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FM keeps India Inc happy
May, 04th 2007

Offers small concessions in a range of areas before Lok Sabha passes the Finance Bill

Finance minister P Chidambaram on Thursday doled out minor concessions to India Inc by marginally reducing the excise duty on cement, sparing venture capital funds from taxes on income from investment in infrastructure, reducing a little the export duty on iron ore and simplifying norms for fringe-benefit tax on gains through employee stock options.

In his reply to the discussion on the Finance Bill in the Lok Sabha, Chidambaram said that under the revised duty structure, manufacturers selling cement at below Rs 190 a 50-kg bag would continue to enjoy concessional duty of Rs 350 a tonne. Those selling at a higher rate would now have to pay 12% ad valorem duty on the retail selling price, against the Rs 600 a tonne originally proposed in the Budget. Pointing out that the cement industry did not respond positively to his dual excise duty regime, he said, The decision should help lower cement prices by about Rs 7 per bag.

The export duty on iron ore fines with less than 62% iron content has been slashed to Rs 50 a tonne from Rs 300. However, the export duty on iron ore fines with more than 62% iron content and iron ore lumps has been retained at Rs 300 a tonne. Chidambaram hoped these steps would help control the price rise to a certain extent. The government would try to contain inflation at below 4.5% through further fiscal and monetary measures, he said.

The finance minister extended the pass-through status for investments by venture capital funds in infrastructure projects. In the Budget, VCs operating in sectors other than nine select sectors were expected to pay tax on any incomeinterest or capital gainsearned from past investments.

Tax Breaks
Move: Fringe-benefit tax on Esops to be calculated at the time of vesting
Impact: Some relief to IT companies, one-stage
tax is easy to determine
Move: 12% ad valorem duty on cement with retail price of over Rs 190 a bag
Impact: Cement may be Rs 7 a bag cheaper if companies pass on the benefit
Move: Export duty on iron ore fines with Fe content up to 62% cut to Rs 50 a tonne
Impact: Indias iron ore exports to become cheaper, China may start buying again
Move: Pass-through tax benefits for venture capital funds in infrastructure sector
Impact: Infrastructure funding to get a boost, more funds for the core sector
The nine sectors include biotechnology, IT, nanotechnology, seed research and development, R&D in new chemical entities in the pharma sector, dairy, poultry, production of bio-fuels, and hotel-cum-convention centres with a capacity of at least 3,000.

Despite widespread protests, Chidambaram retained the fringe-benefit tax on Esops. He, however, tried to simplify it by calculating the tax liability at the time of vesting options with employees and not at the time of allotment, as was originally proposed.

The tax would be imposed on the difference between the fair market value at the time of vesting and the price at which the options were issued to employees.

The fair market value would be calculated according to the guidelines to be issued by the revenue department.

The finance minister has also promised to review the banking cash transaction tax next year, by when other means would be in place to track unaccounted money. Following the discussion, the Finance Bill was passed by the Lok Sabha and now awaits the Rajya Sabha's approval.

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