| Not affected
Kudos to the finance minister on his maiden budget. He has taken the bold step of undertaking reforms in the area of tax administration or simplification on the basis of the Kelkar committee recommendations. He said in his speech that even Einstein found it difficult to apprehend the tax system. That statement cannot be more true than in India where we have 298 sections, each section comprising many sub-sections, and 94 rules in the Income Tax Act.
The major reforms in simplification include immediate introduction of one-page-only return for individual taxpayers having income from salary, house property and interest.The present system of selecting tax returns for scrutiny is being replaced with a computer-based system thus removing discretion. The Income Tax Act is being amended to enable electronic filing of returns, and the direct credit of refund to taxpayers’ bank account. The procedure and methods during search and seizure and during survey by the department have been simplified.
Let us now look at the income tax provisions that the finance minister has changed with respect to various sections of the society.
Individuals: raising of the standard deduction to 40 per cent of salary or Rs 30,000, whichever is less for income upto Rs 5 lakhs and a deduction of Rs 20,000 for income above Rs 5 lakhs; removing the tax surcharge of 5 per cent (on annual income below Rs 8.5 lakhs); increasing surcharge on high income individual (above 8.5 lakhs to 10 per cent); increase in the tax rebate to senior citizens from Rs 15,000 to Rs 20,000. As a result of this, their income upto Rs 1.53 lakhs will now become exempt from income tax. They can get further relief by taking advantage of the tax rebate under section 88. In order to reduce bureaucratic hassles, the budget proposes to accept self-declaration by senior citizens with regard to no deduction of tax at source.
There will be abolition of tax on dividend; abolition of long-term capital gains tax on investments in listed equities after March 1, 2003. This has been done to attract fresh investments in the capital markets and hence this clause is not applicable for equities already held; increase in deduction under section 80L for interest on small savings, etc from Rs 12,000 to Rs 15,000; rebate of Rs 12,000 per child per annum for education expenses under section 88, subject to Rs 24,000 for two children. This is, however, illusory because the overall limit for tax rebate under section 88 (including insurance, public provident fund, national savings certificate, and so on) remains the same.
In the general corporate sphere, there will be a reduction of surcharge on companies to 2.5 per cent, and a distribution tax of 12.5 per cent on dividend. In many countries, to do away with double taxation, there is a zero per cent distribution tax on dividends. Two years back, India had a 10 per cent distribution tax on dividend, this has now been increased.
In IT and telecom, concessions under 10A & 10B, despite Kelkar committee’s recommendation for removal, have been retained. Concession under section 10A and 10B is to be continued even in the case of amalgamation or demerger. The benefit of section 10A and 10B is to be extended to the gems and jewellery industry. In healthcare, loans extended by financial institutions to private hospitals with over 100 beds would be covered under section 10 (23G). The budget proposed to increase the rate of depreciation from the current 25 per cent to 40 per cent with respect to life-saving medical equipment.
All in all, a good budget where the finance minister has marshalled his limited resources to meet his objectives without affecting the common man.