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.

Gradual
withdrawal of 80HHE of Income Tax Act

Finacial
Year
Deduction
Allowed
2000-0180%
2001-0260%
2002-0340%
2003-0420%
2004-05Nil
Exporters
however would continue to enjoy exemptions from minimum alternate tax
(MAT) till full phase out of the benefits under section BOHHE of the
Income Tax Act.

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    exemptions currently available while calculating MAT have been withdrawn and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.

Basic
custom duty on import

 Previous Present

Computer systems

20%15%

Mother boards

20%15%
Floppy
diskettes
20%15%
Microprocessos
for computers
5%NIL
Memory
storage devices
5%

NIL

CD-ROMs5%

NIL

Integrated
circuits and micro assemblies
5%

NIL

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. 

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