Increased taxes to boost revenue
The finance minister has sought to raise an additional amount of Rs 6,000 crore through various proposals, including imposition of a 5 per cent surcharge. Direct tax revenue is expected to fetch Rs 91,585 crore in 2002-03, a little more than half of the total tax collections of Rs 172,965 crore.
Tax slabs have by and large been left unchanged. Corporate tax on foreign firms has been brought down even as sops have been offered on selective basis to domestic companies. Dividend distribution tax on corporates has been done away with, leaving only a small surplus in their hand. This has, however, been replaced with a tax on dividend in the hands of recipients.
Income tax on Indian companies will continue to be charged at 35 per cent. In the case of foreign companies, however, the incidence has been brought down to 40 per cent as against 48 per cent.
This tax would be subjected to an additional Defence Surcharge of 5 per cent which will replace the earlier 2 per cent surcharge.
With a view to encourage investments and industrial growth the budget has proposed:
Additional depreciation at the rate of 15 per cent will be allowed on assets acquired and installed after March 31, 2002. This would be applicable to new units as also to existing units which undertake substantial expansion that would increase the installed capacity of not less than 25 per cent. Installed capacity would mean capacity of production as existing on the last day, on or after March 31, 2002.
With a view to incentivising shipping companies in deploying more funds towards modernisation and expansion of its fleet the earlier exemption has been widened. Earlier, the shipping companies were allowed a maximum exemption under section 33AC, of profits carried to a reserve account, up to twice the amount of paid-up share capital (excluding the amount capitalised from the reserves).
This has now been broadened to include twice the amount of share capital, general reserves and the amount credited to the share premium account. This provision would come into effect from April 1, 2003.
Besides increasing the quantum of amount, which could be further invested, the government has also specified that the amount taken to the reserves under the section 33AC would not be added to the book profits. In other words, this would not be taxed under 115J, minimum tax on companies.
Shipping Corporation of India has transferred Rs 355 crore to the Special Reserve Fund in 2000-01 and paid tax of Rs 172 crore. Its paid-up capital was Rs 282 crore. General Reserves were Rs 1,162 crore. Technically, the company would not have to pay any tax in the coming year.
Banks have been allowed to deduct up to 7.5 per cent of their total income as against 5 per cent against provisions made for bad and doubtful debts. This optional deduction has been enhanced to 10 per cent.
A similar option to deduct up to 10 per cent of loss or doubtful asset has been extended to financial institutions.
Carry forward losses and mergers
Benefit of carry forward and set off of past losses in case of mergers of companies owning industrial undertakings has been extended to the telecom sector. An expert group to be constituted would explore the extension of this benefit to other companies in the services sector, including the financial sector.
Companies investing in setting up multiplexes in places other than metropolitan towns would be allowed to avail of tax deduction of 50 per cent of its profit for a period of five years. This could give a further fillip to the construction and entertainment industry.
Hotels and Tourism
Deductions in respect of foreign exchange earnings of hotels or tour operators have been enhanced to bring it in line with other exporters. For the assessment year 2003-04 the effective exemption would be 50 per cent ( 25 per cent of the profit from services to foreign tourists and further 25 per cent as is transferred to the specific fund) and for assessment year 2004-05 it would be 30 per cent.
100 per cent exemptions to approved trust for Gujarat Earthquake continued till March 2003.
Charitable trusts whose income exceeds Re I crore have been exempted from publishing their income in newspapers. Accumulation of income for 5 years allowed. Inter-trust donation may be made only from the corpor of from the current year's income.
Capital gains exemption to small-scale industry units invested in bonds issued by SIDBI will continue.
Investments in bonds issued by National Housing Bank would also be eligible for capital gains exemption under section 54EC. This would be in addition to investments in bonds issued by NABARD, NHAI and REC.
Personal income tax
This is one sector which will be bearing the brunt of the adverse proposals. While the tax slabs have been kept unchanged, tax rebates have been reduced. Dividend tax has been reimposed in the hands of the recipients. In other words, the taxable income has been increased while the tax rebates have decreased.
Existing tax slabs remain unchanged. Five per cent surcharge would also be payable except in cases of individuals and Hindu undivided families having total income below Rs 60,000.
Exemption from taxing perquisites during assessment year 2002-03 in case taxable salary, excluding perquisites, is below Rs 100,000.
Dividend tax of 10 per cent on companies and mutual funds on the dividend or income distributed by them abolished.
Dividend income would, however, be taxed in the hands of the recipients and will be subject to tax at source of 10 per cent.
Rebates in respect of contribution to life insurance premia, provident fund etc., have been drastically trimmed.
Rebate of 20 per cent to persons will henceforth be allowed to only persons having taxable income up to Rs 1.50 lakh per annum. Persons with taxable income of 1.50-5.00 lakh would be allowed rebate of 10 per cent only. No rebate will, however, be allowed to persons having taxable income exceeding Rs 5 lakh. Special rebate of 30 per cent to persons drawing salary up to Rs 1 lakh will, however, continue.
The ambit of section 114B has been widened to make it mandatory to quote the PAN in case of
a) Expenditure exceeding Rs 25,000 in cash of foreign travel
b) Purchase of bank drafts in excess of Rs 50,000
c) Cash deposits of over Rs 50,000 in any bank account.
A penalty of Rs 10,000 would be levied in case of misreporting of the PAN number.
Rules aimed at making it mandatory to file reports with the Income Tax Department within a specified time will be framed shortly.