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MAT levels field for IT parks

The Financial Express

March 01, 2011

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Businesses and individuals got some unexpected tax breaks from finance minister Pranab Mukherjee's Union Budget for 2011-12 fiscal, which also facilitated a level playing field to software technology parks that compete with big IT SEZ developers and units.

The minister allowed full deduction of capital expenditure from the taxable profits of new fertiliser units and affordable house builders. Encouraging investments into the capital intensive fertiliser sector is essential for food security, but this is no incentive to builders as their biggest cost item-land- is excluded from such deduction, said Ajit Krishnan, tax partner, Ernst & Young.

The minister made the revised 18.5% minimum alternative tax (MAT) applicable to SEZ developers and units and also made the dividend distribution tax applicable to SEZ developers. MAT on SEZs was expected in the proposed direct tax code, which would come into force in 2012-13. By subjecting SEZs to MAT a year earlier, the minister gave a level playing field to smaller IT units in software technology parks, whose income tax holiday expires at the end of the 2010-11 fiscal. IT SEZs set up by biggies in the sector are reluctant to give space to small entrepreneurs, who would eat into their profits. Mukherjee also extended MAT to limited liability partnerships.

The minister slashed the surcharge on corporate income tax from 7.5% to 5% and raised MAT by 0.5% to 18.5%. The effective rate of MAT stays at the same level.

The minister also made it clear to potential investors in the forthcoming ninth auction of of oil and gas blocks under the new exploration licensing policy (Nelp) that the seven-year tax holiday on crude oil production will not be available to blocks licensed after the end of this fiscal. The petroleum ministry has set March 16 as the deadline for submitting expressions of interest and award of blocks will happen only at the beginning of next fiscal, making them ineligible for the tax break.

The government also allowed employers to deduct their contribution to an employee's New Pension System account from the organisation's business income. Earlier, this incentive was available only to contributions made to EPFO and to other superannuation and gratuity funds. Besides raising the tax slabs for individuals slightly, Mukherjee also allowed a concessional 15% tax on dividends received by Indian companies from foreign arms. He also extended the deduction available on investments in long term infrastructure funds for one more year.

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