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Jaswant announces sops for small investors

Finance Minister Jaswant Singh announced significant tax sops to small investors including raising the threshold limit for Tax Deduction at Source for dividends from Rs 1000 to Rs 2,500 besides hiking tax exemption limit on interest income by Rs 3,000 to Rs 15,000 and scrapping the service tax on risk premium for life insurance.

Singh also announced a new tax-free bond to boost savings and offered tax sops to small investors while pledging to set up a "fraud office to protect them from vanishing companies."

Unveiling his reform agenda, Singh told Lok Sabha that he would soon set up three task forces to simplify procedure and streamline the cumbersome Income Tax Act and Indirect Tax laws.

Two of the task forces will submit their reports within 90 days to enable the government to incorporate the reforms in the next Budget.

The third task force meant to reduce paperwork will be asked to submit its recommendations within 45 days, Singh said.

Singh said the I-T department would be totally computerised by October this year and thereby a data bank having all the details of the assessee including that concerning PAN would be created.

Besides simplifying tax filing care would be taken to see that people have no problem in getting the (tax) refund, said Singh.

So far, 2.4 million applications for allocation of PAN numbers has been received and of this 95 per cent have got the numbers, he said.

The main purpose of carrying out tax reforms was to make Income Tax "direct, comprehensive yet simple and as far as possible free from exemption, so that compliance and administration of it becomes easier."

The goals of the reforms would be to improve Tax-GDP ratio, stability of tax structure, focus on tax administration and compliance and reversing the direct and indirect tax ratios so that tax administration increasingly becomes more progressive.

Noting that the current laws provide for four appellate levels before a tax assessment is finalised, Singh said "we need to reduce the levels of appeal, simplify the procedure and have an inbuilt time mechanism for disposal. We will do so by March 2003."

The new tax-free bonds to be unveiled shortly will carry an annual interest rate of seven per cent for a period of six years. Singh also announced lifting of Rs 200,000 ceiling on investment in relief bonds, which carry an interest rate of eight per cent.

Elaborating on the need to provide tax relief to small investors, Singh said Income Tax Act under Section 80(L) provided a deduction of Rs 9,000 from income derived from specified investments, plus an additional deduction of Rs 3,000 being allowed on interest on government securities.

"This 9+3 will be raised to 12+3. In other words the total amount of deduction is being raised from Rs 12,000 to Rs 15,000."

Dividend income from shares of Indian companies and income from units of mutual funds have been made taxable in the hands of share/unit holders by the Finance Act 2002. For small investors investing in equity, a threshold limit of Rs 1,000 was provided for the purpose of TDS.

"Let us for the sake of senior citizens and investors raise the threshold limit of Rs 2500. Thus, no tax will be deductible in respect of dividend up to Rs 2,500, received from each company, or a mutual fund," he said.

Assuring that the beleaguered Unit Trust of India will be nurtured back to health, Singh said all financial assistance would be provided to the mutual fund to take care of the redemption pressure and interest of the small investors will be protected.

"Government will stand behind UTI to fulfil the redemption commitment of its US-64 and other schemes which have suffered erosion in value," he said, adding the supplementary demands has provided Rs 5 billion bailout for UTI.

Fearing that 3.5 per cent agriculture growth targetted for this year might not be achieved due to severe drought in the country, Singh, however, assured all help to states in combating the national calamity.

As part of the government move to encourage agriculture, he said it was proposed to have a one time settlement of debts of marginal farmers in conjunction with the Reserve Bank of India, which would stand as surety for those farmers who have taken a loan of Rs 50,000.

Judicious allocation of funds and demarcation of assets will be made to states to provide speedy drought relief, he said adding, "there will be no politics" in dealing with the grave situation.

Singh said the government has launched the Ana Antyodaya Yojana to provide food for the poorest of the poor but this is different from the Food for Work programme as this would have less governmental control.

Stressing the need to empower the regulators, Singh said the Companies Act was enacted in 1956 and though it has been amended from time to time, it has not kept pace with the fast changing corporate reality.

"We will persist with the process of liberalisation in the Act, but on a parallel basis, the regulatory powers within the Act need to be strengthened to enable effective action in instances where corporate wrong doings come to light.

He said market regulator Securitites and Exchange Board of India would be further strengthened and the governemnt would soon improve upon rolling settlement to check speculation in capital markets. At present the rolling settlement is made three days after the transfer of shares which is known as T+3 settlement. It would be changed over to T+1.

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