161. The tax payable on the distribution of dividends of domestic companies and income
in respect of Units of Mutual Funds and UTI was increased from 10% to 20% last year. To
provide a stimulus to the growth of capital market, I propose to reduce this tax to 10%.
162. To help revive investor-interest in primary issues I propose to exempt
long-term capital gains arising from the sale of securities and Units if such gains are
reinvested in primary issues of shares of public companies.
163. Sir, the tax incentives in the form of tax holidays for infrastructure
facilities are proposed to be further rationalized and enlarged. For the core sectors of
infrastructure namely, roads, highways, rail system, water treatment and supply,
irrigation, sanitation and solid waste management systems, I now propose a ten-year tax
holiday which may be availed of during the initial twenty years. In the case of airports,
ports, inland ports and waterways, industrial parks and generation and distribution of
power, which also become commercially viable only in the long run, a tax holiday of ten
years is being proposed to be availed of during the initial fifteen years. The period of
commencement of business for power and industrial parks is also being extended up to 31,
March 2006.
164. The five-year tax holiday and 30 % deduction for next five years was available
to the telecommunications sector till 31, March 2000. I propose to reintroduce this
concession retrospectively for the units commencing their operations on or before 31,
March 2003. These concessions will also be extended to internet service providers and
broadband networks.
165. Sir, in addition to the tax holiday proposed for development of
infrastructure, tax incentives have also been provided for the investors providing
long-term finance or investing in the equity capital of the enterprises engaged in
infrastructure facility. Any income by way of interest, dividends or long-term capital
gains from such investments is fully exempt. I propose to extend this concession to
guarantee commissions and credit enhancement fees earned by financial institutions from
infrastructure enterprises. Co-operative Banks will also be eligible for exemption of
their income from investments in approved infrastructure facilities.
166. To be globally competitive, our companies need to increase their investment
and expenditure for Research and Development. Currently, a weighted deduction of 150% of
the expenditure on in-house research and development in certain areas is allowed to
companies. Sir, I propose to extend this weighted deduction to biotechnology as well for
clinical trials, filing patents and obtaining regulatory approvals. I also propose that
the entire amount paid to specified projects under the India Millennium Mission, 2020 will
be eligible for 125 % weighted deduction.
167. To encourage development of industrial infrastructure, I had provided 100%
deduction of export profits for a period of ten years to units operating in the Special
Economic Zones last year. I now propose to give further tax incentives for the development
of these zones. The concessions available for infrastructure by way of a 10-year tax
holiday will be available to the developers of Special Economic Zones on the same lines as
developers of industrial parks. The income of investors making long term investment for
the development of SEZs will also be exempt.
168. The storage of food grains and their transportation are our major concern.
Sir, I propose to provide a tax holiday for five years and 30% deduction of profits for
the next five years to the enterprises engaged in the integrated business of handling,
transportation and storage of food-grains.
169. Sir, for promoting the industry that provides the cup that cheers, I propose
to increase the development allowance available for tea from 20% to 40%. This additional
allowance will be used only for re-plantation, rejuvenation, and modernization of tea
plantations and processing facilities.
170 There has been a long-standing demand from the Shipping Industry that the rate
of depreciation available in respect of ships and inland water vessels may be increased. I
propose to increase this rate of depreciation to 25%.
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