FISCAL POLICY

Presented by:
Rinkal Oza
DhimantVyas
Priyank Shah
Mehul Gadhiya
Sachin Nandha
 The FRBM Act
• Enacted by Parliament in 2003 to bring in
fiscal discipline.
• Received the President’s assent in August the
same year.
• UPA govt. had notified the FRBM Rules in
July 2004.
FRBM Goals
Integrating FRBM Mandate in Budget Process
Budget Format
• Plan exp:-
– The expenditure of the government can be broken up into Plan and
Non-Plan Expenditure.
– Money given from the government’s account for the Central Plan is
called Plan Expenditure.
– This is developmental in nature and is spent on schemes detailed in the
Plan.

• Non-plan exp: -
– covers all expenditure of government not included in the Plan.
– It includes both development and non-development expenditure. Part
of the expenditure is obligatory in nature, eg interest payments,
pensionary charges, defence and internal security, transfers to States,
etc.
– Expenditure on maintaining the assets created in previous Plans is also
treated as Non-Plan Expenditure
 Plan Expenditure
• FLAGSHIP PROGRAMMES:
• NREGS - Rs.16000 cr
• JNNURM – Rs. 5482 cr
• Rajiv Gandhi Drinking Water Mission-6500cr
• Sanitation programme -1200 cr
• Desalination Plant near Chennai provided Rs.300cr
• NER provided 16447 cr
• Scholarship SC-804 cr, ST-195 cr, OBC-164 cr, Minoroties-100 cr
• National Handicapped Development Corporation -9 cr
• Rajiv Gandhi National Fellowship Programme for SC & ST student
pursuing M.Phil & Ph.D allocated 75 cr.
• Justice Rajindar Sanchar Committee -1000 cr
11th FIVE YEAR PLAN- the crucial second year

• GBS 2008-09 at 2,43,386 cr

• Central Plan Allocation at 1,79, 954 cr
• Bharat Nirman to get 31,280 cr
• SSA - 13,100 cr
• JNV – 130 cr
• National Means cum Merit Scholarship -3000cr
• Nehru Yuva Kendra – Rs.10 cr
• Mid Day Meal Scheme extended to upper primary
classes in govt. and govt. aided school
• 3 IIT, 16 Central University, 3 IISER
 Contd……
• NRHM allocated 12050 cr
• The National Aids Control Programme 993 cr
• 1042 cr allocated for polio programme
(mainly U.P & Bihar)
• RSBY – 205 cr
• National Programme for Elderly provided
Rs.400cr
• ICDS provided 6300cr
 Revenue Budget
• consists of the revenue receipts of Government (tax revenues
and other revenues) and the expenditure met from these
revenues.
• Tax revenues comprise proceeds of taxes and other duties
levied by the Union.
• Other receipts of Government mainly consist of interest and
dividend on investments made by Government, fees, and
other receipts for services rendered by Government.
• Revenue expenditure is for the normal running of Government
departments and various services, interest charges on debt
incurred by Government, subsidies, etc.
• Broadly speaking, expenditure which does not result
in creation of assets is treated as revenue expenditure.

• All grants given to State Governments and other

parties are also treated as revenue expenditure even
though some of the grants may be for creation of
assets.

• Estimates of receipts included in the Annual

Financial Statement are further analyzed in the
document “Receipts Budget”.
• The document provides details of tax and non-tax
revenue receipts and capital receipts and explains the
estimates.
• Trend of receipts and expenditure along with deficit
indicators, statement pertaining to National Small
Savings Fund (NSSF), statement of revenues
foregone, statement of liabilities, statement of
guarantees given by the government, statements of
assets and details of external assistance are also
included in Receipts Budget.

• The document also provides the arrears of tax

revenues and non-tax revenues, as mandated under
the Fiscal Responsibility and Budget Management
Rules, 2004.
 Expenditure Budget
• Includes all types of expenditures performed b
the government.
• It includes Interest Payments, Defence
Expenditure, Grants to State & UT Govts.,
Grants to Foreign Govts., Grants to Foreign
Govts., Loans & Advances to State &UT
Govts., Plan Expenditure, Non-Plan
Expenditure of UT without Legislature
Where the rupees comes from

Non debt capital receipts

2%
14% 10% Non-tax revenue

7% Service tax & other taxes

Excise

24% 15% Customs

Income-tax

13% Corporation tax

15%
Borrowings & other
liabilities
 Where the rupees goes to
Subsidies

10% 8% Defence
11%
Interest
19%
central plan

State & UT Plan

21% Assistance
5%
Non-Plan Assistance

7%
State share of tax &
19% duties
Other non plan exp.
 Taxation
Direct Taxes…..
• Personal Tax:- • Corporation Tax:-
• It is the imposed on the • It is the tax imposed on
income of individual which assemble profit of
is derived from a variety of companies and
sources unincorporated associations.
• The tax is progressive, • Calculated after interest but
proportional and regressive before dividend distribution.
according of the tax rise, • Companies are also liable to
remains or falls with rise in pay tax on capital gains.
income
• Inheritance Tax:- • Wealth Tax: -
• It is the tax levied on • It is the tax imposed on
transfer of wealth on the specified stock of
death from the assets held by an
decreased individual to economic unit that
the other living yields or has the
• It is also sometimes potential to yield
called Death duty or income in some form
Estate Duty
 Indirect Taxes…
• Excise Duty: - • Custom Duty: -
• It is the tax levied on • Impose on goods and
the production of services crossing
goods for home international borders
between two countries.
consumption.
• A country imposes tax
• It is generally central on both import and
government at export.
specified rates. • It is distributed in
tariffs.
• Value-Added Tax: - • Central Sales Tax: -
• It is the general tax applied • Tax imposed on retail prices
at each point of exchange of of goods at the point of sale.
goods from primary
production to final • Basically represents tax on
consumption all expenditures.
• The full chain extends from
the produce of raw materials
of final consumer and
covers both producer and
traders
• Value added at distribution,
wholesaling and retailing.
• In this form the prices
become higher and the final
consumer bears the whole
tax.
 Tax Reforms…………
Personal Tax Rates

Existing Proposed

Income Rate Income Rate

0-1,10,000 Nil 0-1,50,000 Nil

1,10,001-1,50,000 10 1,50,001-3,00,000 10

1,50,001-2,50,000 20 3,00,001-5,00,000 20

2,50,001-10,00,000 30 5,00,001-10,00,000 30

10,00,001 & above 30* 10,00,001 & above 30*

• The exemption limit is Rs.1,80,000 (earlier
Rs.1,45,000) in case of resident women
• The exemption limit is Rs. 225000 (Earlier
Rs.1,95,000) in case of residential individuals
of the age of 65 year or more
• @ Education Cess of 3% is leviable on the
amount of income tax and surcharge
• Surcharge of 10% of the total tax liability is
applicable where the total income exceeds
Rs.10,00,000
 Corporate Tax Rate
• Rate of corporate tax remain unchanged for both
domestic and foreign companies
• Domestic Company:-@
• Regular Tax is 33.99%*, MAT is 11.33% (book
profit), DDT is 16.995%
• Foreign Company:-#
• Regular Tax is 42.23%*
• @ 30.90% where the total income is less than or
equal to Rs.10 million
• # 41.20% where the total income is equal to or less
than Rs.10 million
 Change in Excise Rates
• Durgs formulation, cornflakes, breakfast
cearels, MP4 Player, Water filtration and
purification plant, marker pen & inks- the rate
is reduced to 8% from 16%
• Small cars , Two wheelers & Passengers –the
rate is reduced to 12% from 16%
• For the packaged software the duty is 12%
(earlier 8%)
 Contd………….
• Tea & Coffee pre-mixes , Wireless Data
Modem cards, Printers- the duty is completely
eliminated
• For clinker the duty is 450 per MT (earlier 350
Rs. MT)
• Cigarettes
• Length not exceeding 60mm -819 per
thousand
• Length exceeding 60mm-1323 per thousand
 Change in Custom duty
• Peak rate of basic custom duty remain unchanged
• Effective rate of custom duty has been reduced from
34.13% to 31.70%
• Specified power project and high voltage power
transmission projects to be liable to 4% SACD
• NCCD will be imposed at 1% on mobile phones
• Tariff rate for electrical energy has been introduced at
Rs.2000 per 1000 KWH (earlier it was exempted)
 Rate Movement
• Completely eliminated from Aluminum scrap,
Bactofuges, Helicopter simulators, Melting
scrap Rough cubic ziracronia, set top box,
Tuna bait,
• CST rate proposed to be reduced from 3% to
2% with effect from 1 APR ,2008
• Service tax remain unchanged at 12.36%
• Threshold limit for service tax exemption will
be increased from 8 Lac to 10 Lac
• STT paid in respect of taxable securities
transaction will now be allowed as a
deductible exp.
• Levy of STT at the rate of 0.017% on option
premium , payable by the seller and 0.125% on
settlement price by the purchaser
• Short Term Capital Gains increased
from 10% to 15%
• FBT rate remain unchanged
• No BCTT (after 1st Apr,2009)
• CTT will be charged from date that is to be
notified
• VAT has been introduced in Pondichery and
Uttar Pradesh effective 1 July 2007 and 1 Jan
2008 respectively. With this, all states in India
have shifted to the VAT regime
Thank You