The Indian Budget 1996-97 The Indian Economy Overview


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Taxation [2]

  1. Infrastructure funds have become an important source of capital to finance infrastructure projects. In order to encourage such funds established to mobilise resources for financing infrastructure facilities, I propose to exempt them from income-tax. Any dividend, interest or long-term capital gains of such funds or companies from investments in the form of shares or long-term finance in any enterprise set up to develop, maintain and operate an infrastructure facility will be free from income tax.

  2. I also propose to allow investment in approved debentures or equity shares of public companies as eligible for tax rebate under section 88 if the proceeds of such public issues are applied to create a new infrastructure facility or to generate or distribute power. In the case of such investment, the limit of Rs.60,000 under section 88 will be raised to Rs.70,000.

  3. Corporate tax rates have been reduced and simplified over the past few years and the results have been very encouraging with a significant increase in corporate taxes as a percentage of GDP. However, there are two issues which need to be addressed. The first is the promise made in the past that the corporate surcharge will be temporary. The other is the phenomenon of zero tax companies which, according to many observers, reflects an excessive degree of laxity in the tax regime. I propose to respond to the two issues as follows :

  4. As a step towards achieving a level playing field for Indian companies vis-a-vis the foreign companies, I propose to reduce the tax on long-term capital gains in the case of domestic companies from 30 per cent to 20 per cent.

  5. In order to encourage savings and to channelise savings into investments in priority sectors of the economy, I propose to exempt from tax long-term capital gains if the net consideration received or accruing from the transfer of the capital asset is invested in specified assets for a period of three years or, alternatively, if the entire capital gains are invested in specified assets for a period of seven years. The assessee will now have a choice of two new savings instruments.
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