Increase in MAT – a negative

On the other hand, the budget has increased the rate of Minimum Alternate Tax
(MAT) from 10% to 15%. Companies have to pay MAT on the Book profits as
against the profits derived under the Income Tax Act, if the taxable income is less
than 30% of the book profit

Marginal increase in basic exemption limits, surcharge removed

The budget has increased the basic exemption limit for individual tax payers
marginally from Rs.1,50,000 p.a. to Rs.1,60,000 p.a. The same for women tax
payers has been increased from Rs.185,000 p.a. to Rs.195,000 p.a and for senior
citizens from Rs.225,000 p.a top Rs.240,000 p.a. We expect this to have a
marginal impact on the total tax outgo for individuals.

On the other hand, the surcharge on personal income tax has been abolished. This
is expected to benefit the tax payers in the higher income category as surcharge is
levied only on annual income of rs.1mn and above. We calculate that, on an
annual income of Rs.1 mn, the savings can be Rs.28,050.

INDIRECT TAXES Also, there is no change in the peak customs duty, which remains at 10%.

We opine that, the markets

had priced in significant positives from the budget and reacted likely due to the
following reasons :
Increase in the fiscal deficit and accompanying fears of interest rates
Lack of concrete targets on disinvestment and
Absence of relaxation / allowance of FDI limits
Increase in MAT rate to 15%

NCCF: National Calamity Contingency Fund;

Excise duty on petrol-driven trucks and lorries reduced to 8% from 20%.

Increase in allocation under JNNURM

Impact: Increase in allocation under JNNURM by 87% to Rs.128.87bn would
benefit bus manufacturers like Tata Motors and Ashok Leyland

Increase in MAT rate from 10% to 15%

Impact: Negative for companies like Tata Motors and Ashok Leyland that fall
in this tax-paying bracket

The budgeted fiscal deficit for FY10E is 6.8% as against 6.2% reported
for FY09.
Impact: Government needs to borrow Rs.4.01 trillion from the market to meet
its fiscal deficit needs. The hefty borrowing program by the government is
likely to harden the yield curve. This would also lead to crowding-out in the
economy along with affecting the investment book (AFS/HFT categories) of
the bank

The Reserve Bank of India may have got some more ammunition to mop up excess liquidity –
the amount of special bonds it can issue to absorb rupees has been increased – but it still faces
the daunting task of managing interest rates from peaking to boost credit offtake.

Last Thursday, it got the government nod to raise the limit through market borrowing of
government paper under the market stabilisation scheme (MSS), but the RBI is still concerned
about bulging forex inflows that is forcing the rupee to appreciate beyond imaginable levels

Accelerated Power Development and APDRP

Reform Programme

Defense allocation raised by 14% from Rs.480 bn to Rs.548 bn

Impact: Positive. Capital expenditure on defense has been raised by 14% to
Rs.548 bn. This is moderately positive for BEL as higher allocation should translate
into increase in order book

Investment linked tax incentive for setting up of cold chain facilities

Impact: Positive. Investment linked tax incentives to be provided to the
businesses of setting up and operating 'cold chain', warehousing facilities for
storing agricultural produce. Under this method, all capital expenditure, other
than expenditure on land, goodwill and financial instruments shall be fully
allowable as deduction. To benefit Blue Star and Voltas, which provide
refrigeration solutions for cold chain network

Increased allocation for Bharat Nirman and NHDP

Impact: Allocation for Bharat Nirman and NHDP has been increased to Rs 454bn
and Rs 160bn in 2009-10 from Rs 313bn and Rs 130bn in 2008-09 respectively.
This is likely to result in higher order inflows in the roads and highways segment
and is expected to provide boost to order books of companies focused on roads
and highways segment such as HCC, IRB, NCC, MPL

Increased allocation to National Rural Employment Guarantee Scheme

(NREGS)
Impact: The allocation under NREGS has been increased by 144% to Rs.391
bn. This is positive for the sector as it will generate more employment in rural
India and will further drive consumption of consumer goods

FBT

The taxation of perquisites -- or fringe benefits -- provided by an employer to his employees, in addition to the cash
salary or wages paid, is fringe benefit tax.

Any benefits -- or perks -- that employees (current or past) get as a result of their employment are to be taxed, but in
this case in the hands of the employer.
Fringe benefits as outlined in section 115WB of the Finance Bill, mean any privilege, service, facility or amenity
directly or indirectly provided by an employer to his employees (including former employees) by reason of their
employment.

They also include reimbursements, made by the employer either directly or indirectly to the employees for any
purpose, contributions by the employer to an approved superannuation fund as well as any free or concessional
tickets provided by the employer for private journeys undertaken by the employees or their family members.

What are these fringe benefits that will be taxed?

As per the Finance Bill, fringe benefits shall be deemed to have been provided if the employer has incurred any
expense or made any payment for the purposes of:

 (a) entertainment;
 (b) festival celebrations;
 (c) gifts;
 (d) use of club facilities;
 (e) provision of hospitality of every kind to any person whether by way of food and beverage or in any other
manner, excluding food or beverages provided to the employees in the office or factory;
 (f) maintenance of guest house;
 (g) conference;
 (h) employee welfare;
 (i) use of health club, sports and similar facilities;
 (j) sales promotion, including publicity;
 (k) conveyance, tour and travel, including foreign travel expenses;
 (l) hotel boarding and lodging;
 (m) repair, running and maintenance of motor cars;
 (n) repair, running and maintenance of aircraft;
 (o) consumption of fuel other than industrial fuel;
 (p) use of telephone;
 (q) scholarship to the children of the employees.

In cases where the employer is engaged in the business of carriage of passengers or goods by motor car or by
aircraft, a lower percentage of expenses on repair, running and maintenance of motor cars or aircrafts or fuel
expenses has been specified.

Similarly, for hotels, a lower percentage of the expenses incurred on hospitality has been specified for purposes of
calculating the liability under the fringe benefit tax.

An employer liable to pay fringe benefit tax is required to furnish a return of fringe benefits before the due date as
given in section 115WD

Who pays fringe benefit tax?

Under the proposed provisions, fringe benefit tax is payable by an employer who is either an individual or a Hindu
undivided family engaged in a business or profession; a company; a firm; an association of persons or a body of
individuals; a local authority; a sole trader, or an artificial juridical person.

Why fringe benefit tax?

The taxation of perquisites -- or fringe benefits -- provided by an employer to his employees, in addition to the cash
salary or wages paid, is subject to varying treatment in different countries.

These benefits are either taxed in the hands of the employees themselves or the value of such benefits is subject to a
'fringe benefit tax' in the hands of the employer.
The rationale for levying a fringe benefit tax on the employer lies in the inherent difficulty in isolating the 'personal
element' where there is collective enjoyment of such benefits and attributing the same directly to the employee.

This is so especially where the expenditure incurred by the employer is ostensibly for purposes of the business but
includes, in partial measure, a benefit of a personal nature.

Moreover, in cases where the employer directly reimburses the employee for expenses incurred, it becomes difficult
to effectively capture the true extent of the perquisite provided because of the problem of cash flow in the hands of
the employer.

Therefore, the finance minister has proposed to adopt a two-pronged approach for the taxation of fringe benefits
under the Income-tax Act.

Commodity Transaction Tax (CTT) to be abolished.

Impact: The abolition of the CTT, will restore the viability of the commodity
trading business. From the prospective of capital market intermediaries/stock
broking firms, while the contribution of commodity trading revenue is relatively
smaller, nonetheless, it will be positive for companies engaged in the commodity
trading business.

Countervailing duties (CVDs) are duties imposed under WTO Rules to neutralize the negative effects of
other duties. They are imposed when a foreign country subsidizes its exports, hurting domestic
producers in the importing country. According to World Trade Organization rules, a country can launch
its own investigation and decide to charge extra duties, provided such additional duties are in
accordance with the GATT Article VI and the GATT "Agreement on Subsidies and Countervailing Duties

OIL & GAS

BUDGET HIGHLIGHTS & IMPACT
Clarification of 80-IB on tax holiday for natural gas production
Impact: The budget has extended Tax holiday under section 80-IB(9) of the
Income Tax Act in respect of profits arising from the commercial production
or refining of mineral oil to natural gas. This would lead to increased investments
in exploration of natural gas. This is positive for RIL and Cairn India for future
gas discoveries.
Investment linked tax exemptions
Impact: The budget has provided for tax exemptions linked to investment and
not profit for laying and operating cross country natural gas or crude or
petroleum oil pipeline network for distribution on common carrier principle.
This would lead to increased investments in setting up cross country natural
gas pipelines. This is positive for GAIL and GSPL

Customs duty on life saving drugs and vaccines reduced.

Impact: Neutral. Customs duty on 10 specified life saving drugs/vaccine and
their bulk drugs to be reduced from 10% to 5% with Nil CVD (by way of excise
duty exemption). The duty relaxation is less likely to have any significant benefit
to the companies as they will pass on the benefit to the end consumer.
Customs duty on specified heart devices reduced
Impact: Neutral. Customs duty on specified heart devices, namely artificial
heart and PDA/ASD occlusion device, to be reduced from 7.5% to 5% with
Nil CVD (by way of excise duty exemption). The duty relaxation is less likely
to have any significant benefit to the company

REAL ESTATE
BUDGET HIGHLIGHTS & IMPACT
Focus towards housing for poor through Rajiv Awas Yojana
Impact: Rajiv Awas Yojana intends to make the country slum free in the five
year period. Support for urban poor housing has been increased to Rs 39.73bn
and it also includes provision for Rajiv Awas Yojana. Allocation for Indira Awaas
Yojana is increased to Rs 88bn for 2009-10. Along with this, an amount of
Rs 20bn is allocated for Rural Housing Fund in the National Housing Bank to
boost rural housing sector. This is likely to be positive for companies focused
on rural housing and slum rehabilitation projects like HDIL, Akruti Nirman.
Reduction in construction cost
Impact: Goods like pre fabricated concrete slabs made at the construction
site have tax relief which is likely to be positive for developers of low income
housing segment.