Finance Bill

Rationalisation of exemptions, concessions and other provisions

Phasing out of tax concessions in respect of foreign exchange earnings - Sections 10A, 10B, 80HHB, 80HHBA, 80HHC, 80HHD, 80HHE, 80HHF, 80-O, 80R, 80RR and 80RRA.

A large number of fiscal concessions are not compatible with a regime of low tax-rates. To align the tax system broadly with tax systems prevailing in most other countries, it is proposed to rationalize provisions relating to deductions in respect of foreign exchange earnings.

Under section 10A of the Income-tax Act, newly established undertakings in free trade zones are entitled to a tax holiday for a ten year period. Similarly, section 10B of the Income-tax Act provides for a ten year tax holiday in respect of newly established hundred per cent. export oriented undertakings.

Chapter-VIA of the Income-tax Act, provides fiscal concessions for earnings in foreign exchange under different provisions. Under section 80HHB, 80HHBA and 80-O of the Income-tax Act, an assessee, being an Indian company or a person (other than a company) who is a resident in India and has derived income from the business of a foreign project or a housing project awarded to it on the basis of a global tender, or for exploitation of patent, copyright etc., is entitled to a deduction of an amount equal to fifty per cent. of the income.

Similarly, under the existing provisions of section 80HHC, 80HHE and 80HHF of the Income-tax Act, an assessee, being an Indian company or a person (other than a company) who is a resident in India, engaged in the business of exports of goods or merchandise, computer software and export of films etc., is allowed a deduction of the profits derived by it from such export .

Under section 80HHD of the Income-tax Act, an assessee, being an Indian company or a person (other than a company) who is a resident in India, engaged in the business of a hotel or of a tour operator or a travel agent is allowed a deduction, in computing its total income, of a sum equal to -

(i) fifty per cent. of the profits derived from services provided to foreign tourists; and

(ii) so much of the profits as are credited to a reserve fund to be utilized in the manner specified in sub-section (4).

Under section 80R of the Income-tax Act, a professor, teacher or research worker rendering service outside India, is entitled to a deduction from the remuneration received from a foreign university, institution, etc., while computing his income chargeable to tax. This deduction is allowable for an amount equal to seventy five per cent. of such remuneration.

Under section 80RR, a similar deduction is available to an artist, playwright, musician, actor etc., deriving income from a foreign source, in exercise of his profession.

A similar deduction is also available under section 80RRA, to persons in receipt of remuneration from a foreign employer for rendering services outside India.

It is proposed to phase out all the above benefits over a five year period. This would imply that under the provisions of section 80HHC, 80HHE and 80HHF, the assessee would be entitled to a deduction of eighty per cent. in assessment year 2001-2002, sixty per cent. in assessment year 2002-2003, forty per cent. in assessment year 2003-2004, and twenty per cent. in assessment year 2004-2005.

Under section 80HHB, 80HHBA and 80-O, the assessee would be entitled to a deduction of forty per cent. in assessment year 2001-2002, thirty per cent. in assessment year 2002-2003, twenty per cent. in assessment year 2003-2004 and ten per cent. in assessment year 2004-2005.

In those cases where individual assessees are entitled to a deduction of seventy-five per cent. , the deduction would be sixty per cent. in assessment year 2001-2002, forty-five per cent. in assessment year 2002-2003, thirty per cent. in assessment year 2003-2004 and fifteen per cent. in assessment year 2004-2005.

No deduction shall be available under any of these provisions from the assessment year 2005-2006 and subsequent years.

It is also proposed to limit the exemption under section 10A or 10B of the Income-tax Act, to units set up in Free Trade Zones or as Export Oriented Units on or before 31.3.2000. Only the units set up before 1.4.2000 would be entitled to avail the benefit of exemption for the unexpired period. However, units in Free Trade Zones or Export Oriented Units set up on or after 1.4.2000 may avail of benefits available under the modified provisions of section 80HHC or section 80HHE, as the case may be.

The proposed amendment will take effect from 1st April, 2001 and will, accordingly, apply in relation to assessment year 2001-2002 and subsequent years. [ Clauses 6,7,29,30,31,32,33,34,38,39,40,41]