Finance Bill, 1997

The provisions in the Finance Bill, 1997, in the sphere of direct taxes relate to the following matters:-

(i)Prescribing the rates of income-tax on incomes liable to tax for the assessment year 1997-98; the rates at which tax will be deductible at source during the financial year 1997-98 from interest (including on securities), dividends, winnings from lotteries or crossword puzzles, winnings from horse races, and other categories of income liable to deduction of tax at source under the Income-tax Act, rates for computation of "advance tax", deduction of income-tax from "Salaries" and charging of income-tax on current incomes in certain cases for the financial year 1997-98.

 

(ii)Proposal to omit the levy of surcharge in the case of domestic companies.

(iii)Amendment of the Income-tax Act, 1961, with a view to promoting welfare, providing incentives for infrastructure development, industrialisation, rationalisation of certain provisions, checking tax evasion and avoidance and expanding the tax base.

(iv) Amendment of the Expenditure-tax Act, 1987, for providing incentives for development of tourist infrastructure.

(v) Amendment of the Interest-tax Act, 1974, for reduction of rate and rationalisation of certain provisions.

(vi) Proposal to introduce Voluntary Disclosure of Income and Wealth Scheme, 1997 for declaration of undisclosed income and wealth.

2. Subject to certain exceptions, which have been indicated while dealing with the relevant provisions, the Bill follows the principle that changes in the provisions of the tax laws should ordinarily be made operative prospectively in relation to current incomes and not in relation to incomes of past years. The substance of the main provisions in the Bill relating to direct taxes is explained in the following paragraphs:-

INCOME-TAX

I. Rates of Income-tax in respect of incomes liable to tax for the assessment year 1997-98

In respect of incomes of all categories of taxpayers (corporate as well as non-corporate) liable to tax for the assessment year 1997-98, the rates of income-tax (including surcharge thereon in the case of domestic companies) have been specified in Part I of the First Schedule to the Bill and are the same as those laid down in Part III of the First Schedule to the Finance (No.2) Act, 1996, for the purposes of computation of "advance tax", deduction of tax at source from "Salaries" and charging of tax payable in certain cases during the financial year 1996-97.

II. Rates for deduction of income-tax at source during the financial year 1997-98 from income other than "Salaries"

The rates for deduction of income-tax at source during the financial year 1997-98 from incomes other than "Salaries", have been specified in Part II of the First Schedule to the Bill. These rates apply to income by way of interest on securities, interest other than "interest on securities", dividends, insurance commission, winnings from lotteries or crossword puzzles, winnings from horse races and income of non-residents (including non-resident Indians). These rates are broadly the same as those specified in Part II of the First Schedule to the Finance (No.2) Act, 1996, for the purposes of deduction of income-tax at source during the financial year 1996-97. However, there are some important changes also, e.g.,

(i) in the case of foreign companies, the rate of deduction of tax from royalty and fees for technical services has been reduced from 30 per cent. to 20 per cent. in cases where the relevant agreement in pursuance of which the said royalty and fees are received has been entered into on or after the 1st day of June, 1997;

(ii) in the case of non-resident Indians, the rate of deduction of tax from long-term capital gains relating to a foreign exchange asset, as referred to in Chapter XII-A of the Income-tax Act, has been reduced from 20 per cent. to 10 per cent.;

(iii) no surcharge will be levied on deduction of income-tax at source.

III. Rates for deduction of income-tax at source from "Salaries", computation of "advance tax" and charging of income-tax in special cases during the financial year 1997-98

The rates for deduction of income-tax at source from "Salaries" during the financial year 1997-98 and also for computation of "advance tax" payable during that year in the case of all categories of taxpayers, have been specified in Part III of the First Schedule to the Bill. These rates are also applicable for charging income-tax during the financial year 1997-98 on current incomes in cases where accelerated assessments have to be made, e.g., provisional assessment of shipping profits arising in India to non-residents, assessment of persons leaving India for good during that financial year or assessment of persons who are likely to transfer property to avoid tax, etc. The salient features of the rates specified in the said Part III are indicated in the following paragraphs.

A. Individuals, Hindu undivided families, etc.

Paragraph A of Part III of the First Schedule specifies the rates of income-tax in the case of individuals, Hindu undivided families, associations of persons, etc.

There is no change in the exemption limit which remains at Rs.40,000. However, the tax rates have been significantly reduced at all income levels and the income slabs have also been changed.

The table below gives the income slabs and the rates of income-tax, (a) as specified in Paragraph A of Part I of the First Schedule to the Bill, i.e., the existing slabs and rates; and (b) as specified in Paragraph A of Part III of the First Schedule to the Bill, i.e., the proposed slabs and rates:-

Income slab Rates specified in Paragraph A of Part I of the First Income slab Rates specified in Paragraph A of Part III

Schedule to the Bill (i.e. existing rates) of the First Schedule to the Bill (i.e. proposed rates)

Upto Rs. 40,000 Nil Upto Rs. 40,000 Nil

Rs. 40,001 - Rs. 60,000 15% Rs. 40,001 - Rs. 60,000 10%

Rs. 60,001 - Rs. 1,20,000 30% Rs. 60,001 - 1,50,000 20%

Above Rs. 1,20,000 40% Above Rs. 1,50,000 30%

The impact of reduction of tax rates in the case of individuals, HUFs, etc. at different income levels would be as under:

Total Income Existing Tax Liability New Tax Liability Proposed Relief

(Rs.) (Rs.) (Rs.) Amount (Rs.) Percentage

41,000 150 100 50 33.3

42,000 300 200 100 33.3

43,000 450 300 150 33.3

44,000 600 400 200 33.3

45,000 750 500 250 33.3

50,000 1,500 1,000 500 33.3

55,000 2,250 1,500 750 33.3

60,000 3,000 2,000 1,000 33.3

75,000 7,500 5,000 2,500 33.3

1,00,000 15,000 10,000 5,000 33.3

1,20,000 21,000 14,000 7,000 33.3

1,50,000 33,000 20,000 13,000 39.4

1,75,000 43,000 27,500 15,500 36.0

2,00,000 53,000 35,000 18,000 33.9

2,50,000 73,000 50,000 23,000 31.5

3,00,000 93,000 65,000 28,000 30.1

B. Co-operative societies

In the case of co-operative societies, the rates of income-tax have been specified in Paragraph B of Part III of the First Schedule to the Bill. These rates are the same as those specified in the corresponding Paragraph of Part I of the First Schedule to the Bill.

C. Firms

In the case of firms, the rate of income-tax has been specified in Paragraph C of Part III of the First Schedule to the Bill. This rate will now be 35 per cent.

D. Local authorities

In the case of local authorities, the rate of income-tax has been specified in Paragraph D of Part III of the First Schedule to the Bill. This rate is the same as that specified in the corresponding Paragraph of Part I of the First Schedule to the Bill.

E. Companies

In the case of companies, the rates of income-tax have been specified in Paragraph E of Part III of the First Schedule to the Bill. The new rates will be 35 per cent. in the case of a domestic company and 48 per cent. in the case of a foreign company.

F. Surcharge

The surcharge hitherto levied in the case of a domestic company having income exceeding seventy-five thousand rupees has been discontinued. This will further reduce the burden of companies by 3 percentage points. [Clause 2 & First Schedule ]

WELFARE MEASURES

Enhancing of standard deduction for the salaried taxpayers

Under the existing provisions of section 16 of the Income-tax Act, a standard deduction of a sum equal to 33-1/3 per cent. of the salary or Rs.15,000, whichever is less, is allowed. A higher deduction of Rs.18,000/- is allowed to women whose total income does not exceed Rs.75,000/-. A similar deduction is also available to other persons, if their gross salary is not more than Rs.60,000/-.

The Bill proposes to enhance the upper limit of standard deduction to twenty thousand rupees in the case of all persons.

The proposed amendment will take effect from 1st April, 1998 and will, accordingly, apply in relation to assessment year 1998-99 and subsequent years. [ Clause 4 ]

Raising of standard deduction for recipients of family pension.

Under the existing provisions of clause (iia) of section 57 of the Income-tax Act, a standard deduction of a sum equal to 33-1/3 per cent. of the family pension or Rs.12,000, whichever is less, is allowed.

The Bill proposes to enhance the upper limit of the deduction from twelve thousand rupees to fifteen thousand rupees.

The proposed amendment will take effect from 1st April, 1998 and will, accordingly, apply in relation to assessment year 1998-99 and subsequent years. [ Clause 20 ]

Rebate of income-tax in case of senior citizens

Under the existing provisions of section 88B of the Income-tax Act, a special tax rebate of forty per cent. of the net tax payable is allowed to persons who have attained the age of 65 years and have a gross total income not exceeding one hundred twenty thousand rupees. The maximum tax rebate available is Rs.8,400 at present.

The Bill proposes to increase the rate of rebate available to the senior citizens to hundred per cent. of the tax payable subject to a limit of ten thousand rupees. Further, the Bill proposes to extend this rebate to all senior citizens irrespective of any income limit.

The proposed amendment will take effect from 1st April, 1998 and will, accordingly, apply in relation to assessment year 1998-99 and subsequent years. [Clause 31]

100% deduction to donations made to a Chief Minister's / Lieutenant Governor's relief fund

Under the existing provisions of section 80G of the Income-tax Act, ordinarily a deduction of fifty per cent. of the donation is allowed in the computation of income of the donor. However, in respect of donations to certain funds, hundred per cent. deduction is allowed.

In order to garner funds to mobilise relief efforts, the Bill proposes to amend section 80G to provide for hundred per cent. deduction in respect of donations made to Chief Minister's Relief Fund/ Lieutenant Governor's Relief Fund of any State or Union Territory. The deduction will be available to only one fund for each State or Union Territory.

The proposed amendment will take effect from 1st April, 1998 and will, accordingly, apply in relation to assessment year 1998-99 and subsequent years. [ Clause 23 ]

Exemption of capital gains tax on sale of land by a sick industrial company managed by a workers' co-operative

Under the existing provisions of the Income-tax Act, short-term capital gains become chargeable to tax on sale of a depreciable asset if the sale consideration exceeds the written down value of the block of assets. In the case of a sick industrial company, there should not normally be any capital gains on the sale of any asset except land. Capital gains tax arising on the sale of land slows the process of revival of such companies.

It has, therefore, been proposed in the Bill to amend section 47 of the Income-tax Act to provide that the capital gains arising from the transfer of land of a sick industrial company managed by its workers' co-operative, under a scheme prepared and sanctioned under section 18 of the Sick Industrial Companies (Special Provisions) Act, 1985, will be exempt from tax. It is also proposed that the exemption on such transfers shall be available if made within the period commencing from the previous year in which the said company has become a sick company under sub-section (1) of section 17 of the Sick Industrial Companies (Special Provisions) Act, 1985 and ending with the previous year during which the entire net worth of such company becomes equal to or exceeds accumulated losses.

The proposed amendment will take effect from 1st April, 1998, and will, accordingly, apply in relation to assessment year 1998-99 and subsequent years. [ Clause 16]

INCENTIVES FOR INFRASTRUCTURE DEVELOPMENT AND INDUSTRIALISATION

Tax holiday to enterprises providing telecommunication services

Under the provisions of section 80-IA of the Income tax Act, a five year tax holiday and a deduction of 25% (30% in the case of companies) in the subsequent five years is allowed to an undertaking engaged in the business of generation, or generation and distribution, of power or to an industrial undertaking set up in backward states/districts.

The country requires large investment in the telecommunication sector, both basic and cellular. In order to encourage investment in this sector, it is proposed to grant 100% deduction from the profits and gains of an assessee engaged in the business of providing telecommunication services for the initial five assessment years. It is also proposed to provide a deduction of 25% (30% in the case of companies) from such profits and gains for a further period of five years. The deduction will be allowed to an undertaking which begins to provide the telecommunication services at anytime during the period beginning on 1st April, 1995 and ending on 31st March, 2000.

The proposed amendment will take effect retrospectively from 1st April, 1996 and will, accordingly, apply in relation to assessment year 1996-97 and subsequent years. [ Clause 25]

Amortisation of telecom licence fees

In order to give fillip to this sector in addition to tax holiday, the Bill proposes to insert a new section 35ABB in the Income-tax Act. The section seeks to provide that any capital expenditure incurred and actually paid by an assessee on the acquisition of any right to operate telecom services by obtaining licence will be allowed as a deduction in equal instalments over the period for which the licence remains in force.

It further seeks to provide that where the licence is transferred and proceeds of the transfer are less than the expenditure remaining unallowed, a deduction equal to the expenditure remaining unallowed as reduced by the proceeds of transfer, shall be allowed in the previous year in which the licence has been transferred. It also seeks to provide that if the licence is transferred and proceeds of the transfer exceed the amount of expenditure remaining unallowed, the excess amount shall be chargeable to tax as profits and gains of business in the previous year in which the licence has been transferred. It also seeks to provide for amortisation of unallowed expenses in a case where a part of the licence is transferred. The restrictive provisions of this section shall not apply in relation to a transfer in a scheme of amalgamation whereby the licence is transferred by the amalgamating company to the amalgamated company, the latter being an Indian company.

The proposed amendment will take effect from 1st April, 1998 and will, accordingly, apply in relation to assessment year 1998-99 and subsequent years. [Clause 6]

Rebate on subscription to shares and debentures in the telecommunication sector

Under the existing provisions of the Income-tax Act, a tax rebate of twenty per cent. of the sums paid towards Life Insurance Premia, Provident Fund, etc. is available to an individual or an HUF, subject to a maximum of twelve thousand rupees.

The Finance (No.2) Act, 1996 amended section 88 of the Income-tax Act, through a new clause (xvi), to include investments in debentures of, and equity shares in, a public company engaged in infrastructure including power sector for rebate under this section. By investing in such shares or debentures, a maximum rebate of fourteen thousand rupees may be claimed.

The Bill proposes to include subscription to equity shares and debentures of a public company for the purpose of providing telecommunication services, (whether basic or cellular) also, forming part of eligible issue of capital for availing the tax rebate under clauses (xvi) and (xvii) of the section.

The proposed amendment will take effect from 1st April, 1998 and will, accordingly, apply in relation to assessment year 1998-99 and subsequent years. [ Clause 30]

Extending scope of tax exemption on financing through venture capital, external borrowing

and long-term borrowing to power and telecommunication sectors

Under the existing provisions of clause (23F) and clause (23G) of section 10 and clause (viii) of sub-section (1) of section 36 of the Income-tax Act, the relevant income-tax exemption or deduction, is not available to undertakings engaged in the power and telecommunication sectors. The exemption under sub-clause (iv) of clause (15) of section 10 is also not available to undertakings engaged in providing telecommunication services.

Since both power and telecommunication are important infrastructure sectors, it is necessary to provide the tax exemption or deduction under the provisions mentioned above. The Bill, therefore, proposes to make appropriate amendments to achieve this objective.

The Bill proposes to widen the definition of the expression "industrial undertaking" occurring in the Explanation in sub-clause (iv) of clause (15) of section 10 so as to bring within its scope an undertaking engaged in the business of providing telecommunication services.

The Bill also proposes to widen the definition of the expression "venture capital undertaking" occurring in the Explanation in clause (23F) of section 10 so as to bring within its scope an undertaking engaged in the business of generation or generation and distribution of electricity or any other form of power or engaged in the business of providing telecommunication services.

The Bill further proposes to widen the definition of the expression "infrastructure facility" occurring in the Explanation in clause (23G) of section 10 so as to bring within its scope a project for generation or generation and distribution of electricity or any other form of power or a project for providing telecommunication services.

The Bill also proposes to widen the meaning of the expression "infrastructure facility" in clause (viii) of sub-section (1) of section 36 by assigning to it the same meaning as is proposed to be given in clause (23G) of section 10. This will enable a financial corporation engaged in providing long-term finance for a project for generation or generation and distribution of electricity or any other form of power or for providing telecommunication services to claim deduction under clause (viii) of sub-section (1) of section 36.

The proposed amendments will take effect from 1st April, 1998 and will, accordingly, apply in relation to assessment year 1998-99 and subsequent years. [Clause 3]

Tax concessions to hotels in pilgrimage centres, hilly, rural and other remote areas

Under section 80-IA of the Income-tax Act, deduction was allowed, in computing the taxable income, in respect of profits derived from the business of a hotel which started functioning during the period from 1.4.1990 to 31.3.1995.

With a view to further encouraging the development of tourism infrastructure in remote regions where such facilities either do not exist or are scarce, the Bill proposes that a tax concession of 50% of the profits for ten assessment years be given to hotels which start functioning at any time during the period from 1.4.1998 to 31.3.2002. The deduction shall be available to hotels which are located in a hilly or rural area or a place of pilgrimage or where tourism infrastructure needs to be developed. These hotels will also be exempted from the levy of expenditure tax for a period of ten years. In respect of hotels located in any other place, the deduction shall be 30 per cent. of the profits. The hotels located in the metropolitan cities of Calcutta, Chennai, Delhi and Mumbai will not be eligible for the tax deduction.

The proposed amendments will take effect from 1st April, 1999 and will, accordingly, apply in relation to assessment year 1999-2000 and subsequent years. [ Clause 25]

Tax holiday to industrial parks

Under the provisions of section 80-IA of the Income tax Act, a five year tax holiday and a deduction of 25% (30% in the case of companies ) in the subsequent five years is allowed to an undertaking engaged in the business of generation, or generation and distribution, of power or to an industrial undertaking set up in backward states/districts.

The Bill proposes to extend the tax holiday to industrial parks notified for this purpose in accordance with any scheme to be framed by the Central Government. This tax holiday is expected to encourage investments in industrial infrastructure. Those industrial parks which start operating during the period beginning on 1st April, 1997 and ending on 31st March, 2002 will be eligible for 100% deduction for the initial five assessment years followed by 25% (30% in case of companies) deduction from profits for the next five years.

The proposed amendment will take effect from 1st April, 1998 and will, accordingly, apply in relation to assessment year 1998-99 and subsequent years. [Clause 25]

Weighted deduction in respect of expenditure on in-house R&D

Under section 35 of the Income-tax Act, certain deductions are allowed in respect of expenditure on scientific research.

The Bill proposes to introduce a new sub-section( 2AB) to allow a company, a deduction of a sum equal to 1-1/4th times the sum paid on any expenditure incurred by a company on scientific research including an expenditure of capital nature related to the business. This deduction will be available to the companies having in-house Research & Development facility approved for the purpose of this section by the prescribed authority and engaged in the business of manufacture or production of any drugs, pharmaceuticals, electronic equipment, computers, telecommunication equipment, chemicals or any other article or thing notified in this behalf. It is also proposed that no deduction shall be allowed in respect of expenditure on land and building. It is also proposed that the company shall enter into an agreement of co-operation and audit with the prescribed authority before approval of the research and development facility.

The proposed amendment will take effect from 1st April, 1998 and will, accordingly, apply in relation to assessment year 1998-99 and subsequent years. [ Clause 5]

MEASURES TO WIDEN THE TAX BASE

Obligatory filing of return based on certain economic indicators

One of the possible ways by which a larger number of persons can be brought under the tax net is to identify potential taxpayers through certain economic indicators. There could be a number of such economic indicators which may be employed for this purpose. It would be a reasonable presumption that any person who satisfies the requirement of ownership/use/expenditure on the following four indicators should be a person having taxable income :-

(i) Ownership/lease of a motor vehicle;

(ii) Occupation of any category or categories of immovable property as may be specified by the Board by notification, whether by way of ownership or tenancy or otherwise;

(iii) Foreign travel; or

(iv) Subscription of a telephone.

It is proposed to amend section 139 in order to provide that any person who fulfils any two of the four conditions mentioned above, be required to file a return of his income. It is proposed to levy a penalty of five hundred rupees in cases where the return of income is not furnished although required on the basis of the above indicators. Initially, these provisions will be applicable to only some selected cities to be notified.

The proposed amendment will take effect from 1st April, 1997 and will, accordingly, apply in relation to assessment year 1997-98 and subsequent years. [ Clause 42]

New estimated income scheme for computing profits and gains of retail traders

In order to simplify the procedure of computation of income of retail traders, it is proposed to introduce a new scheme for computing profits and gains of such businesses presumptively at five per cent. of the gross receipts. This scheme is similar to the presumptive schemes of computation of income under section 44AD and section 44AE.

The Bill proposes to insert a new section 44AF in the Income-tax Act to achieve this purpose. Consequently, Chapter XII-C which provided for a flat tax of Rs.1400 for small businesses is being deleted.

The proposed amendment will take effect from 1st April, 1998 and will, accordingly, apply in relation to assessment year 1998-99 and subsequent years. [Clauses 14 & 39]

Modification in provisions for estimating profits of civil construction

and plying, hiring or leasing goods carriage business

Sub-section (2) of section 44AD and sub-section (3) of section 44AE lay down that any deduction allowable under provisions of section 30 to section 38 shall be deemed to have been already given full effect to and no further deduction under those sub-sections shall be allowed.

Doubts have been raised whether this prohibition will cover payment of interest and salary to the partners of the firms. The Central Board of Direct Taxes had clarified that interest or salary paid to a partner is not deductible under these sections. The matter has been agitated in writ petitions filed before various High Courts. In order to set this controversy at rest, it is proposed to amend these sections to clarify that interest or salary paid to a partner will not be deductible from the income of the firm presumptively computed under these sections.

These amendments will take effect retrospectively from 1st April, 1994 and will, accordingly, apply in relation to assessment year 1994-95 and subsequent years. [ Clauses 11 & 13]

MEASURES FOR DEVELOPMENT OF CAPITAL MARKET

Abolition of tax on dividends and introduction of tax on distributed profits

Under the existing system of collection of tax on dividends, every company, at the time of paying dividend to a shareholder in excess of Rs. 2500, is required to deduct tax at the specified rate and deposit it in the Central Government account. The company is also required to issue TDS certificates to all shareholders in whose cases the tax has been deducted. The shareholders, in turn, have to show the dividend in their return of income and pay the tax at the rate applicable in their case. They also have to enclose the TDS certificates along with the return and claim credit for the tax deducted at source. Many a time, the tax deducted or a part thereof is required to be refunded to the assessee. Thus the procedure for tax collection is cumbersome and involves a lot of paper work.

In order to encourage investment in the shares of domestic companies, the Bill proposes to exempt from income-tax, dividends received from domestic companies on or after 1st June, 1997. Consequently, deductions under section 80L and 80M in respect of corporate dividends have been discontinued. The provisions relating to tax deduction at source from dividends have also been suitably modified.

The Bill also proposes to introduce new provisions for levying a moderate tax on distributed profits. Under the new provisions, the amounts declared, distributed or paid on or after 1st June, 1997 by a domestic company by way of dividends shall be charged to additional income-tax at a flat rate of ten per cent., in addition to the normal income-tax chargeable on the income of the company. The principal officer of the company and the company shall be liable to pay income-tax to the credit of the Central Government within fourteen days from the declaration of dividends. If the principal officer and the company fail to so pay the income-tax to the credit of the Central Government, he or it shall be liable to pay simple interest at the rate of two per cent. for every month or part thereof on the amount of tax payable and such principal officer and the company shall also be deemed to be assessee in default in respect of the amount of tax payable. It is further proposed that no deduction under any of

the provisions of the Income-tax Act shall be allowed to the company or the shareholder in respect of the tax on distributed profits. It is also proposed that the additional income-tax so paid by the company shall be treated as the final payment of tax in respect of the amount distributed and no further credit for such tax shall be claimed either by the company or by any other assessee.

The new provisions are proposed to be made effective in respect of amounts declared, distributed or paid as dividends on or after 1st June, 1997. [Clauses 3,27,28 , 33, 40, 46 to 50, 52 & 55]

Higher deduction in respect of interest income from Government securities

Section 80-L of the Income-tax Act provides for deduction from the income received from interest on certain securities, dividends, etc., from the gross total income of the assessee. The deduction available is Rs.12,000 in a normal case. In respect of dividends from any Indian company and income received from the units of UTI or approved mutual funds, further deduction of Rs.3,000 is allowed.

The Bill proposes to provide that any income by way of interest on any security of the Central Government or a State Government referred to in clause (i) of sub-section (1) of section 80L, will also be eligible for the additional deduction of three thousand rupees.

This amendment will take effect from 1st April, 1998 and will, accordingly, apply in relation to assessment year 1998-99 and subsequent years. [Clause 27]

Removal of TDS on interest on Government securities

Under section 193 of the Income-tax Act, tax deduction at source (TDS) is made in respect of any interest payable on any income by way of interest on securities.

With a view to attract investment in Government securities, the Bill proposes to fully exempt interest payable on any security of the Central Government or a State Government from the requirement of tax deduction at source.

The new provisions are proposed to be made effective from 1st June, 1997 in respect of interest payable on Government securities on or after 1st June, 1997. [ Clause 45]

Reduction in the rate of long term capital gains tax in case of non-residents

Under the existing provisions of the Income-tax Act, long-term capital gains arising to a non-resident Indian are subjected to tax at the rate of 20%. Foreign Institutional Investors are subjected to a tax of 10% in respect of long-term capital gains arising from the transfer of securities listed in a recognised stock exchange in India.

In order to give a level playing field as also to give a boost to foreign capital inflows, the Bill proposes to reduce the rate of long-term capital gains tax arising to a non-resident Indian to 10% from the existing level of 20% by amending section 115E of the Income-tax Act.

The proposed amendment will take effect from 1st April, 1998 and will, accordingly, apply in relation to assessment year 1998-99 and subsequent years. [ Clause 36]

Corporatisation of stock broker's card

Under the existing provisions of the Income-tax Act, corporatisation of membership of recognised stock exchanges involves transfer of a capital asset and is, therefore, subject to capital gains tax.

In order to encourage more brokers to corporatise, increase their liquidity and consequently their volume of trading resulting eventually in giving a boost to the capital markets, the Bill proposes to exempt corporatisation of membership from capital gains tax by amending sections 47 and 47A of the Income-tax Act. The exemption is proposed to be allowed only in respect of corporatisation effected on or before 31st December, 1997, if the transferror retains such shares for not less than three years.

The proposed amendment will take effect from 1st April, 1998 and will, accordingly, apply in relation to assessment year 1998-99 only. [ Clauses 16 & 17]

Modification of provisions relating to mode of computation of capital gains

Under the existing provisions of the Income-tax Act, capital ga

3. Prescribing uniform duty of 100% on beer made from malt, wines and other fermented beverage falling under heading Nos.22.03,22.04,22.05 and 22.06 of CT.

4. I Reduction in customs duty on:

(a) natural graphite from 40% to 30%;

(b) sulphur,asbestos,quicklime and limestone from 40% to 25%.

II Reduction in customs duty on ores and concentrates from 10% to 5%.

5. Reduction in customs duty on :

(a) coking coal of ash content less than 12% from 5% to 3%;

(b) coal and coke from 20% to 10%;

(c) naphthalene from 30% to 20%.

6. Peak rate reduction in customs duty on:

(a) inorganic chemicals of Chapter 28 of CT ( except titanium oxide) from 40% to 30%;

(b) organic chemicals of Chapter 29 of CT from 40% to 30%.

7. Full exemption from customs duty on ammonia for non- fertiliser use.

8. Reduction in customs duty on:

(a) phenol from 30% to 25%;

(b) methanol from 30% to 20%.

9. Increase in customs duty on specified chemicals from 25% to 30%.

10. Reduction in customs duty on:

(a) mixed alkylbenzenes from 30% to 20%;

(b) Limulus Amebocyte Lysate test kits from 25% to 10%;

(c) polyester subbed base for X-ray and graphic art films from 40% to 20%.

11. Full exemption from customs duty on specified life saving drugs/ medicines and diagnostic kits is extended to import for personal use by air/post.

12. Reduction in customs duty on homoeopathic drugs from 25% to 20%.

13. Reduction in customs duty on dyes, pigments(other than based on titanium dioxide), paints and varnishes from 40% to 30%.

14. Reduction in customs duty on albuminoidal substances, glues, enzymes and modified starches from 40% to 30%.

15. Reduction in customs duty on isolated soya protein from 40% to 10%.

16. Full exemption for specified goods imported for the manufacture of ELISA kits.

17. Reduction in customs duty on photographic goods from 30% to 25%.

18. Reduction in customs duty on:

(a) catalysts from 30% to 25%;

(b) miscellaneous chemical products of Chapter 38 of CT from 40% to 30%.

19. Reduction in customs duty on:

(a) specified raw material for FRP rod from 10% to 5%;

(b) articles of plastics of Chapter 39 of CT from 40% to 30%.

20. Increase in customs duty on FRP rod from 10% to 20%.

21. Reduction in customs duty on retreaded aircraft tyres from 30% to 3%.

22. Full exemption from customs duty on raw, tanned or dressed furskins of lamb.

23. Full exemption from customs duty on wood logs, fuel wood, wood chips and wood charcoal.

24. Reduction in customs duty on specified filter paper and paper board from 50% to 20%.

25. Full exemption from customs duty on plans, designs and drawings.

26. Reduction in customs duty on:

(a) wool waste from 30% to 20%;

(b) wool (apparel grade) from 25% to 20%.

27. Reduction in customs duty on fine or coarse animal hair (not carded or combed) from 50% to 20%.

28. Reduction in customs duty on flax fibre and acetate tow from 30% to 20%.

29. Reduction in customs duty on rags from 30% to 25%.

30. Reduction in customs duty on:

(a) rough synthetic stone from 50% to 10%;

(b) cold rolled coils of steel from 30% to 25%;

(c) Tinned Mill Black Plates (TMBP) from 25% to 20%;

(d) ferro alloys from 25% to 20%;

(e) pig iron from 20% to 10%;

(f) rerollable steel scrap from 30% to 20%.

31. Reduction in customs duty on:

(a) nickel and articles thereof from 20% to 10%;

(b) tin and articles thereof from 30% to 20%.

32. Increase in customs duty on unwrought aluminium from 10% to 20%.

33. Reduction in customs duty on tools and implements from 30% to 25%.

34. Reduction in customs duty on:

(a) general machinery and parts of Chapters 84 and 85 of CT from 25% to 20%;

(b) items of machinery other than consumer goods, office machinery, small motors and wires and cables and goods directly connected with production of commodities from 50% to 30%;

(c) complete ozone generators from 25% to 10%;

(d) catalytic converters and parts thereof from 25% to 5%;

(e) CNG kits and their parts from 10% to 5%;

(f) parts of specified textile machinery from 25% to 10%.

35. Reduction in customs duty on goods required for setting up of new projects with non-ozone depleting substances technology to Nil.

36. Customs duty on projects other than fertilizer projects, unified at 20%.

37. Extending project import benefits to road development projects of National Highway Authority of India.

38. Reduction in customs duty on:

(a) computer parts excluding PPCB from 20% to 10%;

(b) catridge tape drives and digital video disk drives from 20% to 10%;

(c) integrated circuits and micro assemblies from 20% to 10%.

39. Full exemption from customs duty on computer software and on braille printers/embossers and braille displays specially designed for computer systems.

40. Reduction in customs duty on:

(a) colour data/graphic display tubes from 20% to 10%;

(b) colour picture tube from 35% to 30%.

41. Reduction in customs duty on:

(a) finished telecommunication equipment from 40% to 30%;

(b) parts and sub-assemblies of telecommunication equipment from 30% to 20%;

(c) parts of cellular telephones and pagers from 30% to 20%.

42. Increase in customs duty on specified motor vehicle parts for light commercial vehicles of payload not exceeding 4000 kg from 25% to 40%.

43. Reduction in customs duty on ships for breaking from 10% to 5%.

44. Reduction in customs duty on:

(a) raw ophthalmic blanks for making optical lenses from 50% to 20% subject to certain conditions;

(b) measuring and testing instruments and parts thereof from 25% to 20%;

(c) parts of cameras and photocopiers from 50% to 25%;

(d) equipment for medical, surgical, dental or veterinery use from 30% to 20%;

(e) optical fibre for optical fibre cables from 30% to 25%;

(f) specified equipment required for hotels from 35% to 25%.

45. Full exemption from customs duty on linear accelerators of beam energy 15 MeV and above.

46. Reduction in customs duty on laboratory chemicals and drugs for personal use, if imported by post or air from 50% to 30%.

47. Reduction in customs duty on toys, games and sports requisites from 30% to 25%.

48. Reduction in customs duty on :

(a) specified horological raw materials for manufacture of components of wrist watches from 20% to 10%;

(b) clock and watch parts from 50% to 25%;

(c) watch cases of base metals from 50% to 30%.

49. Reduction in customs duty on baggage from 60% to 50%.

UNION EXCISE DUTIES

ABBREVIATIONS

BED : Basic Excise duty MODVAT : Modified Value Added Tax

AED : Additional excise duty in lieu of sales tax PMT : Per Metric Tonne

CET : Schedule to the Central Excise Tariff Act,1985(5 of 1986)

Unless otherwise indicated, the excise duty rates refer to basic excise duty.

The proposals include the following:

A. GENERAL

(1) The Central Excise Act, 1944 is being amended -

(i) to make provision for charging of excise duty on specified goods with reference to maximum retail price.

(ii) provide for cost auditing of accounts in case of misuse of MODVAT credit Scheme.

(2) The Schedule to the Central Excise Tariff Act, 1985 is being amended vide relevant clauses of the Finance Bill to give effect to the Tariff changes relating to the Union Excise Duties .

B. Major Proposals involving changes in rates of duty, whether by amendment of tariff rates or by notifications.

C. Three new rates of duty, namely, 8%,13% and 18% have been introduced this year.

1. Reduction in excise duty on:

(a) malt from 10% to 8%;

(b) vegetable waxes from 20% to 18%;

(c) chewing gum from 20% to 18%;

(d) sugar confectionery from 10% to 8%;

(e) cocoa preparations from 20% to 18%;

(f) malted foods from 20% to 18%;

(g) biscuits from 10% to 8%;

(h) instant coffee and instant tea from 25% to 18%;

(i) miscellaneous edible preparations (sharbat etc.) from 20% to 18%;

(j) vinegar and denatured ethyl alcohol from 20% to 18%.

2. Prescribing specific rate of duty of Rs.500 PMT on molasses.

3. Increase in excise duty on condensed milk and ice cream from 10% to 13%.

4. Increase in excise duty on biris from Rs.5 per thousand to Rs.6 per thousand.

5. Imposing excise duty of 8% on:

(a) starch;

(b) lac, gums, resins and other vegetable saps and extracts manufactured with the aid of power;

(c) branded jams, jellies, juices, sauce and soup.

6. Revision in specific rates of excise duty (BED + AED) on cigarettes as indicated below:-

Rs. per thousand cigarettes

Present Proposed

Non filter Cigarettes

(a) not exceeding 60 mm in length 75 90

(b) exceeding 60 mm but not exceeding 70 mm 315 350

Filter Cigarettes

(c) not exceeding 70 mm in length 430 500

(d) exceeding 70 mm but not exceeding 75 mm 800 820

(e) exceeding 75 mm but not exceeding 85 mm 1070 1100

7. Reduction in excise duty on :

(a) white cement, aluminous cement, sagol, high alumina cement and others from 30% to 25%;

(b) concentrates and ash and residues of metals from 10% to 8%;

(c) products of coal tar distillation from 20% to 18%.

8. Reduction in excise duty on inorganic and organic chemicals of Chapters 28 and 29 of CET from 20% to 18%.

9. Reduction in excise duty on non-generic medicaments used in ayurvedic, siddha, unani, homoeopathic or bio-chemic system of medicines from 10% to 8%.

10. Reduction in excise duty on:

(a) fertilisers used as imputs for chemicals from 20% to 18%;

(b) tanning or dyeing extracts from 20% to 18%;

(c) copper sulphate from 10% to 8%.

11. Increase in excise duty on:

(a) anaesthetics from 5% to 8%;

(b) saccharin and its salts from 10% to 13%;

(c) bulk drugs (general) from 10% to 18%;

(d) medicinal grade oxygen/hydrogen peroxide from 5% to 8%.

12. Prescribing excise duty of 13% on silicon in all forms.

13. Full exemption from excise duty on writing ink.

14. Reduction in excise duty on:

(a) essential oils and resinoids from 20% to 18%;

(b) cosmetics and toilet preparations from 40% to 30%;

(c) perfumed hair oil and bath oil from 20% to 18%;

(d) tooth paste and tooth powder from 10% to 8%;

(e) washing soap from 10% to 8%;

(f) toilet soap from 20% to 18%;

(g) detergents from 25% to 18%.

15. I Increase in excise duty on photographic & cinematographic goods and chemical preparations for photographic use except X-ray films/plates from 15% to 18%.

II Reduction in excise duty on X-ray films/plates from 15% to 13%.

16. Reduction in excise duty on insecticides, pesticides and herbicides from 10% to 8%.

17. Reduction in excise duty on:

(a) ready- mix concrete from 20% to 13%;

(b) specified plastic based diagnostic or laboratory re-agents from 25% to 18%;

(c) specified miscellaneous chemical products of Chapter 38 of CET from 20% to 18%.

18. Revision in specific rates of excise duty on matches manufactured by mechanised sector units as indicated below:

Rs. per 100 boxes/packs

Boxes / packs containing present proposed

upto 40 matches 1.92 2.40

50 matches 2.40 3.00

300 matches 14.40 18.00

19. Increase in excise duty on:

(a) specified polymers from 20% to 25%;

(b) tubes, pipes ,hoses and fittings of plastics from 20% to 25%;

(c) strips of plastics for specified use from 10% to 13%.

20. Reduction in excise duty on:

(a) specified polyethelene coated paper/board from 20% to 18%;

(b) PVC corrugated roofing sheets from 20% to 18%.

21. I Reduction in excise duty on specified rubber and rubber products from 20% to 18%.

II Reduction in excise duty on rubber pipes and hoses from 25% to 18%.

22. I Prescribing 13% excise duty on tyres and tubes for two-wheeled motor vehicles and tractor rear in place of the present specific rates.

II Prescribing excise duty of