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May 3, 2000


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Changes in direct , indirect taxes; investment limit for infrastructure bonds raised to Rs 20,000; ESOPs not to be treated as perks, to be taxed only on sale; more concessions for housing sector; bonanza for sports associations; 10-yr tax holiday for STP units

FM grants sops for venture capital funds, raises basic customs duty on tea, coffee

Finance Minister Yashwant Sinha today proposed changes in direct and indirect taxes, and exempted five items from CENVAT or Central Value Added Tax while moving in the Lok Sabha the Finance Bill for 2000-2001, giving effect to taxation proposals.

The items which will be exempt from CENVAT include silicon, e-mal and intravenous fluids, tapoica starch and asafoetida (heeng).

He also exempted biscuits of maximum retail price not exceeding Rs 5 per packet and weight not exceeding 100 gms from 50 per cent of CENVAT.

He also proposed to increase the duty free clearance limit of paper made from non-conventional raw materials from 2500 tonnes to 3500 tonnes a year.

Sinha also proposed changes on the customs side. He exempted artemisinin from basic customs duty, reduced the basic customs duty on DBM, fused magnesia and seawater magensia of certain specifications from 35 per cent to 25 per cent, and proposed an increase in the basic customs duty on tea and coffee from 15 per cent to 35 per cent.

He increased basic customs duty on poultry meat and their preparation from 35 per cent to 100 per cent, increased the additional duty of customs or CVD on marble slabs and tiles from Rs 30 per square metre to 16 per cent and increased the basic customs duty on non-cooking coal from 15 per cent to 25 per cent.

Sinha said the changes leading to reduction in excise and customs duties would come into force from May 4. Changes in increase in duties and other legislative changes will become operational after the Finance Bill is passed by Parliament and enacted.

Sinha also proposed changes in direct taxes. Venture capital funds will enjoy a complete pass-through status. There will be no tax on distributed or undistributed income of such funds. The income distributed by the funds will only be taxed in the hands of the investors at the rates applicable to the nature of income.

To encourage research and development in knowledge based industries, particularly pharma and biotechnology, the weighted deductions for such expenses will be raised from 125 per cent to 150 per cent.

These R&D companies will also enjoy a tax holiday for ten years. The finance minister also proposed to set up a fund of Rs 1.50 billion to be utilised for promoting research and development activities in the country.

The lock-in period of five years will be reduced to three years for investment of capital gains in bonds of the National Highways Authority of India and National Bank for Agriculture and Rural Development or NABARD under Section 54EC. Sinha further proposed to raise the limit of investment in infrastructure bonds for rebate under Section 88 from Rs 10,000 to Rs 20,000.

To further promote housing activity, the finance minister proposed to raise the limit of deduction of interest payable in acquiring self-occupied properties from Rs 75,000 to Rs 100,000.

Sinha proposed to exempt charitable companies set up not with any profit motive from the operation of Minimum Alternate Tax.

The surcharge on non-corporate assessees having income above Rs 150,000 will continue to be at 15 per cent, but for purposes of tax deducted at source, it will only be at ten per cent to avoid operational complications.

To mitigate the hardship being faced by farmers, Sinha proposed to discontinue TDS on compulsory acquisition of their land. Exemption limit of tax at source on non-bank deposits isproposed to be raised from Rs 2,500 to Rs 5,000.

The shares received by employees under the Employees Stock Option Plan would not be regarded as perquisites and would be taxed only as capital gains at the time of sale.

The concessions available to units set up in free trade zone or software technology parks and to Export Oriented Units will now be phased out over a ten-year period. The units set uptill March 2000 will have concessions for ten years, those set up in 2000-2001 for nine years, those in 2001-2002 for eight years.

He also proposed to extend the concession to infotech-enabled services as well. Concessions on domestic sales upto 25 per cent of the total sales will continue. Units in special economic zones will also have the same benefits.

The benefit of 100 per cent deduction provided to donations made to the Indian Olympic Association is also proposed to be extended to other National Sports Associations recognised under Section 10(23) of the Income Tax Act.

Sinha proposed extension of benefit of 100 per cent deduction on the donations made to any recognised national sports association.

He said that tax benefits would be available to sports associations which are recognized under Section 10(23) of the Income Tax Act.

Sinha had proposed in the Budget tax benefits to the Indian Olympic Association only.

Almost all national sports associations had demanded that tax benefits on donations should also be available to all apex associations like the Indian Hockey Federation and others.

With the extension of benefit, demands of all sports bodies have been met.

More concessions for the housing sector

Sinha today proposed more concessions to the housing sector with the hike in limit of deduction of interest payable in acquiring self-occupied properties from Rs 75,000 to Rs 100,000 in a financial year.

He had proposed a series of concessions while presenting the Budget on February 29.

With this announcement, limit of repayment of housing loan qualifiying for rebate also available from the financiat year 2000-2001 will be upto Rs 20,000 as against Rs 10,000 in the last financial year.

In the budget, the government has also extended the terminal date in respect of the enhanced deduction of interest on loans taken to acquire or construct self-occupied housing property. In the budget, the government has also extended the scope of Section 54-F to allow deduction to an individual or Hindu Undivided Family.

The government have been giving a large number of fiscal concessions in the past few years to the housing sector with an objective to provide more dwelling units in the country.

Chambers welcome Sinha's largesse

Welcoming the modifications in the Finance Bill announced by Sinha, apex business chambers said that the move augurs well for the knowledge-based industry.

Confederation of Indian Industry president Arun Bharat Ram said measures such as totally exempting venture capital funds from tax, taxing stock options at the time of sale, and giving software technology parks a ten-year graded tax holiday would go a long way in giving a boost to the information technology sector.

The Federation of Indian Chambers of Commerce and Industry said that the decision to tax the Employee Stock Options or ESOPs at the time of sale will rectify anomalies in the taxation.

The chamber said that measures such as increasing the investment limit in infrastructure bonds from Rs 10,000 to Rs 20,000, reducing the lock-in period from five years to three years, increasing the limit of deduction for self-occupied houses from Rs 75,000 to Rs 100,000 are good and would go a long way in ameliorating the difficulties faced by industry.

Budget concessions at a glance


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