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BUDGET 2012-13

Budget Highlights
Subsidies to be kept under 2% of GDP in 2012-13. Aim to lower it to 1.75%.
Fiscal deficit for 2012-13 pegged at 5.1% of GDP. Rajiv Gandhi Equity Saving Scheme launched. The limit for tax free infra bond issues to be raised from 30K cr to 60K cr. Divestment target for FY13 at Rs 30,000 cr.

Securities Transaction Tax (STT) reduced by 20% on cash delivery transactions.

Excise and service tax rates up by 2% to 12% each. No change in corporate tax. Exemption limit for individual taxpayers enhanced from Rs 1,80,000 to Rs 2,00,000. Govt.s borrowing target for FY13 at Rs 4.79 lakh cr.

COMPANY Sun Pharma Cadila Healthcare Adani Power

PRICE 545.1 711.9 73

CHANGE (41.6) (40.1) (2.65)

RECOMMENDATIONS Higher tax will reduce the FY13/14 EPS by 10% Higher tax will reduce the FY13/14 EPS by 8% Exemption of Coal and LNG from customs duty positive for Adani Power and Tata Power Exit banking stocks, Tata Motors & Maruti Suzuki. Buy Nifty below 5200 levels. Cairn India, Bharti Airtel contrarian bets. Buy GMR Infra, GVK on 10-15% correction.

SBI

2227.9

(71.5)

MARKET TAKE ON THE BUDGET

Vallabh Bhanshali ENAM
FM has proved to be a greater friend of the economy. The focus has been on promising growth and the Budget has provisioned for actual delivery.

Uday Kotak Kotak Mah Bank

The political challenges prevent the announcement of a reformist Budget. However, it has provided direction in a broader reality.

Samir Arora Helios Cap

I am a bit disappointed, but not a lot because I think the Finance Minister has basically put everything down on credibility.

New Tax Slabs

MALES
Exemption up to Rs 2 lakh for taxpayers. The upper limit of 20% tax slab raised to Rs 10 lakh.

FEMALES
Exemption up to Rs 2 lakh for taxpayers. The upper limit of 20% tax slab raised to Rs 10 lakh.

TAX RATE Nil 10% 20% 30%

NOW

POST BUDGET

1.8 lakh 1.8 5 lakh 5 8 lakh Above 8 lakh

2.0 lakh 2 5 lakh 5 10 lakh Above 10 lakh

TAX RATE Nil 10% 20% 30%

NOW

POST BUDGET

1.9 lakh 1.9 5 lakh 5 8 lakh Above 8 lakh

2.0 lakh 2 5 lakh 5 10 lakh Above 10 lakh

SENIOR CITIZENS (60 80 YRS)

The upper limit of 20% tax slab raised to Rs 10 lakh.

VERY SENIOR CITIZENS (80 YRS & ABOVE)

The upper limit of 20% tax slab raised to Rs 10 lakh.

TAX RATE Nil 10% 20% 30%

NOW

POST BUDGET

2.5 lakh 2.5 5 lakh 5 8 lakh Above 8 lakh

2.5 lakh 2.5 5 lakh 5 10 lakh Above 10 lakh

TAX RATE Nil 20% 30%

NOW

POST BUDGET

5 lakh 5 8 lakh Above 8 lakh

5 lakh 5 10 lakh Above 10 lakh

TAX CALCULATOR
Use our tax calculator to find out your new tax structure. Click here

Personal Tax
Arnav Pandya, Financial Planner

Benefits for individuals in the current budget

The issue of taxation of gains from equity shares provides the benefit of a lower tax liability for the investor. Long term capital gains for shares traded on a stock exchange have a zero rate of taxation while the short term capital gains tax is 15 per cent. What is important in the entire effort is the actual procedure that is adopted for determining the holding period for shares in a demat account. The actual calculation could well change the entire picture and lead to a different position on the tax front than what was actually expected. Here is a look at how this aspect works. FIFO method: The main point in the entire aspect of taxation as far as the investor is concerned is that the holding period is calculated on a specific basis and this method will guide how things are actually concluded. So the process that is adopted here is known as the First In First Out (FIFO) method and this is applicable for the demat shares that are held by the investor. When the shares are held in demat form there is no way to distinguish one from the other as these are just merely numbers unlike the position in the physical form where they have different distinguishing certificates and distinctive numbers. Hence it is assumed that the first shares that come in are the ones that are sold first and then they follow this similar format. Easier to handle: Once this overall format is known then the entire process becomes easier to handle. Take for example a case where a person has bought 200 shares of Reliance in January 2011 at a rate of Rs 850 and then another 200 in February 2011 at the rate of Rs 790. If he sells 100 of these shares in December 2011 at a rate of Rs 810 then even though he might want to say that there is a small gain on these shares because these have been sold from the second lot that has been bought recently this argument will not hold when it comes to the calculation of the tax. This will happen because under the FIFO method that has to be adopted the shares will be considered to have been sold from the first lot and hence there will be a capital loss that is suffered here. This could lead to a position where the entire planning could have to be reworked. Part demat: Since this is the position that has been clearly outlined the impact of this can also be severe and might even be different from the position on the ground. Consider a situation where the individual has bought 200 shares in the demat form a couple of years ago of HUL.

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Whats Costlier
Air Conditioner Refrigerator GSM/PDA Mobiles

Gold

Cars/SUV

Cigarettes

Whats Cheaper
Laptops LCD Cinema & fares

SECTOR IMPACT
AUTO / 2 WHEELERS
PROPOSALS

- Basic excise duty hiked from 10% to 12% - Excise duty on large cars from 22% to 24% - No revision in taxes on diesel vehicles
IMPACT

Negative for the sector. Expect price hikes.

REALTY
PROPOSALS

- ECB for low cost affordable housing projects - Retains 1% interest rate subsidy for loans towards affordable housing
IMPACT

Negative for the sector

TELECOM
PROPOSALS

- Emphasis on rural economy and inclusive growth. - Inclusion of telecom tower infra in the viability gap funding. - Exemption of customs duty on parts of mobile phone.
IMPACT Overall, a neutral to mildly positive impact is expected.

SECTOR IMPACT
INFRASTRUCTURE
PROPOSALS

- Amount of tax free infra bonds doubled to Rs 60,000 crore - 8,800 km of road projects will be awarded in FY13 - Allowed FIIs to invest in long term infra bonds
IMPACT

Positive for L&T, GMR Infra, IRB Infra, IDFC, Sadbhav Eng

POWER
PROPOSALS

- Allowed to take ECB route for rupee-debt on their books - Additional depreciation of 20% - Thermal power plants allowed full customs duty exemption on imported coal for two years.
IMPACT - Positive for the power sector

AVIATION
PROPOSALS

- Direct import of aviation turbine fuel (ATF) - Airlines can raise funds $1 billion via ECBs toward working capital requirements - 49% FDI from foreign airlines is under active consideration
IMPACT Neutral impact on the aviation sector

Editorial Column
R. Jagannathan Editor, Firstpost at Network 18

Tinkerer Pranab has missed the bus - so what's new?

Mountains of expectations always deliver a mouse. And so it was with Pranab Mukherjee's make-or-break budget. He neither made much of the opportunity nor broke anyone's back by trying to do too much. The net verdict is this: Revenue has been beefed up, but expenditures are not quite in check. Thus, fiscal consolidation is still one-sided. Big reforms have been given the go-by. Small crumbs have been thrown at the middle class in terms of tax relief, but the price increases due to the raising of excise and service taxes will more than neutralise this gain. The macro numbers first: the big thing that was expected from Mukherjee was a sharp drop in the fiscal deficit, which he delivered, by bringing it down from 5.9 percent in 2011-12 to 5.1%. A big drop by 0.8% is good news, but the devil will be in the detail: how did he achieve it? The chances are he will miss the target once again because the cut is being achieved through raising taxes - the net additional taxes from customs, excise and service taxes will be Rs 45,940 crore while the crumbs on direct tax concessions equal Rs 4,500 crore. The net tax gain for Mukherjee: Rs 41,440 crore. The question is: in a period of slowing growth, will his revenue projections really live up to expectations? When last year he missed almost all targets? The big money (at least, what is planned) is coming from an across-the-board two percent hike in excise and service taxes to 12 percent, and the extension of service tax to every nook and cranny of the economy - only 17 services are exempt. Revenues will certainly go up. The concessions are fleabites: an increase in the tax-free exemption limit to Rs 2 lakh - that's a Rs 2,000 tax relief per individual. Rs 10,000 of interest earned from banks will be tax-free, but this is more a sop to banks - who are screaming about tax-free bonds and high payments on post-office schemes that are taking away customers. Senior citizens have been spared the payment of advance tax - but this is like making life easier, not about providing more money in the pocket. The salaried and the old can say thanks, but no thanks.

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Editorial Column
Santosh Nair Editor, Moneycontrol at Network 18

Pranab Mukherjee's cautious game disappoints market

The good thing for Pranab Mukherjee was that few people had any big expectations from the Budget, given the political compulsions of the UPA government. Still the market was hoping to hear something positive on subsidy cuts, lowering expenditure, improving capital investments, and a roadmap on the Goods and Services Tax (GST) and Direct Tax Code (DTC). The finance minister has disappointed on all these counts. But the bigger worry for the market now is that inflation could increase further in the coming months because of the proposal to hike service tax, excise duty and widen the number of taxable services (all but 17). The companies will mostly likely pass it on to consumers. Bond yields climbing to 8.4% already reflect those concerns, and there is a saying that if the bond market and equity market gives conflicting signals, always believe the bond markets. Some economists have been pointing to the worsening quality of India's growth (even if in relative terms it ranks among the best growing economies) where consumption is the driving factor rather than investment in capital assets. And with no concrete proposal to address supply side problems by improving infrastructure, there is every reason to believe that inflation will only worsen going ahead. And we have not yet taken into consideration higher fuel and power prices, two areas where the government is reluctant to act fearing political opposition. The Budget has guided for a fiscal deficit target of 5.1% for FY13, and gross borrowing figure of Rs 5.69 lakh crore. Market does not appear to be taking both numbers seriously, even though the fiscal deficit number is something it was hoping to hear. The reason for the indifference is clear: the government overshot both the estimates for FY12 by a wide margin. There is little reason to hope that same won't be the case in FY13 given rising crude prices, volatile capital flows because of turbulent global markets and the government's inability to take hard decisions that will be seen as politically unpopular. It will be interesting to see how the Reserve Bank of India (RBI) makes of the Budget. In the last couple of policy review meets, the RBI made it clear that it will not lower rates unless it the government reduces the fiscal deficit by curbing wasteful expenditure. At its credit policy meet a couple of days back, the central bank further gave enough hints that it would not cut rates in a hurry given high crude prices which could further stoke inflation. The Budget may not have been as populist as some players feared it to be, but then neither does it say much about addressing some of the serious problems, mainly subsidies. For complete article, Click here

Editorial Column
Arjun Parthasarthy, Editor, investorsareidiots.com

Despite Budget, equity, bonds & currencies will have a ball

The optics from the Union Budget 2012-13 are positive for markets with higher growth, lower inflation and lower fiscal and current account deficits. GDP growth is estimated at 7.6% for 2012-13 against 6.9% for 2011-12. Inflation, expected at 6.5% for 2012-13, is below the average of 9.1% seen in 2011- 12. Fiscal deficit is pegged at 5.1% of GDP, down from 5.9%, while the current account deficit (overseas earnings less expenses) is estimated to come in below 3.6% of GDP seen in 2012-13. Indian equities, bonds and currencies should react positively to the budget expectations in theory. However, the fact that the government has overshot its 2011-12 budget targets by a wide margin will make the markets circumspect on the latest forecasts of the finance minister. GDP growth came off from forecast levels of 9% last year, while fiscal deficit was higher by 1.3% against budget estimates for 2011-12. Current account deficit was a percentage point higher while inflation trended much higher than expectations in fiscal 2011-12. Markets are unlikely to move on the back of projections of the union budget 2012-13. The outlook for equity and currency markets will depend on whether there is continued risk appetite amongst global investors leading to foreign institutional investor (FII) flows continuing their positive trend seen in calendar year 2012. FIIs have pumped in over US$ 7 billion into Indian equities in the calendar year to date and, given the liquidity unleashed by central banks across the world, indications are that the flows will continue. The ECB (European central Bank) has pumped in over euro 1 trillion into the system through LTRO (Long Term Refinancing Operations) while the US Fed has pledged to keep policy accommodative well into 2014. The Indian rupee (INR) is down by over 12% in fiscal 2011-12 largely on the back of FII flows turning negative and the current account deficit rising by over 1 percent on the back of the trade deficit going up by USD 70 billion over levels seen in 2011-12.

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