• The budget proposed to amend the defination of royalty u/s 9 of the Income Tax Act, 1961 to include payments for the use or right to use of any industrial, commercial or scientific equipment. The amendment now made proposes that royalty would not include payments for providing services and facilities in connection with, or supplying plant and machinery on hire used, or to be used, in the prospecting for, or extraction or production of, mineral oils.

• The income of the Insurance Regulatory and Development Authority (IRDA) has been made exempt from income tax u/s 10 of the Income Tax Act, 1961.

• At present, charitable trusts are allowed to accumulate the income which they are unable to spend on achieving their objects to the extent of 25% of their income. Incomes in excess of 25 % may be accumulated and invested in specified investments such that the investment must be used for achieving the objects of the trust within 10 years. The amendments propose to reduce this period after 1 April 2001 to not be more than five years.

• As per the budget proposals, in case the total receipts of any charitable or religious fund / trusts, hospital, medical institution, approved university or other educational institution exceeded Rupees Ten Lakhs in any preceding year, such fund, trust or institutions would be required to publish their accounts in a local newspaper and enclose a copy thereof with the exemption application and the return of income. The amendment proposes to raise this limit to Rupees One Crore.

• The amendment proposes that any income by way of dividends, other than dividends referred to in section 115-O, interest or long-term capital gains of an infrastructure capital fund or an infrastructure capital company, from investments in any enterprise or undertaking wholly engaged in the business referred to in section 80-IA(4) or a housing project referred to in section 80-IB(10) should not be included in the total income.

• The amendment proposes that for the purposes of section 10 (23G), "interest" would include any fee or commission received by a financial institution for giving any guarantee to, or enhancing credit in respect of, an enterprise which has been approved by the Central Government for the purposes of this clause.

• The budget proposals had created some confusion whether capital gains on redemption of mutual funds would also be exempt u/s 10. The amendment proposes to clarify that exemption provided under section 10(33) shall not apply to transfer of units of the Unit Trust of India or units of Mutual Funds even where the same are transferred back to the Unit Trust of India or the Mutual Fund.

• The budget had proposed that for the purposes of claiming benefits under sections 10A and 10B, widely held public companies need not satisfy the "continuity of ownership" test. The amendment now proposes that such continuity of ownership shall not be required where any change in the shareholding of a company is a result of its becoming a company in which the public are substantially interested or divestments of its equity shares by any venture capital fund.

• The Finance Minister has given some sops to salaried tax payers. The proposed slabs of standard deduction from salary are as follows :-

Employee’s Salary Standard deduction

The budget had proposed that allotment of shares, debentures or warrants under an Employee Stock Option plan of a Company would not be a taxable perquisite provided the ESOPs comply with SEBI regulations in this behalf. The amendments now propose that the said benefit will be applicable to shares, debentures or warrants, allotted under an Employees' Stock Option Scheme (ESOS) or an Employees' Stock Purchase Scheme (ESPS) of the company, which is in accordance with the guidelines issued by the Central Government in this behalf. The amendments also propose that transfers, by way of gift or irrevocable trust, of shares, debentures or warrants, issued under ESOS, as well as ESPS framed in accordance with the guidelines prescribed by the Central Government would be subject to capital gains tax.

• The amendments propose that the bar on depreciation u/s 32 in respect of any motor car manufactured outside India shall be limited to instances where such motor car is acquired by the assessee after 28 February 1975 but before 1 April 2001.

• The budget had proposed that payments made under VRS would be allowed as a deduction in 5 equal installments to employer-assessees from A.Y. 2002-2003. The amendments now propose that such phased deduction will be available from Assessment Year 2001-02 as against the original proposal to allow the deduction from Assessment Year 2002-03.

• The amendments propose to amend section 36(1)(vii) with retrospective effect from 1 April 1989 to provide that any bad debt or part thereof written off as irrecoverable in the accounts of the assessee shall not include any provision for bad and doubtful debt made in the accounts of the assessee. Accordingly, only actual bad debts will be allowed as a deduction.

• In order to facilitate de-mutualization and corporatization of stock exchanges, the amendments propose that where any capital asset is acquired by an assessee under a scheme for corporatisation of a recognised stock exchange (approved by the Securities and Exchange Board of India), the actual cost of the asset ( for the purpose of computing capital gains ) shall be the amount which would have been regarded as actual cost had there been no such corporatisation. The amendments also propose that in such cases, the written down value of the block of assets of such company shall be the written down value of the transferred assets immediately before such transfer. It is also proposed that any transfer of a capital asset or intangible asset by a firm to a company as a result of succession of the firm, or any transfer of a capital asset to a company in the course of corporatisation of a recognised stock exchange as a result of which an association of persons or body of individuals is succeeded by such company shall not be subjected to capital gains tax.

• A welcome change for all chartered accountants is that the date for filing returns of income of assessees subject to tax audit u/s 44 AB has been extended to 31 October of the assessment year ( as opposed to 31 July proposed by the budget ). The same benefits have also been extended to all assessees whose accounts have to be statutorily audited and working partners of firms whose accounts are to be audited under the Income Tax Act.

• The amendments to amend section 55 of the Income Tax Act, 1961 to provide that "cost of acquisition" will be as "Nil" in case of trade marks and brand names associated with a business with effect from 1 April 2002. The original proposal was to treat cost of acquisition of all trade marks and brand names as Nil.

• The amendments propose that the cost of acquisition in case of equity share or shares allotted to a shareholder of a recognized stock exchange in India under a scheme for corporatisation approved by SEBI, shall be the cost of acquisition of his original membership of the exchange.

• Deduction in respect of export profits and foreign exchange earnings are being phased out over a period of 5 years equally commencing from financial year 2000-2001. The amendments propose to alter the phasing out proportion. The comparison of percentage of profits that will be allowed as a deduction under the Income Tax Act and the deduction that would be allowable as deduction under the proposed amendments is given below :-

  Assessment year	Under existing law	Under new proposals
  2002-2003	60% of the profits	70% of the profits
  2003-2004	40% of the profits	50% of the profits
  2004-2005	20% of the profits	30% of the profits

• A new explanation is proposed to be added in section 80HHE of the Act to clarify that the profit and gains derived from on-site development of computer software (including services for development of software) outside India shall be deemed to be the profits and gains derived from the export of computer software outside India and therefore eligible for deduction u/s 80 HHE.

• The amendments proposed in section 80 L in the budget have been altered. Accordingly, deduction u/s 80 L will be upto Rs.9,000 and an additional deduction of Rs.3,000 will be allowed in respect of interest on government securities.

• The amendments retrospectively propose ( from 1 April 1962 ) that in case of a foreign company which has not made the prescribed arrangement for declaration and payment of dividends within India, out of its income in India, the charge of tax at a rate higher than the rate of tax at which a domestic company is charged, shall not be regarded as less favourable charge or levy of tax in respect of such foreign company.

• The amendments propose to modify the transfer pricing proposals introduced by the budget. It is proposed that where the total income of an associated enterprise in India is computed under section 92C(2) on the determination of the arm’s length price for a payment made to another associated enterprise, and tax has been deducted at source on the original payment made to the second enterprise, then the income of the payee enterprise shall not be recomputed by reason of the determination of the arm’s length price in the case of the payer enterprise.

• Similarly, for the purpose of transfer pricing proposals, the term "enterprise" would include a permanent establishment. Therefore, the transfer pricing provisions shall apply to transactions between an Indian enterprise and a foreign entity or the permanent establishment in India including a branch of such foreign entity.

• The budget proposed to reduce the threshold limit for tax deduction at source on interest other than interest on securities, to Rs. 2,500. This threshold limit is now proposed to be increased to Rs.5,000.

• Since payments made by way of commission or brokerage paid by a person (other than an individual or a Hindu Undivided Family) have been made subject to tax deduction at source, it has been proposed to allow a certificate of no tax deduction at source or tax deduction at a lower rate as applicable where there is no taxable income.