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XI. TAX PROPOSALS
Indian Budget 2004-05
Full Text of P. Chidambaram, Minister of Finance, Budget Speech(July 8, 2004)
Direct taxes
96. I shall begin with my direct tax proposals. Let me give you the good news first. No one with a taxable income of Rs.100,000 will be required to pay any income tax any more. It was not easy to reach this decision. While the tax rates are moderate, it is the tax slabs which cause concern. However, I am unable to alter the tax slabs because I cannot afford to lose a large amount of revenue at a time when the Government has assumed a larger responsibility for investment and welfare programmes. Out of nearly 3.4 crore persons filing income tax returns, only 2.7 crore assessees are taxpayers. My proposal will give relief to 1.4 crore assessees. The method that I have adopted is somewhat novel. While everyone will file his return according to the current tax slabs and tax rates, and compute his taxable income and the tax payable, any one with a taxable income of Rs.100,000 will have his income tax liability automatically rebated. I cannot give more relief, or relief across the Board, in this Budget. If compliance improves, I promise to revisit the subject.
97. I propose to give relief to certain sections of deserving tax payers. Accordingly, I propose to exempt from income tax the family pension received by widows, children and nominated heirs of members of the armed forces and the paramilitary forces killed in the course of operational duties. This is my humble salute to their supreme sacrifice.
98. I propose to extend the benefit of Section 80DD and Section 80U in respect of persons suffering from autism, cerebral palsy and multiple disability.
99. Farmers have brought to my notice that agricultural land situated in certain urban agglomerations fall under the definition of capital asset and the compensation for acquisition of such land is subjected to capital gains tax. Such compensation deserves to be exempted from capital gains tax. I propose to do so in cases where the compensation or the enhanced compensation has been received on or after April 1, 2004.
100. A new ‘defined contribution’ pension scheme for new entrants into Central Government service has come into effect from January 1, 2004. The tax treatment of contributions made to the scheme has engaged the attention of Government. I propose to adopt the universally accepted formula of EET: that is, the contributions will be excluded from income for tax purposes; the accruals will also be exempt from tax; and only the terminal benefits will be taxed at the applicable rate in the year of receipt.
101. I propose to withdraw a few exemptions which have outlived their utility. Interest earned from a Non-Resident (External) Account and interest paid by banks to a Non-Resident or to a Not-Ordinarily Resident on deposits in foreign currency will not be exempt from tax. Similarly, any payment made by an Indian company to acquire an aircraft or an aircraft engine on lease from a foreign state or a foreign enterprise will not be exempt from tax. These exemptions will cease prospectively from September 1, 2004.
102. Hon’ble Members are aware that I abolished the gift tax in 1997. That decision remains, but a loophole requires to be plugged to prevent money laundering. Accordingly, purported gifts from unrelated persons, above the threshold limit of Rs.25,000, will now be taxed as income. Gifts received from blood relations, lineal ascendants and lineal descendants, and gifts received on certain occasion like marriage will continue to be totally exempt.
103. In order to promote agro-processing industries, I propose to amend Section 80 IB of the Act to allow a deduction of 100 per cent of profits for 5 years and 25 per cent of profits for the next 5 years in the case of new agro-processing industries set up to process, preserve and package fruits and vegetables.
104. Investment in the manufacturing sector deserves the Government’s attention. Hence, I propose to continue with the additional depreciation of 15 per cent allowed under Section 32(1)(iia) on new plant and machinery acquired or installed in an existing undertaking; however, the required increase in installed capacity will now be 10 per cent, and not 25 per cent.
105. The automobile sector has done well and needs to be encouraged. I therefore propose to notify the automobile industry as an industry entitled to 150 per cent deduction of expenditure on in-house R&D facilities.
106. The power sector also deserves tax concessions. The Electricity Act 2003 envisages unbundling of generation, transmission and distribution. In order to promote renovation and modernization of existing transmission and distribution lines, I propose to extend the benefit under Section 80 IA to projects undertaken during the period April 1, 2004 to March 31, 2006.
107. The shipping industry has demanded the levy of a tonnage tax to make it intentionally competitive. Tonnage tax will also induce more ships to fly the Indian flag. I propose to accept the request. Consequently, the concessional regime under Section 33 AC will be withdrawn and shipping companies will now have only an option to pay the tonnage tax or normal corporate tax on profits.
108. I propose to extend the benefit of Section 80 IB to new hospitals with 100 beds or more set up in rural areas. Such hospitals will be entitled to a 100 per cent deduction of their profits for a period of five years.
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