जिस्ट्री सं० डी० 221
REGISTERED No. D 221
भारत का राजपत्र The Gazette of India
प्रसाधारण
EXTRAORDINARY
भाग 1-खण्ड 1
PART I- Section 1
प्राधिकार से प्रकाशित
PUBLISHED BY AUTHORITY
सं० 38]
नई दिल्ली, बृहस्पतिवार , फरवरी 29, 1968/फल्गुन 10 , 1889 No. 38 ] NEW DELHI , THURSDAY , FEBRUARY 29 , 1968 / PHALGUNA 10 , 1889
इस भाग में भिन्न पृष्ठ संख्या दी जाती है जिससे कि यह अलग संकलन के रूप में रखा जा सके ।
Separate paging is given to this Part in order that it may be filed as a separate compilation.
Budget 1968-69
Speech of Deputy Prime Minister and Minister of Finance 29th February , 1968
Sir,
I rise to present the Budget for the year 1968-69 . The Indian economy is emerging now from one of the most difficult periods since independence Succes- sive droughts , shortage of food and raw materials , rising prices, subdued indus- trial demand , inadequacy of exports and savings and sluggishness in the capital
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market had combined to create a feeling of despondency which has afflicted us in the recent past . Honourable Members , I am sure , would agree that we can now look on the past two years with a sense of relief . With the help of our friends abroad and the efforts of our own people , we have been able to avoid a major disaster and to impart at the same time a new sense of dynamism to our programmes of agricultural development .
2. I look upon the coming financial year with a certain degree of optimism and with the expectation that , given the right policies ,it can become a year of revival . With the sharp increase in agriculturalagricultural production andand rising incomes, there would undoubtedly be some increase in the demand for industrial products. Recent trends in exports have been encouraging . The price level is registering a decline . The objective of policy in the coming year must be to consolidate the gains so that a major developmental programme can be undertaken in our Fourth Five- Year Plan which will be launched in the following year.
3. Honourable Members are already familar with the various aspects of the new agricultural strategy . The availability of nitrogenous fertiliser has been more than twice as high this year as in 1965-66 . Arrangements are in hand to maintain supplies at a high level in the coming year . The area under high yield- ing varieties of seeds is expected to increase from 15 million acres this year to 21 million acres next year . In recent years we have concentrated on minor irrigation works in order to get quick results from investments . In the current year, 3 to 31 million acres were covered by new minor irrigation facilities and the target for the coming year is another 31 million acres . Major irrigation schemes on which substantial progress has been made also deserve our prior attention .
We have to make earnest efforts to ensure that we introduce the same kind of technological advance in commercial crops as we have achieved in respect of foodgrains . Increased productivity per acre is essential if adequate returns to the farmer are to be reconciled with reasonable prices to the domestic consumer and competitiveness in export markets . The processing industries can make a valuable contribution in this regard ; and I shall have occasion later to refer to a measure I propose to introduce to encourage these efforts .
5. Assurance of remunerative prices to the farmer for his products is an integral part of the new agricultural strategy . I should like to assure the House that inadequacy of finance will not be allowed to stand in the way of purchase by Government and the Food Corporation of such supplies as may be forthcoming at the procurement prices . The target of procurement is 7 million tonnes; and well- planned procurement measures by all concerned will have to be undertaken to reach this target . Even with this target , import of substantial amount of food- grains appears to be necessary in order that the long unfulfilled programme of building up a sizeable buffer stock can be achieved after making allowance for replenishment of private inventories and some increase in consumption . agreement has already been signed to import 3.5 million tonnes of foodgrains from the U.S.A. under PL 480. An
6. The steady rise in prices over the last few years has been a matter of all- round concern . Over the four years ending March, 1967 prices had risen by 60 per cent and there was a furthfurther rise during the earlier part of the current financial year . In recent months there has been a downward trend. A part of the recent decline is no doubt seasonal ; but it is reasonable to hope increasingflow of foodgrains and consumer articles will help in the tion of prices at reasonable levels . that the stabilisa-
7. Sir , I am happy to say that Government was able to get agreement this year that a part of the increase in dearness allowance which was due to Government employees be credited to their provident funds instead of being paid in cash . These special contributions can be withdrawn in the coming year . But may I request my Honourable friends to join me in an earnest appeal to Government employees not to withdraw these contributions as that will help in maintaining a climate of price stability. Economics , they say, is a dismal science : and I see no escape from saving more in order to preserve the value of the savings .
8. A substantial part of increase in incomes would need to be ploughed back into further investment , if an adequate tempo of development is to be achieved and maintained . In part , investments will be undertaken directly by those who save out of larger incomes . Farmers will wish to purchase pumps, tractors and other equipment . In part , however , savings of all classes have to be mobilised for outside investment, public or private , THE GAZETTE OF INDIA EXTRAORDINARY
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9. The small savings movement has a vital role to play in securing this objec- tive . Net small savings have been relatively low in the recent past, in conse quence of the droughts . I am making a number of modifications in the small savings schemes and necessary notifications are being issued in this regard . Briefly, we are introducing a new five - year deposit scheme with a tax - free return of about 4.5 per cent and are accordingly revrevising the return on the existing five- year cumulative time, deposit scheme, and the 12 - year and 10- year tax - free savings certificates , With a renewed drive for collection, particularly , in the rural areas , these measures should help in greater mobilisation of resources .
ided 10. The return on provident fund accumulations of Government employees is also being raised ; I propose to do so , however , on the first Rs . 10,000 of accumula- tions only. Those who are self - employed do not have the facility of saving through provident funds . I propose , therefore , to introduce a public provident fund scheme under which all sections of the community will have the opportunity of contributing to a provident fund , and to availto avail of the income - tax benefits provide for under the law in respect of contributions to such funds . It is my hope that in time, this provident fund scheme will secure substantial resources for the ex- chequer. Self - employed persons such as doctors , lawyers , artists , actors and actresses , like old soldiers , are never known to retire . But they too reach their prime some day. Something laid by- legitimately , and with considerable saving in tax liability in tax liability should prove valuvaluable even to those who have a greater claim to immortality than most of us .
11. A moderate increase in exports has occurred during the current year ; and the increase in imports has been lessess than in exports . Nevertheless our foreign exchange reserves declined by $ 60 million between April and mid -November, 1967; and it became necessary to draw $ 90 million from the International Mone- tary Fund. In recent weeks , there has been a welcome increase in reserves in response to better export performance , which may be expected to continue . The fact that we have been able to get some debt relief this year has also helped in managing the over - all foreign exchange position . With the revival of industrial activity, import demand will be strong once again;ng once again ; and this underscores the fact that we cannot restore viability to our balance of payments without a sustained increase in export earnings . Basically , this is a question of increasing the produc- tion of exportable goods and increasing efficiency and savings all round . Export policies have also to be geared promptly to changing circumstances .
12. That is why we announced a number of changes in export duties on the 7th of February without waiting for the presentation of the Budget when every Finance Minister likes to mix the bitter with the sweet . The urgency of the situa- tion waswas such that I had to forego the certainty of receiving at least one bouquet in the midst of whatever brickbats that may be in store . We have been giving cash assistance to some of our exports , particularly the newer manufactures . Certain adjustments in these rates of assistance have already been made. Govern- ment propose to maintain the new structure of assistance intact encouraging neither uncertainty nor perpetual expectations of further assistance . We have also recently streamlined and simplified the procedures for release of foreign exchange for the purpose of export promotion .
18. One of the important needs of the export sector has been the provision of adequate and cheap credit . During the year, the Industrial Development Bank enlarged the facilities for medium - term export credit ; and the Reserve Bank also took measures to ensure that credit for exports of newer manufactures was available at particularly concessional rates . It is desirable that credit should be available for exports generally at a relatively low rate of interest . I am, there- available fore, making provision in the Budget for the coming year for grant of a subsidy towards interest charges on export finance provided by the banks . The Reserve Bank will announce the details of the scheme which will include the prescrip- tion of a ceiling on interest charges qualifying under the scheme .
14. An adequate expansion of India's export earnings is only possible within an appropriate international framework . It is a matter of gratification for us that second session of UNCTAD is being held in New Delhi . It is our earnest hope that the deliberations of the Conference will help in promoting co - operation in trade and aid between the developed and the developing countries , and among the developing countries themselves .
15. As the Honourable Members are aware , we took a series of steps during the year to stimulate industrial output . With the revival of agricultural produc- tion and the consequent rise in incomes , a number of consumer goods items such as cotton yarn and vanaspati are showing an increase in production . There are THE GAZETIE OF INDIA EXTRAORDINARY
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also signs of a revival in the production of commercial vehicles . Industries sup- piying the needs of agriculture have done well even in the recent past and continue to do so , The level of private investment should pick up in response to the generally better economic outlook . Continued increase in exports and progress towards reducing the dependence on imports will also be necessary to create and sustain a climate of industrial revival , in this connection , it is a matter of satisfaction that our capnal goods industries have won valuable export orders in the recent past and that we hope to get sizeable orders or wagons , rails and other steel products from the Soviet Union . I expect an increase in the industrial production of the order of at least 5 to 6 per cent in the coming year . " This increase , though moderate as compared to our past performance , would represent a significant advance over the rate of growth in the last two years .
16. The working of public sector undertakings has been engaging our earnest attention , The public sector has been particularly hit by recession because it is mostly engaged in the production of capnal goods or producer goods . The general recovery in the economy will undoubtedly help , but the basic problem of achiev- ing a long - term improvement in ethciency and yields will have to be tackled urgently . The recommendations made by the Administrative Reforms Commis- sion are being actively studied and I trust before long certain concrete steps will be taken to ellect a lasting improvement .
17. Now that I have taken you through a survey of savings and exports , of prices and production , I could perhaps turn safely to some inconvenient facts of life. In my Budget Speech last year , I had referred to the need to avoid deficit financing in the circumstances then prevailing in the country . Thesenese circums- tances have changed for the better ; but unfortunately, not my budgetary fortunes so far . In actual practice , the current year is expected to end with a large deficit of Rs . 300 crores at the Centre , Honourable Members would appreciate that in is neither an casy nor a pleasant matter for me to come to this House with this parucular piece of miormation . It is some solace , that the worsening in the budgetary position has little to do with unexpectea increase in expenditure . The deterioration has come about on account of short- falls in revenues and foreign aid utilisation which in turn have been due to the low level of economic activity and also , because of a decline in the resources of the States and public sector enterprises . To some extent perhaps , we were also misled into undue optimism by the oft repeated charge of understimation of resources , As soon as the picture regarding shortfali in resources started emerging , I tried to make judiciousdicious readjustment of outlays . The manoeuvr- ability for such an exercise in the midst of the year is extremely limited , parti- cularly if this is super- imposed on a tight budget , There was also the consideration of the effect which any drastic cut in public spending would have had on the recessionary situation . In fact there were suggestions from most quarters to step up expenditure in one way or the other . Some steps were also taketaken inin this direction . However , the expenditure estestimates in totality have been contained ; and on this count at least I can claim some credit for having taken to heart the admonitions of the Honourable Members .
18. The Budget which I presented in May last had assumed the utilisation of external assistance , other than PL 480 , of lts . 865 crores . Actual aid utilisation is not expected to amount to more than Rs . 756 crores , thus showing a shortfall of as much as Rs . 109 crores . The receipts from import duties will be about Rs . 125 crores less than assumed in the original Budget . Further, the Railway revenue shows a shortfall of Rs . 17 crores , their ordinary workingworki expensesex being at the same time Rs . 23 crores higher in all, a deterioration of Rs . 40 crores . On the Posts & Telegraphs side also , there is a similar deterioration of Rs . 22 crores . The internal resources of public sector undertaking have gone down by Rs . 41 crores , the bulk of which is in respect of Hindustan Steel..
19. There is one other factor which has also contributed to the large deficit this year I am referring to the overdrafts of States . Last March we had proо- vided Rs . 55 crores to some States in order to enable them to clear their over- drafts with the Reserve Bank which were likely to be outstanding at the end of 1966-67 . In the Budget that I presented last May , I had also made a provision of Rs . 50 crores for the same purpose . In the event, a total of Rs . 113 crores was given to the States in respect of their overdrafts at the end of the last fiscal rear ; it was hoped that with the burden of past overdrafts taken care of, the States would be able to avoid similar overdrafis in the current fiscal year . Un- fortunately , some of the States are still running overdrafts and I have decided to provide Rs . 50 crores more in the current year's Revised Estimates to clear the overdrafts once again at the end of the current year . While we have thus decided to safeguard the Plans of the States next year , Honourable Members [PART I -SEC, 1 ] THE GAZETTE OF INDIA EXTRAORDINARY
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would appreciate that we cannot allow a similar situation to develop next year also . I trust that the State Government will not precipitate a situation in which we will be obliged to reconsider the existing banking facilities enjoyed by the State with the Reserve Bank ,
20. Next year's revenue receipts at existing levels of taxation are estimated at Rs . 3132 crores , being Rs . 138 crores more than the current year's Revised Estimates . The major increase of Rs . 186 crores occurs under excise duties . Income tax is likely to show an improvement of about Rs . 10 crores only as the profitability in the corporate sector this year will be reflected in the assessment next year . Customs revenue is expected to show a slight fall of Rs . 3 crores , the anticipated improvement under import duties being more than offset by reduction under export duties . The rest of the increase in revenue next year occurs mainly under interest receipts . Of the total revenue receipts , Rs . 423 crores will be transferred to the States as their share of Central taxes and duties .
21. External aid , other than PL 480 , is placed at Rs . 775 crores . Next year's repayment liabilities are Rs . 193 crores , thus giving a net figure of Rs . 582 crores . The rupce accruals in respect of PL 480 imports as also the dollar credit under the new agreements are placed at Rs . 274 crores as against Rs . 366 crores this year .
22. Next year's expenditure estimates include Rs . 1015 crores for Defence as against Rs . 970 crores in the Revised Estimates thus showing a rise of Rs . 45 crores which is mostly accounted for by dearness allowance increases and some- what larger provision for replacement stores . Included in these estunates is also an increase of Rs . 2 crores for pension charges and Rs . 7 crores under Capital . Border roads account for a provision of Rs . 48 crores which is Rs . 5 crores higher than in the Revised Estimates .
23. Sir, I am well aware that our delence expenditure should receive the utmost scrutiny so that the resources available for development are not unduly eroded . The question of reducing the magnitude of defence expenditure with- out detriment to national security has been continually receiving our earnest attention . Significant progress has already been achieved towards improving the teeth- to - tail ratio and further measures to improve this are in hand ; like- wise , other measures for improving the cost - effectiveness of our defence outlays are also under consideration . It is obvious that with the substantial increase in the price -level that has taken place over the recent past , some increase in defence expenditure would become unavoidable . Honourable Members would , however, be interested to note that as a percentage of gross national product , defence expenditures have already come down from 4.4 per cent in 1963-64 to an estunated 3.2 per cent in 1967-68 .
24. The Budget estimates for 1968-69 mclude Rs . 243 crores on account of non- Plan grantsgr to States and Union Territories . A provision of Rs . 223 crores has also been made for giving non - Plan loans to States and Union Territories of which Rs . 105 crores is for purchase and distribution of fertilisers , seeds and pesticides , and Rs . 20 crores for scarcity relief . The provision for non - Plan expenditure under the developmental heads is estimated at Rs . 237 crores as against Rs . 214 crores this year in part as a result of increased provision for export promotion . Rs . 186 crores are provided under heads relating to Adminis- tration as against Rs . 177 crores this year , the bulk of the increasę being on account of higher dearness allowance . The total interest charges are estimated at Rs . 550 crores as against Rs . 508 crores this year .
25. The resources for the Plan next year on the basis of the estimates just mentioned and a number of miscellaneous items not mentioned here , are placed at Rs . 1,544 crores of which Rs . 170 crores are to be contributed by public sector undertakings including the Railways and the Posts and Telegraphs .
26. The requirements for meeting the Plan outlays of the Centre and those of the Union Territories as well as for providing Plan assistance to States are , however , much larger. In making provision for the Plan at the Centre , a balance has to be struck between the constraint of resources and the need to maintain the progress in respect of continuing schemes and the initiation of new schemes in sectors, of high priority . On this basis , a sum of Rs . 615 crores has been allocated for providing assistance to the States as against Rs . 595 crores this year . Rs . 65 crores have been provided for Union Territories - one crore more than this year . The provision of Rs . 1,179 crores for the Centre's own Plan will only be marginally higher than the current year's budgeted outlay of Rs . 1,172 crores and the expected outlay of about Rs . 1,150 crores . In the aggregate, the provision for the Plan in the Centre's Budget for the coming year THE GAZETTL OF INDIA EXTRAORDINARY [PANT I - SED.
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amounts to Rs. 1,859 crores as against the expected outlay of about Rs . 1,809 crores in the current year . This would, of course , be augmented by the resources that the States themselves are able to raise for their Plans . Honourable Mem- bers may like to note that a provision of Rs . 140 crores is being made for building up a buffer stock of foodgrains which has a valuable part to play in underpinning our plans for development . If account is taken of this , what may be broadly ealled "planned outlays for development " would showow a significant increase over the current year .
27. I would also like to point out that of the Plan assistance of Rs . 615 crores to the States, Rs . 590 crores has been already allocated among the different States by the Planning Commission and the remaining Rs . 25 crores is being specifically earmarked for a speedy completion of selected major irrigration projects . It is my earnest hope that the State Governments will provide adequate resources for the urgent requirements of minor irrigation and rural electrification . Over the year, depending on the economic situation, I will do my best to supplement the efforts of the States in these two priority areas .
28. The main items forming part of the Centre's outlay of Rs . 1,170 crores are : Rs . 172 crores for the Railways , Rs . 153 crores for iron and steel , of which Re. 110 crores are for Bokaro , Rs . 82 crores for petroleum and Rs . 70 crores for chemicals including fertilisers . The provision for agriculture is Rs . 53 crогев, that for Posts and Telegraphs Rs . 48 crores and for financial institutions Rs . 35 crores . I quite realise that these provisions do not meet the requirements of all the Ministries ; but the constraint of resources has left me with no choice .
29. Honourable Members would note that we have decided to appoint a Finance Commission in advance of the due date so that its findings are available for the formulation of the Fourth Plan . A copy of the Notification constituting the Commission and incorporating its terms of reference is being laid on the Table of the House today . I have been particularly keen for sometime that the various financial problems between the Centre and the States , and among the States themselves , should be objectively reviewed so that solutions are found which are not only just but accepted as such by all concerned . The recom- mendations of the Commission, I am sure , will serve this purpose and contribute towards national integrity and harmony.
30. Sir, I now come to the much awaited and perhaps much dreaded part of my Budget speech. I trust the Honourable Members will not take me to task if the proposals I unfold do not fulfil the expectations of dread . With resources available for the Plan next year of Rs . 1,544 crores1,544 crores and the proposed Plan pro- vision of Rs . 1,859 crores , there is a gap in the Centre's Budget of Rs .of Rs . 315 crores . A deficit of this kind is usually an invitation to a Finance Minister to sharpen his knife for a major operation for mobilisation of additional resources. On this occasion , I propose to engage myself essentially in a minor operation in the nature of plastic surgery- taking out a little flesh here and adding a little bit there in order to make the tax - system more efficient and attractive .
31. A number of radical suggestions for tax reform have been made from time to time by Honourable Members , individual scholars and associations of labour, trade and industry . The final report of Shri Bhoothalingam has been received and will be made available , to Honourable Members . The Public Accounts Com- mittee has also recently made a number of suggestions in this regard ; and we are awaiting the recommendations of the Administrative Reforms Commission. Over the year, I have given the most anxious consideration to the revision and simplification of the tax structure, both direct and indirect. While some changes are obviously desirable and could be introduced without further delay, funda- mental changes in the tax system should not be made without a very thorough study of all the implications . I am having such a study undertaken in earnest and am hoping that the climate of the country will be condusive to the acceptance of more thorough- going changes in the next Budget .
Direct Taxes
32. Coming to direct taxes first, my main proposals in the field of corporate taxation relate to the discontinuance of the 'dividend tax' on excess distributions of equity dividends and a reduction in the surtax on company profits from 35 per cent to 20 per cent . The abolition of the ' dividend tax , apart from making for simplification , should improve the climate for equity investment. The reduction in the surtax on company profits is intended as a spur to enmeieney.
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1. I propose to introduce a number of concessions to promote higher agri- oultural productivity , particularly by encouraging the efforts of user industries . I propose to make a provision for the deduction , in the computation of business profits of companies , of an amount equal to one and one - fifth of the expenditure incurred by them in providing agricultural inputs , such as , fertilisers , seeds, implements and pesticides , and extension services , in spheres related to the particular industry in which the company is engaged. This weighted deduction will be available where the qualifying expenditure is incurred by the company directly and also through approved associations or organisations . The develop- ment of the seed processing industry occupies high priority in our agricultural programme . I , therefore , propose to accord to it the ' priority industry' treat- ment .
34. As part of the measures designed primarily to assist export promotion . I propose to extend the concession of development rebate at the higher rate of 35 per cent of the cost of new equipment , to the manufacture of vegetable oils and oilcakes through the solvent extraction process , processed concentrates for cattle and poultry feeds and processed fish and fish products . I propose also to provide for the grant of an Export Markets Development Allowance to taxpayers other than foreign companies at the rate of one and one - third of the revenue expendi- ture incurred for the developmentdevelopment of export markets . Further , to encourage export of technical ' know- how' and technical services by Indian companies . I propose to exempt from tax the whole of their income consisting of dividends , royalties and fees derived through these activities from foreign companies .
35. In the field of taxation of personal incomes . I have reached the conclusion that in the interest of simplification of the tax structure and convenience of tax- payers , the Annuity Deposit Scheme should be discontinued . Accordingly , I propose that no Annuity Deposits will be required to be made on incomes arising after the current financial year .
36. Last year , as a measure for stimulating investment in equities . Indian company dividends were exempted from income- tax in cases where the total income from dividends of the taxpayer during the vear did not exceed Ave hundred rupees . I propose to extend this concession by exempting the Arst five hundred rupees of such dividend Income from tax even where the total dividend incoma exceeds five hundred rupees in the year.
T 37. For several years past the rate structure of tax on personal incomes has Included the levy of separate surcharges in relation to unearned incomes and earned incomes in excess of specified limits . Under our integrated scheme of direct taxation which comprises , besides income - tax . an annual tax on wealth and taxes on gifts and inheritance . I do not see any need or justification for differentiating between unearned and earned incomes through the levy of sur- charmes on income - tax which result in complications in tax calculations . therefore , propose to discontinue the levy of separate surcharges on unearned and earned incomes , Simultaneously . in order to maintain the progressiveness of the income - tax . I provose to sien up , the basic rates of income - tax on incomes over Rs . 1 lakh from the present rate of 65 per cent to 70 per cent on income in the slab between rupees one lakh and rupees two and a half lakhs and to 75 per cent on income above that level I also propose to sten in the rates of ordinary wealth - tax on wealth in the slab over Bs 10 Jakhs by half per cent , that is , from 2 per cent to 24 ver cent on wealth between Rs . 10 lakhs and Rs . 20 lakhs , and from 21 per cent to 3 per cent on wealth above Rs . 20 lakhs .
38. In a situation where both the husband and the wife are tax - pavers in their own right , it would be improper for any outsider to decide as to who is dependent on whom. At present , we avoid this ticklish question by allowing both parties to claim a spouse allowance This still leaves oren the question as to who brings more tax benent to the partnership through marriage . To eliminate this unintended strain on the relationship of marriage . I propose to provide that where both the husband and the wife have taxable incomes , the spouse allowance will be available to neither.
39. As a measure of relief to totally blind individuals , I propose to provide for the deduction of Rs . 2.000 in the computation of their taxable income .
תח 40. I also propose to simplify the existing basis of the calculation of tex nartnershin incomes derived from registered firms . This will be done by deducting the tax borne by the firm itself in computing the partners ' shares in the income of the firm. At present , we grant rebate of tax at the average rate to the partners on the proportionate amount of the tax borne by the registered firm . In order to 166
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maintain the overall incidence of lax , I propose to make a consequential upward adjustment in the rates of tax on registered firms . Some rationalisation is also being undertaken in regard to rate structure of tax on the incomes of cooperative societies and Local Authorities .
41. There are a number of changes I propose to introduce in regard to the computation of income from house property , deduction for the cost of maintaining a vehicle by salaried employees , procedure for grant of refunds and withholding of tax from interest payments . It is not necessary for me to go into the detai details of all these changes which are spelt out in the Explanatory Memorandum on the Finance Bill .
42. I shall now refer to some of the measures that I propose to introduce for countering tax evasion and avoidance . In this context . I propose to take steps for setting up, departmentally , an organisation for valuation of lands , buildings and other assets Further , I propose also to have administrative instructions issued to secure that, as far as possible , the same value is adopted for an asset for the purposes of income - tax , wealth - tax , gift - tax and estate duty.
43. Another measure is to classify as short - term capital gains , the gains arising from the sale or transfer of capital assets within 24 months of their acquisition , as against the present period of twelve months .
44. The deductible amount of entertainment expenditure in businesses and pro- fessions is already subject to certain limits These limits are often circumvented through entertainment undertaken out of entertainment allowances or ' expense accounts' operated by employees . Henceforth , such expenditure will also be brought within the purview of the limits . The existing restriction in the case of companies on the deductible expenditure on provision of perquisites , benefits and amenities to their higher - paid staff will be extended to non - corporate enterprises . An alternative monetary limit of Rs 1,000 per month for each employee will also be laid down . Further , depreciation allowance and maintenance expenditure admissible to the employer on residential accommodation and household equipment such as refrigera- tors and air - conditioners providedprovid by him to the employeesemployees free of charge , will also be brought within these limits .
45. Tax liability is sometimes artificially reduced by diverting profits to relatives and associate concerns in the form of excessive payments for goods and services Claims are also made for deduction of expenses in large amounts shown to have been paid in cash , often with a view to frustrating Investigation as to the identity of the recipients and the genuineness of the caim. To plug these loopholes , I pro pose to provide that payments made in business and professions to relatives or assoclate concerns will have to pass the test of reasonableness In order to qualify for deduction . Further , I propose to provide that payments made in amounts ex- ceeding Rs . 2,500 after a date to be notified later will be allowed as a deduction only. if these are made by crossed cheques or by crossed bank drafts .
46. In order to expedite tax assessments , I propose to reduce the period of 'time limitation for completion of assessments in original proceedings for 1969-70 and later years from four years to two years from the end of the relevant assessment As a corollary to this , the time limitation for making applications for refund of tax will also be reduced , likewise , to two years from the end of the relevant assessment year . year
47 I propose to lay down very stringent penaltles on those who continue to avold taxes by concealing their incomes or wealth . For this , the penalties for concealment of income or wealth will be stepped up to a minimum of 100 per cent and a maximum of 200 per cent of the concealed income or wealth . In the case of persons defaulting in the statutory obligation to deduct tax at source and pay it to the credit of the Central Government , I propose to provide for punishment of rigorous imprisonment up to six months and a fine of not less than 15 per cent per annum of the tax in default, on conviction before a court Currently , such punishment is only a fine upto Rs . 10 for every day of default
48 The changes proposed by me in regard to corporate taxes and the taxes on personal incomes will take effect prospectively i.e. , in relation to incomes on which advance tax is payable or tax is deductible at source during the coming financial vear , 1968-69 . Similarly , the proposed increases in the rates of ordinary wealth- tax will take effect prospectively from the assessment year 1969-70 The disconti- nuance of annuity deposits from the coming financial vear is expected to bring in , in a full year , additional fax revenue of the order of Rs . 18 crores due to non deduction of deposits in computing the taxable income . Other changes in the taxa- tion of personal incomes are likely to result in a reduction in revenue to the extent PART I - SEC . 1 ] THE GAZETTE OF INDIA EXTRAORDINARY
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of about Rs . 4 crores in a full year, leaving a net gain to revenue of about Rs . 14 crores . I have not taken into account the gain to revenue on account of increase in the rates of wealth - tax as the benefit of it will accrue only during the financial year 1969-70. Together with the changes in corporate taxation , which imply a loss in revenue next year of about Rs . 1 crores , the yield from direct taxes would show an increase of Rs . 10 crores next vear as a result of all the changes I have proposed.
49. Betore concluding the subject of Direct Taxes . 1 should like to add that I have been impressed with the view expressed in this Honourable House that the medium of the Finance Bill should notbe utlitsed to make too many changes in the Income tax law . Accordingly . I have brought up only such changes in regard to which delay would have been inadvisable , Jeating out change concerning structural or administrative matters to be considered and brought up separately in the course of the yea
Indirect Tuar
50. 1 nov corne to Indirect Taxes In keeplug with the objective of maintain ing price stapility for items of essential consumption , I have maintained the utmost restraint in proposing changes in excise and customs duties . At the same time , some additional taxation of items of less essential consumption cannot be avoided There is also need to deploy the instrument of indirect taxation for assisting export promotion and import replacement . I have also taken the opportunity of remov ing anomalies and introducing a measure of rationalisation and simplification .
51. It is proposed to levy an excise duty on six new commodities , namely , con- fectionery and chocolates , leather cloth embroidery , parts of wireless receiving sets like valves and transistors , steel furniture and crown corks The duty on con- Fectionery and chocolates is proposed at 80 paise per kilogram which is expected to yield an annual revenue of Rs . 24 crores The duty on embroidery and steel furniture will be at the rate of 20 per cent ad valorem which together will yield a revenue of Rs . 5.4 crores in a full year . Leather cloth will bear a duty of 25 per cent ad valorem yielding an annual revenue of Rs . 152 crores . On crown corks a duty of one paisa per piece is proposed which will yield an annual revenue of Rs . 1.50 crores The statutory rate of (luty on valves and transistors is pro- posed to be fixed at Rs 5 per piece . but the effective rates at present are being fixed at Rs . 3 and Re. 1 per piece respectively hy exemption notification The Jikely yield would be Rs . 2.90 crores The new ledes on confectionery , embroidery and steel iurniture will be confined to the organised sector of these industries manufacturing the products with the aid of power These new leves will collec- vely yield a revenue of Rs . 13 72 crore, in a tull year
52. Among the commodities which are already excisable , the existing rates of Juty on all varleties of un - manufactured tobacco other than tobacco dust are proposed to be stepped up by al out 10 per cent On this occasion , I have decided to be impartial between the different devotee of nicotine , be they addicted to the humble bidi , hookah and chewing lobacco on to cigarettes , cigars and the pipe These increases will yield an additional revenue of Rs 6.36 crores in a full year Another item on which increase has been proposed is jute manufactures of which the rate of basic excise duty on hessians is being increased from Rs . 375 to Rs . 450 per tonne and on other manufactures from Rs 175 to Rs . 250 per tonne These Increases will weld an atortional revenue of Rs 102 crores in a full vear
53 My next proposal is to increase the basic excise duty on complete refrigera- tors and air conditioners from 20 per cent to 30 per cent ad valorem and that on component parts from 30 per cent to 40 per cent This measure will appeal to at least those Honourable Members who pulled me up in the last Budget session for overlooking such obvious items of less essential consumption . The increase in duty on these items will yield an additional revenue of Rs 240 crores in a full year
84 It will be recalled that as a part of the Budget proposals last year the duty on sized cotton yarn of fine and super fine counts was increased substantially Representations have been received from the powerloom weavers that the burden of this duty at the weaving stage is rather heavy. It is therefore proposed to re- adjust the rate structure in such a way that relief is afforded on sized yarn and duties suitably steppeded up at the processing stage of powerloom fabrics . The overall budgetary effect will only be marginal . It is also being ensured that the incidence of the duty on composite mill fabrics , handloom fabrics and hosiery remains more or less unchanged . Particular care is being taken to see that the handloom sector is left un - affected , and in tact some relief is proposed to be given.
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to this sector by exempting totally hank yarn in plain straight reels of new French counts 29 or more but less than 34 the latter being equivalent to a shade more than 40 British counts . This will involve a loss of about Rs . 10 lakhs in a full year. Representations have also been received from the smaller producers of aluminium that the effect of the Budget proposals of last year has affected their profitability adversely . Itis proposed to afford some relief to these smaller pro- ducers by reducing the effective duty to the extent of Rs . 150 per tonne ; this con- cession will be available only to those ore based producers whose clearance of aluminium and products made out of aluminium had not exceeded 12.500 tonnes in the previous financial year . The revenue effect of this concession will be a loss of about Rs 25 lakhs in a full year
55. Rationalisation of the existing crncessions to certain paper manufacturers and exemptions applicable to some varieties of paper are being given ellect to by notiscations , the overall revenue effect of which will be a nominal gain of Rs 15 lakhs in a full year
56. The ceiling rate , fixed in the Mineral Products ( Additional Duties of Excise and Customs ) 1958 have now been found to be inadequate . The over- recoveries in the hands of the oil companies which have to be appropriated to the Consolidated Fund through levy of these additional excise duties require a higher rate of levy . It is accordingly proposed that the ceiling rates in respect " of Motor spirit . Refined diesel oiloil andand PetroleumPetroleum products not otherwise specified be raised sufficiently and the effective rates which are fixed by notification issued by the Central Government stepped up suitably. These changes will yield and additional revenue of Rs . 10.13 crores in a full year , but the consumers will not be effected as the duties , though recovered from the oil companies . cannot be passed on by way of price increases to the consumers The cumulative effect of all the proposals relating to excise duty will be an additional revenue of Rs . 36 43 crores in a full year .
57.It is proposed to continue the levy of special excise duties at the existing rates for another year. The provision for levy of regulatory duty of excise in the same manner as in section 42 of the Finance Act 1967 is being continued though there will be no levy of this duty at present .
58. For some tine past I have been exercised over the administrative burden on the excise department and the complaints of abuse associated with the existing system of physical control . I have accordingly decided to extend the system of self - assessment by the manufacturers , to all manufacturers , big and small , making exception in respect of a few exciseable commodities only which present com- plications in assessment or where there is substantial movement in bond . A large measure of trust will thus be placed in the manufacturers , their declarations and their accounts . Day to day verification of clearances by Central excise officers will be dispensed with and replaced by periodical check of the self- assessed documents and accounts to ensure that the amounts due to Government have been properly assessed and paid . This change in procedure will , however , necessitate certain essential revenue safeguards . To this end , the penal provisions for unauthorised removal of the goods or other contraventions of the rules and regulations with intent to evade payment of duty are proposed to be made more stringent .
59. I have also reviewed the existing system of control on the tobacco growers for the purpose of levying excise duty on un - manufactured tobacco . Steps are being taken by which the need for the excise officers to contact the growers will be considerably reduced . The excise control on sparse growing areas is also being simplified .
60 The levy of local sales tax by the States on goods declared to be of special importance in inter - State trade is limited to 3 per cent at present . On a request from some of the States suitable amendment is being made in the Central Sales Tax Act deleting mill - made silk fabrics from this list of goods . This will give the States freedom to levy sales tax on it without any restriction .
61. I was reminded last year that in spite of my much discussed aversion to alcoholic liquors , I had not made any proposals in this regard . I should retrieve my reputation now ; and I propose to increase the import duty on whisky , brandy, and a few other alcoholic liquors by about Rs . 9 per bottle . I also propose to increase the import duty on cloves , cassia and cinnamon by about Rs . 12 to 13 per kilogram . There is a high margin of profit in respect of these spices and THE GAZETTE OF INDIA EXTRAORDINARY
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their use is confined to the comparatively affluent sections of the community . The proposals with regard to these consumer goods will yield an extra revenue Rs . 2 crores .
62. My next proposal is in regard to chemicals , plastics , synthetic resins and miscellaneous articles not otherwise specifled in the Customs tariff schedule . The present effecuve rate of 50 per cent ad valorem is proposed to be raised to 60 per cent ad valorem with some exceptions . This will yield an additional revenue at Rs. 12 crores . The proposed increase is not likely to cause any hardship because the cost of chemicals is usually a small fraction of the price of the manu- factured article , and secondly , because imported chemicals are usually not re- quired in the manufacture of articles consumed by the common man ; wherever they are , the existing rate is proposed to be maintained . Thus , though the tariff item regarding chemicals covers drugs and medicines too , the present rate on the latter as also on the chemicals and intermediates required for their manufacture is being maintained by issue of exemption notifications . Similarly , the existing rate on carbon black and red phosphorus will be continued by issue of an exemp- tion notification . Further , sulphur , dye intermedlates recommended by the Tariff Commission and various other chemicals , the duty on which had been specially reduced or exempted wholly in the past, will continue to pay duty at the existing rates. In this connection I should like to make a special mention of an exemption that is proposed for chemicals and intermediates used in the manufacture of Insecticides , pesticides and fungicides . Some of these have already been exempted , but it is now proposed to issue an omnibus exemption notification covering all such chemicals and intermediates as are not manufactured in the country . This concession is being given to encourage the use of these products as an aid to agricultural production .
63. The last proposals on the Customs side is an increase in duty on some of the iron and steel products which at present carry a specially reduced rate of 15 per cent ad valorem . This rate is proposed to be raised to 27 per cent ad valorem as a specially reduced rate is no longer justified in view of the indigenousous production which is coming up . The revenue effect of this proposal will be an additional yield of Rs . 1.50 crores in a year .
64. The special duty of Customs is being continued for another year but a notification is being issued exempting imported goods from this levy so as to maintain the status quo . The provision for levy of regulatory duty of Customs in the same manner asin section 39 of the Finance ( No. 2 ) Act . 1967is being continued though there will be no levy of this duty at present .
65. As a result of the proposals relating to excise duties , there will be an additional yield of Rs . 3.80 crores on account of the increased collections under countervailing duty. The aggregate additional revenue under import duties wil be Rs . 19.30 crores .
Posts and Telegraphs
66. I had occasion to mention earlier that the deterioration in the revenue budget of the Posts and Telegraphs Department this year would be of the order of Rs . 22 crores . The result is that they have not only not been able to pay the due dividend liability to the the General Revenues but have not also been able to cover their working expenses this year . The working expenses of the Post Office Branch have particularly gone up very rapidly due to the increase in staff costs . It has been agreed that the shortfall of this year and the last two years should be made good over a period of three years commencing from the next year. On this basis and at existing tariffs , itis anticipated that the deficit in the revenue budget of the Posts and Telegraphs Department next year would be Rs . 23.83 crores . Honourable Members are aware that a Tariff Enquiry Committee under the Chairmanship of Shri Mahavir Tyagi had been appointed to evolve definite principles on which the tariff policy of the Department might be based . The Committee's interim report covering the Post Office Branch has since been received and based on the principles suggested by the Committee , it is proposed to revise the postal tariffs . The interim report and a Memorandum showing the proposed changes is being circulated separately along with the Budget papers and I shall , therefore , mention only the more important changes . The postage on letters upto 15 grams is proposed to be increased from 15 paise to 20 paise and that for a letter - card from 10 paise to 15 paise and for a post card from 6 paise to 10 paise . The postage for books , pattern and sample packets andand book packets con- taining printed books and registered newspapersspapers will also be raised . The money order commission which is 15 paise per Rs . 10 will now by 20 paise per Rs . 10 THE CAZETTE OF INDIA EXTRAORDINARY [PART I- SEO , 1 } 170
upto Rs . 200 and 30 paise per Rs . 20 thereafter . The postage charges for foreign mails will also be revised . The Committee has not yet reported on the tariffs for other branches , but in view of the loss in the working of the Telegraphs Branch , it is proposed to make a small increase in some of the Inland telegraph rates These changes ure expected to bring in an additional revenue of Rs . 24.70 crores on the Postal side and Rs . 1.08 crores on the Telegraphs side in a full year . The changes would be given effect to from dates to be notified later and are expected to cover the deficit of the Posts and Telegraphs Department next year
07. I might add that I have already taken account of the increases in the posts and telegraphs rates in preparing the Budget Estimates for 1968-69 so that they wil not count towards reduction of the initial deficit of Rs . 315 crores . Similarly , the changes in fares and freights announced by my colleague , the Railway M.alster , have also been taken into account before striking the deficit .
Summing Up
68. To sum up , the additional revenue next year from the measures of taxatioz I have proposed would be Rs . 65.73 crores of which Rs . 10 crores would be under direct taxes , Rs . 36.43 crores under excise and Rs . 19.30 crores under customs . Of this , a sum of about Rs . 15 crores will accrue to the States leaving a balance of Rs. 50.73 crores available for the Centre's Budget . I hope the State Govern- ments will utilise this addition to their resources for minor irrigation and rural electrification .
69. On capital account , the abolition of the Annuity Deposit Scheme will mean a loss to the Central exchequer of Rs . 35 crores next year. Part of this loss will be made up by contributions to the new public provident fund for which I am taking credit for Rs . 10 crores only. There will , therefore , be a net loss on capital account of the order of Rs . 25 crores . The net gain to the Centre's Budget on revenue and capital account taken together of all the changes will be of the order of Rs . 25 crores so that the initial deficit of Rs . 315 crores goes down to about Rs . 290 crores .
70 Honourable Members may well appreciate the immense reservation with which I have reconciled myself to a large deficit next year. A number of con- siderations have weighed with me. In so far as the Plan outlays are concerned. itis clear that any further reduction can only lead to dislocation of the progress of continuing schemes even in critical areas such as agricultural development , fertiliser production and family planning where we are poised for substantial achlevements . We have also to keep in mind the problem of unemployment among technicians which is already a matter of concern . Besides , it would be short- sighted to retard the process of recovery by putting an undue curb on Govern- mental spending . I am sure that no section of the House would have commended such an approach The other alternative was to put un proposals for massive mobilisation of resources . It is n judgment that this would hurt the economy and retard the process of growth
71. I have done my best to restrict the cutlays on Defence and Administration I am happy to note the earnestness in all parts of the Defence Services to eschew every form of avoidable expenditure . I am anxiously awaiting the finalisation of the Reports of the Administrative Reforms Commission . I need hardly reite- rate that Government would go into the recommendations of the Commission with earnestness and promptness in order that the objectives of efficiency and economy in adminstration can be fulfilled as early as possible
72. In estimating the resources at the existing rates of taxation , having been bition once , I have assumed a modest recovery in industrial production . If, as 1 hope , the modifications in taxation I have proposed succeed in Improving the climate for saving , investment and export , the economy might revive more vigo- rously and this would help in moderating the actual deficit. Honourable Members may rest assured that I have not changed my belief that we cannot afford to Indulge in large budgetary deficits year after year. If I have reconciled myself to a deficit next year , it is in the expectation that by assisting the revival of the economy at this stage , we shall be able to achieve a more satisfactory budge- tary balance before long .
73. No Finance Minister can claim either perfect foresight or absolute wisdom But I do feel that the situation is as hopeful as it is challenging . The utmost co-operation, discipline and even a measure of self-denial by all sections of the community will be necessary if we are to meet the challenge . I would like to THE GAZETTE OF INDIA EXTRAORDINARY
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appeal to all the Honourable Members for their co -operation and constructive suggestions so that , together , we can turn the present challenge into hope and opportunity for the future . On my part , I can only assure a continuous watch on implementation of economic policies and a readiness to take appropriate action from time to time . In conclusion , itis my earnest hope that the Budget I have had the honour of presenting today reconciles as best as possible the variety of concerns that are so anxiously felt in this Honourable House and in the country as a whole .
PRINTED IN INDIA BY THE GENERAL MANAGER , GOVERNMENT OF INDIA PRESS , NEW DELHI AND PUBLISHED BY THE MANAGER OF PUBLICATIONS , DELHI , 1968