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Direct Taxes - B


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Introduction
Economic Situation
Key Objectives
Agriculture
Housing
Infrastructure
Small Scale Industry
Science & Technology
Banking
External Sector
Capital Market
Expenditure Management
PSU Reform
Revised Estimates
Budget Estimates
Indirect Taxes
Custom Duties
Direct Taxes - A
Direct Taxes - B
Closing Statement

Budget 1998-99
Budget 1997-98
Budget 1996-97

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For the construction activity to pick up any significant degree of momentum, it has to be ensured that housing finance companies stay financially viable. Currently, such housing finance companies are subject to tax on interest on loans, on accrual basis. In order to lessen the burden on such housing finance companies, I propose to amend the law so that the income of such companies will be taxable on actual basis, rather than accrual basis.
A significant number of individuals seeking accommodation in the major cities are the employees of the business sector. I feel that it is necessary to encourage the business sector to invest in housing for their employees so as to add to the net housing stock. In this spirit, I propose to increase the depreciation rate from 20% to 40% on new dwelling units purchased by the business sector for its employees.
This entire package of fiscal incentives for the housing construction sector will, I believe, be a powerful force for revival of the entire economy. The construction sector has very strong linkages with several other major sectors, notably steel and cement. A general upsurge in construction activities will not only increase the corpus of housing stock in the country, but will give a substantial fillip to industrial activity.
Apprehensions have been expressed in certain quarters regarding the incidence of a high level of Non Performing Assets (NPAs) in some of the banks. I am of the view that the banks should make every effort to clean up their books and to remove any misgivings, which may exist about the transparency of the accounts. To assist in this direction, Mr. Speaker, Sir, I propose to make tax deductible such amounts as are provided by banks as ‘doubtful debts’ subject to a maximum of 5% of the such aggregate ‘doubtful debts’, in any one year. This concession will be available for a period of 5 years for such ‘doubtful debts’ as are identified under the prudential norms prescribed by the Reserve Bank of India.
I propose to amend the law so that tax concession will be available to a loanee on interest payment to a co-operative bank on actual basis rather than accrual basis. This proposal will induce the loanees to make timely repayment of their interest liability inorder to avail of the tax benefit, and correspondingly, the financial condition of the co-operative banks can be expected to improve.
Mr. Speaker, Sir, I now turn to the proposals relating to the Infrastructure and Industry sectors.
I propose to extend the fiscal incentives by way of the tax holiday under Section 80 IA of the Income Tax Act, to cold chains for agricultural produce.
The financial condition of most of State Electricity Boards is extremely precarious. Many of the State Electricity Boards wish to remedy the situation by unbundling generation, transmission and distribution activities to separate companies. I propose to treat the activities of transmission and distribution of power, set up after 1.4.1999, as eligible activities for fiscal incentives available to infrastructure units. I am sanguine that this proposal will facilitate the restructuring and rehabilitation of the State Electricity Boards.
Currently, the tax exemption given under Section 80 IA of the Income Tax Act to the infrastructure sector and other core sectors, has to be availed of within a given maximum period. This given maximum period has come to vary from sector to sector. In order to bring about uniformity, I propose the amendment of the Income Tax Act so as to provide a maximum period of 15 years in which units can avail of the tax concessions offered to infrastructure and other core sector units.
Mr. Speaker, Sir, I am conscious of the fact that, despite all our announcements, the industrial development in North Eastern Region has not come up to our expectations. To give industrialisation a fillip in this area of the country, I propose a 10 year tax holiday for all industries set up in Growth Centres, Industrial Infrastructure Development Corporations, and for other specified industries, in the North Eastern Region. I would urge the industrial entrepreneurs from this part of the country to seize the opportunity and set up modern, high value added manufacturing units in the region
The Indian entertainment industry, which includes films, music and television software is growing by leaps and bounds. I believe that with our creativity and our talent, India has the potential to become a global media superpower. We have done remarkably well in the field of computer software development and exports, and the same can be achieved in the development and export entertainment industry products, specially films, TV, software and music. With a view to facilitating India becoming a super power in this sector, I am including a number of measures in the budget. My aim is to give similar facilities and tax benefits to this sector as are available to the export of goods and merchandise under section 80HHC.
Let me assure you that it would be our endeavour to support the entertainment industry "Dil Se", and I am sure that no longer would the industry have to ask the government "Hum Apke Hain Kaun"?
Mr. Speaker, Sir, we are all conscious of the fact that the Information Technology sector is going to be the sector of the future. The immediate crisis, which is looming over this sector, is connected with the Y2K Problem, which will hit us at the close of the current calendar year. I get the impression that the corporate sector is not adequately seized of the dangers which lie ahead on account of this problem. In these circumstances, to assist the business sector to overcome the Y2K Problem, I propose that all expenditure incurred in making their systems Y2K compliant be allowed as revenue expenditure in the next financial year. I urge the business sector to avail of this concession and make every effort to remedy the defect in their software systems, so that their valuable databases do not spin into chaos.
Under the current law, a weighted deduction of 125% of the expenditure made on in-house R&D is available to corporate houses up to 31.3.2000. Representations have been received that this period is too short for any company to plan its R&D programme. I propose to extend the concession for in-house R&D up to 31.3.2005. Further, I propose to extend a similar concession of permitting a weighted deduction of 125% of expenditure for R&D Projects entrusted to research laboratories and universities. In the globalised economy, the future is for those who are in the vanguard of development of technology. In view of this, I would urge the corporate sector to avail of this facility to the fullest extent.
In the last few years, the direct tax department has undertaken a concerted drive to extend the national tax base. As a method of identifying potential taxpayers, the "One by Six" scheme was extended to 35 cities in 1998-99. This Scheme has given very satisfying results. Consequent upon the launching of this scheme, the number of tax assessees has risen from 120 lakh to 140 lakh in the period of one year. It is the assessment of the department that there is considerable scope for further registration of tax assessees. In view of the favourable results of the scheme, I now propose to extend this scheme to 19 more cities in the country having a population of more than 5 lakh.
Since the last budget, the Income Tax department has undertaken a drive for issue of PAN Numbers to the tax-paying applicants. The response of this scheme has been overwhelming, and we have received as many as 168 lakh applications. The requisite PAN Numbers have already been issued to 75 lakh taxpayers and we are confident that the remaining applications will be disposed in the next few months.
Mr. Speaker, Sir, I will now like to highlight the proposals which are targeted at those sections of society which require Government’s special attention. First, I propose that the deduction for medical insurance premia for senior citizens be raised from the current level of Rs.10,000 to Rs.15,000 and tax deduction for treatment of specific diseases be increased to Rs.60,000. Considering the fact that medical and hospitalisation costs have risen and life expectancy has also improved, the general insurance industry intends to increase the upper ceiling of the sum insured under the mediclaim policy from the existing level of Rs.3 lakh to Rs.5 lakh, and the upper
age limit for coverage to 80 years from the existing 75 years. Second, I propose that expenditure made in respect of hostel projects for working women be eligible for deduction from taxable income under Section 35AC of the Income-Tax Act. Third, I propose that pension received by the recipients of the different gallantry award winners, and the family pension received by their heirs, be exempted from income tax.
Mr. Speaker, Sir, I now submit my last proposal on direct taxes. I face the difficult task of containing the revenue and fiscal deficits on the one hand, and on the other meeting the growing development expenditure. I propose to fulfil this task and also ensure equitable burden sharing. I am making a modest demand only on those sections of our society who have the capacity to pay while exempting low-income earners. With these considerations, I propose to impose an across-the-board surcharge of 10% on Corporate Tax, and also a 10% surcharge on all other categories of assessees. In respect of individuals and Hindu Undivided Families, the applicability of the surcharge is limited to those having total income of Rs.60,000 or more. In effect, this surcharge will mean an increase of a marginal 2% in the 20% slab & 3% in the 30% slab. It would leave the rate in the 10% slab unchanged. This is in the nature of a temporary surcharge. I trust that the House and our citizens will appreciate the circumstances in which I have had to make this proposal.
To sum up, Mr. Speaker, Sir, as a result of the various proposals made in this budget on the direct taxes, the estimated revenue in 1999-2000 would be Rs.59,235 crore, including a component of net additional resource mobilisation of Rs.3,100 crore.
I now have something to say on behalf of my colleague, the Minister of Communications. Postal Service is highly employment intensive and salary & allowances constitute a major part of the operating expenses of the Postal Department. A revision of tariff for some postal services has, therefore, become unavoidable. However, in the interest of the common man and the role of the postal services in easy dissemination of news and information there will be no change in the tariff for Postcard, Money orders, Book packets containing printed books and Registered newspapers. However, the rate of Printed Postcard is being raised from Rs.1.50 to Rs.2.00, of Competition Postcard from Rs.3.00 to Rs.4.00, of Inland letter from Rs.1.50 to Rs.2.00, of Book pattern and sample packets from Re.1.00 to Rs.2.00 for first 50 grams or part thereof and from Rs.2.00 to Rs.3.00 for every additional 50 grams or part thereof, and Parcels from Rs.10.00 to Rs.12.00 for a weight not exceeding 500 grams or part thereof and from Rs.10.00 to Rs.15.00 for every additional 500 grams or part thereof. There are also certain other changes, which are explained in the Memorandum circulated along with the budget documents. The changes would take effect from a date to be notified after the Finance Bill is passed. The revisions proposed are estimated to yield additional revenue of about Rs.145 crore in a full year and about Rs.121 crore during 1999-2000. Even this modest increase which is necessary for sustaining postal development, will only partially meet the cost of various services.
As a result of the postal tariff revision, total expenditure of the Central government for the year 1999-2000 would be marginally reduced to Rs.2,83,882 crore while with my tax and other proposals, net revenue receipts and non-debt capital receipts would increase to Rs.2,03,927 crore. The revenue deficit is placed at Rs.54,147 crore, while the fiscal deficit is placed at Rs.79,955 crore. This amounts to 2.7% and 4.0% respectively on the basis of the new series of GDP announced by Central Statistical Organisation and after excluding the payment of the share of small savings collection to State Governments. Based on the old series of GDP and excluding the payment of the share of small savings collection to State Governments, the percentage works out to 3.0% and 4.4% respectively.

 

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