Analysis of Myths,expectation and realities - Pre Budget 2011

CA SUDHIR HALAKHANDI , Last updated: 27 February 2011
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Now very few hours are left for presentation of Budget-2011 and first time in recent years the budget is being presented with very low expectations from all the concerned sectors. Lot of myths have been created in the form of DTC and GST and all the expectations are merged with these two so called and much awaited tax reforms in the India Taxation history hence nothing has been left to expect from Budget-2011. Let us have a close look at the myths, expectations and realities with respect to Budget-2011.

1.DIRECT TAX CODE

Direct tax code will take place of direct tax laws from 01-04-2012 hence it will be applicable w.e.f. 01-04-2012. See the present Income tax Act is concerned if any provision is applicable w.e.f. 01-04-2012 then it will cover the financial year 2011-12 but in the scheme of DTC the difference in previous year and assessment will be vanished hence first financial year under DTC will be started from 01-04-2012.

Since all the expected and required reforms have been merged in the DTC or what is left will also be included at the time of final enactment hence this year there is no expectation of major change except one or two minor and procedural changes at present.

In case of Individual taxation limit there may be upward change of 10000 or 20000 but there is no expectation on change in tax rates There may be a relaxation to the salary employees to file the ITR.

Here a serious question is – Why not DTC from 01-04-2011? If the fate of DTC (in which Government will loose substantial revenue in tune of Rs. 50000 crores) is tied with GST (in which Government is expecting a substantial hike in revenue) then the expected date of introduction of DTC will also be jeopardized if there will be any hurdle in introduction of GST on 01-04-2012.

2. GOODS AND SERVICE TAX

There is still a myth that we are being brought under single indirect tax regime in the form of GST and it will solve all the problems of trade and industry and the only hurdle is opposition ruled states. The fact is that there is no question of a “ SINGLE CENTRAL TAX” and what is agreed between the states and centre is a dual taxation in which both centre and states will tax a single transaction sale and supply of Goods and provision of service. After long deliberation both centre and states are agree on lot of matters connected with the GST but still they are not agree on Draft of constitutional amendment essential for introduction of GST.

Practically GST cannot be implemented phase wise hence agreement with states is essential which is still missing but If you read about expectations from Budget, you will find everywhere that, even experts are hoping from FM to declare something concrete on GST but in my opinion FM will narrate his and his Government’s serious concern about intention to introduce and implement GST but……… then he will give us a new date say 01-04-2012 as for introduction of GST with all his good wishes to trade and Industry .

3. SERVICE TAX AND CENTRAL EXCISE

Since the final date of introduction of GST is still a mystery but the combined rate of tax under GST as recently agreed between centre and states is 16% so we may see an upward revision of service tax rate from 10% to 12%. More services will be brought under the net of service tax. The same thing can be said with respect to Central Excise also.

Though there may be a pressure on FM to maintain the rate of Service Tax and central Excise to curb the effect of ever increasing inflation.

4. FOOD SUBSIDY

The Food subsidy bill is increasing day by day and now it is touching around Rs. 75000 crores a clear increase of 27% and this is very dangerous trend to the health of India Economy. There should be 5 to 7% reduction in this head is expected for better health of the economy but see how the FM will deal this front because it is very sensitive field.

5. BLACK MONEY ISSUE

Taxing the black money is a big issue before the FM and certainly this issue has a dimension of morality which will restrict the FM to take a very soft course of action in this respect. The question of financial scandals and corruption in day to day life is also connected with it. Taxing the money in foreign banks is also not an easy issue.

In my opinion FM will declare some future plans in this respect.

There are the major fields but still the financial scandals on various fields, the rising prices of oil and petroleum products, high rate of inflation will be major hurdle in clear thinking of law makers. The overall situation is too confusing and complex hence the expectation from the Finance Minister are too low and he may take the benefit of this situation to introduce some innovative ideas of solving the economic crises .

Let us see what is there in the FM’s kitty to beat all these myths, expectations and realities?

CA SUDHIR HALAKAHNDI-

HALAKHANDI AND COMPAMY

LAXMI MARKET

BEAWAR-305901(RAJ)

e-MAIL- sudhir@halakhandi.com

Visit me:- www.halakhandi.com