Speech of
Shri P. Chidambaram
Minister of Finance
22nd July, 1996
PART B
Now, I turn to my tax proposals.
The good news is there are no new direct taxes save one
and even that solitary new tax, I am confident, will be almost
universally welcomed.
There are pressing demands from all sections of society
to raise the threshold limit for personal income-tax from the
existing level of Rs.40,000 to at least Rs.60,000. Each increase
of Rs.1,000 in the threshold limit will cost the exchequer Rs.150
crore and, since 77.5% of this loss will be borne by the States,
any major concession on this front will put a severe strain on
the States' financial resources. Besides, when the direct tax
base is already narrow - only 110 lakh persons pay income-tax -
no Finance Minister can afford to let 20 or 30 lakhs of them go
out of the net. However, I accept the need to provide relief to
the assessees in the first tax bracket, especially the salaried
class. I propose to do so in two ways: first, I propose to
reduce the income-tax rate for the first bracket from 20 per
cent to 15 per cent. This benefit will be available to all
assessees. I also propose to raise the standard deduction from
Rs.15,000 to Rs.18,000 for salaried employees having an income
upto Rs.60,000. Thus, a salaried employee with an income of
Rs.60,000 per year, making the minimum contribution to his
provident fund, will now pay no tax at all. If he has no savings,
he will still pay only Rs.300.
We owe a special consideration to our senior citizens.
At present, senior citizens benefit from a special tax rebate of
40% upto an income level of Rs.100,000. I propose to raise this
to Rs.120,000.
House-owners, residing in their own houses that have been
financed by borrowing, deserve relief. The deduction of interest
payments of Rs.10,000 allowed to them from their income from
property is proposed to be raised to Rs.15,000.
As another relief measure, I propose to raise the limit
under section 80D of the Income-tax Act for deduction in respect
of insurance on the health of the individual and his family
members from Rs.6,000 to Rs.10,000.
I have already mentioned the new scheme of personal-cum-
family pension being introduced by LIC. In order to encourage
savings in this form, I propose to allow the contribution to the
pension fund to be deducted from taxable income upto a limit of
Rs.10,000 per annum. I also propose to exempt the income of
such a pension fund in the LIC from the levy of income-tax.
At present, a five year tax holiday is available under
section 80-IA to enterprises engaged in developing, maintaining
and operating infrastructure facilities such as roads, highways,
bridges, new airports, ports and rail systems. I propose to
extend this incentive to investment in irrigation, water supply,
sanitation and sewerage systems.
I also propose to provide a five year tax holiday under
section 80-IA of the Income Tax Act to companies exclusively
created to participate in research and development activities. I
am also simplifying the existing procedure for giving weighted
deduction under section 35(2AA) of the Income-tax Act on sums
paid for scientific research to a National Laboratory or a
University or an Indian Institute of Technology by deleting the
condition of approval by an outside body.
