Budget 2008-9: Suggested Changes to Customs & Excise Duty, Direct Taxes, Capital Market & Corporates

Key proposals - Customs Duty

• Considering the appreciation of the rupee, the peak rate of custom duty has been retained at 10%
• Duty on project imports has been reduced from 7.5% to 5% along with a 4% additional countervailing duty (CVD) on specified power projects
• Duty on steel making scrap and aluminium scrap has been reduced from 5% to nil
• In case of certain life saving drugs and on the bulk drugs used for the manufacture of such drugs, the custom duty has been reduced from 10% to 5% without any CVD
• No duty on specified parts of set top boxes and specified raw materials for use in IT / electronic hardware industry

Key Proposals - Excise Duty

• As a stimulus to the manufacturing sector, the general excise duty rate has been reduced from 16% to 14%. The FM has also reduced the excise duties on specific sectors where growth is slowing
• Excise duty on pharmaceutical products has been reduced from 16% to 8%
• Excise duty on buses and their chassis has been reduced from 16% to 12%
• Excise duties on small cars have been lowered from 16% to 12% and for hybrid cars from 24% to 14%
• Excise duty on two- and three-wheelers has been reduced from 16% to 12%
• No change in service tax rate but four new services are brought under the tax net
• Reduction in central sales tax from 3% to 2%

Key Proposals - Direct Taxes

• Rationalisation of personal income tax by increasing the annual income bracket for each tax slab
• No change in the corporate tax rates or surcharges

Key Proposals - Capital Market

• The rate of tax on short-term capital gain has been raised from 10% to 15%
• Transactions on commodity futures will have to bear a commodity transaction tax on the same line as STT
• STT paid to be treated like any other deductable expenditure against business income
• STT in the case of the options will be on the option premium where the option is not exercised and the liability will be on the seller. If the option is exercised the levy will be on the settlement price and the liability will be on the buyer

Key Proposals - Corporate Sector & Tax

• Exemption of tax deduction at source for corporate bonds has been listed in recognised exchanges
• Extension of amortisation benefits of certain preliminary expenses has been made to the service sector
• Companies engaged in production of seeds and manufacture of agricultural implements has been allowed to claim 150% deduction on any expenditure on in-house scientific research
• To promote outsourcing of research, it is proposed to allow a weighted deduction of 125% on any payment made to companies engaged in research and development
• Five-year tax holiday has been proposed for hospitals set up between April 1, 2008 to March 31, 2013 and satisfying specified conditions
• Five-year tax holiday has been proposed for hotels set up between April 1, 2008 to March 31, 2013 and satisfying specified conditions
• Parent company have been allowed to set off dividend received from its subsidiary company against dividend distributed by the parent company, provided the dividend received has suffered DDT (dividend distribution tax) and the parent company is not a subsidiary of another company