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Business News/ Politics / Policy/  Budget 2013: Super rich to be taxed more
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Budget 2013: Super rich to be taxed more

Individuals earning `1 crore or more a year will have to pay new surcharge of 10%, says finance minister

The surcharge has been increased to 10% from 5% on companies earning `10 crore or more as well as for foreign companies paying 40% tax. Photo: Priyanka Parashar/Mint (Priyanka Parashar/Mint)Premium
The surcharge has been increased to 10% from 5% on companies earning `10 crore or more as well as for foreign companies paying 40% tax. Photo: Priyanka Parashar/Mint
(Priyanka Parashar/Mint)

New Delhi: Union finance minister P. Chidambaram on Thursday levied more taxes on the rich and announced several measures aimed at the middle class, in the last budget of the Congress party-led United Progressive Alliance (UPA) government before the 2014 national elections.

Chidambaram announced a surcharge of 10% on individuals earning an income of 1 crore or more, a decision that will affect around 42,800 taxpayers. He also proposed to increase excise and customs duties on expensive cars, bikes and bigger sport utility vehicles (SUVs). Cigarettes and mobile phones will also attract more taxes.

“This is only for a year. I don’t think this is a huge burden. They will pay it cheerfully," he said later at a press meet.

The finance minister, however, tried to please the middle class, which forms a significant chunk of Indian voters. Chidambaram said people taking home loans up to 25 lakh in the next fiscal will be eligible for an additional 1 lakh deduction on interest. The budget also proposed a rebate of 2,000 for individuals having a total income up to 5 lakh. This is likely to benefit 18 million tax payers.

The opposition Bharatiya Janata Party (BJP) said Chidambaram’s attempts to woo the middle class will fail.

“The attempts by the finance minister are not going to translate into much benefits. The interest rates are in the hands of Reserve Bank of India (RBI). So the youth of the country understand that it will not have a net benefit even if the government has announced benefits in home loans up to 25 lakh," BJP spokesperson Nirmala Sitharaman said.

The budget also proposed an increase in the surcharge for domestic firms with taxable income of more than 10 crore per year to 10% from 5%, marking an effective increase in the corporate tax rate from 32.5% to 34%. In case of foreign firms that pay the higher rate of corporate tax, the surcharge has been increased to 5% from 2%. For dividend distribution tax, or tax on distributed income, the surcharge has been increased to 10% from 5%.

“The finance minister seems to have equated the tax on super-rich individuals with super-rich companies, which is unfathomable as investment in risk capital to run businesses cannot be equated with income earned by individuals," said Sudhir Kapadia, national tax leader, Ernst & Young.

The finance minister also announced proposals to widen the tax base and measures to check evasion by companies, service providers and individuals.

In order to curb the import of expensive automobiles and promote manufacturing, Chidambaram sought to increase the import duty on cars that cost more than $40,000 by 25 percentage points to 100%. Chidambaram will also be increasing customs duty on bikes that have an engine capacity of 800cc or more by 15 percentage points to 75%.

The Union budget also proposed to increase excise duty on SUVs by three percentage points to 30%. According to the Society of Indian Automobile Manufacturers (Siam) lobby group, this structure will be applicable on vehicles that have a seating capacity of less than 10 people, engine capacity of more than 1,500cc, vehicle length of more than 4 metres and a ground clearance of 170mm or above.

The move is likely to discourage buyers of such items. The rise in excise and customs duty is likely to affect plans of companies such as Mercedes-Benz India Ltd, Audi India, Mahindra and Mahindra Ltd, Tata Motors Ltd, Harley-Davidson Motor Co. India Pvt. Ltd and India Yamaha Motor Pvt. Ltd, among others.

The import duty on used cars is proposed to be increased to 125% from 100%.

Siam welcomed the move to increase the duty on expensive automobiles.

“The increase in customs duty for luxury cars and motorbikes seems to be an effort to raise more revenue and encourage local manufacturing, value addition and employment. The proposal to increase duty on second-hand vehicles from 100% to 125% is the right step. It clearly conveys India is not ready to accept second-hand, old vehicles from other countries," Siam said in a note.

However, it said the industry hadn’t expected the increase in excise on SUVs used as personal transport. “This is the only segment in the industry which has been doing well this year and increasing the price of these vehicles would dampen sales and impact market sentiment further," Siam said.

The finance minister also announced an increase in service tax for high-value homes. The finance minister reduced the abatement for homes with a carpet area of 2,000 sq. ft or more, or of a value of 1 crore or more, to 70% from 75%, effectively increasing the service tax by 0.5%.

The finance minister reduced the securities transaction tax, but introduced a limited commodities transaction tax (CTT). CTT will now be levied at 0.1% for non-agricultural commodity futures contracts.

To check tax evasion, Chidambaram announced the levy of tax deducted at source at 1% when the value of the immovable property is more than 50 lakh. The finance minister also sought to check exploitation of loopholes by investors in unlisted companies that use buy-back arrangements to avoid paying dividend distribution tax.

However, to increase the returns filed by service taxpayers, he introduced a voluntary compliance encouragement scheme.

Service tax assesses can file a declaration on past dues starting from 1 October 2007, and pay the tax dues.

They will be exempt from paying interest and penalties. The finance minister hopes that more than 1 million assesses will file their returns under this scheme.

Though the direct tax proposals will yield the government an additional revenue of 13,300 crore, and the indirect tax proposals will yield it a revenue of 4,700 crore, it remains to be seen if the finance minister will be able to meet the budgeted estimates, considering that for two consecutive years, the numbers have been revised downwards by almost 30,000 crore.

The finance minister has not raised excise and service tax rates.

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Updated: 01 Mar 2013, 12:42 AM IST
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