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Budget impact: What's cheaper, who will benefit the most

Last updated on: February 17, 2014 19:59 IST

Budget impact: What's cheaper, who will benefit the most

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Cars, SUVs and two-wheelers along with other consumer items like TVs and refrigerators are set to become cheaper with Finance Minister P Chidambaram on Monday lowering excise duties to lighten the burden on middle class ahead of the upcoming general elections.

Although he did not propose any increase in taxes on other consumer products, a rationalisation of excise duties for all categories of mobile phones will lead to a marginal increase in the prices of entry level mobile phones costing less than Rs 2,000.

"To give relief to the automobile industry which is registering unprecedented negative growth, I propose to reduce excise duty..," Chidambaram said while presenting the Interim Budget for 2014-15.

"To give relief to the automobile industry which is registering unprecedented negative growth, I propose to reduce excise duty..," Chidambaram said while presenting the Interim Budget for 2014-15.

As per his proposal, excise duty on small cars, motorcycles, scooters and commercial vehicles has been cut to 8 per cent from 12 per cent earlier.

He restructured excise duties for all categories of mobile phone handsets to encourage domestic production and discourage imports. The rates will be 6 per cent with CENVAT credit or 1 per cent without CENVAT credit.

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Interim Union Budget 2014-15: Complete Coverage


Photographs: Reuters

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With the Finance Minister proposing a reduction in excise on capital goods and consumer non-durables on all goods falling under Chapter 84 and 85 of schedule of the Central Excise Tariff Act up to June 2014, many consumer items are set to become cheaper.

These include TVs, refrigerators, computers, printers, keyboards, mice, hard disks, scanners, vacuum cleaners, dish washers, water coolers, torch lights, digital cameras, hair dryers, electric irons, microwave oven, MP3 players and DVD players. 

Panasonic, LG reviewing prices after excise duty cut

Consumer durable firms Panasonic India and LG India said they are assessing the impact of excise cut on capital goods and reviewing the situation before deciding on passing the benefits to the consumer.

"Post the budget announcement regarding excise cut, we are closely observing the market dynamics and reviewing various aspects regarding pricing," LG India Managing Director Soon Kwon said in a statement.

Terming the interim budget as a positive step, Kwon said it would help to improve the market conditions and will boost the manufacturing sector. "This will generate a positive consumer sentiment and encourage new buyers in the consumer durable sector," he added.

Earlier in the day, Finance Minister P Chidambaram proposed reducing excise duty on capital goods from 12 per cent to 10 per cent.

"As far as prices are concerned, we are in the process of studying and assessing the impact. This two per cent cut in excise is a welcome change even though it is likely to have diminutive impact on prices," Panasonic India Managing Director Manish Sharma said.

The reduction in excise duty will help stabilise and provide growth opportunities to the industry which has been witnessing a slump for some time now, he added.

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Photographs: Courtesy, LG

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Mobile phones manufactured in India could also see price moderation with the Finance Minister announcing a proposal to boost domestic manufacturing. However, a majority of mobile phones sold in India, even by domestic firms like Micromax, Lava and Karbonn, are imported.

However, Samsung and Nokia have manufacturing facilities in the country and the excise duty rejig may lower their cost of production.

"To encourage domestic production of mobile phones, which has declined, and reduce the dependence on imports, which have increased, I propose to restructure the excise duties for all categories of mobile phones. The rates will be 6 per cent with CENVAT credit or one per cent without CENVAT credit," he said.

"I would like to thank Finance Minister for the attention to mobile handset segment. We have to go through the fine print before coming to any conclusion," Indian Cellular Association National President Pankaj Mohindroo said in his reaction.

Electronic component manufacturer association ELCINA said the announcement does not look promising for domestic firms.

"At first glance, I think it is not going to be a disincentive to trading. One per cent credit without CENVAT credit is too less," ELCINA Secretary General Rajoo Goel said.

As part of last year's budget, the government had raised the excise duty to six per cent on handsets priced above Rs 2,000.

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Photographs: Courtesy, Nokia

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In a bid to provide relief to the automobile industry, where sales have declined, the government lowered excise duty till June 30.

The excise duty on mid-sized cars will be 20 per cent from 24 per cent earlier.

While giving sops to the automobile sector, Chidambaram said: "I propose to make appropriate reductions in excise duty on chassis and trailers."

The new excise duty on small cars, motorcycles and scooters is 8 per cent as against 12 per cent earlier.

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On SUVs, excise duty has been brought down to 24 per cent from 30 per cent. Excise duty on large cars will now be 24 per cent compared with 27 per cent earlier, while the duty on mid-sized cars will go down to 20 per cent from 24 per cent previously.

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Manufacturing productivity has been low for the past few months and with the concessions for capital goods, auto and consumer durables, demand and therefore productivity is expected to increase, said Sachin Menon, Partner and National Head, Indirect Tax, at KPMG in India. 

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The government rationalised the customs duty structure on non-edible grade industrial oils and its fractions, fatty acids and fatty alcohols at 7.5 per cent to encourage domestic production of soaps and oleo chemicals. 

Another daily use item, soaps that are manufactured in India can also witness a softening of prices.

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To boost domestic production of specified road construction machinery, the government made countervailing duty applicable similar imported equipment.

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Chidambaram announced a concessional customs duty of 5 per cent on capital goods imported by the Bank Note Paper Mill India Private Ltd to promote indigenous production of security paper for printing currency notes.

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Rice can also be expected to be cheaper with the Finance Minister exempting service tax on loading, unloading, packing, storage and warehousing of the commodity.

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People looking to store umbilical cord blood for future use can now be expected incur lower expense with the service tax of 12 per cent on cord blood banks being withdrawn.

"Ministry of Health and Family Welfare has requested that services provided by cord blood banks are also healthcare services and should be exempt from service tax. I propose to accept the request," Chidambaram said. 


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