Budget Rollbacks – respite for property buyers and jewellery merchants

Yesterday, Finance Minister Pranab Mukherjee announced few rollbacks from the budget proposals in his opening speech to discuss the Finance Bill 2012 in Lok Sabha. 

The rollbacks affecting individuals and investments are given below.  To help understand the rollback better, initial budget proposal is listed first, followed by the rollback proposed yesterday.

Budget Proposal: W.e.f October 2012, sale of residential property for transaction value more than Rs. 50 lakhs in specified urban agglomeration or Rs. 20 lakhs in any other area shall attract tax deduction at source of 1% of the transaction value irrespectively whether the transfer is profitable or not.

Revised Proposal: The above proposal has been withdrawn and there shall not be tax deduction at source on sale of residential property.

Budget Proposal: Cash purchase of bullion and jewellery for amount more than Rs. 2 lakhs shall lead to tax collection of 1% of the value by the seller.

Revised Proposal: The threshold limit of Rs. 2 lakhs has been increased to Rs. 5 lakhs in case of cash purchase of jewellery. The threshold limit for cash purchase of bullion has been retained at Rs. 2 lakhs.  However, it is clarified that bullion will not include any coin or other article weighing 10 gms or less.

Budget Proposal:  Imposition of central excise duty on unbranded precious metal jewellery at the rate of 1%.

Revised Proposal: The levy of central excise duty on all precious metal jewellery, branded and unbranded, has been withdrawn.

Additional Proposal:  Sale of unlisted securities in an initial public offer, which were hitherto charged to capital gain tax, shall be exempted from long term capital gains tax.  Instead of long term capital gains tax, securities transaction tax @ 0.2% shall be levied on such sales.  However, short term capital gains tax on such sale is still applicable at marginal tax rate.

Thus it can be seen that the long nation-wide strike by jewellery merchants has been effective and they got the rollback sought for.  However, Finance Minister failed to provide clarity on the Rajiv Gandhi Equity Scheme, which proposed to give 50% deduction of investment made in equities by individuals earning less than Rs. 10 lakhs.  The nature of such scheme and its benefit to investors at large remains unclear.