The following are excerpts from Part B (tax proposals) of Pranab Mukherjee’s budget speech.

Madam Speaker, there have been demands by the corporate sector for reduction in tax rates. However, tax rates are determined by the size of the tax base; if the tax base is higher, the tax rates can be lower. The Income-Tax Act is riddled with a plethora of tax exemptions which substantially erode the tax base.

The extent of this erosion is presented to this House in the form of a Revenue Foregone Statement. The growth in the direct tax revenue foregone is relatively higher than the growth in the direct tax revenues. Accordingly, I do not propose to make any change in the corporate tax rates.

Tax exemption up

With a view to providing interim relief to small and marginal taxpayers and senior citizens, I propose to increase the personal income tax exemption limit by Rs 15,000 from Rs 2.25 lakh to Rs 2.40 lakh for senior citizens. Similarly, I also propose to raise the exemption limit by Rs 10,000 from Rs 1.80 lakh to Rs 1.90 lakh for women tax payers and by Rs 10,000 from Rs 1.50 lakh to Rs 1.60 lakh for all other categories of individual taxpayers.

Further, I also propose to increase the deduction under section 80-DD in respect of maintenance, including medical treatment, of a dependent who is a person with severe disability to Rs 1 lakh from the present limit of Rs 75,000.

Surcharge off

The government has set up the National Calamity Contingency Fund to build up resources to meet emergency situations. As a corollary, surcharge on direct taxes should be removed. However, this has to be balanced with the revenue needs of the government. Therefore, in the first instance, I propose to phase out the surcharge on various direct taxes by eliminating the surcharge of 10 per cent on personal income tax.

Deduction in respect of export profits is available under sections 10A and 10B of the Income-tax Act. The deduction under these sections would not be available beyond the financial year 2009-2010. In order to tide over the slowdown in exports, I propose to extend the sun-set clauses for these tax holidays by one more year i.e. for the financial year 2010-11.

Fringe tax scrapped

The Finance Act 2005 introduced the Fringe Benefit Tax on the value of certain fringe benefits provided by employers to their employees. This tax has been perceived as imposing considerable compliance burden. Empathising with these sentiments, I propose to abolish the Fringe Benefit Tax.

MAT raised

Minimum Alternate Tax (MAT) was introduced to address inequity in taxation of corporate taxpayers. In the quest for greater equity, I propose to increase the rate of MAT to 15 per cent of book profits from the present rate of 10 per cent. However, to grant relief to corporate taxpayers, I also propose to extend the period allowed to carry forward the tax credit under MAT from seven years to 10 years.

Pension incentives

While the New Pension System (NPS) will continue to be subjected to the Exempt-Exempt-Taxed method of tax treatment of savings, it is proposed to provide necessary fiscal support to the NPS for the establishment of this much needed social security system. Accordingly, I propose to exempt the income of the NPS trust from income-tax and any dividend paid to this Trust from Dividend Distribution Tax.

Similarly, all purchase and sale of equity shares and derivatives by the NPS Trust will also be exempt from the Securities Transaction Tax. I also propose to enable self-employed persons to participate in the NPS and avail of the tax benefits available thereto.

Commodity levy

The Finance Act 2008 introduced the Commodity Transaction Tax (CTT) to be levied on taxable commodities transactions entered in a recognised association. The Prime Minister’s Economic Advisory Council has recommended abolition of the CTT. I, therefore, propose to abolish the Commodity Transaction Tax.

Political funding

The House will agree that it is desirable to bring about transparency in the funding of political parties in the country. With a view to reforming the system of funding of political parties, I propose to provide that donations to electoral trusts shall be allowed as a 100 per cent deduction in the computation of the income of the donor.

For this purpose, electoral trusts will be such trusts as are set up as pass-through vehicles for routing the donations to political parties and are approved by CBDT.

Education loans

Section 80E of the Income-tax Act provides for a deduction in respect of interest on loans taken for pursuing higher education in specified fields of study. I propose to extend the scope of this provision to cover all fields of study, including vocational studies, pursued after completion of schooling.

Anonymous charity

Anonymous donations to charitable institutions are liable to tax so as to prevent unaccounted money being routed to such entities in the garb of anonymous donations. However, some organisations are facing genuine problems in complying with the procedural requirements.

In order to mitigate the practical difficulties being faced by such charitable organisations, I propose to grant relief to such organisations by not taxing anonymous donations received to the extent of 5 per cent of their total income or a sum of Rs 1 lakh, whichever is higher.

Trust relief

Under the present provisions of section 2 (15) of the Income-Tax Act, “charitable purpose” includes relief of the poor, education, medical relief, and the “advancement of any other object of general public utility”. However, the “advancement of any other object of general public utility” cannot involve the carrying on of any activity in the nature of trade, commerce or business.

I propose to provide the same tax treatment to trusts engaged in preserving and improving our environment (including watersheds, forests and wildlife) and preserving our monuments or places or objects of artistic or historic interest, as is available to trusts engaged in providing relief of the poor, education and medical relief.

Set-top duty

Full exemption from basic customs duty was provided to set-top boxes in 2006 to enable their free import for the smooth introduction of the Conditional Access System. Now that production capacity has come up in the country, I propose to impose a nominal basic customs duty of 5 per cent on such Set Top Boxes to encourage domestic value addition.

LCD relief

The electronic hardware industry has a strong potential for creating employment especially in the SME sector. I intend to reduce the basic customs duty on LCD panels from 10 per cent to 5 per cent to support indigenous production of LCD televisions.

Mobile parts

Fll exemption from CVD of 4 per cent was available to accessories, parts and components imported for the manufacture of mobile phones till the 30th of June, 2009. I propose to reintroduce this exemption for another year.

Drugs duty cut

On influenza vaccine and nine specified life saving drugs used for the treatment of breast cancer, hepatitis-B, rheumatic arthritis etc. and on bulk drugs used for the manufacture of such drugs, I propose to reduce the customs duty from 10 per cent to 5 per cent. They will also be totally exempt from excise duty and countervailing duty.

Heart devices

Customs duty will also be reduced from 7.5 per cent to 5 per cent on two specified life saving devices used in treatment of heart conditions. These devices will be fully exempt from excise duty and CVD also.

Gold & silver duty

Gold bars currently attract customs duty at the specific rate of Rs 100 per 10 grams while other forms of gold (excluding jewellery) are chargeable to a duty of Rs 250 per 10 grams. These rates were fixed in 2004 and have not been reviewed even as the price of gold has increased manifold. I propose to partially restore the incidence by increasing these rates to Rs 200 per 10 grams and Rs 500 per 10 grams respectively. Along the same lines, the customs duty on silver (excluding jewellery) will be increased from Rs 500 per kg to Rs 1,000 per kg. These revised rates would also apply to gold and silver, including ornaments that are not studded, when imported by a bona fide passenger as baggage.

Infotech

The IT industry has pointed out that it is facing difficulties in the assessment of software which involves transfer of the right to use after the levy of service tax on IT software service. To resolve the matter, I propose to exempt the value attributable to the transfer of the right to use packaged software from excise duty and CVD.

Construction

The construction industry has represented that they are facing difficulties on account of withdrawal of exemption on goods manufactured at site. I propose to restore full exemption to such goods, including pre-fabricated concrete slabs or blocks, when used for further construction at site.

Big cars

A specific component was added to the ad valorem duty of 24 per cent applicable to large cars and utility vehicles in June last year. In the case of vehicles of engine capacity below 2000 cc, this component was Rs 15,000 per unit while for vehicles of higher engine capacity it was Rs 20,000 per unit. These rates are now being unified at the lower level of Rs 15,000 per unit.

Women salve

Madam Speaker, I fear that my proposals relating to gold and silver on the customs side would somewhat dent my popularity with women. I propose to salvage this by fully exempting branded jewellery from excise duty.

Legal service tax

As the honourable members are aware, services provided by chartered accountants, cost accountants, and company secretaries as well as by engineering and management consultants are presently charged service tax. Although there is a school of thought that legal consultants do not provide any service to their client, I hold my distinguished predecessor in high esteem and disagree!

As such, I propose to extend service tax on advice, consultancy or technical assistance provided in the field of law. This tax would not be applicable in case the service provider or the service receiver is an individual.

Contract carriage

Vehicles having ‘Stage Carriage Permits’ and run by State undertakings are exempted from service tax. However, transportation of passengers undertaken by private enterprises in vehicles having ‘Contract Carriage Permits’ is, subjected to service tax. In order to bring parity in tax treatment, I propose to exempt such transportation also from the levy of service tax.

The final sum

My tax proposals on direct taxes are revenue neutral. On indirect taxes, they are estimated to yield a net gain of Rs 2,000 crore for a full year.

Mahatma’s art

As we begin this five-year journey, the road ahead will not be easy. We will have to manage uncertainties and there will be as many problems as there would be solutions. Mahatma Gandhi said and I quote: “Democracy is the art and science of mobilising the entire physical, economic and spiritual resources of various sections of the people in the service of the common good of all.” This is precisely what we will have to do. With strong hearts, enlightened minds and willing hands, we will have to overcome all odds and remove all obstacles to create a brave new India of our dreams.