The FM has come down heavily on the salaried class and appears to have done precious little to increase tax revenue from non-salaried tax payers except to tinker around with certain provisions which require compulsory quoting of the Permanent Account Number (PAN). The will to come down heavily on the non-salaried class was clearly missing.
Revenue from direct taxes has been budgeted at Rs 915.85 bn as against the revised estimate of Rs. 734.97 bn in the year 2001-2002.
The finance minister has not tinkered with existing tax rate and tax structures. Both personal and corporate tax rates have remained unchanged.
Additional surcharge of 5% has been levied on all assesses other than individuals and Hindu Undivided Families (HUFs) having total income upto Rs 60,000. The effective rate of tax for Corporate has risen to 36.75 % from the earlier rate of 35.70%. The maximum marginal rate for individuals has gone up to 31.50% from the earlier rate of 30.60%.
The tax rate for foreign companies has been reduced from 48% to 40%. There is no surcharge on foreign companies and therefore the issue the disparity between tax rates levied on domestic and foreign companies has been addressed to a great extent.
Surcharge of 5% has also been levied on all existing Tax Deducted at Source (TDS) rates.
In an attempt to boost industrial growth, the Finance Minister has proposed accelerated depreciation on Plant & Machinery purchased after 01-Apr-02 by a new industrial undertaking or an undertaking expanding its installed capacity by more than 25%.
The housing sector has received further impetus by the Finance Minister's announcement that interest payable on loans for self occupied houses constructed or acquired even after 31-Mar-03 will also be eligible for deduction, provided the house is acquired or constructed within 3 years of the date on which the loan was taken.
The abolition of expenditure tax on rooms with rates below Rs 3,000 per day will give a boost to the hotel industry, especially hotels in the 3 star category. The deduction under section 80HHD in respect of foreign exchange earnings of hotels and tour operators has increased from 40% to 50%. Service tax exemption on hotels has been extended by one more year. The entire package for the hotel industry is in line with the Finance Minister's announcement of an increased thrust to promote tourism.
Companies availing 100% tax exemption under section 10A and 10B will have to pay tax on 10% of their Income. This will effectively shore up the tax rate of most of the Software Companies by 3.68%.
The Abolition of Chapter XXC of the Income Tax Act relating to obtaining prior approval of the Income Tax Department for any transaction in immovable property after 1-Jul-02 will come as a major relief to the housing sector and the real estate sector.
The amendment of Section 14A making it effective from 11-May-01 instead of being retrospectively effective from 01-Apr-62 as will be a big relief to assessees especially the banking sector which was fearing litigation on account of this section. The section related to the disallowance of expenses incurred in relation to income which does not form part of total income under the act.
The increased allowance of provision for doubtful and bad debts for the banking sector will help the sector but the industry demand of full allowance for bad debt provision made as per RBI norms was not considered favourably.
Dividend income (including dividend received from mutual funds) will become taxable in the hands of the recipient and the dividend distribution tax of 10% payable by the company has been abolished. Corporates will get an exemption in respect of dividend income received to the extent of dividend distributed by them.
TDS on brokerage and commission under section 194H has been reduced to 5% from the existing 10%. Now individuals and HUFs whose accounts are subject to audit under section 44AB will also have to deduct tax at source.
Interest on refund payable to the assesses under section 244A has been reduced to 8% per annum from the existing 9% in line with the cut in small saving interest rates.
Rebate under Section 88 in respect of small savings investments has been linked to total income of the assessees. Persons having total income exceeding Rs 150,000 and less than Rs 500,000 will get a rebate of only 10% as against the existing 20% and persons having income exceeding Rs 500,000 will not get any rebate at all under this section.
Standard Deduction was already denied to persons having salary income in excess of Rs. 500,000 and with the withdrawal of rebate under Section 88 an assessee having a salary income of Rs. 499,000 is better off than an assessee having a salary income of Rs.500,000, by Rs. 14,250 (due to non availability of standard deduction and rebate under section 88).
Expenditure exceeding Rs 25,000 incurred for foreign travel, purchase of bank drafts in cash for an amount exceeding Rs 50,000, and cash deposits exceeding Rs. 50,000 will require compulsory quoting of PAN.
