New Delhi, April 25
The Union Finance Minister, Mr Yashwant Sinha, today increased the standard deduction by Rs 5,000 for salary earners up to Rs 3 lakh, increased the limit for tax deduction at source on interest payments from Rs 2,500 to Rs 5,000 and gave several excise and customs duty concessions for the industry.

The Lok Sabha, which took up the Finance Bill for discussion, later approved the General Budget for the year 2001-2002. The Bill was passed after members of the Rashtriya Janata Dal and Samajwadi Party staged a walkout in protest against what they called inadequate measures for the farming community.

Mr Sinha who announced most of the changes in the Finance Bill while moving the Bill had no surprises in store when he replied to the day-long discussion on the Budget. The much expected reduction in the interest rate of provident fund and other savings did not come through, leaving several members disappointed.

Mr Sinha confined his reply to describe the general health of the economy and appealed for a political consensus to contain fiscal deficit which has reached alarming proportions.

Announcing sops for the tax payers, he said the standard deduction has been raised to Rs 30,000 for those with income up to Rs 1.5 lakh and to Rs 25,000 for those with income between Rs 1.5 lakh and Rs 3 lakh. However, those having income from Rs 3 lakh to Rs 5 lakh will continue to enjoy the existing deduction of Rs 20,000.

At present, the standard deduction is Rs 25,000 for persons with income up to Rs 1 lakh and Rs 20,000 for those with income between Rs 1 lakh and Rs 5 lakh.

These measures would result in a revenue loss of about Rs 1,000 crore but would “concomitantly lead to additional retention of income in the hands of assessees to the same extent”.

The changes in excise and customs duties would not have any appreciable revenue implications and are broadly revenue neutral.

To provide further relief to taxpayers, Mr Sinha, who had proposed a reduction in the limit of deduction of interest income under Section 80L from Rs 15,000 to Rs 9,000 in the Budget, revised the limit to Rs 12,000. The additional deduction would be with regard to interest on government securities.

On the indirect taxes front, Mr Sinha said the 16 per cent excise duty on branded readymade garments and accessories was being extended to other garments, excluding clothing accessories, raincoats and undergarments, for removing “distortions and manipulations”.

The small-scale excise exemption scheme would also be extended to the garment sector, he said, adding that the changes would be effective from May 1 this year.

To encourage domestic shipping companies to acquire new vessels, Mr Sinha said the proposed 5 per cent customs duty on ships would stand abolished from tomorrow.

Announcing further rationalisation of the existing direct tax regime, Mr Sinha said non-corporate tax payers would now be required to file returns by October 31 instead of July 31 to bring them on a par with corporate tax payers. Funds enjoying exemption under Section 10(23C) would be put on a par with charitable institutions for accumulation of 25 per cent of their income without a time limit, but the remaining income could be accumulated up to only five years, he said.

Both the funds and charitable trusts would also be required to publish their accounts if their income exceeded Rs 1 crore as against Rs 10 lakh proposed earlier.

Giving concessions to exporters, Mr Sinha proposed to re-phase the withdrawal provisions through backloading. For the current financial year, they would now be taxed to extent of 30 per cent of their profits and the percentage of their taxable income would increase to 50 per cent, 70 per cent and 100 per cent, respectively, for the next three years. The earlier corresponding figures were 40 per cent, 60 per cent, 80 per cent and 100 per cent.

To facilitate de-mutualisation and corporatisation of stock exchanges, Mr Sinha proposed to exempt transfer of assets by them from capital gains tax. He also proposed to modify transfer pricing provisions to incorporate transactions between the head office and its branch.

Adjustments made to the transfer price in the case of one enterprise would by itself not become the basis of a consequential adjustment in the case of the other.

Responding to suggestions of the Commerce Ministry, Mr Sinha said basic customs duty on imported new cars and two-wheelers would be raised from 35 per cent to 60 per cent to protect the domestic industry with the dismantling of quantitative restrictions from April 1.

In a bid to provide relief to the poor, Mr Sinha exempted plastic footwear costing up to Rs 125 from the nominal 4 per cent excise levy proposed in the Budget.

For helping steel producers to improve viability, he proposed to reduce customs duty on metallurgical coke to 5 per cent on actual user basis. Mr Sinha withdrew the concessional duty of 55 per cent proposed in the Budget for import of crude palm oil by sick vanaspati units to “avoid discrimination”.

While announcing measures for the textile industry, Mr Sinha pointed out that his proposal for an ad-valorem structure of excise duty for independent textile processors had received mixed reaction. While some have welcomed the abolition of chamber based duty, some others have pleaded for its restoration.

Mr Sinha said that he was convinced that an ad-valorem duty regime was preferred to compounded levy system. However, in response to the representations by smaller processing houses, Mr Sinha said that processors whose investment on plant and machinery does not exceed Rs 3 crore would be allowed the option to pay duty on chamber basis. The rate of monthly payment for those who exercise this option would be increased by Rs 50,000 in each of the two pre-budget slabs. No abatement for closure of a stentor or removal of a chamber would be allowed. The change would be effective from May 1, 2001.

Mr Sinha announced that the CVD of 16 per cent on 12 critical items of textile machinery including shuttleless looms would be abolished in order to promote capital investment and modernisation of textile mills.

Other measures announced today included reducing the customs duty on specified parts of telecom equipment other than populated printed circuit boards to 5 per cent.

As a fillip to the IT industry, the Minister proposed to add 32 specified items in the list of machines and equipment that are allowed to be imported at a low rate of 5 per cent basic customs duty.

In his reply, the Finance Minister emphasised that fiscal management and curbing borrowing was the main thrust of the government. He sought the help of the Opposition in de-mystifying the exercise of Budget-making to make it transparent.

Though the discussions on the Budget were short, with political parties taking stand on expected lines, the major exercise of the Finance Bill was conducted by various Standing Committees which went into the Demands for Grants of various Ministries.