The Budget to be placed in Parliament on Monday might be interim in nature, but a third stimulus package to boost the economy hit by
the global slowdown is likely to be a part of it.

Some tinkering in the indirect tax structure, focusing on specific sectors, is on the anvil, besides higher depreciation rates to boost investment and extension of tax benefits for the information technology sector, on the direct tax front.

The finance ministry is considering various proposals, including lower excise duties for auto components, automobiles and cement, to spur demand and provide relief to the industry. At present, auto components attract 10% excise duty. Excise duty on cement is 10%, or Rs 280 per tonne.

In the case of automobiles, the excise duty has both ad valorem and specific components. The duty applicable on cars of engine capacity 1,500 cc to 1,999 cc is 20% plus Rs 15,000 per unit, and on cars of engine capacity 2,000 or more is 20% plus Rs 20,000.

Though, the government had cut cenvat across the board by 4% in December, sector-specific steps, formulated by various ministries, are being examined.

On the direct tax front, while no big bang changes are expected, the government is examining various measures, including procedural simplifications, which could provide some relief to the industry. Several information technology units which, at present, do not enjoy 100% tax holiday on profits as promised under the SEZ Act because they have been set up under their parent companies and not as independent units will be entitled to full tax benefits, if the income tax rules are changed accordingly. Section 10 AA (7) of the I-T Act says that only a proportion of profits of an SEZ unit, based on the proportion of export sales from the unit to the total turnover of the parent company, will be exempt from taxation.

For instance, if an SEZ unit exports 50% of the companys total turnover, then the exemption on the profit that it makes from exports will be restricted to 50% instead of 100% as against what was promised in the SEZ Act. IT companies like Infosys, Wipro and TCS stand to gain from this move.

The other measures could include enhanced depreciation benefits for plant and machinery and commercial vehicle purchases. The government had, as a part of the second fiscal stimulus, provided 50% depreciation on commercial vehicles purchased between January 1, 2009 and March 31, 2009.

"To encourage industrial expenditure on capital items, rate of depreciation on different assets may be revised upwards. In this connection, however, the provisions of the Income-Tax Act, where in the depreciation is restricted to 50% of the amount, if the asset is put to use for less than 180 days in a financial year, should also be taken note of to ensure that the benefit intended to be passed to industry is not affected, Vikas Vasal, executive director, KPMG, said. At present, depreciation rate on plant and machinery is 15%.

With IT and export sectors facing the brunt of the meltdown in the US, the commerce ministrys proposal, seeking a three-year extension to the Software Technology Park of India and Export-Oriented Units scheme, is also being actively examined. The tax holiday, available under sections 10(A) and 10(B) of the Income-Tax Act, was extended in Budget 2008 till March 31, 2010.

The government is under pressure to take some measures in the interim budget, or ahead of it, to ensure that the industry gets some relief before policy making goes into limbo for more than two months after the election dates are notified.

The model code of conduct, which comes into effect after the notification of poll dates, will make it difficult for the government to take any significant policy decision. Apprehensions have been expressed that the first quarter of the next fiscal would be very tough, leading to further job cuts.