Sinha Pulls Out Fresh Set Of Sops

Finance minister Yashwant Sinha yesterday moved amendments to the Finance Bill to introduce fresh tax incentives for the information technology, housing and pharmaceutical sectors.

Sinha withdrew the contentious perquisite tax on employee stock options and dropped the move to tax income of venture capital funds. He also proposed a slew of fresh tax concessions to accelerate housing activity.

Moving the amendments in the Lok Sabha, Sinha hiked import duties on tea, coffee and poultry items to protect domestic industry and announced a 10-year tax holiday phaseout for units in export processing zones.

He also reduced excise duties on several items of mass consumption. The new excise and customs duties will come into effect from today.

 

However, Sinha did not withdraw the budget proposal to double dividend tax to 20 per cent.

He also did not respond to the demand to roll back the food subsidy cut. But officials maintained that the issue was very much "alive", as Sinha was slated to reply to the budget debate today.

In a major boost to venture capital funds, Sinha accorded them "pass through" status. As a result, there will now be no tax on the distributed or undistributed income of such funds.

Instead, the income distributed by them will only be taxed in the hands of investors at the rates applicable to the nature of income. The tax rate will be 30 per cent if the income accrues as short-term capital gains, 10 per cent if it is treated as long-term capital gains and so on.

As an additional booster for infotech, Sinha withdrew the tax imposed on ESOPs as a result of them being treated as perquisites. Instead, the income earned when ESOPs are exercised will be treated as capital gains and taxed accordingly.

Officials pointed out that this would mean only a long-term capital gains tax of 10 per cent as most stock options have a lock-in clause of three years.

The housing package _ which could have a multiplier effect on overall economic activity _ raises the income-tax exemption limit on interest paid on housing loans to Rs 1 lakh from Rs 75,000. The 1999-2000 budget had hiked this from Rs 30,000 to Rs 75,000 and triggered a burst of construction.

The finance minister also approved the setting up of a Rs 150 crore pharma research and development fund. He also proposed giving R&D companies a tax holiday for a period to 10 years and raising the weighted deductions for research expenses from the current level of 125 per cent to 150 per cent.

Sinha also proposed a hike in custom duties on select items to protect domestic industry after these items were brought under open general licence of import following the recent lifting of quantitative restrictions. Among other items, he increased the import duties on tea and coffee to 35 per cent and more than doubled the tariffs on poultry meat and their preparations to 100 per cent.

Sinha also announced that the tax holiday for Free Trade Zones, Software Technology Parks and Special Economic Zones will now be phased out over a 10-year period. The unit set up till March 2000 will have a concession of 10 years, those set up in March 2001 for nine years and so on. In addition, he announced that this concession would now be extended to information technology enabled services.