The Union Budget 2011-12, presented by the Finance Minister Shri Pranab Mukherjee in the Parliament on February 28, 2011 lacks a big picture and has not offered many reasons for the common man to rejoice. Except for the defining moment that brought tax changes, other recommendations are unlikely to do anything for the industry, the economy, and for the aam admi. Here is a look on goods and services that are likely to cost more and those which may become cheaper post budget.

Exemption Limit for Individual Tax Payers Raised

Personal income tax exemption limit for male tax payers has been enhanced from Rs.1, 60,000 to Rs.1, 80,000. This will save around Rs.2, 000 for all tax payers who fall under this category, besides moving closer to Direct Tax Code (DTC) rates. However most people felt it is hardly enough to adjust for inflation as the income gain from the move will be wholly offset by price increase in other essential items last year say onions.

Senior Citizens

Qualifying age for Senior Citizens has been reduced from 65 years to 60 years and exemption limit for Senior Citizens has been raised to Rs.2, 50,000 from Rs.2, 40,000. A new category of Very Senior Citizens, 80 years and above has been created who will be eligible for a higher exemption limit of Rs.5, 00,000.

Service Tax

Service tax rate has been kept at 10%. Hotel accommodation in excess of declared tariff of Rs 1,000 per day, service provided by A/C restaurants that have license to serve liquor, some category of hospitals, diagnostic tests, consultant doctors are the new services which have been brought under the service tax net.

The effective burden will be 3% of the bill in case of hotels and A/C restaurents. Service tax on air travel has been increased by Rs 50 for domestic travel and Rs 250 for international travel in economy class. Service tax will be 10% flat on air travel in higher classes.

The widened service tax on A/C restaurants means every meal out will be costlier as most restaurants serve liquor and are family gathering places. Services that will become dearer due to the budget proposals include treatment in air-conditioned private hospitals, meals at restaurants serving liquor, and hotels charging more than Rs 1,000 per room per day.

India Budget

The Budget has, however, made some items cheaper by reducing taxes

Eco-friendly hybrid vehicles
Sanitary napkins
Diapers
Imported medicines
Raw materials for syringe and needles
Homeopathic medicines
LED lights
Housing loans
Mobile sets
Mobile parts and accessories like hands free headphones
Refrigerators
Raw silk material
Paper
Laser printers
Steel
Soap
Incense sticks
Treatment for heart attacks

With the budget proposing changes in service tax band, following items will cost more

Medical bills - Treatment in air-conditioned private hospitals
PC/ Laptops
Branded garments/ apparel - They will attract 10 per cent excise duty
Air tickets
Eating out
Ready-to-eat food items
Legal services - Lawyer fees
Branded jewellery - They will attract 1 per cent excise duty
Toothpowder
Spectacles
Bicycles
Cement
Pens, Pencils, Stationary items
Cakes, pastries
Candies
Biscuits
Ice-cream
LIC premium
Sewing machines
Medical equipment
Holidaying in India
Visit to a nearby club

Impact on Sectors Post Budget

Effect on Medical Services - Verdict - Increase

All forms of payments - by individuals, insurance companies and business houses, for treatment in private hospitals with more that 25 beds and air conditioning facility will be put under the service tax net, thus resulting in an net increase in prices. The effective burden will be 5% service tax on all services provided by centrally air-conditioned clinical establishments with 25 beds. Vaccines, except those included in National Immunization Program, will also see an increase as they will attract a concession duty of 1% without CENVAT credit facility.

Items that will remain unchanged

Car prices to remain unchanged

Effect on Education - Verdict - Increase

Stationery items widely used by school children, text books will become costlier. Notebooks, exercise books, fountain pen ink, ball pen ink, geometry boxes, colour boxes and pencil sharpeners which were earlier exempted from excise duty will now attract one per cent levy. Educational text books will also become costlier as paper used in printing them will no longer be exempted from excise duty.

Food and Beverages - Verdict - Increase

Ready-to-eat food items, such as tomato ketchups, soups, 'mudis' (puffed rice), instant coffee and tea mixes, flavored milk, and supari may also become dearer as they will now attract higher excise duty. Ice cream may become dearer as the budget brings the category under the excise duty net with a concessional levy of 1%. Britannia may increase the prices of its products due to hike in excise duty.

Post budget, children might have to shell out more money to buy candies such as 'Alpenliebe', 'Buttercup', and 'Big Babol' as candymakers may phase out 50 paisa category with those of 1 Rs/ 2 Rs due to the hike in excise duty on confectioneries. An increase is imminent in the number of Rs one brands and the 50paise candies could get eliminated just as the 25 paise candies did in the past. The increase in the excise duty of sugar confectionery could lead to MRP price hikes or reduction in the size of the confectionery.

LED Lights/ Laser Printers - Verdict - Decrease

Excise duty has been reduced on energy-efficient LED bulb from 10% to 5%. Manufacturers are contemplating to reduce the entry-level prices of such lights to about Rs 450-500. Duty has also been deducted on printer parts, servicing inkjet and laser printers. The step could see a revision in prices of these consumer goods by printer and lighting companies with the lower prices for the end consumer.

However, no significant impact on acceptance of LED lights is anticipated since their prices are already 5-6 times higher than that of the CFL. The duty cut may bring down the prices but not to the levels which increase customer adoption. This cut may be of some use to high-income homes and enterprises.

Real Estate - Verdict Neutral

Investment-linked deduction given to those who develop affordable housing is a welcome move. Moving to housing loans, the proposed measure will liberalize the existing scheme of 1% interest subvention on housing loans by increasing the limit of housing loan up to Rs 15 lakh where the cost of the house is up to Rs 25 lakh, from the present limit of Rs 10 lakh where the cost of house is up to Rs 20 lakh. The existing housing loan limit will also see an increase from Rs 20 lakh to Rs 25 lakh for dwelling units under priority sector lending.

Following the hike in housing loan limit for interest subvention, low cost and affordable housing in non-metro regions will definitely get a boost. More real estate developers are expected to spot the opportunity of better cash inflows and execute additional low budget housing projects

Custom and Excise Duty - Verdict - Increase

Nominal one per cent central excise duty on 130 items entering the tax net. Basic food and fuel and precious stones, gold and silver jewelry will be exempted from the hike. Peak rate of customs duty will be maintained at 10 per cent. Basic customs duty on agricultural machinery will be reduced to 4.5 per cent from 5 per cent. Works of art will be exempt from customs when they are imported for exhibition held in state-run institutions and private institutions.

PC costs will go up on account of the 5% excise duty that has been imposed on major PC components. These components include microprocessors, DVD writers, CD writers, floppy disk drives and flash drives, all of which were previously exempted from excise duty. All these components together make up for 30-40 % of the cost of a PC.

Petrol, diesel prices - Verdict - Increase

Petrol and diesel prices may get hiked as the budget entailed no reduction in customs and excise duty to contain the rise in global crude oil prices. Budget 2011-12 has left customs duty on crude oil unchanged at 5 per cent and that on petrol and diesel at 7.5 per cent. Excise duty on petrol will remain at Rs 14.35 a litre and diesel at Rs 4.60 per litre. Oil firms had withheld raising petrol and diesel prices in anticipation of a cut in customs and excise duty in the Budget for 2011-12. In the absence of a duty cut, an increase in prices is the only option left to meet rise in cost of raw material (crude oil).

Age Limit for Indira Gandhi National Old Age Pension Scheme Reduced

Under the on-going Indira Gandhi National Old Age Pension Scheme for Below Poverty Line (BPL) beneficiaries, the eligibility for pension will now be reduced to 60 years from 65 years at present. The pension amount is also being raised from Rs.200 at present to Rs.500 per month for those who are 80 years and above. Measures to Provide Level Playing Field for Domestic Industry

Credit Flow to Farmers Raised

Banks have been asked to step up direct lending for agriculture and credit to small and marginal farmers. The existing interest subvention scheme of providing short term crop loans to farmers at 7% interest will be continued during 2011-12, apart from enhancing the additional subvention to 3%. Thus, the effective rate of interest for such farmers will be 4% per annum.

Exemptions Enlarged to Improve Storage and warehouse of Agricultural Produce

Full exemption from excise duty to air-conditioning equipment and refrigeration panels for cold chain infrastructure has been extended and conveyor belts have been included in the full exemption from excise duty to equipment used in cold storages, mandis and warehouses. Basic customs duty on the specified agricultural machinery has been reduced to 2.5 per cent from 5 per cent. The concession is also being extended to parts of such machinery to encourage domestic production.

Investment Linked Deduction Extended to Fertilizer Sector

The benefit of investment linked deduction has been extended to businesses engaged in the production of fertilizers. The rate of tax on dividends received by an Indian company from its foreign subsidiary has been lowered to 15 per cent for improving flow of such funds into India. Additional deduction of Rs.20, 000 for investment in long term infrastructure bonds has been extended for one more year.

E-Filing and E-Payment of Taxes

Tax initiatives such as e-filing and e-payment of taxes, 'Sevottam' by CBEC and CBDT, online facility for tax payers to track their refunds and credit for pre-paid taxes and augmentation of processing capacity are soon to follow. 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 will be now available across country. Efforts are being made to reduce the compliance burden of small tax payers by recommending a simplified return form called 'Sugam'. The small tax payers who fall within the scope of presumptive taxation can utilize the new simplified form Sugam.

Surcharge on Corporate Lowered to 5%

Surcharge on domestic companies has been reduced to 5 per cent from the present 7.5 per cent, continuing with the process of phasing out the surcharge. Rate of MAT has been increased from the current rate of 18 % to 18.5 % of book profits to keep the effective rate of the MAT unchanged. The Minimum Alternate Tax (MAT) will be levied on developers of Special Economic Zones as well as units operating in SEZs.

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Last Updated on : 04 March 2011