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Rashmin Sanghvi & Associates

Chartered Accountants

109, 1st Floor, Arun Chambers,
Tardeo Road,
Mumbai - 400 034,
Maharashtra, India.

Tel. Nos.: (+91 22) 2351 1878, 2352 5694.

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Immediate Observations on Indian Budget 1999

Immediate Observations on Indian Budget 1999

Finance Minister Mr. Yashwant Sinha has presented his Budget on Saturday, the 27th February, 1999. We will study the Budget and present our views in a few days. Immediate comments are given below:

1. General Observations :

On the whole, under the circumstances, the minister has done a good job. Indian economy is passing through troubled times. One could not expect any new concessions. New / additional taxes imposed are small.There is no tinkering around in small things. Emphasis is made on the fact that it is not a lobbyists' budget. Good conceptual issues are taken up.

2. International Fiscal Association ( IFA ) :

2.1 An interesting fact may be noticed. On the 9th January , 1999 : there was a conference at Mumbai. It was arranged by the "International Fisacal Association's " Mumbai chapter. This conference was attended by Income tax department Executives as well as professionals. Several conceptual issues discussed in the conference have been considered and implemented in this budget. Central Board of Direct Taxes deserves special congratulations for responding so fast & so pragmatically.

The issues covered are :

(i) Transfer of losses in case of demerger,
(ii) Y2K expenditure avalability as revenue expenditure,
(iii) Stock Option tax treatment.

Details of these issues shall be explained little later.

2.2 Corporate Re-organisation :
Central Board of Direct Taxes (CBDT) had appointed a Committee to consider the issue of re-organization/mergers and demergers. Mr. K.V.M. Pai, Chief Commissioner of Income-tax, Bombay was the Chairman of the Committee. Mr. Malegam, and Mr. Cyril Shroff were the other Committee Members. The Committee had submitted its report to the CBDT. The Government have accepted the report and implemented all suggestions for facilitating corporate re-organisation.

3. Indian Exports :

A lot of people have criticised the Government for fall in exports.

They do not realise that the world is passing through a crisis. South East Asia, Russia and even Japan are passing through crisis. Countries have collapsed. People have committed sucides. And there was no reason why India should not have gone the way Thailand & Indonesia went. India has been saved from a crisis & all of us can indulge in arm-chair consultancy because of excellent Forex management by the Government of India & the RBI. Fall in exports is only a small price. Saving us from the ruin which other countries have passed through is far more important.

4. Emphasis on Rural Farmer

One may notice that agriculture has contributed a lot to the GDP growth. However the farmers are the least vocal people around the budget time. Government has focussed on the small farmer & come out with specific schemes for their benefit. This is a good root level step that will benefit the farmer & hence the country.

5. Gold Deposit Scheme.

5.1 Primarily, the scheme appears to be good. We have several Indian families who store gold in addition to their jewellery needs. They may store mint gold for future contingencies like children's marriages, crisis in the family or protection against inflation.

5.2 The South East Asian Crisis has proved that even "Tiger" Governments can collapse. Russian crisis has proved that even "Super powers can collapse. There is no guarantee that U.S. $ will not crash. in all national calamities, gold is the only effective, practical & easy saviour. One may keep a part of his savings in gold.

5.3 If one decides to keep gold; investing in gold bonds may be a good idea.

There will be an interest income as compared to "nil" income for mint gold.

The risks associated with storage of gold will be reduced in bonds.

The interest & capital gains will be free from income-tax & the value of bonds will be free from wealth-tax.

5.4 It is very important to note that there is NO "amnesty" for gold deposit scheme. If anyone invests black money in gold, he may be inviting trouble.

5.5 At the end, there is always a risk of Indian Government's finances collapsing. Or the bank that issues the Gold Bonds, collapsing. In such contingencies the issuer of the bond may not be able to pay back gold. In such an event (though it has a remote chance), holding of mint gold in one's own possession would be safer than holding gold bonds.

2nd March, 1999.