Friday 26th May 2017
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Servicing through Negative Listing

Cover Story


Budget making is a seesaw game. One may not expect swings. Finance Minister’s task is to balance the cost of benefits provided by corresponding generation of revenues. Pranab Mukherjee has done this accounting job, balancing income with expenses, and assets with liabilities, well. He has equated his job to that of a medical practitioner administering medicine which may be painful in short run. He has quoted Hamlet, the Prince of Denmark, in Shakespeare’s immortal words, “I must be cruel only to be kind.”

So our kind and cruel Finance Minister brought for us a potion which is distasteful in the present, and assures that it will serve in the future. This is a test of patience of the patients!


The tangible and obvious benefits provided in the Budget 2012-13 are in direct taxes realm. 

The exemption limit for the general category of individual taxpayers has been enhanced from `1,80,000 to `2,00,000. This measure will provide tax relief up to `2,000 to every taxpayer of this category. Further the upper limit of the 20 per cent tax slab has been increased from `8 lakh to `10 lakh. The proposed personal income tax slabs are:

Income up to `2 lakh Nil

Income above `2 lakh and up to `5 lakh 10 per cent

Income above `5 lakh and up to `10 lakh 20 per cent

Income above `10 lakh 30 per cent

Further the budget proposal allows individual taxpayers, a deduction of up to `10,000 for interest from savings bank accounts. This would help a large number of small taxpayers with salary incomes up to `5 lakh and interest from savings bank accounts up to `10,000, as they would not be required to file income tax returns. This particular provision has been incorporated to correct a malaise in the last year’s provision where individual taxpayers having income only from salary were given the option of not filing income tax return. Even single rupee credit as interest income would have made the provision meaningless.

There are other attractive, although marginal benefits in the direct taxation including the following:

Deduction of up to `5,000 for preventive health check-up;

Exemption from the payment of advance tax for senior citizens who have no business income; and

The increase of turnover limit for Small and Medium Sized Enterprises for compulsory tax audit of accounts as well as for presumptive taxation from `60 lakh to `1 crore.

However, everything is not bright in direct taxation. There are other provisions which amount to tightening the belt, if not the noose. Such as:

The extension of Alternate Minimum Tax (AMT) on all persons other than companies, claiming profit linked deductions;

Introduction of compulsory reporting requirement in case of assets held abroad.

Allowing for reopening of assessment up to 16 years in relation to assets held abroad.

Tax collection at source on purchase in cash of bullion or jewellery in excess of `2 lakh.

Tax deduction at source on transfer of immovable property (other than and) above a specified threshold.

These proposals on Direct Taxes are estimated to result in a net revenue loss of `4500 crore for the year.


This is the 18th year of service tax. Finance Minister (FM) has pronounced it as the penultimate year of attaining adulthood! It may be recalled that central excise duty on produced items is levied at the authority of a provision in the Constitution of India. Our lawmakers had no idea that service too would become such a significant item of our revenue as it is today. So when the government initially ushered in the concept of service tax under the banner of central excise duty, it had to face a lot of litigations. It appears that the matter now stands settled and there is no impediment in the path of the government to extract revenue from this source as much as it needs.

The services which are subjected to the levy of service tax have been increasing every year and now this budget has ushered in the concept of a negative list. This comprises 17 services on which service tax is not levied. Everything else save a small list of exempted sectors are chargeable. Thus now there is no need of spelling out the services. Every service is subject to service tax if it is not in the small negative list or it is done by the exempted sector.

The negative list includes all services provided by the government or local authorities, except a few specified services where they compete with the private sector. The list also includes pre-school and school education, recognised education at higher levels and approved vocational education, renting of residential dwellings, entertainment and amusement services and a large part of public transportation including inland waterways, urban railways and metered cabs, services required for cultivation, breeding, production, processing or marketing up to the stage the produce is sold in primary markets.

The exempted sectors include health care, services provided by charities, religious persons, sportspersons, performing artists in folk and classical arts, individual advocates providing services to non-business entities, independent journalists, services by way of animal care or car parking, the services of business facilitators and correspondents to banks and insurance companies, and construction services relating to specified infrastructure.

In addition to making service tax net almost all-inclusive the budget proposal has increased it from 10% to 12%. Adding salt to the wound.

These proposals for service tax are expected to yield an additional revenue of `18,660 crore. If this estimate is compared with the net revenue loss of `4500 crore for the year from the benefits of direct taxes provided, as noted above, the disparity is obvious. The budget takes much more than it gives – more than 400 per cent! The benefit goes to the pockets of taxpayers and the additional revenue too comes from the same pockets. The poor taxpayer, the aam admi, is always at the receiving end.

The FM in the budget speech said that the share of services in GDP is 59 per cent. He provided this information in justification of the levies proposed saying that the proposed increase of service tax “is not too harsh.” In other words, this means that this sector can yield more and the common man should be ready to face harsher measures in coming years.


A noteworthy feature of the budget proposals is the reliance on External Commercial Borrowings (ECB) with regard to various schemes as under.

ECB to part finance Rupee debt of existing power project;

ECB for capital expenditure on the maintenance and operations of toll systems for roads and highways so long as they are a part of the original project;

ECB for low cost affordable housing projects; and

ECB for working capital requirements of the airline industry for a period of one year, subject to a total ceiling of US Dollar 1 billion.

It may be noted that in addition to permitting ECB for working capital need of domestic aviation industry a proposal to allow foreign airlines to participate up to 49 per cent in the equity of an air transport undertaking engaged in operation of scheduled and non-scheduled air transport services is under active consideration of the Government.

In this regard the information by the FM in his budget speech with regard to opening up our retail sector to foreign capital through Foreign Direct Investment (FDI) may further be noted. “FDI in single brand and in cash and carry wholesale trade is permitted to the extent of 100 per cent. The decision in respect of allowing FDI in multi-brand retail trade up to 51 per cent, subject to compliance with specified conditions, has been held in abeyance. Efforts are on to arrive at a broad based consensus in consultation with the State Governments.”


One may agree or disagree with the approach of the government with regard to specific decisions but the steadfastness and resolve to pursue certain decisions should be appreciated. Like FDI, the government is firm on its specific commitments despite the onslaught from different quarters. It is going ahead in its own way.

UID-AADHAAR: The enrolments into the Aadhaar system have crossed 20 crore and the Aadhaar numbers generated up to date have crossed 14 crore. The FM proposed to allocate adequate funds to complete another 40 crore enrolments starting from April 1, 2012. The Aadhaar platform is now ready to support the payments of MG-NREGA; old age, widow and disability pensions; and scholarships directly to the beneficiary accounts in selected areas. Various disbursements and government schemes would be linked with Aadhaar so that it becomes practically incumbent on all citizens to get enrolled. The Aadhaar platform has been successfully used to validate PDS ration cards in Jharkhand. Aadhaar enabled payments for various government schemes will be introduced in at least 50 selected districts within the next six months.

SUBSIDIES: The government intends to restrict the expenditure on Central subsidies to under 2 per cent of GDP in 2012-13. Over the next three years, it would be further brought down to 1.75 per cent of GDP. Instead of providing indirect subsidies the future approach is direct payment to the ultimate consumers. Various pilot projects are going to test the proposal before finally applying it on national level. For example, in the case of fertilisers direct transfer of subsidy to the retailer, and eventually to the farmer will be implemented in subsequent phases.

A pilot project for selling LPG at market price and reimbursement of subsidy directly into the beneficiary’s bank account is being conducted in Mysore. A similar pilot project on direct transfer of subsidy for kerosene into the bank accounts of beneficiaries has been initiated in Alwar district of Rajasthan.

 DIRECT TAX CODE (DTC): It could not be implemented this year. However, the government is committed that DTC should replace the archaic Income Tax Act. Parliamentary Standing Committee report on Mar 9, 2012 will be examined for taking steps for the enactment of DTC at the earliest.


The FM has admitted many failures and slowdown of industrial activity ascribing those to uncontrollable external factors like the sovereign debt crisis of Euro zone, political turmoil in the Middle East, and earthquake of Japan. However, he said, “in any cross-country comparison, India still remains among the front runners in economic growth.” He further said, “Today, India has global responsibilities of a kind that it did not have earlier. Our presence at the high table of global economic policymakers is a matter of some satisfaction.” It sounds good. But the big question is that the benefits are not percolating. Prices are rising on daily basis and food inflation is becoming unbearable. Despite these every budget is making bigger holes in the common man’s pocket.

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