Indian Budget 2008-09- Full Text-Feb 29, 2008
VIII. TAX PROPOSALS
160. I shall now deal with direct taxes.
161. I recall the Budget Speech of 1997. I believe that boldness pays. I also believe that trust will beget trust, moderation will beget revenues and fairness will beget compliance. Income tax payers have made out a persuasive case for some relief. Accordingly, I propose to make some changes in the slabs for personal income tax. I propose to increase the threshold limit of exemption:
• in the case of all assesses, from Rs.110,000 to Rs.150,000, thus giving every assessee a relief at a minimum of Rs.4,000. Consequently, the four slabs and rates will be as follows:
Up to Rs.150,000 NIL
Rs.150,001 to Rs.300,000 10 per cent
Rs.300,001 to Rs.500,000 20 per cent
Rs.500,001 and above 30 per cent
• in the case of a woman assessee, from Rs.145,000 to Rs.180,000;
• in the case of a senior citizen, from Rs.195,000 to Rs.225,000.
162. I do not propose to make any change in the corporate income tax rates.
163. No change is proposed in the rate of surcharge.
164. I propose to add the Senior Citizens Savings Scheme 2004 and the Post Office Time Deposit Account to the basket of saving instruments under Section 80C of the Income Tax Act.
165. I propose to allow an additional deduction of Rs.15,000 under Section 80D to an individual who pays medical insurance premium for his/her parent or parents.
166. The Reverse Mortgage Scheme was notified by the National Housing Bank in the current financial year. In order to clarify the tax issues arising out of the scheme, I propose to amend the Income Tax Act to provide that:
(i) reverse mortgage would not amount to "transfer"; and
(ii) the stream of revenue received by the senior citizen would not be "income";
167. Agricultural income is exempt from income tax. However, courts have ruled that growing saplings or seedlings on land is agriculture but growing them in pots is not agriculture. This does not seem fair. Hence, I propose to exempt from tax income arising from saplings or seedlings grown in a nursery.
168. Companies engaged in certain businesses are allowed a weighted deduction of 150 per cent on any expenditure on in-house scientific research. I propose to add the business of production of seeds and manufacture of agricultural implements to this list.
169. In order to promote outsourcing of research, I propose to allow a weighted deduction of 125 per cent on any payment made to companies engaged in research and development.
170. I propose to extend the benefit of amortisation of certain preliminary expenses under Section 35D to assesses in the services sector.
171. To supplement measures that I announced earlier in respect of the corporate debt market, I propose to exempt from TDS corporate debt instruments issued in demat form and listed on recognised stock exchanges.
172. I propose to make some changes in the provisions of law pertaining to Fringe Benefit Tax (FBT) that will give some relief to corporates and firms. Crèche facilities, sponsorship of an employee-sportsperson, organising sports events for employees, and guest houses will be excluded from the purview of FBT.
173. At present, a domestic company is liable to pay Dividend Distribution Tax (DDT). As a result, the distributed dividend is sometimes taxed twice in the hands of a subsidiary company and its parent company, causing hardship. In order to remove the hardship, I propose to allow a parent company to set off the dividend received from its subsidiary company against dividend distributed by the parent company, provided that the dividend received has suffered DDT and the parent company is not a subsidiary of another company.
174. I propose to insert a new sub-section (11C) in Section 80-IB to grant a five year tax holiday to encourage hospitals to be set up anywhere in India, except certain specified urban agglomerations, and especially in tier-2 and tier-3 towns in order to serve the rural hinterland. This window will be open for the period April 1, 2008 to March 31, 2013, during which the hospital must commence operations.
175. Having regard to the significant rise in tourist arrivals, especially for cultural tourism, I propose to grant a five year holiday from income tax to two, three or four star hotels that are established in specified districts which have UNESCO-declared 'World Heritage Sites'. The hotel should be constructed and start functioning during the period April 1, 2008 to March 31, 2013.
176. I am happy to announce that the Coir Board will be included in Section 10(29A) and exempt from income tax.
177. Dividends that are distributed attract a tax of 15 per cent. Short term capital gains attract a tax of 10 per cent under Section 111A. There is merit in equating the rates and hence I propose to increase the rate of tax on short term capital gains under Section 111A and Section 115AD to 15 per cent. This will also encourage investors to stay invested for a longer term.
178. At present, Securities Transaction Tax (STT) paid is allowed as a rebate against tax liability. Further, STT on options is levied on the aggregate of the strike price and the option premium and is borne by the seller. I propose to make some changes. Henceforth, STT paid will be treated like any other deductible expenditure against business income. Further, the levy of STT, in the case of options, will be only on the option premium where the option is not exercised, and the liability will be on the seller. In a case where the option is exercised, the levy will be on the settlement price and the liability will be on the buyer. There will be no change in the present rates.
179. Transactions in commodity futures have come of age. Hence, I propose to introduce the Commodities Transaction Tax (CTT) on the same lines as STT on options and futures.
180. "Charitable purpose" includes relief of the poor, education, medical relief and any other object of general public utility. These activities are tax exempt, as they should be. However, some entities carrying on regular trade, commerce or business or providing services in relation to any trade, commerce or business and earning incomes have sought to claim that their purposes would also fall under "charitable purpose". Obviously, this was not the intention of Parliament and, hence, I propose to amend the law to exclude the aforesaid cases. Genuine charitable organisations will not in any way be affected.
181. The Banking Cash Transaction Tax (BCTT) has served a very useful purpose in enlarging the information system of the Income Tax Department. Since the information is also being gathered through other instruments introduced in the last few years, I propose to withdraw this tax with effect from April 1, 2009.
182. My tax proposals on direct taxes are revenue neutral. On the indirect taxes side, the proposals are estimated to result in a loss of Rs.5,900 crore.
CST and a Roadmap towards GST
183. Following an agreement between the Central Government and the State Governments, the rate of Central Sales Tax was reduced from 4 per cent to 3 per cent in this financial year. It is now proposed to reduce the rate to 2 per cent from April 1, 2008. Consultations are underway on the compensation for losses, if any, and once agreement is reached the new rate will be notified. I am also happy to report that there is considerable progress in preparing a roadmap for introducing the Goods and Services Tax with effect from April 1, 2010.