| Finance minister Jaswant Singh arrives in Parliament on Friday to present the budget. (AFP)
Excerpts from the Budget 2003-04
I am greatly honoured to present the sixth successive budget of the government of the National Democratic Alliance, under the premiership of Shri Atal Bihari Vajpayee. At the core of our economic endeavour and management of the country’s finances are the interests of our citizens; all this effort is for their total wellbeing. That is our central objective, towards which the NDA government has a non-negotiable commitment. Through budget 2003-2004, the government, therefore, addresses the following five objectives, as “Panch Priorities” for our citizens and for the economic security of our country:
a) poverty eradication; addressing the “life-time concerns” of our citizens, covering health, housing, education and employment;
b) infrastructure development;
c) fiscal consolidation through tax reforms and progressive elimination of budgetary drags, including reform of the additional excise duty, introduction of service tax, and introduction of Value Added Tax from April 1, 2003 at the state level.
d) agriculture and related aspects including irrigation; and
e) enhancing manufacturing sector efficiency, including promotion of exports and further acceleration of the reform process.
Antyodaya Anna Yojana
For eliminating poverty, it is only reforms that result in sustained growth and high employment that are the durable solution. However, given our comfortable food stock, there is both scope and a need for a direct attack.
It has been decided that the Antyodaya Anna Yojana will be expanded from April 1, 2003, to cover an additional 50 lakh families, raising the total coverage to more than a quarter of all BPL families during the year 2003-04. The additional budgetary expenditure on this account will be Rs 507 crore. This does cover the first part of my assurance: Garib ke pet mein dana.
To maintain its present momentum of growth, it is proposed that interest deductible under income tax up to Rs 1,50,000 for construction or purchase of a self-occupied house property be continued. In addition, it is proposed that income from housing projects for construction of residential units, of prescribed specification, approved by the local authorities up to March 31, 2005, will now be exempt from income tax. Thus, not only has the limitation with regard to the year of sanction, earlier frozen at March 31, 2001, now been extended, but the benefits of the scheme also made available irrespective of the year of completion.
As a first step, education expenses up to Rs 12,000 per child for two children, will be made eligible for rebate under Section 88 of the Income Tax Act. Royalty income up to Rs 3 lakh per annum, received by authors of literary, artistic and scientific books shall henceforth be fully exempt, as will be royalty received by individuals from exploitation of patents. This is in addition to existing exemption benefits.
To encourage private hospitals to either establish new or to expand existing medical facilities, it is proposed to extend the benefit of Section 10(23 G) of the IT Act to such institutions as provide long-term capital to private hospitals with 100 beds or more.
It is proposed to increase the rate of depreciation from the present 25 per cent to 40 per cent in respect of life-saving medical equipment.
It is also proposed to reduce the customs duty on specified life-saving equipment from 25 per cent to 5 per cent and also exempt them from CVD (additional duty of customs). In respect of life-saving equipment already exempt from CVD, it is proposed to exempt them from excise duty as well, to encourage indigenous manufacturers. It is proposed to extend the concessional duty rate of 5 per cent to some more drugs. Life-saving drugs currently attracting nil or 5 per cent customs duty will also be exempt from excise duty.
Disabled and handicapped
It is proposed that the physically handicapped or persons with such dependants be entitled to a deduction for permanent physical disability of Rs 50,000, and an enhanced deduction of Rs 75,000 in case of severe disability.
I also propose to reduce the customs duty on hearing aids, crutches, wheelchairs, walking frames, tricycles, braillers and artificial limbs to 5 per cent without special additional duty. They will be exempt from CVD and the domestic manufacturers will also be exempt from excise duty. I also propose to reduce the customs duty on parts of hearing aids and wheelchairs to 5 per cent without CVD and SAD.
A constant refrain of the salaried has been limited standard deduction for income tax purposes. It is, therefore, proposed that the standard deduction for such employees be raised to 40 per cent of salary, or Rs 30,000, whichever is less, for salary income up to Rs 5 lakh, and allow a deduction of Rs 20,000 for salary income above Rs 5 lakh. It is also proposed that relief be provided to employees opting for VRS, by exempting VRS payments up to Rs 5 lakh, even when taken in instalments. The government will restore the LTC facility to its employees.
Senior citizens, pensioners
To enable pensioners and senior citizens to live their life of retirement in dignity, the tax rebate to senior citizens is proposed to be increased to Rs 20,000. As a result, their income up to Rs 1.53 lakh will, henceforth, become fully exempt from income tax.
In the case of senior citizens on pension, the effective exemption limit may hereafter be actually higher and become Rs 1.83 lakh, because of standard deduction. They can get further relief by taking advantage of the tax rebate available under Section 88. In addition, to reduce their cost of compliance, but of much greater importance to them — to reduce bureaucratic hassles — I propose to accept self-declarations filed by senior citizens, in regard to no deduction of tax at source from interest income, income from units, and such other sources.
In the context of the declining rates of interest, the Life Insurance Corporation of India will launch a special pension policy, guaranteeing an annual return of 9 per cent, in the form of a monthly pension scheme. This scheme will be called Varishtha Pension Bima Yojana. For this scheme, and with pensions in mind, any citizen above the age of 55 years will qualify and will get a monthly return in the form of a pension for life. Upon demise, the initial amount deposited will be returned to the spouse/nominee. The minimum and maximum monthly pensions proposed are Rs 250 and Rs 2,000 per month and will start from the month following the payment of the lumpsum amount.
For ex-servicemen I propose to grant income-tax exemption to corporations set up under a Central or state Act for their benefit. The Prime Minister’s scheme for establishing 227 ex-servicemen medical facilities in the country will be inaugurated in April this year.
A restructured pension scheme for new central government employees and a scheme for the general public is now ready. It will apply only to new entrants to government service, except to the armed forces, and upon finalisation, offer a basket of pension choices. It will also be available, on a voluntary basis, to all employers for their employees, as well as to the self-employed. This system will be based on defined contribution, shared equally in the case of government employees between the government and the employees. There will, of course, be no contribution from the government in respect of individuals who are not government employees. The new pension scheme will be portable.
Budget 2003-04 undertakes to provide a major thrust to infrastructure, principally to roads, railways, airports, and seaports, through innovative funding mechanisms. This comprehensive initiative will cover:
n 48 new road projects at an estimated cost of around Rs.40,000 crore
n National Rail Vikas Yojana projects worth Rs.8,000 crore;
n Renovation/modernisation of two airports, and two seaports at an estimated cost of Rs.11,000 crore; and
n establishing two global standard international convention centres at an estimated cost of Rs 1,000 crore
The total estimated cost of the above projects is about Rs 60,000 crore. In addition, the North-South and East-West corridors will be funded through the additional levy of a cess of 50 paise per litre of diesel and motor spirit. This levy will contribute a further Rs 2,600 crore for road development.
The government now proposes to liberalise the mega power project policy further by extending all these benefits to any power project that fulfils the conditions already prescribed for mega power projects.
Given the importance of transmission in the power sector, it is proposed to reduce customs duty on specific equipment for high voltage transmission projects from 25 per cent to 5 per cent.
The government proposes to initiate cash management, on a pilot basis, in some major spending ministries, releasing budgetary allocations in a time-sliced manner to permit convergence with available resources within the year.
At the Central level, interest payments in 2002-03 are estimated at Rs 115,663 crore, equivalent to 48.8 per cent of the government’s revenue receipts. The government has, therefore, already started to act on three fronts.
First, the government has effected premature repayment of “high-cost” currency pool loans of the World Bank and the Asian Development Bank totalling around $3 billion. We intend to continue with this policy of prudently managing the external liabilities and of proactively liquidating relatively higher cost component of our external debt portfolio.
Second, the government now proposes to offer a buy back of high-interest loans from banks that are in need of liquidity, or of encashing the premium for making provisions for their non-performing assets
Third, the central and state governments have agreed to introduce a debt-swap scheme which will enable states to prepay high-cost debt and substitute them by current, low-coupon-bearing small savings and open market loans.
To provide relief to both the (sugarcane) farmers and industry, the RBI has already issued instructions to Cooperative Banks for the conversion of shortfall in margins into medium-term working capital loans. The RBI has also issued instructions to extend the repayment period of medium-term loans to 9 years.I propose to abolish the excise duty of Re 1 per kg on tea and replace it by a cess of Re1 per kg., for creating a separate fund for development, modernisation and rehabilitation of the tea plantation sector.Further, coffee plantations will henceforth be eligible for income tax deduction of sums deposited in a development account, as in the case of tea.
I propose to reduce the basic customs duty on specified veterinary drugs from 15 per cent to 10 per cent.Private banks will be encouraged to open branches in rural areas. To pass on the benefits of lower rates of interest to agriculture and the SSI sector, the State Bank of India has announced an interest rate band of 2 per cent above and below its prime lending rate for secured advances.The issue price of fertilisers will be raised by a modest amount of Rs 12 for urea, and Rs 10 for DAP and MOP, per 50 kg bag. The price of complex fertilisers will also be suitably modified.
From April 1, 2003, it is proposed that dividends be tax free in the hands of shareholders. Correspondingly, there will be a 12.5 per cent dividend distribution tax on domestic companies. While mutual funds, including UTI-II, renamed UTI Mutual Fund, will also pay dividend distribution tax, it is proposed to exempt equity-oriented schemes from the purview of the tax for one year. UTI-I, however, will be exempt from the dividend distribution tax.
It is also proposed to exempt all listed equities that are acquired on or after March 1, 2003, and sold after the lapse of a year, or more, from the incidence of capital gains tax.
As a one time measure, at the time of corporatisation or demutualisation of the stock exchanges should gains arise, then the consequential transactions shall be fully exempt from capital gains tax.
The main thrust of my proposals for the textile sector, therefore, is to have a moderate rate structure; to complete the Cenvat chain to promote compliance; to encourage modernisation; and, to eliminate evasion. Recognising the need to prevent sickness in the textile industry, the government is considering a mechanism for restructuring the debt portfolios of viable and potentially viable textile units.
All drugs and materials imported or produced domestically for clinical trials will be exempt from customs and excise duties. Customs duty on import of reference standards by the industry has been reduced from 25 per cent to 5 per cent.
It is proposed that the concessions extended to IT under Sections 10A and 10B of the Income Tax Act will continue as originally envisaged. As per law, such companies as are currently covered by these tax exemptions lose the benefits upon change in their ownership or shareholding. I am removing these restrictions. The value of pre-loaded software will be excluded for the purpose of charging excise duty on computers. Customs duty on specified electronic components for IT industry is being reduced.
In addition, customs duty on a number of capital goods used by the telecom and IT sector for manufacture of components will be reduced to 15 per cent. For optical fibre cables the customs duty is also being reduced to 20 per cent.
It is proposed to reduce customs duty on imported gold to Rs 100 per 10 grams from the present Rs 250 per 10 grams, but only when it is brought in the form of serially-numbered bars, or in the form of gold coins
Foreign direct investment in the banking companies in India from all sources under the automatic route will be raised to 74 per cent.
The voting rights of any person holding shares of a banking company are restricted to 10 per cent irrespective of his/her shareholding. The Banking Regulation Act, 1949, will be amended to remove this limitation.
I now also extend the benefit of Section 72A of the Income Tax Act to nationalised banks. Any banking company can now merge with a nationalised bank with consequential tax benefit.
Rates of interest on public provident fund, and small savings schemes, will be reduced by one percentage point with effect from March 1. Interest on relief and savings bonds will also be reset accordingly.
To ease restrictions on capital account mobility I would like to announce the following additional steps:
n To enable diversification, overseas investment under the automatic route will be permitted to corporates with a proven track record, even where the investment is not in the same core activity. Further, the current restriction, limiting such investment to 50 per cent of the net worth of the Indian company, will now be raised to 100 per cent.
n Prepayment of ECB dues under the automatic route will be permitted by removing the current ceiling of $100 million.
In view of the apprehensions expressed by states about possible revenue loss in the initial years of introduction of VAT, the central government has agreed to compensate 100 per cent of the loss in the first year, 75 per cent of the loss in second year and 50 per cent of the loss in the third year of the introduction of VAT.
While continuing to give states the additional 1.5 per cent of all shareable taxes and duties, in order to enable them to generate more revenues, the Additional Duties of Excise (Goods of Special Importance) Act, 1957, is being amended, from a date to be notified. This will allow the states to levy sales tax on textiles, sugar and tobacco products at a rate not exceeding 4 per cent. This will also enable the states to integrate these three important products in the VAT chain.
To enable levy of tax on services as a specific and important source of revenue, an amendment to the Constitution is proposed.
With the introduction of VAT, there is need to now phase out the CST and move to a completely destination-based system. This cannot be done in one step. We must let VAT stabilise; but also recognise that these two — VAT and CST — cannot remain in tandem, in perpetuity.
Corporate tax structure will be left as it is; except that the 5 per cent surcharge, levied last year in connection with the security of India, will be halved in the case of corporate assessees, firms, foreign companies, co-operatives, and local authorities.
In the case of individuals, Hindu undivided families and association of persons, this surcharge will be removed entirely, except in the case of those earning an income above Rs 8.5 lakh. From them, that is those earning above Rs 8.5 lakh, I will collect a 10 per cent surcharge on the tax, which works out to less than 3 paise out of an income of a rupee. But, I have provided some relief to them, as well, for example, in standard deduction.
Individual taxpayers having income from dividends, interest have now been given a general deduction of Rs 12,000. An additional deduction of Rs 3,000 is allowable in respect of interest from government securities.
It is now provided that individuals and HUF carrying on business or profession need not deduct tax at source from payments made by them for personal purposes.
In the area of tax administration, the government has initiated a whole basket of reforms, mainly on the basis of the recommendations of the Kelkar Committee:
a) outsourcing of non-core activities of income tax department, namely allotment of PAN, and creation of data bank of high value transactions through tax information network;
b) immediate abolition of present discretion-based system for selection of returns for scrutiny; this will be replaced by a computer generated, intelligent, random selection of only 2 per cent of the returns, annually;
c) expanding the scope of taxpayer services, including extension of interactive voice response system to more cities and software for preparation of returns;
d) direct crediting of all refunds to the bank account of the taxpayer, through electronic clearance system; but obviously only if the taxpayer furnishes a bank account number;
e) reduce the compliance cost of the taxpayer, through halving the number of forms presently used in furnishing of applications, returns, for the purposes of tax deduction and tax collection at source, from the present 42 to just 22.
f) immediate introduction of a one-page only return form for individual tax payers, having income from salary, house property and interest, etc. This has already been devised, and will come into operation from April 1 onwards;
g) the Income Tax Act is being amended to enable electronic filing of returns;
h) abolition of tax-clearance certificates currently needed by a person leaving India, or any person submitting a tender for a government contract. Henceforth, only expatriates who come to India in connection with business, profession or employment, would have to furnish a guarantee from their employer, in respect of the tax payable before they leave India. An Indian citizen, before leaving India, will only have to give his/her permanent account number, and the period of his/her intended visit abroad to the emigration authorities;
i) simplifying the procedure and methods employed during search and seizure, and during survey by the Income Tax department.
I propose to prescribe a three-tier excise duty structure of 8 per cent, 16 per cent and 24 per cent. These rates would, however, not apply in the case of petroleum and tobacco products, pan masala, and items attracting specific duty rates.
Currently, tyres, aerated soft drinks, polyester filament yarn, air-conditioners and motor cars attract excise duty of 32 per cent. I propose to reduce the duty on these items to 24 per cent. Certain exempt items were brought under the tax net during the last two years with an optional duty of 4 per cent without Cenvat, or 16 per cent with Cenvat. I propose to eliminate the 4 per cent duty without Cenvat.
I propose to fully exempt the following items of the ordinary citizen’s use, currently attracting 4 per cent excise duty— unbranded surgical bandages, registers and account books, umbrellas, kerosene pressure lanterns, articles of wood, imitation zari, adhesive tapes, tubular knitted gas mantle fabrics, walking sticks, articles of mica, bicycles and parts, toys, mosaic tiles, utensils and kitchen articles, knives, spoons and similar kitchenware/tableware, glasses for corrective spectacles.
Rest of the items attracting 4 per cent without Cenvat will now attract duty at 8 per cent with Cenvat.
I also propose to reduce the excise duty chargeable under the Medicinal and Toilet Preparations Act, on medicines and toilet preparations containing alcohol, from the present high rates of 20 to 50 per cent to a uniform rate of 16 per cent, at par with the rates on similar items not containing alcohol. Exemptions on ayurvedic and unani medicines, containing self-generated alcohol, will continue.
I propose to reduce the excise duty on items like pressure cookers, ophthalmic blanks, biscuits, boiled sweets and dental chairs from 16 per cent to 8 per cent. Recorded audio compact discs will be fully exempt from excise duty.
These measures will result in Grihini ki kutiya mein anna: the second part of my assurance.
I have already announced major reduction in excise duty on motor cars and tyres. Further, I propose to reduce the duty on electric vehicles from 16 per cent to 8 per cent.
To reduce the duty differential between buses and trucks and to promote body building by integrated bus and truck manufacturers, as a measure of road safety, I propose to increase the duty on chassis from 16 per cent, to 16 per cent plus Rs 10,000 per chassis, cleared for outside body building. The body building activity in the unorganised sector would, however, continue to remain exempt.
I propose to impose fresh excise levy of 8 per cent on the following items, with the Cenvat credit facility available to them: branded refined edible oil and vanaspati packed in sealed containers for retail sale — this will not apply to unbranded oil; lay flat tubing; chemical reagents; wood-free particle or fibre board made from agro base; paper and paper board made from non conventional raw material; and populated printed circuit board for black and white TV sets.
Considering that specific rates on cement and clinker have remained unchanged for a considerably long period of time, I propose to now increase these rates by Rs 50 per tonne. This will mean a modest increase of Rs 2.50 per 50 kg bag of cement.
I also propose to impose additional excise duty of Rs 1.50 per litre on light diesel oil to further discourage its use as an adulterant.
For trade facilitation, I propose to take the following measures:
a) The present system of fortnightly payment of excise duty will be liberalised to permit payment of duty at the end of the month. Further, excise duty will be considered to have been paid on the date the cheque is presented to the bank subject to realisation.
b) Deduction from the transaction value is allowed on actual freight incurred, provided that is clearly shown in the invoice. This facility will now be extended to cases where freight is worked out on an equalised basis also.
c) I propose to extend the MRP-based excise levy to chewing tobacco and insecticides.
I propose to enhance the general service tax rate from 5 per cent to 8 per cent, and also impose service tax on 10 new services.
I propose to reduce the peak rate of customs duty from 30 per cent to 25 per cent, excluding agriculture and dairy products.
Value limit for a full customs duty exemption, for bona fide commercial samples and gifts, however, shall be raised from Rs.5,000 to Rs.10,000. I also propose to reduce the customs duty on passenger baggage from 60 per cent to 50 per cent.
The basic customs duty on alcoholic liquor will come down to 166 per cent in conformity with our WTO commitments. I also propose to rationalise the countervailing duty in respect of imported alcoholic beverages including wines.
Considering higher usage levels of liquified natural gas, I propose to reduce the customs duty on LNG regassification plants from 25 per cent to 5 per cent.
I propose to reduce customs duty on spares for diesel locomotives, parts for conversion of locomotives from DC to AC from 25 per cent to 15 per cent, and loco simulators for training of drivers from 25 per cent to 5 per cent.
Budget estimates 2003-04
The total expenditure is estimated at Rs 438,795 crore, of which Rs 120,974 crore is for Plan and Rs 317,821 crore for non-Plan.
With these proposals I estimate total revenue receipts of the Centre at Rs 253,935 crore and the fiscal deficit at Rs 153,637 crore, which is 5.6 per cent of the estimated GDP.
Let me end, by reiterating that this budget is of an “India that is on the move”. An India, that now rapidly advances to prosperity. It is about an India that banishes poverty, and builds on its great resource base, the strength of its human capital and the immense reservoir of its knowledge.
Sir, I commend the budget to the House.