79. Now, I turn to my tax proposals.

80. 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.

81. 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.

82. 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.

83. 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.

84. 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.

85. 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.

86. 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.

87. 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.

88. 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.

89. 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.

90. 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.

91. 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.

92. 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.

93. I also propose to allow depreciation in the case of fractional ownership of assets because of the need for joint financing of big, capital intensive projects by a consortium of financiers having fractional shares in the assets.

94. In order to promote efficiency in industry, I propose to provide that unabsorbed depreciation will be carried forward for a period of eight years only in the same manner as business losses.

95. The practice of sale-and-lease-back of assets results in passing of very high depreciation to the leasing concerns. This needs to be curbed. Hence, I propose to provide in the Income Tax Act that in case of sale-and-lease-back transactions, the written down value of the asset, in the hands of lessee, who was the previous owner, will be treated as cost in the hands of the lessor. This measure, while not affecting bonafide transactions, will prevent loss-making concerns from indulging in unhealthy trade-off of depreciation.

96. I find it unreasonable that commercial properties, not used by the assessee as his business, office or factory premises, should be outside the levy of wealth-tax. Accordingly, I propose to plug this unintended loophole and levy wealth-tax on such commercial properties.