Union Budget 2009-10 - meeting expectations?

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Bikky Khosla | 07 Jul, 2009
This year the Finance Minister had to consider several factors and act accordingly in the Union Budget. And he has risen to the expectations to a certain extent. Although the equity markets gave the thumbs down to what Pranab Mukherjee had to offer, nevertheless, we can't write off the Budget proposals in their entirety.

For micro, small and medium enterprises (MSMEs) the best thing can be the announcement that has given businesses with an annual turnover of less than Rs 40 lakh the option of not maintaining their books of accounts and pay income tax on a fixed 8% of their revenues.

Now they have the option of not paying advance taxes. This scheme will come into effect from 2010-11 fiscal and will definitely provide a much-needed boost to new entrepreneurship and also reduce paperwork. I think the removal of FBT, CTT and income-tax surcharge is indeed good news for MSMEs.

The doing away of the fringe benefit tax (FBT) came as a shot in the arm for MSMEs. This tax introduced by Mukherjee's predecessor P Chidambaram in 2005-06 is a tax paid by employers on employee benefits that don't form part of the salary.

However, hiking the minimum alternate tax (MAT) rate to 15% from 10% will pinch corporates, the relief being that they will be allowed to carry forward the tax credit to 10 years instead of seven.

Apart from that, I believe that doing away with the commodity transaction tax (CTT) too will, in the long run, reduce raw material costs for MSMEs.

Mukherjee has also allowed tax breaks for manufacturing firms investing in R&D, extended the tax holiday for software companies housed in Software Technology Parks for one more year, and announced a tax holiday for companies producing natural gas, which I think are good proposals.

However, the levy of 8 percent of excise duty on man-made fibre and yarn came as a bolt from the blue.

From the point of view of exporters, with exports taking a beating, increase in the allocation for the market development scheme for exporters by 148 percent to Rs. 124 crore is a right move. This scheme provides support to exporters in developing new markets and this will help exporters to identify and develop new markets.

Also, the Export Credit and Guarantee Corp (ECGC) scheme, initiated last year has been extended till March 2010, while the interest subvention for the textile industry has been extended from September 30 to March 31, 2010.

All in all, Union Budget 2009-10 had no surprises and was along expected lines.