Infrastructure funds have become an important source of
capital to finance infrastructure projects. In order to
encourage such funds established to mobilise resources for
financing infrastructure facilities, I propose to exempt them
from income-tax. Any dividend, interest or long-term capital
gains of such funds or companies from investments in the form of
shares or long-term finance in any enterprise set up to develop,
maintain and operate an infrastructure facility will be free from
income tax.
I also propose to allow investment in approved debentures
or equity shares of public companies as eligible for tax rebate
under section 88 if the proceeds of such public issues are
applied to create a new infrastructure facility or to generate or
distribute power. In the case of such investment, the limit of
Rs.60,000 under section 88 will be raised to Rs.70,000.
Corporate tax rates have been reduced and simplified over
the past few years and the results have been very encouraging
with a significant increase in corporate taxes as a percentage of
GDP. However, there are two issues which need to be addressed.
The first is the promise made in the past that the corporate
surcharge will be temporary. The other is the phenomenon of zero
tax companies which, according to many observers, reflects an
excessive degree of laxity in the tax regime. I propose to
respond to the two issues as follows :
I am reducing the rate of surcharge on
corporation tax from 15% to 7.5% and hope to take
a similar step in my next budget. The reduced tax
burden will benefit all companies big and small.
I propose to introduce a 'Minimum Alternate Tax'
(MAT) on companies. In a case where the total
income of the company, as computed under the
Income Tax Act after availing of all eligible
deductions, is less than 30 per cent of the book
profit, the total income of such a company shall
be deemed to be 30 per cent of the book profit and
shall be charged to tax accordingly. The
effective rate works out to 12 per cent of book
profit calculated under the Companies Act.
Companies engaged in the power and infrastructure
sectors will, however, be exempted from the levy
of MAT.
As a step towards achieving a level playing field for
Indian companies vis-a-vis the foreign companies, I propose to
reduce the tax on long-term capital gains in the case of domestic
companies from 30 per cent to 20 per cent.
In order to encourage savings and to channelise savings
into investments in priority sectors of the economy, I propose to
exempt from tax long-term capital gains if the net consideration
received or accruing from the transfer of the capital asset is
invested in specified assets for a period of three years or,
alternatively, if the entire capital gains are invested in
specified assets for a period of seven years. The assessee will
now have a choice of two new savings instruments.
