Debt on Net India - BUDGET 2003-04 HIGHLIGHTS

BUDGET 2003-04 HIGHLIGHTS

Following are the main points of the Union Budget for the financial year starting April 1, 2003 presented to parliament by Finance Minister Jaswant Singh today i.e. Friday, February 28, 2003:

PRIORITIES

Poverty eradication
Infrastructure development
Fiscal consolidation
Agriculture development
Enhancing manufacturing sector efficiency

GOVERNMENT FORECASTS, FINANCES

Budget deficit estimated at 5.6 percent of GDP.
Budget sets net government borrowings at Rs 107194 crore.
Fiscal consolidation through tax reform is one of the five priorities of the budget
Private and public interest should combine to improve country's infrastructure
Domestic economy well placed to withstand global uncertainty and that India's macroeconomic situation has never been better

FISCAL MEASURES

To continue proactive policy of pre-paying high-cost external debt.
To buy back high interest government bonds from banks.
States to swap all loans with interest rates of more than 13 percent by 2004-05. States' debt swap to cut interest costs by Rs 81000 crores.
Government to accelerate disinvestment in next fiscal year; objective of disinvestment stated to reorient the government priorities and focus - to move out of the business and concentrate on governance
Cash management in select high spending ministries for releasing budgetary allocations in a time-sliced manner
High cost external debt to World Bank and ADB prepaid
Buyback scheme of central government debt held by banks on voluntary basis

HEALTH MEASURES

Proposes development of universal health insurance scheme, oriented towards poorer sections of society, at cost of one rupee a day for individuals; 1.50 rupees a day for a family of five, two rupees a day for family of seven. Public sector insurance companies to take the lead
Rate of depreciation for life saving medical equipment increased to 40% from 25%
Customs duty of certain life saving equipment reduced to 5% from 25% with exemption from CVD
Exemptions for physically handicapped persons for persons with such dependents increased to Rs 50,000 and in case of severe handicap Rs 75,000

EDUCATION

Income-tax rebate of Rs 12,000 per child for education (upto 2 children)
Royalty income upto to Rs 3 lakh per annum from literary works exempt

RELIEF TO SENIOR CITIZENS

Life Insurance Corp (LIC) to launch pension scheme for senior citizens offering a guaranteed nine percent return that will be subsidized by the Union Government.
Senior citizens' exemption from income tax up to Rs 20,000; thus income up to Rs 153,000 will be tax exempt.
Income tax exemptions for corporations set up for welfare of ex-servicemen

INFRASTRUCTURE

Government and private sector partnership encouraged to improve infrastructure.
No guaranteed returns on infrastructure projects; funds to be released on achievement of physical milestones; risk to be shared by the Government
Initial government funding for new infrastructure projects to total Rs 2000 for year.
Government plans to invest in 48 new road projects.
Surcharge of 50 paise on petrol and diesel for funding road projects
Government plans to modernize Bombay and New Delhi airports to allow them to attain global standards. India to set up private airports in southern cities of Hyderabad and Bangalore.
Mega power project policy to be liberalized further; custom duty on specific equipment for high voltage transmission reduced to 5%from 25%
Custom duty exemptions for drinking water supply projects

INTEREST RATES, SMALL SAVINGS

Savings rate interest on public provident fund and small savings schemes cut by 100 basis points

Effect on bond markets

EQUITY MARKETS

Dividend income exempt in hands of the recipient. Corporate dividend distribution tax of 12.5% reintroduced.
Equity schemes of mutual funds to be exempt from dividend distribution tax for one year; UTI-I also similarly exempted.
Long-term (>one year) capital gains tax on shares abolished for fresh equity purchases (after March 1, 2003)
FDI caps in private banks raised to 74 percent from 49 percent for banking companies; limit of 10% on voting rights irrespective of number of shares held scrapped
Exemption from capital gains for demutualization of stock exchanges

AGRICULTURE

Encouragement to hi-tech horticulture and precision farming
Price stabilization fund of Rs 500 crs for tea, coffee and natural rubber growers.
Excise duty of Rs 1/ kg of tea converted to a cess for development, modernization of this sector
Benefits of low interest regime to pass on to agriculture/ SSI sector; SBI to announce a band of 2% below and above PLR for secured landings
Channeling agricultural credit through post office under consideration
Fertilizer prices increased Rs 10-12 per 50 kg bag

INDUSTRY

Concessions to IT industry to continue
Customs duty on number of components in IT and telecom reduced to 15-20%
Encouragement to M&A activity to software sector and banking
Tax holiday for R&D continues
Sops for bio-tech industries
Excise duty on garments reduced
Custom duty on textile machinery reduced
Hotels’ service tax exemption to continue; states encouraged to remove luxury tax.
SSI exemption removed for 75 industries

COMMODITIES

Issue price of urea fertilizer to be raised by Rs 12 per 50 kg bag

TAX PROPOSALS

To integrate services under tax net in 2003-04. Constitutional amendments to be carried out for this purpose
Plan to introduce value added tax (VAT) as a replacement to State Sales-tax from April 1, 2003 on track. Central government to compensate states 100 percent for VAT losses in first year; 75% in second year and 50% in third year

DIRECT TAX PROPOSALS

Tax concessions on housing interest loans continued
Five percent surcharge on personal income tax removed for assesses with income upto Rs 8.5 lakhs; for assesses with income above Rs 8.5 lakhs surcharge increased to 10%.
Five percent surcharge halved for corporate assesses
Standard deduction from salary increased to 40% of salary or Rs 30,000 whichever is less for income up to Rs 500,000 and Rs 20,000 in case income is more than Rs 500,000
Voluntary retirements scheme payment up to 500,000 rupees exempt from tax.
Several proposals for efficient and taxpayer friendly tax administration; scrutiny of only 2% of all tax returns on basis of computer generated, intelligent and random selection, outsourcing of non-core activities such as PAN no. allotment etc, direct electronic credit for refunds, reduction of number of forms, one page return for individual tax payers, electronic filing of returns, abolition of IT clearance certificates for foreign travel/ submission of tenders etc

CUSTOMS

India slashes customs duty on high-voltage transmission parts to 5 percent from 25 percent
Customs duty cut on capital goods for telecom, IT to 15 percent from 25 percent.
Customs duty for optic fiber cables cut to 20 percent from 25 percent
Customs duty on cut, polished gems and stones abolished.
Customs duty on gold cut to 100 rupees from 250 rupees per 10 GMS
Procedures to be simplified; lower transaction cost
Customs duty on LNG regasification plants cut to five percent from 25 percent.

EXCISE

3 tire duty structure to continue viz. 8, 16 and 24 percent
Excise duty on polyester filament yarn cut to 24 percent from 32 percent. Excise duty on all other filament yarns cut to 12 percent from 16 percent.
Excise duty on cars, tyres, air conditioners cut to 24 percent from 32 percent.
Excise duty on aerated drinks cut to 24 percent from 32 percent.
Excise duty on cement, clinker raised by 50 rupees a tonne.

SERVICE TAX

Service tax increased to 8%
20 new categories of services added
Facility for credit of service tax on input service extended across all services, even if the input and the final service fall under different categories