Budget 2000-01: Highlights

Budget 2000-01: Highlights



The budget has been a mixed bag for IT. We look at a few announcements that affect the industry.

Limitation of benefits for

STPI and EPZ units





Section 10A of the Income Tax Act has been amended to allow benefits to such

STPI units commencing on or after April 1, 1993 but before April 1, 2000. It

also restricts the availability of benefits to such units till March 31, 2009.

As per the amendment, all STPI

units commencing operations prior to April 1, 2000 would enjoy a tax holiday

till March 31, 2009. These benefits will however not be available:

• to such STPI
  
  units formed by the splitting up, or the reconstruction, of a business
  
  already in existence.

• to onsite
  
  services provided at client’s site abroad, which cannot be related to
  
  development of software that is a product of the STPI unit.

Promotion of venture capital

(VC) culture

• SEBI to be
  
  single point nodal agency for registration and regulation of both domestic
  
  and overseas VC funds.

• No approval
  
  of venture capital funds by tax authorities required.

• One time
  
  payment of tax by the VC fund at the rate of 20% when the fund distributes
  
  its income to the investors. The same rate would apply to undistributed
  
  incomes also.

Corporate tax

• Rate of
  
  corporate tax

• Domestic companies–35%

• Foreign companies–48%

• Surcharge on domestic
  
  companies–10%

• Various
  
  exemptions currently available while calculating MAT have been withdrawn and
  
  MAT will be levied at the revised rate of 7.5% instead of the existing rate
  
  of 10.5%. This will bring all zero tax companies within the tax net.
  
  However, export profits under 80HHC and 80HHE remain exempt from the purview
  
  of MAT. Exempt income of STPI, EOU, EHTP and EPZ units under section 10A and
  
  10B will also continue to be exempt from the purview of MAT.
  
  
  
  

•  The
  
  rate of tax on dividends distributed by domestic companies has been
  
  increased from the present level of 10% to 20%. Dividend income in the hands
  
  of share holders continue to remain tax free and as in the past, companies
  
  paying dividends will have to
  
  
  
  pay this tax at an enhanced rate of 20%.

Portfolio investment

Investment

limit for foreign institutional investors (FIIs) has been hiked to 40%

from 30%, subject to approval of Board of Directors and a special resolution of

the general body of the company.

Excise

• Excise on
  
  software remain unaltered at NIL duty.

• Excise on
  
  computer systems and peripherals remain unaltered at 16%.

Customs

• Surcharge
  
  equivalent to 10% of the basic duty introduced in 1999 remains unaltered and
  
  would be imposed across the board except on certain items like computer
  
  software.

• Special additional duty
  
  (SAD) of customs continues unaltered at 4%. This would now be applicable in
  
  case of import made for trading. This would, however, remain exempt in cases
  
  where the basic as well as additional duty is exempt.