Budget Highlights

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

  • 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

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

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


  • 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


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


  • 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%.

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