Monday, February 28 2005 15:08 Hrs (IST) - World Time -

New Delhi: In a major relief to tax payers, the Union Budget for 2005-06 today (Feb 28, 2005) raised income tax exemption limit to Rs one lakh, restructured tax slabs, lowered corporate tax to 30 per cent and slashed excise and customs duties on several commodities, including petrol and diesel.

Presenting the United Progressive Alliance (UPA) Government's second budget, Finance Minister P Chidambaram raised the exemption limit for women and senior citizens but slapped a 0.1 per cent tax on cash withdrawals of Rs 10,000 a day from banks as an "anti-black money" measure, but announced no amnesty scheme for evaders.

The securities transaction tax, introduced last year (2004), has been raised from 0.15 per cent to 0.2 per cent.

While excise duty on automobile and aerated water was left untouched at 24 per cent, he levied 10 per cent specific excise duty on cigarettes and tobacco products like gutka.

His direct proposals are to yield additional Rs 6,000 crore a year. The indirect proposals are broadly revenue neutral.

In a major overhaul of direct taxes and to provide stability in the medium term, Chidambaram raised the basic income tax exemption limit to Rs one lakh from the present Rs 50,000.

Income of Rs 1-1.5 lakh will now attract 10 per cent tax, Rs 1.5-2.5 lakh 20 per cent and above Rs 2.5 lakh 30 per cent. Further ten per cent surcharge will apply for incomes above Rs 10 lakh.

Given the higher exemption limits and scaling up of tax brackets, the Finance Minister removed the standard deduction and reduced the plethora of exemptions to six as a clean up operation.

In addition to basic exemption limits, the budget allows every income tax payer a consolidated limit of Rs one lakh for savings to be deducted from income before tax is calculated. It removed all sectoral caps, eliminated rebate under section 88 and abolished section 80L to reflect regime.

Besides Rs one lakh, the six deductions including interest paid on housing loans for self-occupied property, medical insurance premium and deductions in respect of loans on higher studies will continue to receive same tax treatment.

Taking note of many perquisites disguised as fringe benefits to escape tax, the budget now proposed 30 per cent Fringe Benefit Tax to be levied on employers where the benefits are usually enjoyed collectively and cannot be attributed to individual employers barring conveyance and subsidised canteen.

The present position of where the benefits fully attributable to employees and taxed in his hands will continue.

Chidambaram also modified one by six scheme for filing of income tax returns by removing mobile telephone and included payment of electricity bill of Rs 50,000 annually.

In indirect taxes, Chidambaram reduced the Central Value Added Tax (CENVAT) rate on polyester filament yarn, tyres and air conditioners from 24 to 16 per cent while motor cars and aerated drinks would have to wait for some more time to enjoy this benefit.

The peak customs rate duty has been brought down on non agricultural products from 20 per cent to 15 per cent to move towards East Asian levels while it will be nil on Liquefied Petroleum Gas (LPG) for domestic consumption and subsidised Kerosene. On both these products, excise duties will also be nil.

Chidambaram increased the cess on petrol and diesel by 50 paise per litre to raise additional resources to fund National Highway Development Project.

He also brought down the customs duty to 10 per cent on petrol and diesel.

Apart from the 10 per cent increase in specific duty on cigarettes, a 10 per cent surcharge on ad valorem duties on other tobacco products including gutka, chewing tobacco, snuff and pan masala has been levied. Bidis have been exempted.

Resources from these duties will go to finance the national rural health mission.

Chidambaram gave tax sops for capital goods and raw material imports, textile, leather, footwear, pharmaceuticals and IT industry while levying duties on mosaic tiles.