed the tax structure taking both these concepts, so is India. 

Direct Tax

The tax that is levied on a person directly by the Government is known as direct taxes, as the tax is paid directly to the Government, without any middle man. These taxes are computed based on one's income or profit or wealth. The main motive behind the tax is, let the rich pay more. 

But the rich found their own way to pay less. They do it by way of corporations or say companies. They earn income, spend and pay tax on the balance. While the middle class people earn income, pay tax and spend the balance. The poor section does not pay this tax. 

How the rich reduce tax liability ?

Its very easy to reduce tax liability, just create a virtual person [VP] (which does not have any real existence, the existence is merely because of an agreement or say a piece of paper). Do all incomes and expenses by this VP, pay tax on the balance Income. You need to spend money for foreign trips ? Easy, just arrange a Board of Directors meeting abroad, spent it on you, and pay less tax. 

You want to have lavish dinner in a hotel ? Fine, no problem, just dont forget to get the bill from the hotel and book it as Entertainment Expenses and dont pay tax on this.  You want to use a car ? Let the Car be owned by the VP, and the fuel cost will be deducted from your income and you will pay less tax. 

But this does not happen with a middle class people, who earns money as an employee. He needs to pay tax first and then if any thing is left, he will dream of going abroad or getting a car.

Tax on Income is mother of Corruptions

I always tried to understand one thing, when a people thinks its a matter of social pride to acquire more wealth, why he does not declare income more then what he has earned ? And the answer is, he has to pay tax on his incomes. If he declares more income, he will have to pay more.

Thats why, people declare income less then what they have earned and pay less tax to the Government. And the Income on which Tax has no been paid is termed as Black Money. The Government hence needs to create a large system to control this black money.

If we ever can remove the concept of tax on Income, then these set of people will not hesitate to show their real income, and there by we can end one "module of corruption".

Indirect Tax

Indirect Tax is imposed on the basic idea that, those who can spend more really owns more money, hence they should be taxed more. This is nothing but a kind of Expenditure tax. This is called indirect tax, because the tax is not paid directly to the Government, but to a middle man, who in turn pays the money to Government. 

Taxes like CENVAT, VAT, Entry Tax, Service Tax are indirect taxes. In these cases, the ultimate consumer needs to pay tax. And tax is collected by each middleman starting from the producer of the goods.

But the reality is, the middleman keeps some portion of this tax for himslef and the balance is paid to Government. 

How the Middleman keeps Tax collected from other ?

Indirect tax structure has been designed in such a way that, tax will be paid only by the poor individuals. The rich can get the benefit by way of VP as explained above. Thats why I say they keep some portion of tax money which should have been paid to Government. 

Except the VP concept, there is one more way to get profit from this tax structure. This is done by way of "Tax Credit on Input". 

Suppose, Mr.A purchased Commodity X for Rs. 100 and paid indirect tax (IDT) of Rs. 5. He now sold X for Rs. 110 and collected IDT of Rs. 7. Mr. A will pay Tax now just Rs. 2 on the assumption that he had already paid Rs.5 to the previous middleman. 

Question is, did he really pay Tax of Rs. 5 earlier ? Surprisingly the answer is no. Because he had already booked his cost including this Rs.5 and charged to the ultimate consumer. The difference of which will be treated by him as "profit". So ultimately the ultimate consumer had paid not just Rs. 7 for tax, but more then that (hidden as profit margin).

Ideal Tax Structure

From my days of CA Student, when ever I used to study the papers like Tax and Accounts, I used to go into deep thought on how to keep them correct. If we see the Accounting system today, then we will see that, neither the Profit and Loss statement represents correct profit (because of some sort of assumptions) nor the Balance Sheet shows a correct value of assets and liabilities (On that given date, if the Company is sold out, the amount recoverable will not be equal to Capital + Reserve, and at any given date, General Reserve will not be represented by some assets). Similar with the case of Taxes. In some cases, an Individual pays more tax then another Individual having higher income.

One thing I realised that, tax on profits or expenditures is not the correct way of tax, as these two terms can be manipulated. What is real is to be taxed, not what is not real and gets existence just because of an agreement.

That "REAL" asset is nothing but Cash. I propose Tax on Cash inflow, because only Cash Flow can not be manipulated. The procedure is very simple. Say a person received Rs. 100, in a month, then he will need to pay Rs.1 as tax for that month. No other Direct tax or Indirect tax.

Where is the Problem ?

The problem is with present infrastructure. We do not have infrastructure to calculate exact cash inflows of a particular person.

What is the Solution ?

Implementing Tax on cashflows is not as difficult as it seems, what we need is a proper infrastructure and awareness so that all the individuals will be able to use the Banks, so that maximum number of people will transact through banks. In this case, we can easily identify the Cash receipts by a person, and we can collect tax. In other words, the person paying Cash will need to deduct a percent of money from the receiver and pay that to Government. Its just like the Indirect Tax, but the levy is not on expenses, nor on Incomes, but on cash flows.

Who will Collect and Pay tax ?

Tax will be collected and paid by those, who employ others persons, i.e. the Business houses. its only the business houses those generate cash.

Step by Step Approach

1. Define Business House and mode of Formation : 

    Law need to be modified so that, none other then a Company can do business. In other words, if some one wants to do business, he must do it, by way of a Corporate entity duly registered. There can not be any other form of Business entities.

   One will ask then, can a small tea vendor or a small pan shop who are uneducated register themselves as a Company ?

   Answer is, relaxation can be given to the deserved section of people. A threshold limit should be provided, in terms of Capital Investment, or Number of Employees or Turnover etc. so as to identify the weaker section of people. 

2. Mode of Business and Payment of Tax

    - All Corporates will have to transact through bank. They can not purchase goods other then by way of bank payment, and duly deducting Tax on Value of Purchase. Banks can be given the role as Clearing house. When a persons asks a bank to pay Rs. 100 to another person, the bank will pay Rs. 99 to the person and Re.1 as Tax to Government.

 - A corporate can not sale goods for Cash beyond a certain limit, say Rs. 100. If some one pays cash, the corporate needs to record Identity of the payer. If the payer is not a corporate, it can not deduct tax on these cash payments.

 - All cash receipts on a given date must be deposited with the Bank on the same day.No Tax should be levied on depositing cash with the Bank (to encourage cash deposit).

 - No payment can be made by cash other then to an Individual, and no tax to be levied on cash payments.

3. Filing of Accounting Report and Tax Payment Report

    Every Corporate will have to prepare accounts, get them audited and a return of the same to be filed with the Government. In the Audit Report, the Auditor will Certify the daily Cash Flow Statement during the period, and amount of Tax paid on the same. No other Tax payment Return need to be filed.

What Regulatory Framework needs to be created ?

No new regulatory frame works need to be established other then the System of Corporate Affairs.

Will this system be able to generate more revenue for the Government ?

In the long run, this system will generate more revenue for the Government as compared to the present tax structure. Even today, if Tax can be collected only on the payments made by NEFT or RTGS at 1%, it will surpass the Budgeted revenue of Rs. 16.00 lakh cr for the Fiscal Year 2013-14.

Will it not promote Corruption ?

The general perception is that, with implementation of this tax structure, a new era of corruption will emerge. i.e. people will try to make cash sales more and more, or say people will try to avoid banking transactions. This is true to some extent. But with little modification of the present infrastructure, we can solve this issue too. Following steps should be taken -

 - No salary can be paid in cash
- Cash can not be withdrawn from Bank or from ATMs
- Step should be taken at panchayat level to ensure that all shops have bank payment system. Responsibility of this should be on the member of Local Body.
- Steps should be taken to ensure all small mode of transports have facility of payment through bank.

Will the System not compel the poor to pay tax too ?

What is to understand is that, this tax structure intends to charge tax on cash, not on people, nor in transaction. If we see closely, this system will provide a relief to the poor, as they now do not need to pay huge indirect tax.

Can the uneducated mass accept this system ?

India today implemented a system, where the subsidy amount is now deposited with the bank account of the beneficiary. If this system can be implemented, why the proposed tax structure can not be implemented ? What we need is, to create required infrastructure within a particular time frame, and switch over to the new system on that date.

What is the 1st Step ?

Step-1 ti implement the proposed tax structure is -
 - Replace the Existing Currency with a New set of Currency.
 - Every person will need to deposit what every currency he has with the bank, and in turn get a bank transaction card.
- New currency can be withdrawn from ATMs for say a year or two. Within these period infrasture is to be created so as to ensure payment vide bank at every location of India. Every store, every shop, every auto rickshaws should have online payment system.

Maintenance of Cost Records and Audit under Companies Act (Revised)

 

REQUIREMENT OF MAINTENANCE OF COST RECORDS

Sec-209 (1)(d)

Every company shall keep at its registered office proper books of account with respect to

 in the case of a company pertaining to any class of companies engaged in production, processing, manufacturing or mining activities, such particulars relating to utilisation of material or labour or to other items of cost as may be prescribed if such class of companies is required by the Central Government to include such particulars in the books of account:]

Provided that all or any of the books of account aforesaid may be kept at such other place in India as the Board of directors may decide and when the Board of directors so decides, the company shall, within seven days of the decision, file with the Registrar a notice in writing giving the full address of that other place.]

Companies (Cost Accounting Records) Rules, 2011

Scope : Companies engaged in the production, processing, manufacturing or mining activites, where in –

i.                    Agregate value of Net worth as on last day of immediate preceding financial year exceeds Rs. Five crore

ii.                  Agregate value of Turn over made during the immediate preceeding financial year exceeds Rs. Twenty Crore

iii.                Where the Company’s equity or debt are listed

Requirements :

i.                    Maintenance of Cost Records

ii.                  Filing Compliance Report in Form –A, within 180 days from end of financial year

REQUIREMENT FOR AUDIT OF COST RECORDS

Sec 233B(1)

Where in the opinion of the Central Government it is necessary so to do in relation to any company required under clause (d) of sub-section (1) of section 209 to include in its books of account the particulars referred to therein, the Central Government may, by order, direct that an audit of cost accounts of the company shall be conducted in such manner as may be specified in the order by an auditor ²[who shall be a cost accountant within the meaning of the Cost and Work Accountants Act, 1959 (23 of 1959):

Sec 233B(2)

The auditor under this section shall be appointed by the Board of directors of the company in accordance with the provisions of sub-section (1B) of section 224 and with the previous approval of the Central Government:

Order No. F.No. 52/26/CAB-2010, Dtd 3^rd May 2011

Scope : Companies to which Sec 209(1)(d) is applicable and of which the turnover made during the immediate preceding financial year exceeds Rs. One Hundred Crore

Revised Procedure of Appointment vide Circular No. 15/2011 [52/5/CAB-2011] Dtd 11^th April 2011

i.                    First point of Reference shall be the Audit Committee –

a.      Ensure the Auditor is free from any disqualification

b.      Obtain a Certificate from the cost auditor certifying his independence and arm’s length relationship with the company

ii.                  E-file Application with the Central Government in form 23C

iii.                Issue formal letter of Appointment to the Cost Auditor, as approved by the Board, after 30 days from the date of filing Form 23C

Summary of Union Budget Proposal 2011-12

I. Overview of the Economy

¨         The Gross Domestic Product (GDP) of India is estimated to have grown at 8.6 per cent in 2010-11 in real terms.

¨         In 2010-11 agriculture is estimated to have grown at 5.4 per cent, industry at 8.1 per cent and services at 9.6 per cent.

¨         Exports have grown at 29.4 per cent to reach US Dollar 184.6 billion, while imports at US Dollar 273.6 billion having a growth of 17.6 per cent during April-January 2010-11.

¨         The Indian economy is expected to grow at 9 per cent with an outside band of +/- 0.25 per cent in 2011-12.

II. Sustaining Growth

¨         Fiscal Consolidation

·      In the course of the year the Central Government would introduce an amendment to the FRBM Act, laying down the fiscal road map for the next five years.

·      The Thirteenth Finance Commission has worked out a fiscal consolidation road map for States requiring them to eliminate revenue deficit and achieve a fiscal deficit of 3 per cent of their respective Gross State Domestic Product latest by 2014-15.

·      It has also recommended a combined States' debt target of 24.3 per cent of GDP to be reached during this period. The States are required to amend or enact their FRBM Acts to conform to these recommendations.

·      The Government has been in the process of setting-up an independent Debt Management Office in the Finance Ministry. Govt. to introduce the Public Debt Management Agency of India Bill in the next financial year.

¨         Tax Reforms

·      The Direct Taxes Code Bill finalized for its enactment during 2011-12. The Code is proposed to be effective from April 1, 2012

·      As a step towards the roll-out of GST, Govt. to introduce the Constitution Amendment Bill in this session of Parliament.

·      Among the other steps that are being taken for the introduction of GST is the establishment of a strong IT infrastructure. A significant progress has been made on the GST Network (GSTN). The key business processes of registration, returns and payments are in advanced stages of finalization.

·      The National Securities Depository Limited (NSDL) has been selected as technology partner for incubating the National Information Utility that will establish and operate the IT backbone for GST. By June 2011

¨         Subsidies

·      The Nutrient Based Subsidy (NBS) extended.

·      The Government will move towards direct transfer of cash subsidy to people living below poverty line in a phased manner in case of Kerosene and fertilizers.

·      A task force headed by Shri Nandan Nilekani has been set-up to work out the modalities for the proposed system of direct transfer of subsidy for kerosene, LPG and fertilisers. The interim report of the task force is expected by June 2011. The system will be in place by March 2012.

¨         People's Ownership of PSUs

·      The six public issues of CPSUs in the current financial year have attracted around 50 lakh retail investors. Govt. is intended to maintain the momentum on disinvestment in 2011-12 by raising Rs 40,000 crore.

¨         Foreign Institutional Investors

·      To liberalise the portfolio investment route, it has been decided to permit SEBI registered Mutual Funds to accept subscriptions from foreign investors who meet the KYC requirements for equity schemes.

·      This would enable Indian Mutual Funds to have direct access to foreign investors and widen the class of foreign investors in Indian equity market.

·      The FII limit for investment in corporate bonds, with residual maturity of over five years issued by companies in infrastructure sector, is being raised by an additional limit of US Dollar 20 billion taking the limit to US Dollar 25 billion.

·      This will raise the total limit available to the FIIs for investment in corporate bonds to US Dollar 40 billion. Since most of the infrastructure companies are organised in the form of SPVs, FIIs would also be permitted to invest in unlisted bonds with a minimum lock-in period of three years.

¨         Financial Sector legislative Initiatives

·      . The UPA Government is committed to move the following legislations in the financial sector:

(i) The Insurance Laws (Amendment) Bill, 2008;

(ii) The Life Insurance Corporation (Amendment) Bill, 2009;

(iii) The revised Pension Fund Regulatory and Development Authority Bill, first introduced in 2005;

(iv) Banking Laws Amendment Bill, 2011;

(v) Bill on Factoring and Assignment of Receivables;

(vi) The State Bank of India (Subsidiary Banks Laws) Amendment Bill, 2009; and

¨         Public Sector Bank Recapitalisation

·      During the year 2010-11, the Government is providing a sum of Rs 20,157 crore for infusion in the Public Sector Banks to maintain Tier I Capital to Risk Weighted Asset Ratio (CRAR) at 8 per cent and increase government equity in some banks to 58 per cent.

·      Govt. proposes to provide a sum of Rs 6,000 crore for the year 2011-12 to enable Public Sector Banks to maintain a minimum Tier I CRAR at 8 per cent.

¨         Recapitalisation of Regional Rural Banks

·       As a part of financial strengthening of Regional Rural Banks, an amount of Rs 350 crore was given to these banks during this year.

·      Govt. proposes to provide Rs 500 crore during 2011-12 to enable them maintain a CRAR of at least 9 per cent as on March 31, 2012.

¨         Micro Finance Institutions

·      A dedicated fund for providing equity to smaller MFIs will be created in the course of the year, "India Microfinance Equity Fund" of Rs 100 crore with SIDBI.

·      To empower women and promote their Self Help Groups (SHGs), Govt.  to create a "Women's SHG's Development Fund" with a corpus of Rs 500 crore.

·      The Committee set up by RBI to look into issues relating to micro finance sector in India has submitted its report. The Government is considering putting in place appropriate framework to protect the interests of small borrowers.

¨         Rural Infrastructure Development Fund

·      To raise the corpus of RIDF XVII to Rs 18,000 crore in 2011-12 from Rs 16,000 crore in the current year.

·      The additional allocation would be dedicated to creation of warehousing facilities.

¨         Micro, Small and Medium Enterprises

·      Last year, Rs 4,000 crore was provided to SIDBI for refinancing incremental lending by banks to these enterprises.

·      For the year 2011-12, Govt. to provide Rs 5,000 crore to SIDBI for the same purpose out of the shortfall of banks on priority sector lending targets.

·      Govt. to provide Rs 3,000 crore to NABARD, in phases for the benefit of Handloom cooperative societies.

·      The initiative would benefit 15,000 cooperative societies and about 3 lakh handloom weavers.

·      The outstanding loans to minority communities which stood at 13 per cent of total priority sector lending at the end of last year have increased to 13.6 per cent in the current year

¨         Housing Sector Finance

·      Govt. to liberalize  the existing scheme of interest subvention of 1 per cent on housing loans by extending it to housing loan upto Rs 15 lakh where the cost of the house does not exceed Rs 25 lakh from the present limit of Rs 10 lakh and Rs 20 lakh respectively.

·      On account of increase in prices of residential properties in urban areas, I propose to enhance the existing housing loan limit from Rs 20 lakh to Rs 25 lakh for dwelling units under priority sector lending.

·      Govt. proposes to enhance the provision under Rural Housing Fund to Rs 3,000 crore from the existing Rs 2,000 crore.

·      Credit enablement of Economically Weaker Sections (EWS) and LIG households is a serious challenge. To address this issue, Govt. proposes to create a Mortgage Risk Guarantee Fund under Rajiv Awas Yojana. This would guarantee housing loans taken by EWS and LIG households and enhance their credit worthiness.

·      To prevent frauds in loan cases involving multiple lending from different banks on the same immovable property, the Government has facilitated setting up of Central Electronic Registry under the SARFAESI Act, 2002. This Registry will become operational by March 31, 2011.

¨         Financial Sector Legislative Reforms Commission

·      In pursuance of the announcement made in Budget 2010-11, the Government has set up a Financial Sector Legislative Reforms Commission under the Chair of Justice B. N. Srikrishna.

·      It would rewrite and streamline the financial sector laws, rules and regulations and bring them in harmony with the requirements of a modern financial sector. The Commission will complete its work in 24 months.

·      The Companies Bill introduced in the Parliament in 2009 has been received from the Parliamentary Standing Committee. The proposed bill will be introduced in the Lok Sabha in the current session.

¨         Agriculture

·      Govt. proposes to make allocations for the schemes under the ongoing Rashtriya Krishi Vikas Yojana (RKVY) for an early take off. The total allocation of RKVY is being increased from Rs 6,755 crore in 2010-11 to Rs 7,860 crore in 2011-12.

·      A further allocation of Rs 400 crore. With a target to improve in the rice based cropping system of Assam, West Bengal, Orissa, Bihar, Jharkhand, Eastern Uttar Pradesh and Chhattisgarh.

·      Production of 165 lakh tonnes of pulses is expected this year as against 147 lakh tonnes last year. Govt.  proposed to provide an amount of Rs 300 crore to promote 60,000 pulses villages in rainfed areas for increasing crop productivity and strengthening market linkages.

·      The domestic production of edible oil meets only about 50 per cent demand. It is expected that the oilseeds production will be  278 lakh tonnes in 2010-11 as against 249 lakh tonnes in 2009-10.

·      Govt. proposed to provide an amount of Rs 300 crore to bring 60,000 hectares under oil palm plantation, by integrating the farmers with the markets. The initiative will yield about 3 lakh metric tonnes of palm oil annually in 5 years.

·      Govt. to provide an amount of Rs 300 crore for implementation of vegetable initiative to set in motion a virtuous cycle of higher production and incomes for the farmers. To begin with, this programme will be launched near major urban centres.

·      A provision of Rs 300 crore is being made to promote higher production of Nutri-cereals, upgrade their processing technologies and create awareness regarding their health benefits.

·      The programme would be taken up in 1000 compact blocks covering about 25,000 villages. This will help improve nutritional security and increase feed and fodder supply for livestock

Govt. proposes to provide Rs 300 crore for Accelerated Fodder Development

¨         Agriculture Credit

·      For the year 2011-12, the target of credit flow to the farmers increased from Rs 3,75,000 crore this year to Rs 4,75,000 crore in 2011-12.

·      The existing interest subvention scheme of providing short term crop loans to farmers at 7 per cent interest will be continued during 2011-12

·      Govt. proposes to strengthen NABARD's capital base by infusing Rs 3000 crore, in a phased manner, as Government equity.

¨         Storage Capacity and Cold Chains

·      On January 1, 2011, the foodgrain stock in Central pool reached 470 lakh metric tonnes, 2.7 times higher than 174 lakh metric tonnes on January 1, 2007.

·      Decision to create 20 lakh metric tonnes of storage capacity under Public Entrepreneurs Guarantee (PEG) Scheme through modern silos has been taken.

·      During 2010-11, another 24 lakh metric tonnes of storage capacity has been created under the Rural Godown Scheme.

·      During this year, 24 cold storage projects with a capacity of 1.4 lakh metric tonnes have been sanctioned under National Horticulture Mission. In addition, 107 cold storage projects with a capacity of over 5 lakh metric tonnes have been approved by the National Horticulture Board.

¨         Infrastructure and Industry

·      Infrastructure is critical for our development. For 2011-12, an allocation of over Rs 2,14,000 crore is being made for this sector, which is 23.3 per cent higher than current year.

·      This amounts to 48.5 per cent of the Gross Budgetary Support to plan expenditure.

·      Government established India Infrastructure Finance Company Limited (IIFCL) to provide long term financial assistance to infrastructure projects. It is expected to achieve a cumulative disbursement target of Rs 20,000 crore by March 31, 2011 and Rs 25,000 crore by March 31, 2012.

·      The take out financing scheme announced in the Budget 2009-10 has been implemented and seven projects have been sanctioned with a debt of Rs 1,500 crore. Another Rs 5,000 crore will be sanctioned during 2011-12.

·      In order to give a boost to infrastructure development in railways, ports, housing and highways development, Govt. proposes to allow tax free bonds of Rs 30,000 crore to be issued by various Government undertakings in the year 2011-12.

This includes Indian Railway Finance Corporation Rs 10,000 crore, National Highway Authority of India Rs 10,000 crore, HUDCO Rs 5,000 crore and Ports Rs

¨         Exports

·      The Task Force on Transactions Cost set up by the Department of Commerce to identify and suggest ways to achieve improvement in efficiency of our export processes, has completed its work.

·      Twenty one suggestions made by the Task Force have already been implemented. Action on remaining two will be taken in next few months. This will mitigate transactions cost by about Rs 2,100 crore.

¨         Black Money

·      The generation and circulation of black money is an area of serious concern. To deal with this problem effectively, Government has put into operation a five-fold strategy which consists of Joining the global crusade against 'black money';

·      We secured Membership of the Financial Action Task Force (FATF) in June last year. We have also joined the Task Force on Financial Integrity and Economic Development, Eurasian Group (EAG) and Global Forum on Transparency and Exchange of Information for Tax Purposes.

·      During the year, we have concluded discussions for 11 Tax Information Exchange Agreements (TIEAs) and 13 new Double Taxation Avoidance Agreements (DTAAs) along with revision of provisions of 10 existing DTAAs. To effectively handle the increase in tax information exchange and transfer pricing issues, Foreign Tax Division of CBDT has been strengthened. A dedicated Cell for exchange of information is being set up to work on this agenda.

III. Strengthening Inclusion

¨         Bharat Nirman

·      For the year 2011-12, Bharat Nirman, which includes Pradhan Mantri Gram Sadak Yojna (PMGSY), Accelerated Irrigation Benefit Programme, Rajiv Gandhi Grameen Vidyutikaran Yojna, Indira Awas Yojna, National Rural Drinking Water Programme and Rural telephony have together been allocated Rs 58,000 crore.

·      This is an increase of Rs 10,000 crore from the current year. A plan has been finalised to provide Rural Broadband Connectivity to all 2,50,000 Panchayats in the country in three years.

¨         MGNREGA

·      The Government has decided to index the wage rates notified under the MGNREGA to the Consumer Price Index for Agricultural Labour. The enhanced wage rates have been notified by the Ministry of Rural Development on January 14, 2011.

·      The Anganwadi workers and Anganwadi helpers are the backbone of Integrated Child Development Services Scheme. Govt. announced an increase in the remuneration of Anganwadi workers from Rs 1,500 per month to Rs 3,000 per month and for Anganwadi helpers from Rs 750 per month to Rs 1,500 per month. This will be effective from April 1, 2011. Around 22 lakh Anganwadi workers and helpers will benefit from the increase.

¨         Education

·      Govt. proposes an allocation of Rs 52,057 crore towards education which is an increase of 24 per cent over the current year.

·      The existing operational norms of Sarva Shiksha Abhiyan have been revised to implement the right of children to free and compulsory education which has come into force with effect from April 1, 2010.

·      For the year 2011-12, allocation of  Rs 21,000 crore is made, which is 40 per cent higher than Rs 15,000 crore allocated in the Budget for 2010-11.

·      Approved in March 2010, the National Knowledge Network (NKN) will link 1500 Institutes of Higher Learning and Research through an optical fibre backbone. During the current year, 190 Institutes will be connected to NKN.

·      Since the core will be ready by March 2011, the connectivity to all 1500 institutions will be provided by March 2012.

·      To move beyond the formal R&D paradigm, a National Innovation Council under Shri Sam Pitroda has been set up to prepare a roadmap for innovations in India

·       The Government has been providing special grants to recognise excellence in universities and academic institutions. In the course of 2011-12,  the proposal is to provide

- Rs 50 crore each to upcoming centres of Aligarh Muslim University at Murshidabad in West Bengal and Malappuram in Kerala;

- Rs 100 crore as one-time grant to the Kerala Veterinary and Animal Sciences University at Pookode, Kerala;

- Rs 10 crore each for setting up Kolkata and Allahabad Centres of Mahatma Gandhi Antarrashtriya Hindi Vishwavidyalaya, Wardha;

- Rs 200 crore as one time grant to IIT, Kharagpur;

- Rs 20 crore for Rajiv Gandhi National Institute of Youth Development, Sriperumbudur, Tamil Nadu

- Rs 20 crore for IIM, Kolkata, to set up its Financial Research and Trading Laboratory;

- Rs 200 crore for Maulana Azad Education Foundation;

- Rs 10 crore for Centre for Development Economics and Ratan Tata Library, Delhi School of Economics, Delhi; and

- Rs 10 crore for Madras School of Economics.

·      National Skill Development Council (NSDC) is well on course to achieve its mandate of creation of 15 crore skilled workforce two years ahead of 2022, the stipulated target year. It has already sanctioned 26 projects with a total funding of Rs 658 crore.

·      In the current year, skill training has so far been provided to 20,000 persons. Of these, 75 per cent have found placements. I will provide an additional Rs 500 crore to the National Skill Development Fund during the next year.

·      National celebrations of 150th Birth Anniversary of Gurudev Rabindranath Tagore will commence from May 7, 2011 in New Delhi.

·      Important events will be held in several countries in Europe, America and Asia. A series of events are also proposed to be organized under the aegis of joint India-Bangladesh Celebrations Committee. An international award with prize money of Rs 1 crore is being instituted for promoting values of Universal Brotherhood in the memory of Gurudev Rabindranath Tagore.

¨         Health

·      A step up the plan for allocations is made in 2011-12 by 20 per cent to Rs 26,760 crore.

·      The Rashtriya Swasthya Bima Yojana has emerged as an effective instrument for providing a basic health cover to poor and marginal workers. It is now being extended to MGNREGA beneficiaries, beedi workers and others. In 2011-12,

¨         Unorganised sector

·      Relaxation of  the exit norms whereby a subscriber under Swavalamban will be allowed exit at the age of 50 years instead of 60 years, or a minimum tenure of 20 years, whichever is later.

·      I also propose to extend the benefit of Government contribution from three to five years for all subscribers of Swavalamban who enroll during 2010-11 and 2011-12.

·      An estimated 20 lakh beneficiaries will join the scheme by March 2012.

·      Under the on-going Indira Gandhi National Old Age Pension Scheme for BPL beneficiaries, the eligibility for pension is proposed to be reduced from 65 years at present to 60 years.

·      Further, for those who are 80 years and above, the pension amount is being raised from Rs 200 at present to Rs 500 per month.

¨         Environment and Climate Change

·      Govt. to allocate Rs 200 crore from the National Clean Energy Fund to begin its implementation in 2011-12.

·      to allocate Rs 200 crore from the National Clean Energy Fund as Centre's contribution in 2011-12 for launching environmental remediation programmes.

·      A number of projects under the National Ganga River Basin Authority have been approved in 2010-11. This momentum will be further stepped up,

·      to provide a special allocation of Rs 200 crore for the clean-up of some important lakes and rivers other than the Ganga.

¨         Some Other Initiatives

·       In order to boost development in the North Eastern Region and Special Category States, the allocation for special assistance has been almost doubled to Rs 8,000 crore for 2011-12.

·      Out of this, Rs 5,400 crore has been allocated as untied Special Central Assistance.

·      The Government's special support to Jammu & Kashmir is anchored in Rs 28,000 crore Prime Minister's Reconstruction Plan.

·      In addition, for the current year, about Rs 8,000 crore has been provided for the State's development needs. A Task Force to assess infrastructure needs that can be addressed within a time horizon of 24 months for Ladakh and Jammu regions of the State has recommended projects amounting to Rs 416 crore and Rs 497 crore, respectively.

·      I am providing Rs 100 crore for Ladakh and Rs 150 crore for Jammu for these identified projects in 2011-12.

·      To give a boost to the development of backward regions, the allocation under the Backward Regions Grant Fund has been increased from Rs 7,300 crore to Rs 9,890 crore amounting to an increase of over 35 per cent.

·      To address problems related to Left Wing Extremism affected districts, an Integrated Action Plan (IAP) for 60 selected tribal and backward districts has been launched in December 2010. The scheme is being implemented with 100 per cent block grant of Rs 25 crore and Rs 30 crore per district during the years 2010-11 and 2011-12, respectively.

·       The allocated funds are placed at the disposal of the district level committees who in consultation with local MPs will have the flexibility to spend the amount on development schemes as per the local needs.

·      In recognition of the sacrifices made by Central Para-military Forces engaged in tackling Left Wing Extremism, a lump sum ex-gratia compensation of Rs 9 lakh for 100 per cent disability will now be granted to personnel of the Defence and para-military forces who are discharged from service on medical grounds on account of disability attributable to or aggravated in government service. For personnel with disability ranging from 20 to 99 per cent, a proportionate amount would be given.

·      In the Budget 2011-12, a provision of Rs 1,64,415 crore has been made for Defence services which include Rs 69,199 crore for capital expenditure. Needless to say, any further requirement for the country's defence would be met.

·      In order to speed up delivery of justice, the Plan provision for Department of Justice for 2011-12 has been increased three-fold to Rs 1,000 crore. The enhanced provision will help in building judicial infrastructure and the project on E-courts.

I now turn to some important measures being taken for improving governance.

¨         IT Initiatives

·      The backbone of an efficient tax administration is a robust IT infrastructure and its deployment for enhanced taxpayer services. Towards this objective, both the Central Boards of Direct Taxes (CBDT) and Excise and Customs (CBEC) have put in place the following measures:

- The on-line preparation and e-filing of income tax returns,

e-payment of taxes through 32 agency banks, ECS facility for electronic clearing of refunds directly in taxpayers' bank accounts and electronic filing of TDS returns are now available throughout the country. These measures have empowered taxpayers to meet their tax obligations without visiting an income tax office.

- The Centralized Processing Centre (CPC) at Bengaluru has increased its daily processing capacity from 20,000 to 1.5 lakh returns in 2010-11. This project has won a Gold Award for

e-Governance in 2011. Two more CPCs will become operational in Manesar and Pune by May 2011 and a fourth CPC will come up in Kolkata in 2011-12.

- With the completion of its IT Consolidation Project, CBEC can now centrally host its key applications in Customs, Central Excise and Service Tax. The Customs EDI system now covers 92 locations across the country. CBEC's e-Commerce portal ICEGATE, has also been conferred a Gold Award for e-Governance.

- The 'Sevottam' concept has been adopted by both Boards. The three pilot projects of Aaykar Seva Kendras (ASKs) under CBDT have come of age. CBDT will commission eight more such centres this year. In 2011-12, another fifty ASKs will be set up across the country. CBEC has also launched a similar initiative and four of their pilot projects have been commissioned.

- The electronic filing of Tax Deduction at Source (TDS) statements has stabilized. 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.

- CBDT will provide a separate web-based facility to enable a direct, stand-alone interface for taxpayers with the Income Tax Department so that they can report and track the resolution of their refunds and credit for prepaid taxes.

V. Budget Estimates 2011-12

¨         The Gross Tax Receipts are estimated at Rs 9,32,440 crore which is an increase of 24.9 per cent over the Budget Estimates for 2010-11. After devolution to States, the net tax to Centre in 2011-12 is Rs 6,64,457 crore. The Non Tax Revenue Receipts for 2011-12 are estimated at Rs 1,25,435 crore.

¨         The total expenditure proposed for 2011-12 is Rs 12,57,729 crore, which is an increase of 13.4 per cent over the Budget Estimates for 2010-11. The Plan Expenditure at Rs 4,41,547 crore marks an increase of 18.3 per cent and the Non Plan Expenditure at Rs 8,16,182 crore is an increase of 10.9 per cent over BE 2010-11. As 2011-12 is the last year of the Eleventh Plan, I am happy to share that Eleventh Plan expenditure in nominal terms is more than 100 per cent of the expenditure envisaged for the Plan period.

¨         The total plan and non-plan transfers of Rs 2,01,733 crore to States and UT Governments in 2011-12 have increased by 23 per cent over the Budget Estimates 2010-11. This includes grants of Rs 13,713 crore in 2011-12 to local bodies as per the recommendation of the Thirteenth Finance Commission.

¨         The fiscal deficit is reduced from 5.5 per cent to 5.1 per cent of the GDP for 2010-11. For 2011-12 and kept it at 4.6 per cent of GDP

¨         For 2010-11 as against a target of 4 per cent, the revenue deficit is estimated at 3.4 per cent of GDP.

¨         The fiscal deficit of 4.6 per cent of GDP in 2011-12 works out to Rs 4,12,817 crore. Taking into account the various other financing items for fiscal deficit, the net market borrowing of the Government in 2011-12 would be Rs 3.43 lakh crore. In addition, Rs 15,000 crore is proposed to be financed through

¨         Treasury Bills. Accordingly, the Central Government debt as a proportion of GDP is estimated at 44.2 per cent for 2011-12 as against 52.5 per cent recommended by the Thirteenth Finance Commission.

VI. Direct Taxes

¨         Basic exemption limit for the general category of individual taxpayers enhanced from Rs 1,60,000 to Rs 1,80,000 this year. This measure will provide a uniform tax relief of Rs 2,000 to every taxpayer of this category.

¨         Senior citizens deserve our special attention. For them, it is proposed

- to reduce the qualifying age, from 65 years to 60 years;

- to enhance the exemption limit from Rs 2,40,000 to Rs 2,50,000;

- To create a new category of Very Senior Citizens, eighty years and above, who will be eligible for a higher exemption limit of Rs 5,00,000.

¨         Surcharge on Domestic Companies reduced from 7.5 per cent to 5 per cent.

¨         The rate of Minimum Alternate Tax (MAT) increased from the current rate of 18 per cent to 18.5 per cent of book profits to keep the effective rate of the MAT at the same level.

¨         As a measure to ensure equal sharing of the corporate tax liability, I propose to levy MAT on developers of Special Economic Zones as well as units operating in SEZs.

¨         To attract foreign funds for financing of infrastructure,:

- create special vehicles in the form of notified infrastructure debt funds;

- subject interest payment on the borrowings of these funds to a reduced withholding tax rate of 5 per cent instead of the current rate of 20 per cent;

- exempt the income of the fund from tax.

¨         An additional deduction of Rs 20,000 for investment in long-term infrastructure bonds to extend for one more year.

¨         A lower rate of 15 per cent tax on dividends received by an Indian company from its foreign subsidiary is proposes.

¨         Enhanced the weighted deduction on payments made to National Laboratories, universities and Institutes of technology, for scientific research to 200 per cent

VII. Indirect Taxes

¨         Govt. proposed to maintain the standard rate of Central excise duty at 10 per cent.

¨         Withdraw the exemption on 130 of  items that are mainly in the nature of consumer goods.

¨         A nominal Central Excise duty of 1 per cent is being imposed on the 130 items that are entering the tax net. No Cenvat credit would be available for the manufacture of these items.

¨         Basic food and fuel would continue to be exempt. This levy would also not apply to precious metals and stones. In case of jewellery and articles of gold, silver and precious metals, the levy would apply only to goods sold under a brand name.

¨         Proposed to enhance the lower rate of Central Excise duty from 4 per cent to 5 per cent.

¨         Ready-made garments and made-ups of textiles are currently under an optional excise duty regime. A manufacturer is required to pay duty only if he wishes to avail of Cenvat credit

¨         Convert the optional levy into a mandatory levy at a unified rate of 10 per cent on branded garments

¨         The peak rate of customs duty has been reduced over the years and has settled at 10 per cent. In view of continued uncertainties in the global economy, I propose to hold the peak rate at its current level.

¨         However, some rationalization is being done to unify three rates namely, 2 per cent, 2.5 per cent and 3 per cent at the middle level of 2.5 per cent.

¨         Agriculture & Related Sectors

·      Govt. proposes to enlarge the scope of these exemptions by:

- extending full exemption from excise duty to air-conditioning equipment and refrigeration panels for cold chain infrastructure;

- including conveyor belts in the full exemption from excise duty to equipment used in cold storages, mandis and warehouses.

·      A concessional rate of basic customs duty of 5 per cent was provided to specified agricultural machinery in the last budget. This duty is being reduced further to 2.5 per cent and the concession is also being extended to parts of such machinery to encourage their domestic production.

·      The basic customs duty on micro-irrigation equipment from 7.5 per cent to 5 per cent.

·      De-oiled rice bran cake constitutes an important ingredient of cattle feed and its improved availability would have a positive impact on milk production. I propose to provide full exemption from basic customs duty to this item. Simultaneously, an export duty of 10 per cent would be levied to discourage its export.

¨         Manufacturing Sector

·      For the manufacturing sector, my proposals seek to encourage domestic value addition vis-a-vis imports, to remove duty inversions and anomalies and to provide a level playing field to the domestic industry. The major proposals are to:

- reduce basic customs duty on raw silk (not thrown) from 30 to 5 per cent;

- reduce basic customs duty from 5 per cent to 2.5 per cent on certain textile intermediates and inputs for chemicals, ferro-alloys and paper;

- reduce basic customs duty on certain specified inputs for manufacture of certain technical fibre and yarn from 7.5 per cent to 5 per cent;

- fully exempt stainless steel scrap from basic customs duty;

- reduce import duties on specified raw material for the manufacture of syringes and needles to 5 per cent basic and 4 per cent CVD;

- extend the concession available to parts, components and accessories for manufacture of mobile handsets till 31st March, 2012 and to include few more items in its ambit;

- expand the raw material list for manufacture of specified electronic components that are fully exempt from basic customs duty;

- reduce excise duty (and hence CVD) on parts of ink-jet and laser-jet printers from 10 per cent to 5 per cent.

·      The rate of export duty for all types of iron ore and unify is increased to stood at 20 per cent ad valorem. Iron ore is also exported in a value-added, pelletized form. Full exemption from export duty is being provided to iron ore pellets to encourage the value addition process for fines.

·      The basic customs duty on petcoke and gypsum is proposed to be reduced to 2.5

·      Batteries imported by  manufacturers for the replacement market. Will be exempt from Duty.

·      Excise duty of 10 per cent will be levied on vehicles based on Fuel cell or Hydrogen cell technology

·       Some of the other relief measures are:

- Reduction in basic customs duty on raw pistachio from 30 per cent to 10 per cent;

- Reduction in basic customs duty on bamboo for agarbatti from 30 per cent to 10 per cent;

- Reduction in basic customs duty on lactose for the manufacture of homeopathic medicines from 25 per cent to 10 per cent; and

- Reduction in central excise duty on sanitary napkins, baby and adult diapers from 10 per cent to 1 per cent.

VIII. Service Tax

¨         The Rate of Service Tax will remain at 10%

¨         Bringing in a few new services into the tax net to expand the tax base while ensuring that the impact is predominantly on sections of society that have the ability to pay;

- Suitably expanding or rationalizing the scope of existing service categories;

- Rationalizing certain provisions relating to import of services and valuation;

- Modifying provisions of the Cenvat Credit scheme to achieve a more realistic balance between input credits and output tax and harmonising the provisions of the scheme across goods and services;

- Rationalizing penal provisions to reinforce the message that honest taxpayers would be facilitated and deviants would be dealt with severely; and

- Adoption of Point of Taxation rules for services which would shift the basis for tax collection from "cash" towards "accrual" basis as with Central Excise duty.

¨         :Following New services are brought under the purview of Service Tax

- Hotel accommodation, in excess of declared tariff of Rs 1,000 per day with an abatement of 50 per cent so that the effective burden is only 5 per cent of the amount charged;

- Service provided by air-conditioned restaurants that have license to serve liquor, by giving an abatement of 70 per cent. Thus, the effective burden will be 3 per cent of the bill.

 - all services provided by hospitals with 25 or more beds that have the facility of central air-conditioning. with an abatement of 50 per cent so that the actual burden is kept at 5 per cent of the value of service.

¨          Service Tax on on air travel increased by Rs 50 in the case of domestic air travel and Rs 250 on international journeys by economy class. It is also proposed to tax travel by higher classes on domestic sector at the standard rate of 10 per cent to bring it on par with journeys by higher classes on international air travel.

¨         Services provided by life insurance companies in the area of investment are also proposed to be brought into tax net on the same lines as ULIPs

¨         It is proposed to free all individual and sole proprietor taxpayers with a turnover upto Rs 60 lakh from the formalities of audit. It is also intended to give all assessees with turnover upto Rs 60 lakh, the benefit of 3 percentage points in interest on delayed payment.