B U S I N E S S

Budget: It has something for everyone
Ludhiana
Finance Minister Jaswant Singh's maiden Budget has been widely acclaimed as a people-oriented Budget that will make your rupee go a long way. As the finance minister himself put it, the Budget will encourage spending and in the process set the markets and the economy rolling.

CHECKOUT

Duty cuts should be passed on to consumers
The months of January and February every year invariably see hectic lobbying by the industry for cuts in duties on various products. The reduction in duties will bring down prices , increase demand, spur the growth of the manufacturing sector, provide more job opportunities and of course raise government revenue, they will argue.

MARKET UPDATE

Sops to IT sector enliven market
The market has welcomed the pro-investor Budget from the Finance Minister, Mr Jaswant Singh. The 30-share Bombay Stock Exchange Sensex gained 6.32 to 3,283.66 on the Budget day. Nifty recorded a higher gain of 10.42 points to 1063.40 that day due to a rally in the tech stocks. Nifty has a higher weightage of tech stocks. Tax benefits for the IT sector triggered a rally in these stocks.

Budget: It has something for everyone
Naveen S. Garewal
Tribune News Service

Ludhiana
Finance Minister Jaswant Singh's maiden Budget has been widely acclaimed as a people-oriented Budget that will make your rupee go a long way. As the finance minister himself put it, the Budget will encourage spending and in the process set the markets and the economy rolling. Not withstanding the technical jargon of economic terms to describe various aspects of the Budget, most people have welcomed the budget. But what does the budget have for the common man? How will your personal financial position be affected by the rigmarole of numbers? Will the Budget really increase your spending power? These are some questions that need pondering to see if the euphoria is really justified.

“There is something in the Budget for everyone”, is the most repeated observation in the country today. This appears to be true. But from an individual’s point of view, this is more of a middle class or the upper middle class Budget rather than a budget for the very poor or the very rich. Translated in terms of hard cash, those who will gain the most out of the current Budget are people with gross incomes ranging between Rs 3 to 5 lakh. Experts have tried to interpret the fall out of the Budget on the financial health of a common man differently.

Doles for a consumer

The Budget for the common man spells shopping time with the prices of cars, computer, gold, soft drinks, jewellery liquor and several other commodities being reduced. You can even think of buying a house of your own with the Finance Minister allowing the deduction of up to Rs 1.5 lakh of paid interest from your taxable income.

While earlier the salaried had to walk a tight rope, in the same salary they would be able to buy additional consumer durables worth about Rs 10,000 as the standard deduction has been pegged at 40 per cent of salary or Rs 30,000 which ever is lower for an income of up to Rs 5 lakh. Anyone making Rs 5 lakh would be able to save Rs 6200 by way of lower taxes alone.

Good for the health

Just pay Re 1 if you are single, or add another 50 paise for up to five dependents per day to rid yourself of the tension of taking care of medical bills if you or your family members were to fall ill. A special health cover introduced in the current budget takes care of hospital bills up to Rs 30,000. Not only this, excise duty on life saving drugs has been reduced, which could translate in to a substantial saving for families of those on long-term medication. Besides lowering of excise duty on specialised medical equipment, will mean better health infrastructure and international quality medical treatment.

A senior physician, Dr G.S. Grewal says, “The government had taken upon itself the responsibility to provide healthcare to all, but over the years the government healthcare system has collapsed. With the proposed health cover in the current Budget and encouragement for the setting up of more and more private hospitals coupled with the drastic reduction in life saving equipment, the common man can look forward to better and cheaper medical care”.

Better education

You can now send your children to a better school. The Budget has provided for deduction of Rs 12,000 per child up to two children from your taxable income under Section 88 of the IT Act.

But at the same time a service tax on categories such as commercial vocational institutions, coaching centers, private tutorials, technical testing and analysis, internet café, etc are going to directly pinch the common man’s pocket by putting an additional burden on the parents of students who are studying in these institutes.

Savings

There is bad news for those who bank mainly on income accruing from their savings. The decrease on interest rates on Public Provident Fund (PPF), National Saving Certificates (NSCs), relief bonds, etc will fetch 1 per cent less interest. Elderly who depend mostly on the income from their savings would be the most effected from this. No wonder senior citizens want the Finance Minister to honour his commitment of having 1 per cent higher rate of interest for senior citizens. But as a share holder you do not pay any tax on dividend income, neither do you pay any capital gains tax if you hold your shares (bought after march 1, 2003) for a year.

Chartered Accountant, Mr Bhupinder Garg, however, feels that the even though the common man may feel discouraged to save, but eventually he will have to save in his own interest. “The reduction of interest rate on savings may not be good for individuals, but it is good in the interest of national economy, so every citizen will have to give a little for the financial growth of the nation”.

Another good news for those wanting to make their retired life secure is to buy the specially designed Varishtha Pension Bima Yojna, available to those over 55 years. The insurance cum pension scheme ensures a pension between Rs 250 to 2000 per month for the rest of your life.

Where to invest

The investment avenues available to the common man remains the Public Provident Fund, Kissan Vikas Patras, Insurance Policies, RBI Sovereign Bonds, Post Office deposits, Bank deposits, National Saving Certificates and equities and mutual funds. If you were to invest in mutual funds or equity, earlier you were taxed at a flat rate of 10 per cent. But now the dividend on listed equities acquired after March 1 is tax free. The same goes of Debt Mutual funds.

The post office deposits earlier offered a 9 per cent return; this would now be 8 per cent. The NSC that offered 9.2 per cent annual interest will now offer 8.2 per cent interest. Kissan Vikas Patras too will offer about 8.4 per cent annually. PPF interest will come down from 9 to 8 per cent and RBI sovereign bonds with a lock in period of 5 years would offer a 7 per cent annual interest. PPF still continues to offer maximum tax-free return. The banks, however, offer their own interest rates individually on deposits and hence are not affected by the budget. But most banks too are likely to reduce interest rates further from the existing 6 – 7 per cent.

Senior citizens

But at the same time the finance minister has kept the interest of the senior citizens in mind and the senior citizens are happy about it. Punjab Government Pensioners’ Association Additional General Secretary, Mr Yash Paul Ghai says, “Senior Citizens are a much happier lot as they can now have a tax free income of up to Rs 1.83 lakh. Besides the proposed pension scheme that ensures a 9 per cent return for senior citizens will now make the elderly financially independent, the accompanying health scheme will also take care of their health needs that are one of the most expensive areas of a pensioners life”.

Surely the Budget will go a long way in improving the infrastructure in the country, help in poverty eradication, tax reforms, boost health and housing sectors.

CHECKOUT

by Pushpa Girimaji

Duty cuts should be passed on to consumers

The months of January and February every year invariably see hectic lobbying by the industry for cuts in duties on various products. The reduction in duties will bring down prices , increase demand, spur the growth of the manufacturing sector, provide more job opportunities and of course raise government revenue, they will argue. Not many will disagree with them on this, certainly not consumers, who looks forward to such reduction in prices.

Then comes the announcement of duty cuts by the Finance Minister, bringing cheer to consumers. However, the joy is short lived because the reduction in prices brought about by the manufacturer do not match the expectations. This year too, the Finance Minister has announced duty cuts on a number of goods, including cars , air conditioners, personal computers, pre-recorded compact discs.

The other goods whose prices should fall include, pressure cookers, utensils, suitcases, toiletries, spectacles, toys, bicycles, kitchenware/tableware, biscuits, boiled sweets and soft drinks. Will it be any different this year? Will the manufacturers fully pass on the tax concessions to the end consumers? The answer lies in how far the Finance Ministry is prepared to go in ensuring that the end prices truly reflect the tax cuts.

This issue came up in a big way when the government began the process of economic liberalisation and then Finance Minister Manmohan Singh began to reduce duties on a number of goods, thereby bringing down their prices. Subsequently, following complaints from consumers that manufacturers were not passing on fully the duty cuts, the government sponsored a study by the Bureau of Industrial Costs and Prices. The results showed that several industries were appropriating part of the duty concessions.

However, beyond issuing a warning that failure to fully pass on the cuts may well result in the government withdrawing such concessions to the industry, the Finance Ministry did not do much on the issue. Subsequently, surveys conducted by consumer groups, too, showed that several industries failed to fully pass on the tax relief. And even where they did bring down the prices to match the duty concessions, it was found that immediately after, prices were raised on some pretext or the other.

Following this, consumer groups have been demanding, without success, a fool-proof mechanism to ensure that duty cuts are fully passed on to end consumers. Interestingly, many years ago, the Public Accounts Committee of Parliament had gone into this issue in depth and had recommended a concurrent mechanism to tackle industries that appropriated the duty cuts.

Under the Weights and Measures (Packaged Commodities) Rules, the Ministry of Consumer affairs has attempted to protect consumer interest to a certain extent by prohibiting retailers from charging any upward revision in duties on existing stocks and also charging a price higher than what the duty merits. Similarly, it provides for duty reductions to be made effective even on existing stocks.

The Rules say: “Where, after any commodity has been pre-packed for sale, any tax payable in relation to such commodity is revised, the retail dealer or any other person will not make any retail sale of such commodity at a price exceeding the revised retail sale price, communicated to him by the manufacturer, or where the manufacturer is not the packer, and it will be the duty of the manufacturer or packer as the case may be , to indicate by not less than two advertisements in one or more newspapers and also by circulation of notices to the dealers and to the Director in the Central Government and Controllers of Legal Metrology in the states and Union Territories, the revised prices of such packages but the difference between the price marked on the package and the revised price will not, in any case, be higher than the extent of increase in the tax or in the case of imposition of fresh tax higher than the fresh tax so imposed:

Provided further that the retail dealer or other person, will not charge such revised prices in relation to any package except those packages which bear marking indicating that they were pre-packed in the month in which such tax has been revised or fresh tax has been imposed or in the month immediately following the month aforesaid;

Provided also that where the revised prices are lower than the price marked on the package, the retail dealer or other person will not charge any price in excess of the revised price, irrespective of the month in which the commodity was pre-packed.”

Unfortunately, the benefits of the Rules are limited because there is no mechanism to calculate and determine whether the revised prices fully reflect the duty cuts. Secondly, the Rules apply to only those products that are required under the Rules to indicate the month and year of packaging. Thirdly, the rules are not enforced the way they should be.

Finance Minister Jaswant Singh repeatedly said that this was a citizen-centric Budget and that the entire budgetary exercise had been done keeping in mind the citizen as the focus. If the Finance Minister really means what he says, then he should ensure that the duty cuts are fully passed on to consumers.

MARKET UPDATE

Sops to IT sector enliven market
Lalit Batra

The market has welcomed the pro-investor Budget from the Finance Minister, Mr Jaswant Singh. The 30-share Bombay Stock Exchange Sensex gained 6.32 to 3,283.66 on the Budget day. Nifty recorded a higher gain of 10.42 points to 1063.40 that day due to a rally in the tech stocks. Nifty has a higher weightage of tech stocks. Tax benefits for the IT sector triggered a rally in these stocks.

A sharper rally could not materialise despite the market-friendly moves like abolition of dividend tax in the hands of investors and end of the long-term capital gains tax for investments made after March 1, 2003 as these had been factored already by the market. The volumes on the derivative segment touched all-time high as the focus shifted from the cash market to the derivative segment. The market is expected to record fresh gains next week following the feel-good factor generated by the Budget. The investor can buy into certain industries which are expected to do well in the coming months as below:

Tech sector

Despite the market’s fears that the government will reduce the tax benefits of the tech sector, the Finance Minister, announced full restoration (100 per cent) of the tax exemption for units in the software parks/free trade zones under Section 10A/10B. Last Budget had lowered 100 per cent deduction of export profits to units operating in trade zones to 90 per cent. The 10A/10B benefits are to be available to software units set up by 2010. The customs duty on capital goods for the IT and telecom sectors was also cut from 25 per cent to 15 per cent. The tech stocks zoomed up immediately on the announcement of these sops. Software bellwether Infosys Technologies jumped 4.2 per cent to Rs 4,284.15 and Satyam Computer climbed 3.3 per cent to Rs 225.60. Investors may buy Infosys on declines for long term gains.

Banking

Shares of the private sector banks surged when the FM announced a hike in the FDI limit in these banks to 74 per cent from 49 per cent, besides the proposal to remove the restriction of 10 per cent on voting rights. Whereas the public sector banks witnessed a setback following the Budget because the Budget failed to meet the market expectations of a hike in the foreign investment ceiling from the current 20 per cent level. The State Bank of India plunged 5.6 per cent to Rs 285.75, and ING Vysya Bank, a private sector bank, gained 10 per cent to Rs 279.40. HDFC Bank and ING Vysya Bank, are going to the cynosures of the banking sector in the coming days on the back of an announcement of an increase in the FDI limit.

Hotels

The Union Budget has bestowed some major incentives for the hospitality sector by the abolition of the luxury tax levied by the state government and continuation of the luxury tax exemption by the Centre. Almost all the hotel stocks were up following the announcement. Indian Hotels surged 8.6 per cent to Rs 207.10, Hotel Leela was up 20 per cent to Rs 17.40 and EIH gained 4.9 per cent to Rs 179.40. The hotel Industry is already on the recovery path and these measures should further boost it. Investors can lap up Indian hotels for medium term in this sector.

Forecast

On fundamentals: It is expected that there will be a stock specific activity in the market as investors lap up shares of companies that stand to benefit from the budgetary measures. Overall, the market may gain ground on the back of the feel-good factor generated by the Budget. Tech stocks may see a rally in the coming days following the sops given in the Budget.

On Technicals: The Budget day ended with huge volumes as traders tried to figure out the real impact of the Budget announcements. Technically the Budget does not seem to have given the market a new lease of life. Economy stocks that were flat prior to the new announcements in the hope of several sops got hammered after the event. In the short term, 3275 is the critical support, a break of which will lead to lower levels. On the other hand 3320 is the main resistance level above, which the Sensex can had higher.

Inflation dips

New Delhi, March 2
After maintaining an upward trend for four weeks in a row and recording highest 5.04 per cent in the current fiscal during the week ended February 8, inflation fell by 0.13 per cent at 4.91 per cent for the week ending February 15 mainly owing to lower prices of manufactured products.

However, the annual rate of inflation for the week was significantly higher by 3.40 per cent than 1.51 per cent during the corresponding period last year.

The Wholesale Price Index (base 1993-94) for the week rose by 0.1 per cent to touch 168.8 points from 168.7 for the previous week. UNI

TAX AND YOU

by R.N. Lakhotia

LIC agents

Q: I am getting pension after my retirement from Defence Department.

In addition to pension I earn commission due to agency work of LIC, Post Office, UTI and other Mutual Funds.

Under the existing Income Tax rules, an agent has to maintain detailed account for claiming deduction from commission income if the total commission income exceeds Rs 60,000. I am now 87 years old.

As per existing LIC Regulation, an LIC agent cannot give any share of his commission to his client although the actual practice may be different. In the case of commission earned against agency work of Post Office, UTI etc there is no such restriction as far as I know. It means that an agent can share such commission.

The provisions in the Income Tax Act are changed from time to time. I am not fully aware of the latest position about the commission earned by the agents. Kindly clarify the following points based on the latest rule position:

a Whether the senior citizen is exempted from maintaining detailed account even though his commission income exceeds Rs 60,000. If so, what is the procedure of claiming deductions from commission income.

b Whether the restriction on sharing the LIC commission still stands or there is any change in this regard?

c Confirm that the commission earned from the agency work of Post Office, UTI and other Mutual Funds can be shared with client and the amount so paid can be shown as expenses under the heading “Commission Paid” even though the client may not agree to give receipt for the amount paid to him.

—Shamsher Singh, Mohali

Ans: The position regarding taxation of income of the LIC agents is the same as in the past. Merely being a senior citizen there is no exemption of non-maintaining of books of account. The expenses incurred by the LIC agent are fully allowed as a deduction without any upper limit. In case there is no proof of payment, then there is no deduction.

House rent

Q: I would like to bring it to your kind notice that my father-in-law had gifted away a small house to my wife in November 1992. We reside in the same house now. My wife is a housewife and I pay her a house rent of Rs 3000 per month. I am working as a Lecturer in a Private College with an annual income of Approx 2 lakh. Can I take the Income Tax Rebate for house rent from my tax paid. If yes what are the necessary documents which I will have to submit along with my Income Tax Returns. My father-in-law has expired in 1995.

—Prof R.K. Bansal, Barnala

Ans: In case you receive House Rent Allowance from your employer only then you can claim deduction in respect of House Rent paid by you to your wife. Please obtain a rent receipt from your wife and submit it to your employer.

GRAPEVINE

Self goal

The whisper doing the rounds is that the stock trader who blew the whistle on a business journalist is unlikely to escape unscathed as SEBI is likely to zero in on some of his more recent stock transaction. Trouble ahead?

Buck passing

That the former Telecom Minister would not win a popularity poll among cell-phone operators is no secret, but the buzz is that even their customer care executives are attributing the hike in rentals to the doors of the former Minister. Passing the buck?

Air fares

The grapevine has it that yet another air-fare cut war is in the offing. With business volumes reacting positively to rate-cuts, the airlines have realised that volumes and not margins are the name of the game here from. Good news for flyers?