February 4, 2004 KM Bureau

No Change in Income Tax Structure More News

Interim Vote Bank Budget Presented

The Finance Minister, Shri Jaswant Singh, today announced measures to fully consolidate and continuously enhance the growth momentum which the country has achieved. Presenting the Interim Budget for 2004-05 in the Lok Sabha today, the Finance Minister reiterated the government’s responsibility to encourage the economy which was set on the path of accelerated growth. Pointing out that national contentment would lead to the birth of objectives, the Finance Minister said “Garib ke pet me dana, Grihini ki tukia mein anna”.

The Finance Minister announced a number of measures for consolidation of economic growth. The Antyodaya Anna Yojana which currently covers one-and-a half crore below the poverty line has been extended to cover two crore BPL families. Tribal states, districts and belts are to receive additional allocations from April 1, 2004. Extending the Pradhan Mantri Swasthya Suraksha Yojana, the Finance Minister said one medical college each in the states of Andhra Pradesh, Jammu & Kashmir, Jharkand, Tamil Nadu, Uttar Pradesh and West Bengal will be upgraded to the level of AIIMS. Shri Jaswant Singh recalled that the Prime Minister had already announced the establishment of six hospitals on the AIIMS pattern in the government sector.

Rural

The Finance Minister announced a number of additional measures to ensure availability of timely credit at affordable rates to our farmers and other citizens in rural India. These include:

· Banks being urged to offer loans for agricultural purposes at rates lower than those prevailing currently.

· Banks advised not to insist routinely on additional collateral through a mortgage of entire land holding.

· All eligible farmers to receive kisan credit cards by March 31, 2004.

· Existing kisan credit cards will be modified on request for use on ATM machines.

· Farm insurance scheme which was introduced on a pilot basis to be extended to 100 districts.

· Special promotional campaign for self-help groups.

A special tea term loan repayable in five years with a moratorium of one year is to be provided. In the case of small tea growers, banks have agreed to extend fresh working capital limits upto Rs. 2 lakh at an interest rate of 9%. Sugar, another major agro-processing industry of the country will also benefit from a package for the revitalisation of the industry in consultation with the stakeholders.

The Finance Minister announced that as a measure of temporary relief, restructuring of loans taken by sugar factories will be examined by the lending agencies.

Cooperative Banks

Underlining the important role played by cooperative banks in the delivery of rural credit, the Finance Minister announced that a scheme to revitalise the cooperative credit structure with an outlay of about Rs.15,000 crore to be shared between the centre and the states has been prepared.

Laghu Udyami Credit Cards

The public sector banks are to increase the credit limits of their cards under the Laghu Udyami Credit Cards scheme. This increased credit limit will be for borrowers with a satisfactory track record and would range from Rs. 2 lakh to Rs. 10 lakh.

Stamp Duty Reform

The government has decided to reduce stamp duty on all instruments where the authority to fix rates lie with the central government. As a first step and as a first reduction, the Finance Minister announced that the existing stamp duty structure is being halved. He also announced that the threshold for payment of stamp duty is to be increased as far as duty for receipts are concerned. As this last proposal would require amendment of the Act, it would be taken up at a later stage.

Measures for special areas

The district of Nicobar being one of the remotest districts in the country and being relatively inaccessible, the government has announced a hard area allowance of 25% of basic pay to be paid to all government employees posted there. This allowance would be applicable from April 1, 2004.

The status of Port Blair is to be raised from C to B-1 class city for purposes of house rent allowance. Simultaneously, rural areas of the union territory of Andaman & Nicobar island and the union territory of Lakshadweep will stand upgraded to C-class city for the purpose of payment of the allowances.

The Finance Minister also announced a special package for desert areas. He has proposed the establishment of a Task Force for Integrated Development of Desert Areas which would have a mandate of addressing the problem of sustainable livelihood in all deserts. The task force will also examine the establishment of a rural technology centre in one of the desert districts. The Indira Gandhi Canal Project will be accelerated through a fresh centre-state initiative including additional innovative funding. The Finance Minister also extended the exemption from excise duty which is already available to the new industrial units in the Kutch district of Gujarat. The exemption at present is now available for new units to be set up upto July 31, 2004. This has now been extended for units to be set up till December 31, 2004.

Problem of water scarcity

Pointing out that the need and demand for water has grown much faster that additional supply measures, the Finance Minister announced the Prime Minister’s decision to initiate an accelerated supply of drinking water supply scheme for mega cities such as Bangalore, Chennai, Delhi and Hyderabad. The provision for infrastructure development in mega cities is to be augmented by accessing the infrastructure fund, LIC and other funding sources.

Convention Centres

Private-Public initiative is to be tapped to set up four global standard international convention centres. These are to be located in metro cities of Delhi and Mumbai and one each in Goa and Rajasthan. Goa is to be enhanced with infrastructure facilities to enable it to hold International Film Festivals.

Development Finance

The Finance Minister reiterated the importance of development finance and stated that the government is committed to preserving and strengthening the IDBI’s role as a development financial institution. With a view to giving a momentum to development finance, it has been decided to designate IDBI as the lead developmental finance institution. Similarly, the Industrial Finance Corporation of India is to be restructured through transfer of its impaired assets to an Asset Reconstruction Company and merged with a large public sector banks.

Agriculture Infrastructure Credit Fund

The Agriculture & Infrastructure Credit Fund is to provide credit support to infrastructure facilities such as wasteland development, existing but incomplete minor irrigation projects and new minor irrigation works, grading and storage of agro products and construction of modern abattoirs. The fund is to be renamed as Loknayak Jaiprakash Narayan Fund. Similarly, the SME fund will address the problem of inadequacy of financial resources for the small scale sector. The industrial infrastructure fund will provide credit at competitive rates for power generation, seaports, airports, telecommunication and urban infrastructure.

Defence Modernisation Fund

The government has decided to set up a non-lapsable defence modernisation fund of Rs. 25,000 crore. This will commit availability of adequate funds for defence modernisation and weapons system acquisition. The fund will be made available to the Ministry of Defence from the next financial year.

Employee Welfare

The government has decided to merge DA to the extent of 50% of pay with basic pay. The merger will take effect from April 1, 2004. The DA at present is 59% of pay. The government has implemented the merger decision as per the recommendation of the 5th Pay Commission.

Direct and Indirect taxes

While no changes in the income tax act have been proposed, the Finance Minister outlined the government’s commitment on certain fiscal measures. These include:

· extension of fiscal benefits available to the new projects in power sector to 2012 instead of 2006. These benefits are also to be made available to cases of takeover from SEBs.

· The regime of listed equities acquired on or after March 2003 being exempt from long-term capital gains tax should be extended for a further period of 3 years.

· To make Indian shipping internationally competitive, a tonnage tax scheme with notional income at a fixed rate is to be considered.

· Capital gains on acquisition of agricultural land should be exempt from tax.

· There should also be no deduction of tax at source on the interest earned on enhanced compensation for acquisition of such land.

· If outsourced services are ancillary and auxiliary in nature, then there shall be no tax on the foreign company which has outsourced its activity.

· Need to revisit the issue of revising the standard deduction for salaried class and the present exemption limits.

On the indirect tax front, the Finance Minister said that his Ministry would examine the suggestion that wherever there is exemption from countervailing duty on an imported capital good, deemed export benefits should be given to the very same capital good manufactured indigenously. The suggestion is to be examined in consultation with the Ministry of Commerce.

The free baggage allowance has been raised from Rs. 12,000 to Rs. 25,000. Customs duty on such baggage has also been reduced from 50% to 40% with immediate effect.

User-friendly tax administration

The Finance Minister announced a number of user-friendly tax administration measures including round the clock electronic filing of customs documents for clearance of goods to be extended to 23 customs formations. Customs clearance is to be based on self-assessment and selective examination from June 30, 2004 an 8-digit code classification of goods for levy of excise is to be adopted from September 2004, and e-filing of excise returns from June 30, 2004.

On the service tax front, only a simple verification is to be made for grant of registration. For assessees providing more than one taxable service, a single registration and single return will suffice.

Revenue and budget estimates

The Finance Minister presenting the book keeping for the current year said that the revised estimates has shown a decrease of Rs.11,143 crore as compared to the budget estimates. This reduction in expenditure has been achieved despite enhanced spending on rural development, the Sarva Shiksha Abhiyan, the Delhi Metro Rail Project and additional support for railways.

The net tax revenues has shown an increase of Rs.3370 crore. Non-tax revenue is estimated to be Rs.5722 crore more than the estimated level. Disinvestment receipts at Rs.14,500 crore was also higher than the budget estimate of Rs.13,200 crore.

The Finance Minister said that the fiscal deficit stood at 4.8% of the estimated GDP and the revenue deficit at 3.6% of the estimated GDP. The Finance Minister said that government has demonstrated its resolve on fiscal consolidation by performing better than the budgetary targets.

The gross budgetary support for the plan 2004-05 has been fixed at Rs.135,071 crore, indicating an increase of 11.6% over the current year. Out of this an amount of Rs.81,367 crore is the budgetary support for central plan, a 12.8% increase over the current year.

On the non-plan side, the budget estimates for the next year shows a net increase of Rs.16,218 crore. The increase is mainly due to interest payments and debt servicing, defence, grants and loans to state governments and food subsidies.

The Finance Minister concluded his speech by paying rich tributes to the leadership of the Prime Minister Shri Vajpayee and the contributions made by his predecessor Shri Yashwant Sinha on setting the Indian economy on a sustained and robust growth path of 7.5 to 8% per year.

No Change in Income Tax Structure

No changes in the income tax structure have been proposed in the Interim Budget 2004-2005 presented to Parliament today. While presenting the Budget in the Lok Sabha the Finance Minister, Shri Jaswant Singh said that some necessary changes in the income tax procedures require the amendment of the Income Tax Act. He said it is the conviction of the Government and also a commitment that fiscal benefits available to new projects in the power sector should be extended up to the year 2012, instead of 2006 and fiscal benefits should also be available to cases of take-over from State Electricity Boards. Outlining the mid term perspective on the direct tax front, the Finance Minister stated that:

1. The regime of listed equities acquired on or after March 01, 2003 being exempt from long-term capital gains tax should be extended for a further period of three years.2. To make Indian shipping internationally competitive, a tonnage tax scheme, with notional income at a fixed rate, on the basis of net registered tonnage should be considered. 3. Capital gains on acquisition of agricultural land should be exempt from tax. It is also proposed that there should be no deduction of tax at source on the interest earned on enhanced compensation for acquisition of such land.

4. If outsourced services are ancillary and auxiliary in nature and adequate remuneration is paid to the Indian call centre, then there shall be no tax on such foreign company as has outsourced its activity to India.The Finance Minister said there is also the need to revisit the issues of revising the standard deduction for salaried class, the tax treatment of family pension of war widows, and the present exemption limits.