The Union Budget 2013-14 presented by the finance minister P. Chidambaram taking into account the inflation of about 10 per cent has given tax credit of Rs 2,000 for persons having income between Rs 2 lakh and Rs 5 lakh. By this logic, the persons having taxable income of Rs 5 lakhs should have been given tax credit of Rs 5,000. Thus, the taxpayers in the income bracket of Rs 2.2 lakh to Rs 5 lakh have virtually not got any benefit because of inflation.

The salaried class, in general, has been given a rough deal. They are taxed on the Gross Salary Receipts and no deduction is given to them against such Receipts. Salaried class had high expectations from Chidambaram that Standard Deduction will be brought back into the statute. They are highly disappointed. Even the limits laid down for various exempt allowances such as conveyance allowance (Rs 800/month), tuition fee allowance (Rs 100/child per month) are totally unrealistic taking into account the present day prices of petrol and school fees.

The finance minister has given no relief to small tax payers, especially pensioners who put their hard earned savings in fixed deposit — a safe and secure investment for them. The interest on such a fixed deposit upto Rs 10,000 should also have been made tax-free.

Another harsh provision introduced by the budget is regarding sale and purchase of an immovable property. As per the existing law and the proposed amendments, if the sale consideration is less than the value for stamp duty purpose, the value for sale has to be replaced by value determined by the district authorities.

The seller will be paying higher Capital Gains Tax while the purchaser will be taxed on the income which is the difference between valuation for stamp duty purpose and the agreement value as deemed gift. This law has also been made applicable to business assets including stock in trade. Moreover TDS @ 1 per cent has to be made by the purchaser if the value of the property exceeds Rs 50 lakh. There are certain circumstances such as the property being in the possession of some very old tenants, properties having “Vastu – Dosh,” etc., wherein sale of property in all probability may not fetch the market price.

In such a situation, the purchaser and the seller will be taxed on the income not earned by them leading to unjust levy of tax. Some mechanism should be in place to take care of such situations. The TDS @ 1 per cent is also very high as in a majority of the cases, because of reinvestment of capital gains in another residential property, no capital gain tax may be leviable. The tax rate of deduction on property may be reduced to 0.1  per cent. Every individual who buys a property will have to obtain TAN, which will further increase the load of tax compliance on the buyer of property. In any event, the budget proposal for introducing TDS on immovable properties transactions is commendable, as it would help the government in tracking such transactions.

The finance minister has given benefit of additional interest of Rs 1 lakh on account of loan of Rs 25 lakhs for purchase of property having value of Rs 40 lakhs. It is common knowledge that even a two bedroom flat is not available for this price, forget Metros not even in cities such as Lucknow or Jaipur. In my opinion, there is no justification for restricting the value of house at Rs 40 lakhs. The provision probably has been brought to give a boost to the housing industry. This purpose will be achieved only when the limit on the value of the house is done away with.

The budget has proposed that for availing DTAA benefit, the Residency Clause with a reference to countries like Mauritius, Singapore, etc., will be necessary but not sufficient. This has created suspicion in the minds of the foreign investors and this is the reason why the stock market crashed. During the debate on the budget proposals the finance minister may come out with a clarification on this issue.

The minister has introduced “Voluntary Compliance Encouragement Scheme” regarding Service Tax for those who have not paid Service Tax from 2007.

The scheme is welcome but only in the case of persons who have collected the Service Tax and not paid. There are many businesses where Service Tax was not collected mainly due to ignorance of law. They will not be able to avail the benefit of such a scheme.

To give a fillip to the manufacturing sector, FM has introduced Investment Allowance on Plant and Machinery exceeding Rs 100 crore. This limit is too high for most of the manufacturers. The limit, in my opinion, should be scaled down to Rs 10 crores.

The finance minister, however, has done a commendable job in containing the Fiscal Deficit and the Current Account Deficit. He has pointed out the purpose of the budget — and the job of the finance minister — is to create the economic space and find the resources to achieve the socio-economic objectives. At present the economic space is constrained because of a high fiscal deficit, reliance on foreign flows to finance the current account deficit, strong external headwinds and a tight monetary policy to contain inflation. The situation had left Chidambaram with few easy options.

Finally a budget alone can be no panacea. At best it can provide a roadmap for the various departments to follow. To contain deficit without affecting sustainable growth, the government will have to go all out to cut wasteful expenditure. Equally important, the government must tighten revenue collection efforts.

Like the previous years, this budget’s promise to revive the economy is based on a number of optimistic assumptions. The government hopes for a 33 per cent decline in petroleum subsidies, a 33 per cent increase in non-tax revenue, a 37 per cent increase in service tax collection and a 20 per cent increase in income tax revenue. This will require tremendous effort and political will. While Chidambaram’s budget has given a broad blueprint of action, a rocky road lies ahead of the government in the days to come.

(This article was published in The New Indian Express on March 1, 2013)