From Jal Khambata

NEW DELHI: Finance Minister Yashwant Sinha has injected a
confusion for the income-tax payees that prompted the Unit Trust
of India (UTI) to quickly withdrawn its new Monthly Income Plan
(MIP) scheme due for launch from March 1 and seek clarifications
from the Finance Ministry.

The confusion is over the announcement of the income tax
exemption for the interest income from UTI and mutual funds.
Sinha has gone on record in his post-budget interviews that the
exemption applies to only those UTI schemes where more than 50
per cent of investment is in equity and not to all schemes.

The UTI officials are worried at the prospects of a heavy rush
for withdrawals from all schemes because of the element of
confusion injected by Sinha. They say all UTI investments are
known as "Units" and the commonman can not appreciate the fine
distinction of where the UTI invests the money.

Though the Finance Bill and its Explanatory Memorandum tabled in
the Lok Sabha immediately after the Union Budget are the only
authorised interpretations of all the budget proposals, Sinha
has given a new twist to his proposal on the UTI and mutual
funds concessions by overruling these very documents.

The Finance Bill and the Explanatory Memorandum seek to amend
various sections of the Income-Tax Act to make all incomes from
UTI and mutual funds free from payment of income tax in the
hands of the investor.

The UTI quickly suspended the new MIP series, due for launch
from March 1, after Sinha's specific remark that the tax
exemption will not be available to the MIP and other UTI schemes
like the Deferred Income Unit Scheme where an assured income is
guaranteed.  His contention is that only dividends from the
schemes like US-64 will qualify for exemption.

The previous 5-year MIP schemes have been quite popular as it
guarantees a monthly income return of 12.5 per cent but the UTI
fears nobody will invest in the scheme any longer if such a
monthly income is to be taxed. The investor will be left with
the actual return of as low as 8.75 per cent or 10 per cent in
most cases under this provision.

Though Sinha has been assuring again and again to the income-tax
payers that the 10 per cent surcharge introduced in the budget
was temporary and will go after one year, he has already
inflicted another cut in the tax exemptions they enjoy. An
amendment in Section 80L regarding the income from mutual fund
units has also resulted in reduction in the income tax exemption
under Section 80L from the current Rs 15,000 to Rs 12,000.

Though Sinha tried to pretend an yield of Rs 3,100 crores from
the 10 per cent surcharge on income tax and corporate tax, the
Finance Ministry officials admit that the actual burden will be
between Rs 4,800 crores and Rs 5,000 crores. 

Yet another group cheated by the Finance Minister is that of the
housing finance companies as he made a false announcement in the
budget speech that the income will be charged on actual basis
and not accrual basis. 

The actual amendment incorporated in the Finance Bill, however,
limits this freedomm to only bad and doubtful debts as
prescribed by the National Housing Bank while the regular income
will continue to be reported on mercantile basis. END.
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