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3 key Budget proposals being reviewed by Govt

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NEW DELHI, April 12

THE Finance Ministry has kicked off the process of reviewing three key Budget announcements — taxing dividends in the hands of the shareholder, slashing interest rate on small savings instruments and pruning of income tax rebate on investments in designated savings instruments.

A final view was set to be taken shortly after the Finance Minister, Mr Yashwant Sinha's return from Panaji, where the Bharatiya Janata Party's (BJP) three-day National Executive meet was in progress, a top Finance Ministry official said.

An indication of a rollback in two of the three crucial Budget proposals — reduction in small savings rates and pruning of tax rebates on savings — was given on Friday by the BJP President, Mr Jana Krishnamurthi, himself. According to him, the recent electoral reverses in the Delhi civic polls could largely be attributed to these proposals that had alienated the party from its traditional middle class support base.

While the pressure on Mr Sinha from within the party circles is mainly concentrated on the rollback of the two Budget announcements, India Inc, on the other hand, has stepped up lobbying for a review of the other major proposal concerning the tax treatment on dividends.

The 2002-03 Budget has proposed a shift in the incidence of taxation of dividends from the company (at a flat 10 per cent) to the shareholders (who will be taxed on the dividend income according to their individual tax slabs). The move is intended to shore up revenues from promoters — especially those holding high equity stakes in their companies — who have taken advantage of the lower tax rate and rewarded themselves by announcing hefty dividends.

Mr Krishnamurthi's statement coincided with the Central Board of Trustee's recommendation today to main the status quo on the interest rate on EPF deposits.

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