Budget 2001-2002

151. Sir, another effective measure of widening the tax base is to further enlarge the scope of deduction of tax at source. Income tax at source will henceforth be deductible at the rate of 10 % on income by way of commission or brokerage exceeding Rs 2,500/-, except on transactions relating to shares and securities.

152. Winnings from lotteries, crossword puzzles etc. are currently taxed at 40%. As the marginal personal income tax rates have now stabilized at 30%, this income will also now be taxed at 30%. Television game shows are very popular these days. I wish the winners well. At the same time, I propose that income tax at the rate of 30% will be deducted at source from the winnings of these and all similar game shows.

153. At present, tax is deducted at source on income from interest on time deposits only if such income exceeds Rs 10,000/- in respect of deposits with a Bank or Housing Finance Company and Rs 5,000/- in other cases. These threshold limits have led to the erosion of tax base and under-reporting of taxable income due to splitting up of deposits. I, therefore, propose to lower this limit to Rs 2,500/- in all cases.

154. With economic liberalization, the pay package of salaried class is undergoing many changes. It is being divided into various components and the forms of perquisites and benefits or amenities provided by the employers are assuming new dimensions. To align our tax system with the present structure of pay packages, I propose that the value of perquisites, benefits or amenities shall be determined on the basis of their cost to the employer, except in respect of houses and cars where different criteria will be adopted for simplicity.

155. Sir, I also propose to provide relief to salaried persons in the lower income range having income up to rupees one lakh. Such persons will get an enhanced tax rebate at the rate of 30% in respect of their eligible investments under section 88 of the Income Tax Act, as against 20% at present.

156. In the case of Export Oriented Units, and units located in Export Processing Zones, Free Trade Zones and Software Technology Parks 25% of their sales in the domestic market are currently tax exempt. I propose to provide for the taxation of profits from these domestic sales of such units.

157. I.T. Sector continues to do well and should be encouraged to do better. I, therefore, propose that profits derived by the units located in the software technology parks from the export of "on-site" services will be eligible for deduction like their other export income. Units located outside these zones will also get the benefit of tax exemption on such export earnings. I further propose that the condition relating to transfer of ownership of companies in sections 10A and 10B of the Income-tax Act shall not apply in respect of companies in which public are substantially interested.

158. The income of NABARD, National Housing Bank and Small Industries Development Bank of India (SIDBI) was exempted from tax in order to provide fiscal support in the initial years of their functioning. Now these institutions have come of age and are working on commercial lines. I, therefore, propose to withdraw the tax exemption available to these institutions.

159. The interest payable on certain External Commercial Borrowings (ECBs) is currently exempt from tax. Having regard to the fact that interest received by the lender is taxable in the country of his residence and he would get a credit for any tax paid by him in India, any exemption from tax liability in the host country does not benefit the lender but only results in reducing our tax revenues. I, therefore, propose that the tax exemption in respect of interest paid on such External Commercial Borrowings will not be available for such borrowings made on or after the first day of June 2001.

160. Certain interest income up to a limit of Rs 12,000 is deductible at present under section 80L. In addition, income from Government securities is also deductible up to Rs 3,000. I propose to reduce the maximum limit of this deduction to Rs 9,000.