The Union Budget FY09 (The First Impression)

Hi Friends
Here are the few points which i would like to bring to everybodys attention about this years BUDGET>>>
ST Capital gains tax increase to overshadow fiscal gains
The increase in Short Term Capital Gains tax (STCG)and the indirect increase in
Securities Transaction Tax (STT) will disappoint the markets, in our view. On the
positive side, the Finance Minister has succeeded in more than meeting his fiscal
deficit targets and has forecast a fiscal deficit of only 2.5% of GDP for next year
(though we guess effects of Pay Commission will take it higher).
Payback time for stock markets
Given the strong gains in stock market, the Finance Minister has increased the
STCG from 10% to 15% which will likely disappoint the market slightly. While he
has not increased the STT, he is no longer allowing it as a rebate from the total
taxes but as a business expenditure. We believe this will increase the post-tax
impact of STT.
Waiver of farm loans – Government to compensate banks
The Finance Minister has announced a waiver and a one-time settlement of
agricultural loans that will lead to a write-off of loans upto Rs600 bn. While details are still not clear, the Government has said that they will compensate the banks fully for these write-offs. In some sense, this is a pre-election move and there are demerits of loan waiver on those repaying on time but it also helps in a more inclusive growth by greater allocation of resources towards the poor.
Autos – gain with excise duty cuts, personal tax cuts Autos will gain in the budget with a decrease in excise duty by 4% on small cars, 2-wheelers, buses and CVs. Also, helping autos would be lowering of personal taxes and the impact of the likely announcement of the Pay Commission impact.
ITC, cement – excise duty increases slightly negative
ITC has seen an increase in excise duty but since it is only on non-filter cigarettes
which are a smaller part of their turnover, the overall impact is marginally negative. Cement companies too are hit marginally by increased excise on bulk cement.
Holding companies gain - Double Dividend Taxation set-off
Holding companies can now claim set-off of dividend taxes paid on dividend
received by their subsidiaries. This should help companies like Jaiprakash which
have presently many SPVs (and in future helps companies like Gammon, L&T
etc) as well as finance companies like ICICI, HDFC.

Taxes and Duties
Custom Duties
􀂄 Peak customs duty to remain unchanged
􀂄 Customs duty on project imports reduced to 5% from 7.5%
􀂄 Custom duty on steel melting scrap and aluminum scrap reduced to nil from 5%
􀂄 Duty on convergence products down to 5% from 10%
􀂄 To levy 5% customs duty on naphtha imports by polymer units
Excise Duties
􀂄 General CENVAT reduced to 14% from 16%
􀂄 Excise duty on pharmaceutical sector cut to 8% from 16%
􀂄 Excise duty on small and hybrid cars cut to 12% from 16%; bus and chassis
duty cut to 10% from 16%
􀂄 2 wheeler and 3 wheeler excise duty cut to 12% from 16%
􀂄 Paper and products duty cut to 8% from 12%
􀂄 Abolishes 6% ad-valorem duty on petrol, diesel and replaced with specific
duty of Rs1.35 per litre
􀂄 Zero excise on wireless data cards and puffed rice from earlier 16%
􀂄 Special packaging material to attract 8% excise vs earlier 16%
􀂄 No excise on cold chain end use items with greater than 2t refrigeration capacity
􀂄 Packaged software excise duty increased to 12% from 8%
Service tax
􀂄 To introduce service tax on stock exchange/ commodity exchange/ clearing house services, customized software services
􀂄 Clarifies moneychanger, tour operators and lottery services to pay service tax
Direct taxes
􀂄 Income tax threshold increased to Rs1.5Lakh from Rs1.1Lakh. 10% income tax for Rs1.5-3Lakh, 20% for Rs3-5lakh and 30% for above Rs5lakh income slabs
􀂄 No change in corporate income tax scheme
􀂄 No change in surcharge
􀂄 Short term capital gains tax increased to 15% from 10%
􀂄 Banking cash transaction tax withdrawn
􀂄 Commodities transaction tax for futures, equal to STT, to be introduced
􀂄 A five year income tax holiday for two, three or four star hotels in UNESCO world heritage cities in India announced and completed between April 1, 2008 to March 31, 2013
􀂄 A five year income tax holiday for hospitals in tier 2/3 towns announced and
completed between April 1, 2008 to March 31, 2013
􀂄 Dividend distribution tax on dividend of subsidiaries to parent to be set off in
dividend distribution tax paid by parent company
􀂄 Tax to GDP ratio seen at 12.5%
Others
􀂄 Defense spending to go up by 10%
􀂄 Education spending to go up by 20%; 6,000 high quality schools to be built in FY09
􀂄 Health spending to go up 15%


These were some important points from the budget which i could point out.
For sector wise negatives and positives please mail at nishantlakkar@gmail.com

Happy Investing
Investomaniac
JAIDADIKI