Defined contribution pension plan for government staff

NUTS & BOLTS

A "defined contribution" pension scheme has been introduced with effect from January 1, 2004, for central government employees recruited on or after that date. A suitable legislation to provide a regulatory framework for the scheme will be introduced in Parliament.

The much awaited new pension scheme will exempt contributions and accumulations from tax, but withdrawals will be taxed in keeping with the system prevailing in most developed countries.

NRE accounts
Interest earned from a non-resident (external) account and interest paid by banks to a non-resident or to a not-ordinarily resident on deposits in foreign currency will not be exempt from tax.

Similarly, any payment made by an Indian company to acquire an aircraft or an aircraft engine on lease from a foreign state or a foreign enterprise will not be exempt from tax. These exemptions will cease prospectively from September 1, 2004.

According to bankers, the move is a fallout of the comfortable foreign exchange reserves. Besides, the government also wants to encourage genuine long term investments and discourage inflows of "hot money". They also said this will also lead to reduction of the overall external debt by the country.

Loophole in gift tax to be plugged
Purported gifts from unrelated persons, above the threshold limit of Rs 25,000, will now be taxed as income. Gifts received from blood relations, lineal ascendants and lineal descendants, and gifts received on certain occasion such as marriage will continue to be totally exempted.

Income tax waivers
Family pensions received by widows, children and nominated heirs of members of the armed forces and the paramilitary forces killed in the course of operational duties will be exempt from income tax.

Disability exemptions
The benefits of Section 80DD and Section 80U will be extended to people suffering from autism, cerebral palsy and multiple disabilities

Agricultural land in urban areas
Agricultural land situated in certain urban agglomerations fall under the definition of capital asset and the compensation for the acquisition of such land is subjected to capital gains tax.

This compensation is proposed to be exempted from capital gains tax if the compensation or enhanced compensation has been received on or after April 1, 2004.

Disability exemptions
To assist the disabled, rehabilitation aids such as talking books, braille computer terminals, braille writers and typewriters, assistive listening devices, cochlear implants and stair lifts will be fully exempt from customs duty. They will also be exempt from excise duty and CVD.

Crutches, wheel chairs, walking frames, artificial limbs, for the disabled will also be fully exempt from customs duty. Restrictions on institutions for the visually-impaired and the hearing-impaired availing of import duty exemptions will be removed and the exemption list will be enlarged.

Housing projects
The finance minister proposes to relax the condition of minimum plot size of one acre in the case of housing projects, as long as they are implemented in accordance with a scheme for the reconstruction or development approved by the centre or state.

This is expected to address a small problem that has plagued the reconstruction and development of existing buildings under approved plans in Mumbai in particular.