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Chidambaram's Budget: What's in it?

February 28, 2006 17:26 IST

Finance Minister P Chidambram's Budget speech in Parliament today was more or less on expected lines. The finance minister announced a slew of sops and those dedicated to the agricultural sector stands out.

Small car manufacturers are also rejoicing with an announcement of a sizebale excise duty cut.

Although, the finance minister has spared individuals on the tax front, the service tax has gone up and the STT is proposed to increase by a whopping 25%. MAT rate has been increased from 7.5% to 10% and credit period has been increased to seven years.

In the Auto sector, Chidambaram has given special incentive to small car manufacturers by halving excise duty to 16%.

A quick look at the 2006-2007 Budget proposals:

Investment

  • Investment rate up from 25.3% in FY03 to 30.1% in FY05
  • Equity support of Rs10,901 crore to PSUs and and Rs 2,789 crore via loans in 2006-07

Agriculture

  • Agricultural growth is back at 2.1%
  • Non-food credit growth is at over 2.5%
  • Foodgrain output is at 209.5 MT
  • Farm credit to double in three years
  • Rajiv Gandhi drinking water plan gets a hike
  • Rs 944 crore to be privided for irrigation under the Bharat Nirman Project.
  • Relief to the farmers who have availed of crop loans from scheduled commercial banks. Accordingly, an amount equal to 2% points of the borrowers interest liability on the principle amount up to Rs 1 lakh will be credited to her/his bank account before March 31 2006. A sum of Rs 1,700 crore provided for this purpose.
  • To ensure that farmer receives short-term credit at 7%. With an upper limit of Rs 3 lakh on the principle amount

Manufacturing

  • Manufacturing sector growth seen at 9.4% in FY07
  • Grant to Textile Upgrade Fund upped from Rs 435 cr to Rs 535 cr
  • To promote India as a semiconductor manufacturing hub

Infrastructure

  • Allocation to National Highway Plan up to Rs 9,945 cr from Rs 9,320 cr
  • 96% of Golden Quadilateral to be completed by June this year.
  • The entire project will be completed by end of 2008.
  • To raise power generation capacity by 15,000 MW by March 2005
  • Indian infrastructure investment company to be set up
  • Telecommunication: 250 million new connections proposed
  • Indian Telegraph Act will be amended

Financial Sector

  • FII investment in G-secs upped to $2 billion from $1.7 billion
  • FII investment limit in corporate bonds upped from $0.5 billion to $1.5 billion
  • Mutual funds to be allowed to invest $1bn in Overseas Exchange Rated Fund
  • To remove 10% foreign investment cap for Mutual Funds
  • Electronic bond trading net extended to mutual funds, pension, provident funds

Education

  • University of Calcutta, University of Mumbai, and University of Madras to get grant of Rs 100 crore each. Punjab Agriculture University, Ludihana will get a grant of Rs 100 cr.
  • Rs 97 crore will be granted for upgrading the ITIs
  • Allocation for Sarva Siksha Abhiyan stands at Rs 10,041 crore.

Indirect Tax

  • Customs: Customs duty peak reduced from 15% to 12.5%
  • Duty on Naphtha reduced to nil
  • Duties on anti AIDS and anti-cancer reduced from 10% to 5%
  • Excise duty on small cars and aerated drinks reduced to 16% from 24%
  • Duty on PVC, LDP reduced from 10% to 5%
  • Duty on man-made yarn reduced to 8% from 16%
  • Countervailing duty of 4% on most imports
  • Customs duty on vanaspati raised to 18%
  • 8% excise duty on packaged software
  • Excise duty on instant food cut to 8%
  • Excise duty on cigarettes upped by 5%
  • DVD, flash, combo drives exempted from excise duty
  • Excise duty on footwear reduced to 8%

Service Tax

  • Increased from 10% to 12%.
  • ATM Operations, Registrar, Sponsorship of events brought under service tax net

Direct Tax

  • No new tax imposed
  • No change in personal or corporate income tax structure
  • STT raised by 25% across the board
  • 1/6 scheme of filing tax returns abolished

FBT

  • FBT on tour & travel reduced to be 5% from 20%
  • Changes in computation of FBT
  • Brand endorsement excluded

Other Proposals

  • Defence allocation up from Rs 83,000 crore to 89000 crore in 2006-07
  • Govt to spend Rs 11,700 cr on rural employment in FY06
  • Plan allocation for shipping up 37% at Rs 3,500 crore
  • Expert body to be set up for gems and jewellery sector
  • Expect investment of Rs 22,000 cr in refining over next few years
  • 5% customs duty imposed on iron, steel melting scrap
  • LPG included in list of declared goods under CST Act
  • To provide Rs 3,000 cr as VAT compensation to states


Complete Coverage: Budget 2006 - 2007

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