General budget for 2011-12

We dissect the budget to help you figure out how it will affect the basic necessities of your life your food (and drinks), clothing (and gadgets) and shelter (at home and in hotels)

General budget for 2011-12

We dissect the budget to help you figure out how it will affect the basic necessities of your lifeu00a0your food (and drinks), clothing (and gadgets) and shelter (at home and in hotels)

Housing
House buyers, builders unhappy withu00a0Rs 25-lakh cap on eligibility for home loan subsidy; say the amount will fetch them nothing even close to city limits

FINANCE Minister Pranab Mukherjee's move of making houses costing up to Rs 25 lakh eligible for a 1 per cent subsidy on home loans up to Rs 15 lakh may have brought cheer to house buyers in other cities, but has left expectant Mumbaikars with a sour taste in their mouth.

Finance Minister Pranab Mukherjee arrives at the Parliament House to present the Union Budget 2010-11 yesterday

Potential house buyers and builders in the city are disappointed with the Rs 5-lakh hike in the upper limit from last year. They contend that one simply cannot get a house within city limits for Rs 25 lakh and would have to head to places like Kalyan and New Panvel (see box).

Atul Modak, head of Kohinoor City projects, said, "The 1 per cent interest subvention on housing loans for flats up to Rs 25 lakh will hardly benefit buyers in Tier-I cities like Mumbai."

"While issues of roti and kapda are being addressed in every budget, there have been very few encouraging announcements on the makaan front in the last 60 years," said a house buyer.

Anand Gupta, treasurer, Builder Association of India, said, "The proposal to make home loans worth Rs 15 lakh eligible for the subsidy will benefit only a small number of people. The demand-supply gap in urban areas, which is currently around 25 million units, is likely to widen over the next couple of years."

Builders say that with this subvention, people can only afford a house in far-off suburbs on both the central and western lines. Manohar Shroff, secretary, Navi Mumbai Chamber of Housing, said, "The subvention would enable people to buy only low-budget houses available in the extended suburbs, not in Mumbai or even Navi Mumbai."

"Such a subvention is of no use in cities like Mumbai, where housing prices are so high. The government should keep us in mind as well while setting Rs 25 lakh as the limit," said Jayesh Vora, a garment manager who is planning to buy a house.

Home AFAR
Here are some places in which you can buy homes for Rs 25 lakh:
>A 10X10 ft two-storeyed shanty in Behrampada would cost upwards of Rs 20 lakh
>A 15X15 ft shanty in Golibar Naka, Santacruz
>A one-room-kitchen flat in an old building in Dahisar
>A 1-BHK flat in Dombivli would cost close to Rs 24 lakh
>A 1-BHK flat beyond Kharghar
>A 1-BHK flat in a posh Mira Road locality
>A 1-BHK flat in New Panvel costs nearly Rs 25 lakh
>A one-room-kitchen flat in Mulund
>A 1-BHK in a posh Kalyan locality

Hospitality
FM has hoteliers u00a0and restaurateurs upset, who claim u00a0new service taxes u00a0on drinking, accommodation u00a0and airfares will dampen tourism

Consider moderation in your drinking habits this financial year, because it will cost you more. No, it's not the alcohol per se, but the act of consuming it in pubs and permit rooms.

Announcing the Budget yesterday, FM Pranab Mukherjee disappointed the hotel industry and jolly drinkers twice.

First, when he declared that AC bars will have to pay three per cent of the tab as service tax. And second, when he made staying at hotels costlier, effectively levying a five per cent service tax on hotel accommodation with a tariff of over Rs 1,000 per day.

Industry experts say that Mumbaikars are already paying the not-exactly-affordable luxury tax and value-added tax (VAT), so the new one is jsut unfair to them. Also, while taxes on carousing in bars may be good for your health the obvious deterrent that they are it is definitely not so for the health of tourism in the country.

Passed on to consumers, the service charges will make them think twice before hitting the bottle in an AC watering hole or lodging in a hotel, experts further say.

"It is a very disappointing budget. The government is leaving us no room to survive in the business. Already patrons complain of a high VAT on their bills. Now with the service tax we will soon see a drop in business," said Kamlesh Barot, president, Hotel and Restaurant Association Western India. Thus vocalising his dismay, Barot more or less summed up what other hotel owners feel.

Said a Juhu-based hotel proprietor, "We are paying a 10 per cent luxury tax already. The added service tax on rooms will add to our woes. It will affect the occupancy and room rate, already high in this city. More importantly, it is going to affect the tourist inflow in the city," she said.

Manthan Shah a senior HR executive, one with a predilection for hard beverages, said, "The VAT was bad enough. The service tax is going to kill us. It's better to drink at home rather than going to a bar."

Air tickets too

The budget also has contrasting features when it comes to tourism, as the dismayed hotel industry discovered. Where on the one hand, it earmarked Rs 104 crore more than last year toward tourism, at the same time it scaled up taxes levied on activities that engage tourists.

Other than the foregoing two taxes, tourists will also
have to shell out more for airfares, as well (see box).

Iqbal Mulla, treasurer, Travel Agents Association of India, said, "We asked the aviation ministry to waive off the service tax, but they increased it. This is going to affect tourism and we are going to lose international tourists."

Budget says

- Hotel accommodation with declared tariff of over Rs 1,000 per day will incur the service tax of 10.3 percent, with an abatement of 50 per cent. This will mean an effective burden of 5 per cent of the amount charged.

- Air-conditioned restaurants with licence to serve liquor will now have to pay the service tax with an abatement of 70 per cent.u00a0 The effective burden will be 3 per cent of the bill.u00a0

- Service tax on air travel has been increased by Rs 50 for domestic travel and Rs 250 for international travel in economy class. For higher classes, it will be a flat 10 per cent of the fare.

Clothing
Branded apparel sector will have to cough up excise u00a0duty of 10%, another dampener as it struggles to deal with spiralling u00a0cotton prices

If you belong to the brand-conscious brigade, get ready to shell out more for your sartorial preferences. The Budget has hiked mandatory excise duty on branded apparel by a good 10 per cent.

The hike has come as a bolt from the blue for the textile sector, which is already struggling to contain skyrocketing cotton prices.

"Excise duty has been increased from 5 per cent to 10 per cent on branded apparel. This will make branded garments more expensive, as retailers will surely pass this onto customers," said Viren Shah, president of Retail Traders' Welfare Association and vice-chairman of Confederation of All India Traders.
u00a0
"Actual mark up prices for branded cotton readymade garments will go up by 7 to 8 per cent. Branded readymade garments made of fabrics other than cotton may even go up by 12 per cent," Shah said.

The budget has also cut import duties across all sectors and it seems to discourage local manufacturing. "This means that more international brands will be encouraged to enter the Indian market, though there is no incentive for local manufacturing of garments. This can discourage local manufacturers," he added.

Apparel makers said the imposition of excise duty is a major concern to them.

"Frankly, it has come as a surprise to us at a time when raw material prices are already at an all time high. This would leave us with no other option, but to pass on the burden to the customers," said J Suresh, managing director and CEO of Arvind Lifestyle Brands.

"I am utterly confused. This move completely contradicts what the government has been claiming so far.

On the one hand, it seems to be discouraging FDI in organised retail sector for the 'well-being' of domestic retail industry, while on the other hand, it continues to discourage domestic garment manufacturers by almost doubling excise duty.
u00a0
This will give an unfair advantage to import of garments," said Pradeep Hirani, CMD, Kimaya Fashions Pvt Ltd.

Mobile phones: Good and Bad

Telecom equipment manufacturers welcomed the Finance Minister's proposal to extend concession on parts, components and accessories for manufacture of mobile phones for another year.

"In the previous budget, a total exemption of special additional customs duty was announced for handset parts. This exemption has been extended till March 2012.

This is being seen as a move to encourage local manufacture of cell phone handsets. As more local companies continue manufacturing cell phones, there is a long-term possibility of prices going down.

But at the moment, there won't be any immediate impact on prices," said Deepa Doraiswamy, Industry Manager, Electronics, Frost & Sullivan.

However, there was some bad news on the mobile phone front, as Pranab Mukherjee announced one percent hike in the Central Excise duty for 130 items, including phones.

From April 1, central excise duty on mobile phones will be raised from the current four per cent to five per cent.

Health
Budget announces u00a05 per cent tax on services provided by private hospitals

IF spiralling costs of vegetables, milk, petrol and just about every other essential commodity weren't burning a large enough hole in your pocket, the finance minister's announcement of a 5 per cent tax on services provided by private hospitals will definitely help you get there.

The service tax will be levied on regular checkups, blood tests, doctors' consultation fees and even life-saving
surgeries conducted by private hospitals with at least 25 beds and a central air-conditioning system.

This and other healthcare-related announcements in the Union Budget have irked the industry and experts say the budget will only serve to put super-specialty hospitals further out of the middle class' reach.

"The budget has put the middle class in a fix because now they will have to shell out more money to go to private hospitals or even nursing homes. They can't go to government hospitals as they are already flooded with patients.

The service tax has made the plush private hospitals, which are already out of reach for the middle class, have become even more unaffordable," said Dr Shivkumar Utture from the Indian Medical Association.

Letdown

The healthcare sector had pinned its hopes on a reversal of the 10 per cent service tax announced on cashless insurance in the last budget.

"However, instead of reversing the service tax, they have applied it to all services in private hospitals this year, making healthcare even more expensive for the common man at a time when prices of all other commodities are skyrocketing.

Ultimately, it is the patients who will have to face the brunt of the tax and it will keep them away from good hospitals. The government should understand that affordable healthcare can be provided to citizens by partnering with the private setup," said Deepak Samant, director (finance) at the Hinduja Hospital.

The healthcare industry was also expecting incentives in the field of medical equipment manufacture to keep escalating costs of diagnosis under control.
u00a0
"Currently, most biomedical equipment is manufactured abroad, making many diagnostic tests costlier. But, instead of giving incentives in this area, the service tax has made these tests even more expensive," added Samant.

Uniform taxation

Vijay Shetty, director, Cumballa Hill Hospital, said, "There should be uniform taxation. By taxing only those hospitals that have more than 25 beds and air conditioners, the government seems to be penalising those who have invested in providing quality healthcare. In a bid to save money, people may opt for smaller nursing homes, which could mean compromising on their health."