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Saturday, September 22, 2012

Chidambaram opens door for more reforms, offers tax relief

In an attempt to lighten the burden on aam aadmi (common man), cheer corporates and boost the markets, Finance Minister P Chidambaram announced a slew of measures offering tax breaks on Friday.

This was the second successive day of big action as the government battled to contain the fallout of alliance partner Trinamool Congress withdrawing support.

Chidambaram’s first announcement related to waiver of import and excise duties on non-subsidised domestic cooking gas (LPG) cylinders. Two others were on implementation of Budget announcements on reduction of withholding tax rate on external borrowings, and tax breaks for investors under the Rajiv Gandhi Equity Savings Scheme.

He said, “Since some LPG cylinders will not be subsidised, we have amended the notification for the non-subsidised household LPG cylinders... Customs and excise (on them) will be zero.” A formal notification dated September 18 has already been issued.

This move has come after the Government announced capping of the number subsidised cylinders per connection to six a year. Asked about the impact of zero duty, the Finance Minister said “it could be around Rs 30, but the final figure is still being worked out.”

However, according to oil companies, after the abolition of 5 per cent import duty and 8 per cent excise duty, the consumer price in Delhi would come to Rs 757 from over Rs 800, providing a relief of almost Rs 50. Subsidised cooking gas (LPG) in Delhi is currently sold at Rs 399 a cylinder.

Foreign Currency Borrowing

The Finance Minister announced a reduction in withholding tax on foreign currency borrowing to come into effect. “Interest rates are low abroad and these low-cost funds can come to India,” Chidambaram said. Withholding tax is similar to the Tax Deducted at Source (TDS) but is levied on payment to non-residents.

The rate of withholding tax has been cut to 5 per cent from 20 per cent. The lower rate will be applicable for overseas borrowings made after July 1, 2012 and before July 1, 2015. Borrowings under a loan agreement or by way of issue of long-term infrastructure bonds that comply with External Commercial Borrowings regulations as administered by the Reserve Bank of India would be eligible for benefits of the concessional tax regime.

He further said the guidelines would have some generic conditions which, if met, will enable corporates to directly access the overseas market for raising funds.

“Anyone satisfying general conditions need not come to government for case-by-case approval,” Chidambaram said, adding the borrowings could be done in the form of loan agreement or by way of long-term infrastructure bonds that comply with the ECB regulations.

Rajiv Gandhi Equity Saving Scheme

The Finance Minister approved the much awaited Rajiv Gandhi Equity Saving Scheme with one change. Now this scheme will also provide tax benefits through investment in mutual funds and exchange trade funds, besides blue-chip shares.


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