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Chelliah
Committee
Recommendations
on Indian Fiscal
Policy
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Chelliah Committee Recommendations on

Indian Fiscal Policy!
The committee, set up in August 1991,
submitted its Interim Report in February
1992, and final report in two parts in August
1992 and January 1993. The
recommendations have been made by the
committee, with a view to make the tax
system generate revenue in an efficient and
equitable manner.
In respect of direct taxes, the committee
stressed the importance of lower/moderate
rates of taxation, a narrower spread
between the entry rate and the maximum
marginal rate, and the fewest special
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exemptions and deductions.

The principles that have guided the
financing of tax proposals in the Budget
2001-02 were the need for growth in
revenue, simplifications and nationalisation
of the tax regime and effective tax
compliance.

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Personal income-tax has been restructured
with lower taxes, fewer slabs, a higher
exemption limit and reduced saving linked
tax exemptions. The system of taxation of
firms has been rationalised by eliminating
the distinction between registered and
unregistered firms and a flat rate of tax of
35 percent has been prescribed on all
partnerships.
Besides, the surcharges were abolished on
Corporates and non Corporates in the case
of direct taxes and customs to affect trade
cut to fuel growth. The emphasis of the
direct tax proposals in the budget was to
continue with the policy of stability in tax
rates.
Widening the tax base, simplification of tax
laws, provide incentives for infrastructure
development and promotion of capital
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market in particular. Tax incentives in the

form of tax holidays for development of
infrastructure were rationalised and
enlarged. New measures to curb tax
avoidance by transfer pricing were
introduced in the budget.

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In the area of indirect taxes the process of
rate reduction, rationalisation and
simplification of procedures were further
carried forward. The peak level of customs
duty was scaled down to 35 percent with the
abolition of 10 percent surcharge.
Budget also signalled Governments resolve
to progressively reduce the number of rates
to the minimum with a peak rate of 20
percent within three years. To encourage
the growth of information technology and
telecom sector, duty on these items were
reduced to 15 percent.
Basic custom duties were adjusted upwards
for a number of agricultural items. The
excise duty structure which was
rationalised to a single rate 16 percent
CENVAT (Central Value Added Tax) in 200001 was further improved with the reduction
of three special excise duty rates (8 percent,
16 percent and 24 percent) to a single rate of
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16 percent.
An additional levy called National Calamity
Contingent Duty was imposed on cigarettes,
pan masala, bidis, etc. to garner funds for
National Calamity Contingency Fund. Food
preparation based on fruits and vegetables
were completely exempted from excise
duty.
Excise duty on petrol which was earlier
raised in the budget was further enhanced.
The coverage of service tax at the rate of 5
percent in the value of taxable service was
expanded to include fifteen new services.

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