Budget Expectations ?

[K.Karthik Raja]

February 22, 2008

The B-Day is nearing. Next Friday, Finance Minister P Chidambaram will
table his seventh Budget in Parliament. While this will be his first
Budget on February 29 (all his other six Budgets were presented on
February 28), it will be the last full Budget to be presented by the
Union government before India goes to polls in May 2009.
Interestingly most of the budgets presented on February 29 are
remembered for good policies and initiatives. Will PC too deliver on
the same lines to keep the middle-class voters happy?

As you wait anxiously to know what the finance minister has in store
for you, let's take a look at what the Budget is likely to offer to
you.

1. Relief for income tax payers

Income tax payers are likely to get 'major' relief in the Budget as
the government prepares
itself to please the middle class in the election year. Finance
Minister P Chidambaram can give a marginal, but visible, relief to
personal income tax assessees this year, as tax collections have
improved substantially over the past three years.

There is significant pressure on Chidambaram to reduce the effective
rates and the income threshold limit for an income tax payer could be
raised from Rs 1,10,000 to Rs 1,25,000 or Rs 1,30,000. Experts feel,
this being the lection year Budget, Chidambarm will most likely be
tempted to woo the voters by offering some tax sops.

An announcement on the new income tax code is also expected in the
Budget. The code is aimed at simplifying tax laws.

And, yes, companies could see some modification in the Fringe Benefit
Tax.

2. AC rail fares might be cut
The Railway Budget to be presented on February 26 is also likely to be
'people-friendly' and may make train travel more comfortable by
upgrading several amenities.

A hike in passenger fares and freight rates is unlikely. In fact, all
indications are that AC 2 -tier and AC 3-tier fares might be lowered
so as to ward off the challenge posed by low-cost airlines to the
railways.

Railway Minister Lalu Yadav has not hiked passenger fares during the
last four years and his 5th budget is also likely to bring cheer to
ordinary passengers. Lalu has been successful in turning around the
Railways without hiking passenger fares or freight rates.

In last year's Budget, a token reduction of Re 1 per passenger for
second class travel in non- suburban ordinary passenger and non-
superfast mail and express trains was introduced. There could be a
minor reduction for this category.

Bonanza for Mumbai? Mumbaikars, who jostle for a foothold while
commuting to offices in the crowded local trains, are likely to get
some relief. In order to decongest the city's crowded local train
network, the government is expected to announce the second phase of
the Mumbai Urban Transport Project (MUTP) at an estimated outlay of Rs
4,510 crore (Rs 45.1 billion) in this year's Railway Budget.

3. Good news for home buyers, builders?
The real estate sector is likely to see more action this year. This
Budget may bring some good news for housing project developers. In a
bid to curb the slowdown in the housing sector, Chidambaram may
consider extending the sunset clause for housing projects, which is
ending on March 31, 2008.

Under Section 80 IB of the Income Tax Act 1961, profits from housing
projects, with a minimum built-up area of 1,000 square feet in cities
and 1,500 square feet at any other place, are exempted from tax.

Chidambaram has already urged banks to reduce interest rates to make
housing loans affordable for more people.

The other major sunset clauses that are due to expire in the coming
Budget are related to
Software Technology Parks of India, Export Oriented Units and
Industrial Parks. STPIs and EoUs enjoy tax holiday till March 31,
2009. If industrial parks are set up by March 2009, they could enjoy
income tax exemption for 10 years.

4.TVs, music systems may cost less

If you want to buy a high end music system, a plasma TV, a large
refrigerator or an air-
conditioner, it would perhaps do you well to wait till the Budget, for
the finance minister is most likely to cut excise duty on some of
these goods to boost consumer spending.
The finance minister has hinted that he might unveil a fiscal package
to boost consumption. This, coupled with lower interest rates and low
taxes, will mean more money in your hands to spend and boost the
manufacturing and consumer goods sectors.

Also, Chidambaram has already requested PSU banks to make more loans
available to people for white goods and houses.

There is no clarity on whether the finance minister will make cars and
two-wheelers more
affordable. However, indications are that he would certainly infuse
more funds into building better infrastructure for the country. So at
least you can expect better roads to drive on ,perhaps, better lighted
ones too.


5.Senior citizens might rejoice

In a welcome move, senior citizens who lease their property on rent
may see some relief. The government has plans to exempt tax on rental
income for senior citizens. Now, all age groups have a tax exemption
of 30 per cent on rental income.

The National Housing and Habitat Policy also supports a hike in tax
exemption limit for rental income. The policy was cleared by the
Cabinet in November. If the proposal is passed in the Budget, millions
of unoccupied houses will be open for people seeking rental
accommodation.

There are also plans to hike the tax exemption limit from 30 per cent
to 50 per cent for all
rental earnings.


6.Boost to the farm sector seen

The agriculture sector which forms the core of the economy will be the
government's top
priority. The government plans to achieve a growth of 4 per cent from
the agriculture sector, up from the projected 2.6 per cent in 2007-08.
Several measures are in the offing.

Income generated from agricultural advances by state cooperative banks
and district central cooperative banks is likely to be exempted from
tax from 2008-09.

The finance ministry may also promote measures to consolidate
fragmented land holdings for boosting agricultural growth.

Companies may be allowed to invest in contract farming to push the
growth of agriculture.

7. Aviation, pilot training schools to soar?

India's booming aviation sector faces a huge pilot shortage. It has
also become a very lucrative career with airlines planning major
expansion in domestic and international travel routes.

However, pilot training schools are exiting the country due to high
cost of aviation fuel. This Budget is likely to bring good news for
training schools and pilots as the finance ministry may cut duties on
the fuel used by trainer jets called avgas. Currently, duties on the
avgas are the same as that of the aviation turbine fuel. With the
waiver of duties, the fuel is likely to become much cheaper, reducing
operational costs for these schools.

If the duty cuts come into effect, these training schools can bring
down operations costs and in turn offer training at lower fees
bringing cheer to aspiring pilots.


8.Taxi and bus fleet owners under tax net?

Taxi and fleet owners and contractors providing raw materials,
electrical work and furniture in civil construction projects are
likely to come under the presumptive income tax net from 2008-09.

An announcement on this is likely to be made in the Budget.
Presumptive tax is a procedure for computing profits of contractors
that supply labour for civil construction or are in the business of
plying, hiring and leasing transport for goods.



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