Dr Vijay Kelkar, adviser to Indian Finance Minister
Jaswant Singh, in his report on tax reforms, produced
a mixed bag of proposals that received both bouquets and
brickbats from various quarters.
the report, he diluted some of his earlier controversial
proposals, but retained others. While he retained the
proposals to eliminate income-tax exemptions and bring
agricultural income into the tax net, he diluted the earlier
proposal to do away with tax exemption on housing loans.
the plus side, he recommended that there should be only
two basic rates for income tax. The first slab will be
at 20 per cent for income from Rs 1-4 lakh and the second
at 30 per cent for income above Rs 4 lakh.
addition, the report recommended a hike in the income-tax
exemption limit to Rs 1,50,000 per annum for senior citizens
and widows. For others, the exemption limit has, in the
report, been raised to Rs 100,000 from the current Rs
on the plus side, the report recommended doing away with
tax on dividend distribution and long-term capital gains
on listed stocks. Dividends also need not be taxed at
the hands of the shareholders or unit-holders, the committee
the minus side, the committee recommended knocking off
almost all the tax rebate schemes under Section 88 and
tax deductions on interest income under 80 L.
the recommendations are accepted, the taxpayer will no
longer get exemptions on interest income received from
bonds, securities and debentures under section 10. The
only concession the committee has provided is for continuation
of deductions for contributions to pension funds, whether
run by Life Insurance Corporation (LIC) or other private
players. The ceiling of the deductions is proposed to
be raised from Rs 10,000 to Rs 20,000.
Kelkar had earlier proposed doing away with incentives
for housing loans entirely. However, he diluted this proposal
by reducing the amount eligible for deduction to Rs 50,000
from Rs 150,000. To mitigate the effect, an interest subsidy
of 2 per cent will be provided by National Housing Bank
on home loans below Rs 5 lakh.
For companies, there are a few goodies, like eliminating
the minimum alternate tax (MAT) and slashing the corporate
tax rate to 30 per cent, both of which were welcomed by
industry associations. The report also recommended that
the depreciation rate should be reduced to 15 per cent
from 25 per cent.
a move that can impact the stock markets, the report proposed
that mutual funds pay a 20 per cent tax on short-term
capital gains. At present, mutual funds are not subject
to any tax. This proposal is evidently aimed at encouraging
mutual funds to stay invested.
infotech sector, however, stood to lose as the report
recommended that tax incentives to software exports under
section 10A/10B of the Income-Tax Act be withdrawn after
the government thrashes out totalisation agreements with
Indias trading partners, such as the US. The tax
benefits should be continued till the agreements are signed.
Such companies should, however, be subject to a 30-per
cent dividend distribution tax, said the report.
National Association of Software and Service Companies
(Nasscom) reiterated its demand for retaining the full
tax exemption under the section 10A/10B. Nasscom president
Kiran Karnik says: The government had declared a
no-tax regime for software exports up to 2009,
and the industry requests it to abide by the same.
The report recommended three rates of excise: 6 per cent
for processed food products and matches; a 14 per cent
standard rate (Cenvat) and 20 per cent for cars, air-conditioners
and soft drinks.
Kelkar said the excise duty on petroleum products should
be set at specific rates instead of ad valorem,
he refused to specify the exact duty to be levied. The
report has called for a raise in excise duty on kerosene
by Re 1 a litre and an additional duty of Re 1 on diesel.
has also called for a drastic cut in the customs duty
rate on finished goods to 10 per cent by 2006-07. Further,
by 2006-07, he has sought to distinguish raw materials
like coal, ores and concentrates from intermediates like
capital goods, basic chemicals and metals by suggesting
two rates of 5 per cent and 8 per cent, respectively,
how many of these proposals the government will accept
still has to be seen, especially given the impending state
elections. The Bharatiya Janata Party (BJP) has already
ruled out accepting proposals like income tax on agriculture,
and elimination of standard deduction and incentives for
general secretary Rajnath Singh, who chaired a party panel
appointed to study the report, has expressed unhappiness
that the panel did not incorporate the partys suggestions
as much as expected.
Rajnath Singh committee has met today to finalise its
report, which it will present to Jaswant Singh. Singh
will meet Prime Minister A B Vajpayee and Deputy Prime
Minister L K Advani after 15 January 2003 and brief them
on the recommendations he wants to include in next years