From James Wilson in 1860 to Yashwant Sinha in 2001, the Indian Budget has
changed dramatically in complexion, with economic growth in general and the IT
industry in particular being of central importance. The 141st Budget
announcement on February 28 was preceded, as usual, by a list of assertions and
promises, with Sinha expressing hope that India would continue to march true and
strong toward becoming the "software capital of the world".

He proposed a number of sops to give further impetus to growth and strengthen
revenues, but some segments, notably hardware, were totally ignored in his
proposals. Excerpts:

Tax dispensations

• Tax holiday for STP units to
  continue till March 31, 2009. Benefit not for STP units formed by splitting
  up or overhaul.

• Profits from "on-site"
  services of STP units eligible for deduction like other export income

• Transfer of ownership of
  companies for availing tax exemption disallowed for companies with public
  interest.

• Income from DTA sales by STP/EOU
  units and units located in EPZs brought under tax net

• E-commerce to remain tax exempt;
  to spur growth activity.

Overseas acquisition by Indian companies

• Indian companies wishing to invest abroad allowed to plough in up to $50
  million annually through the automatic route. Also, companies with proven
  track record can get advance block allocation from RBI for larger
  investments

Promotion of IT education

• Roorkee Engineering College to be
  upgraded as an IIT

• 100% deduction for payments made
  to engg institutions

• Banks to extend educational loans
  for all courses in schools and colleges in India (ceiling of Rs 7.5 lakh)
  and abroad (ceiling of Rs 15 lakh). No collateral or margin for loans up to
  Rs 4 lakh.

Foreign investment–portfolio investment

• Foreign institutional investors allowed to invest up to 49% (portfolio
  investments) in equity of Indian companies

Rate of tax on dividends

• Tax on dividends by domestic companies slashed from 20% to 10%. Dividend
  income for shareholders stays tax-free

Service tax

• No service tax on computer
  software

• Scientific and technical
  consulting services, on-line information and database retrieval services
  brought under purview of service tax.

ESOPs

• No change in 0% tax structure on
  ESOPs, stock options only to be taxed at time of sale as capital gain

• Indian employees with ESOPs in
  MNCs can invest up to $20,000 annually overseas.

Individual income tax

• Personal income tax slabs
  unaltered at 10%, 20%, 30%, surcharge of 17% reduced to 2%. No surcharge on
  individuals with income of up to Rs 60,000

• Perquisites, benefits and
  amenities to be valued on cost-to-employer basis except for houses and cars

• Tax rebate hiked by 10% to 30%
  under Section 88 for individuals with annual salaries of up to Rs 1 lakh

• Premium paid to any IRA-approved
  insurance company eligible for deduction

• Tax exemption on interest on home
  loans increased by 50%

• Deduction of 30% on income from
  residential property

• Exemption limit for interest
  income on T-Bills capped at Rs 9,000, against Rs 12,000 earlier.

Corporate tax

• Corporate tax for domestic
  companies unaltered at 35%, but surcharge of 11% reduced to 2%

• Interest rates on PF and small
  saving schemes

• Interest on PFs and small saving
  deposits reduced by 1.5%

Tax holiday for ISPs and broadband networks

• 100% tax holiday for first five years and 30% deduction for next five
  years for telecommunciations sector, valid till March 31, 2000,
  retrospectively extended for units commencing operations on or before March
  31, 2003. The concessions will also be extended to ISPs and broadband
  networks.

Excise

• Excise on software remains unaltered at NIL duty
• Excise on computer systems and peripherals unaltered at 16%.

Customs

• Customs duty on IT and telecom
  products and components reduced to 15%

• Customs duty on import of
  software unaltered at NIL duty

• Surcharge equivalent to 10% on
  customs duty stands abolished, bringing peak rates down to 35%

• Special additional duty unaltered
  at 4%, applicable to all imports. This, however, remains exempt in cases
  where basic as well as additional duty is exempt. ISP equipment like
  routers/ATM Switch/Frame relay switch exempt from SAD

• Customs duty on import of
  computer systems under EPCG scheme unaltered at 5%

• Customs duty on import of
  computer systems and peripherals reduced from 35.14% to 33.4%. In addition,
  SAD unaltered at 4%.