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    budget special    introduction | budget basics | budget glossary |budget highlights                                                                                                economic survey |articles & policies | news | Discussions


Return to Main Page of Budget 2004-2005


Indian Budget 2004-05
Full Text of P. Chidambaram, Minister of Finance, Budget Speech(July 8, 2004)


XI. TAX PROPOSALS

Direct taxes

109. The housing industry enjoys certain benefits under Section 80 IB for projects approved before March 31, 2005. I propose to extend the time limit to March 31, 2007.

110. A small problem has plagued the reconstruction and development of existing buildings under approved plans in the city of Mumbai. Perhaps the problem is there in some other cities too. I, therefore, propose to relax the condition of minimum plot size of one acre in the case of housing projects, as long as the projects are implemented in accordance with a scheme for reconstruction or development approved by the Central or State Government.

111. Capital gains tax is another vexed issue. When applied to capital market transactions, the issue becomes more complex. Questions have been raised about the definitions of long-term and short-term, and the differential tax treatment meted to the two kinds of gains. There are no easy answers, but I have decided to make a beginning by revamping taxes on securities transactions. Our founding fathers had wisely included entry 90 in the Union List in the Seventh Schedule of the Constitution of India. Taking a cue from that entry, I propose to abolish the tax on long-term capital gains from securities transactions altogether. Instead, I propose to levy a small tax on transactions in securities on stock exchanges. The rate will be 0.15 per cent of the value of security. Thus, a transaction involving securities valued at, say, Rs.100,000 will now bear a small tax of Rs.150. The tax will be levied on the buyer. In the case of short-term capital gains from securities, I propose to reduce the rate of tax to a flat rate of 10 per cent. My calculation shows that the new tax regime will be a win-win situation for all concerned.

112. I propose to make a change in the tax on dividends distributed by mutual funds. Equity-oriented mutual funds will continue to be exempt from tax. Debt-oriented mutual funds are now required to withhold 12.5 per cent of the income distributed to unit holders. Individuals and HUF unit holders will continue to enjoy the benefit of this rate. However, in the case of corporate unit holders, I propose a rate of 20 per cent. I am sure corporates will understand, because I am doing no more than partially closing a window of arbitrage opportunity.

113. I propose to put an end to bonus-stripping and dividend-stripping in units by making a suitable amendment to Section 94 of the Act.

114. I also propose some measures to widen the tax base and to plug revenue leakage. I do not wish to take the time of the House detailing each measure.

115. Tax deduction at source (TDS) and tax collection at source (TCS) are being extended to some more activities. Amendments are proposed to Section 40(a)(i) and Section 194 C.

116. The telecom sector enjoyed certain benefits under Section 80 IA for services commenced before March 31, 2004. Pending a detailed examination of the needs of the telecom sector, I propose to extend the terminal date to March 31, 2005.

117. Companies carrying on scientific research and development and approved by the Department of Scientific and Industrial Research before April 1, 2004 are entitled to 100 per cent deduction of profits for 10 years. On the request of the Department of Bio-Technology and pending a detailed examination, I propose to extend the terminal date to March 31, 2005.

118. New industrial undertakings in Jammu & Kashmir enjoyed 100 per cent tax exemption if they commenced production before March 31, 2004. Pending a detailed examination of the incentives required to promote industrial development in Jammu & Kashmir, I propose to extend the date to March 31, 2005.

... GO TO PAGE 1 OF DIRECT TAXES

Indirect taxes... Read full text





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