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Budget 2001-02: How will taxes change?
Direct Taxes
Current trends
Direct tax collections have shown
promising trends so far in this fiscal year. Total collections on this front
are up by 27.7% during Apr-Jan 01 against the budgeted 26.5% for the fiscal
year. Income tax collections rose by an impressive 35.4% against the budgeted
target of 18.4%. This vindicates the broad thrust of the policy of lowering
tax rates and increasing compliance by assesses.
Measures likely to be taken
- In light of the recent earthquake in Gujarat,
the 10% surcharge on Income Tax, which was supposed to be temporary in nature,
is likely to be continued. However, the additional surcharge of 2% levied
after the earthquake is likely to be removed.
- As a measure to revive the sagging market, the
Budget is likely to witness a reduction in the dividend tax to 10% from the
existing 20%. Alternatively, the finance minister may accede to the demand
of industry to move the incidence of taxation of dividends from companies
to recipients' doorsteps, but without any reduction in rate. FIIs investment
limit in domestic companies may also be hiked to 49%.
- MAT (Minimum Alternate Tax) is likely to be
raised to 10% to discourage wide gaps between book profits and taxable profits.
The finance minister may decided to provide a shot-in-the arm to software
companies which are having to contend with slowdown in US economy by keeping
in abeyance the 20% phased reduction of tax exemption on export profits for
the next fiscal year. This would enable software companies to retain key overseas
accounts through re-negotiations that appear inevitable in the in the coming
fiscal year.
- The basic exemption limit is likely to be increased
to Rs 60,000 from the current Rs 50,000. It may be noticed that the basic
exemption limit has remained unchanged for last three years.
- Housing sector is expected to receive another
round of tax sops, especially in light of the recent earthquake in Gujarat.
The tax rebate on housing loans under section 88 of income tax act is likely
to be increased to Rs 30,000 from the existing Rs 20,000. Also, interest on
loan for a self-occupied property is likely to be exempt from tax up to Rs
125,000 from the current Rs 100,000.
- Widening of tax base by extending the one-on-six scheme to new cities/towns is also expected in the budget.
- There have been talks of taxing withdrawals
from the Provident Funds on the lines of National Savings Scheme. However,
considering its political repercussions, such a move is unlikely to materialise.
Indirect Taxes
Current trends
- Indirect tax collections grew by a mere 7.6%
in the first ten months of this fiscal year against the budgeted 14.5% for
the entire year. Total tax collection as a result grew by only 13.5% during
Apr-Jan 01 against the budgeted growth of 17.8% for the entire year.
Measures likely to be taken
- The finance minister is expected to bring a
plethora of new services including doctors and lawyers within the ambit of
service tax. The service tax rate may also be increased to 8% from the present
5% in order to bring it on par with the minimum slab rate of excise duty.
- Despite the subdued trend in indirect tax collections
this fiscal year, the budget is unlikely to impose any significant hike in
excise duties, though there are chances of further rationalisation on this
front.
- High import tariffs may be imposed on some sensitive items after the removal of Quantitative Restrictions (QRs) on the remaing
715 items from 01/04/01. The items may include second-hand cars, liquor, wheat,
edible oil, TV sets etc. These tariffs will, of course, be within the bounds
of the rates negotiated with the Word Trade Organisation.
Overall, D&B believes that
the current year budget initiatives would be more on the lines of inducing and
enforcing compliance rather than attempting to usher in major structural changes
or amendments.
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Rediff-Dun & Bradstreet Budget Impact Analysis
Budget 2001
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