2. Analysis of
UNION BUDGET 2011
(For internal circulation only)

3. Contents
• Understanding the Budget
• Finance Ministers Speech
• Budget Estimates
• Direct Taxes
• Indirect Taxes
• Agriculture
• Manufacturing
• Environment
• Infrastructure
• Others
• Service Tax
• Others

4. Understanding the Budget

5. Understanding the Budget
The Budget documents presented to Parliament comprise, besides the Finance Minister’s Budget Speech, the following:
A. Annual Financial Statement (AFS)
B. Demands for Grants (DG)
C. Appropriation Bill
D. Finance Bill
E. Memorandum Explaining the Provisions in the Finance Bill, 2011
F. Macro-economic framework for the relevant financial year
G. Fiscal Policy Strategy Statement for the financial year
H. Medium Term Fiscal Policy Statement
I. Expenditure Budget Volume-1
J. Expenditure Budget Volume-2
K. Receipts Budget
L. Budget at a glance
M. Highlights of Budget
N. Status of Implementation of Announcements made in Finance Minister’s Budget Speech of the previous financial year

6. Understanding the Budget(Cont)
• The government is accountable to the Parliament in its financial
management. With the constitutional supremacy of the bicameral
Parliament, especially of the Lok Sabha-, every single financial act is
processed and passed by the representatives of the people.
• However, proposals for the formulation of budget levying taxes,
determining government accounts and expenditures, are prepared by
the Government's Ministries and consolidated in the Ministry of
Finance.
• The Union Budget presented to the Parliament consists of the General
Budget and the Railway Budget, the Demands for Grant, the Vote on
Account, the Supplementary Demands for Grant, the Appropriation Bill
and the Finance Bill.

7. Understanding the Budget(Cont)
• Immediately after the Annual Statement, the Finance Bill is introduced
in the Lok Sabha by the Finance Minister. The Finance Bill is presented
in fulfilment of the requirement under Article 110 (1) (a) of the
Constitution, detailing the imposition, abolition, remission, alteration or
regulation of taxes proposed in the Budget. After passing of the
Appropriation Bill, the Finance Bill is considered and passed by the
Parliament as a Money Bill.

8. Finance Ministers Speech

9. Finance Ministers Speech
• To keep this presentation of reasonable length, the actual speech
delivered in the parliament by the Finance Minister has been archived
on our webpage, click here to access the speech.

10. Budget Estimates

11. Budget Estimates
• Gross Tax receipts are estimated at ` 9,32,440 crore.
• „ on-tax revenue receipts estimated at ` 1,25,435 crore.
N
• „ otal expenditure proposed at ` 12,57,729 crore.
T
• I
„ncrease of 18.3 per cent in total Plan allocation.
• I
„ncrease of 10.9 per cent in the Non-plan expenditure.
• X
„ I Plan expenditure more than 100 per cent in nominal terms than
envisaged for the Plan period.
• I
„ncrease of 23 per cent in Plan and Non-plan transfer to States and UTs.
• F
„ iscal Deficit brought down from 5.5 per cent in BE 2010-11 to 5.1 per cent of
GDP in RE 2010-11.

12. Budget Estimates
• Fiscal Deficit kept at 4.6 per cent of GDP for 2011-12.
• F
„ iscal Deficit to be progressively reduced to 3.5 per cent by 2013-14.
• „
“Effective Revenue Deficit” estimated at 2.3 per cent of GDP in the Revised
Estimates for 2010-11 and 1.8 per cent for 2011-12.
• A
„ ll subsidy related liabilities brought into fiscal accounting.
• N
„ et market borrowing of the Government through dated securities in 2011-
12 would be ` 3.43 lakh crore.
• C
„ entral Government debt estimated at 44.2 per cent of GDP for 2011-12 as
against 52.5 per cent recommended by the 13th Finance Commission.

13. Direct Taxes

14. Direct Taxes
Change Impact
The limit to the first proviso of Section 2 of the More charitable institutions
income tax act, specifying aggregate receipts for can now avail benefits of
charitable purposes has been revised to 25 lakhs relaxed taxation
from the existing Rs 10 lakhs
No Deduction of income in the form of Higher tax outlay for SEZ
dividends from SEZs earned by developers developers
Weighted Deduction on account of section 35 The effort is to increase R&D
(2AA) being sum paid to a National Laboratory spend and get corporate India
or a university or an IIT or a specified person to contribute to growth of
has been increased from 175% to 200% sciences in India. Reduced
tax outlay for donors.

15. Direct Taxes
Change Impact
Benefit of deduction under Section 35 AD has This is in line with the push to
been extended to increase the growth rate. The
businesses engaged in developing and building a housing deduction available for pre
project under a scheme for affordable housing framed by
More charitable institutions
the government of India
to new or existing plants engaged in the manufacture of
can now avail benefits of
fertilizers. relaxed taxation regime.
existing hotels with 2 star and above rating
hospitals with atleast 100 beds for patients
Amounts paid by employers as contributions to
Lower tax outloay for
pension schemes be allowed as deduction under
employers paying for pension
section 36 upto 10% of the salary of the
schemes for employees
employee for the year

16. Direct Taxes
Change Impact
The additional benefit of `20,000 allowed in Salaried individuals can still
respect of subscription of long term save money when investing in
infrastructure bonds has been extended for Infrastructure bonds
another year
Power generation and distribution units can Lower tax bill for power
commence operations upto 1st April 2012 to generation and distribution
avail benefits u/s 80IA units
Tax deduction equivalent to 100% of profits for New blocks licensed after 31st
a period of 7 years under section 80-iB has been march shall be able to avail
extended to blocks licensed under contracts such tax holiday for a period
awarded after 31st March 2011 under the new of 7 years
exploration licensing policy

17. Direct Taxes
Change Impact
The threshold for variation between arms length Since new threshold has not
price and actual price to be revised from 5% been announced there is room
A new subsection 2A has been introduced to for interpretation here.
cover discovery of Transfer pricing transaction,
other than the ones submitted before the TPO Aimed at curbing flow of
New provisions for transactions with persons income from tax havens, this
located in notified jurisdictional areas have been may make life a little difficult
defined governing the taxability of such for existing legitimate
transactions businesses operating with
Interest earned on infrastructure debt funds such persons
referred to in section 10(47) will be taxable at 5% Low tax bill

18. Direct Taxes
Change Impact
Lower rate of 15 per cent tax on dividends Will encourage flow of
received by an Indian company from its foreign income back to India
subsidiary as per newly inserted section 115
BBD
Hike in the rate of MAT under section 115 JB A move to offset some of the
from 18% to 18.5% other sops given and to bring
MAT coverage has been extended to LLP’s things in line with DTC
Tax exemption on the distributed profits of an This had been previously
SEZ shall expire on the 1st of June 2011 announced and hence comes
at no surprise

19. Direct Taxes
Change Impact
Income distributed to unit holders not being Higher rates of taxation for
individuals or HUF shall be taxable at the rate of such funds
thirty percent on income distributed by money
market mutual fund or liquid fund
Tax rate for income distributed by fund other
than money market mutual fund or liquid fund
has also been hiked to 30%
There is a typo in the Budget where-in
We hope this will be clarified
Explanation 2 of section 139 is referred to, this
soon
should instead refer to explanation 1
Misc. changes to assessment procedures

20. Direct Taxes
Change Impact
Exemption limit for the general category of Net savings of ` 2000
individual taxpayers enhanced from ` 1,60,000
to ` 1,80,000
Exemption limit enhanced and qualifying age Age reduced from 65 to 60
reduced for senior citizens
Higher exemption limit for Very Senior Citizens,
Limit of ` 5 lakh announced
who are 80 years or above
Current surcharge of 7.5 per cent on domestic
Lower tax expense for
companies proposed to be reduced to 5 per cent
domestic companies

21. Indirect Taxes

22. Indirect Taxes
Change Impact
Central Excise Duty to be maintained at No changes
standard rate of 10 per cent
Reduction in number of exemptions in Central
Excise rate structure.
Nominal Central Excise Duty of 1 per cent More expensive items
imposed on 130 items entering in the tax net
Lower rate of Central Excise Duty enhanced
from 4 per cent to 5 per cent
Optional levy on branded garments proposed to
Branded garments to become
be converted into a mandatory levy at rate of
more expensive
10%
Peak rate ofCustom Duty to stay at current level.

23. Indirect Taxes - Agriculture and Related Sectors
Change Impact
Exemptions from Excise Duty enlarged to The finance minister has
include equipments needed for storage and announced a number of sops
warehouse facilities on agricultural produce to encourage the agricultural
Basic Custom Duty reduced for specified industry. There should be a
agricultural machinery from 5 % to 2.5 % positive impact in our opinion
Basic Custom Duty reduced on micro-irrigation
equipment from 7.5% to 5%
De-oiled rice bran cake to be fully exempted
from basic Custom Duty. Export Duty of 10 per
cent to be levied on its export

24. Indirect Taxes - Manufacturing Sector
Change Impact
Basic Custom Duty reduced for various items to Similar to the push on the
encourage domestic value addition vis-à-vis agriculture side, the FM has
imports, to remove duty inversion and tried to give the
anomalies and to provide a level playing field to manufacturing industry a
the domestic industry push as well.
Rate of Export Duty for all types of iron ore
enhanced and unified at 20% ad valorem. Full
exemption from Export Duty to iron ore pellets
Basic Custom Duty on petcoke and gypsum is This will lead to fall in cost of
proposed to be reduced to 2.5% Cement
Cash dispensers fully exempt from basic Should encourage local
Customs Duty manufacture

25. Indirect Taxes - Environment
Change Impact
Full exemption from basic Customs Duty and a These steps all in all should
concessional rate of Central Excise Duty help lower costs for new
extended to batteries imported by entrants and should make
manufacturers of electrical vehicles newer technologies cheaper
Concessional Excise Duty of 10 per cent to and hence ease their adoption
vehicles based on Fuel cell technology
Exemption granted from basic custom duty and
special CVD to critical parts/assemblies needed
for Hybrid vehicles
Reduction in Excise Duty on kits used for
conversion of fossil fuel vehicles into Hybrid
vehicles.

26. Indirect Taxes – Environment (cont)
Change Impact
Excise Duty on LEDs reduced to 5 per cent and These steps all in all should
special CVD being fully exempted help lower costs for new
Basic Customs Duty on solar lantern reduced entrants and should make
from 10 to 5 per cent newer technologies cheaper
Full exemption from basic Customs Duty to and hence ease their adoption
Crude Palm Stearin used in manufacture of
laundry soap
Full exemption from basic Excise Duty granted
to enzyme based preparation for pre-tanning

27. Indirect Taxes – Other Proposals
Change Impact
Scope of exemptions from basic Customs Duty Private art galleries will not
for work of art and antiquities extended to also be able to import artwork
apply for exhibition or display in private art at lower rates. Should open
galleries open to the general public doors to investment in art
Exemption from Import Duty for spares and Lower cost for ship owners
capital goods required for ship repair units
extended to import by ship owners
Concessional basic Custom Duty of 5 per cent
and CVD of 5 per cent available to newspaper
establishments for high speed printing presses
extended to mailroom equipment

28. Indirect Taxes – Other Proposals(cont)
Change Impact
Jumbo rolls of cinematographic film fully
exempted from CVD by providing full
exemption from Excise Duty
Factory built ambulances provided concessions Manufactureres like TATA
from excise duty and Force are the main
gainers as their sales/margins
should hopefully improve

29. Service tax

30. Service Tax
Change Impact
Standard rate of Service Tax retained at 10 per
cent
Hotel accommodation in excess of ` 1,000 per Expect Hotel stays and eat
day and service provided by air conditioned outs to become more
restaurants that have license to serve liquor expensive
Factory added under the service tax umbrella
Tax on all services provided by hospitals with 25 Clearly a move to tax the
or more beds with facility of central air specialty hospitals serving the
conditioning rich
Service Tax on air travel both domestic and
international raised

31. Service Tax (cont)
Change Impact
Services provided by life insurance companies
in the area of investment and some more legal
services proposed to be brought into tax net
All individual and sole proprietor tax payers A major relief for small
with a turn over upto ` 60 lakh freed from the business owners as they no
formalities of service tax audit longer have to get service tax
audits done on an annual
basis

32. ABOUT US

33. ABOUT US
• Arkay & Arkay Chartered Accountants (Arkay & Arkay) is a premier full
services firm, providing quality Tax, Assurance and Advisory services to
stalwarts of the Indian Industry.
• We at Arkay & Arkay, strive to help our clients and our people in attaining
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• Arkay & Arkay are advisors in thick and thin, while we serve industry giants
our Entrepreneur’s Cell ensures that help is available for the bright stars of the
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• Our Entrepreneur’s Cell provides help from the very inception of the business,
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• Arkay & Arkay shall help the client navigate the troubled seas that the Indian
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34. OUR TEAM

35. OUR TEAM
• Our team of Chartered accountants, Company Secretaries, MBA’s and Lawyers
is determined to help you leverage your business to help it grow and to attain
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36. OUR CLIENTS

37. SOME OF THE INDUSTRIES SERVED
* Individual client names have not been disclosed
in compliance with ICAI guidelines
37

38. www.arkayandarkay.com
pallav@arkayandarkay.com
rknarang@arkayandarkay.com
+91-9910124927
+91-9818014509
+91-11-27940068
+91-11-27947030
38