The Finance Bill 2006 provides for only two types of assets for claiming the exemption under sec 54EC of the Income tax Act, 1961. These two assets are the bonds issued by National Highway Authority of India as also the Rural Electrification Corporation limited.
The filing of Income tax Return has also been made compulsory for all those who would like to claim the tax deduction for certain new industrial undertakings etc., taking advantage of sec 10B, 80IA, 80IAB, 80 IC.
For the first time in last one decade this year's Budget proposals particularly relating to Income tax have not brought out anything special for the taxpayers but still by and large the individual taxpayers appear to be happy and satisfied with the tax proposals.
A deep peep into the reasoning of the taxpayers on this front revealed that the one single focused point is the absence of any proposal to introduce the long talked about concept of EET. Likewise, the inheritance tax was out of the shelf and finally there was no provision introduced in the Budget to bring some extra tax on shopping by the rich and the famous in the big malls.
The personal tax rates and corporate tax rates have not been changed at all. But the minimum alternate tax is increased from existing level of 7.5% to 10%. While calculating MAT the long-term capital gain on securities will be calculated to arrive at the book profit. This amendment means some extra tax outgo.
The Securities Transaction Tax on different types of transactions have gone up by 25% of the existing tax schedule but this will not mean too much loss of money to the common man. However, the earnings from mutual fund would get slightly reduced because of some extra burden on equity mutual funds.
Now coming to the investment scenario from the point of tax benefit to the individual taxpayer, we find that the existing limit of deduction under sec 80C has remained unaltered. What all has changed is just the choice of making investments. Now as per the amendment made by the Finance Bill 2006 the investment in the pension plan can be made up to Rs.1 lakh against the existing limit of Rs 10,000.
Similarly, the investment in five year fixed deposit with a scheduled bank would qualify for a tax deduction within the overall limit of Rs 1 lakh. However the combined limit for exemption under sec 80C as well as sec 80CCC (pension) continues to be Rs 1 lakh only.
The income of co-operative banks would not be exempted now in terms of sec 80P of the Income tax Act 1961. There have been substantial amendments made to the provisions relating to Fringe Benefit Tax. The genuine problem of the taxpayers has been solved to some extent but still the pinch of FBT would be felt by the tax paying public.
The expenses incurred on free samples of medicines or of medical equipments to doctors are outside the clutches of FBT. Similarly, expenses on account of payments made to persons of repute for promoting the sale of goods or services of the business of the employer would be outside FBT.
The best part of the proposed amendments is that the contribution by the employer to an approved superannuation fund for his employees would be subjected to FBT only if the amount exceeds Rs 1 lakh per employee. The expenses incurred on tour and traveling including foreign travel would be subjected to FBT on only 5% of the value of such expenses.
There have been certain relaxations on FBT payment for persons engaged in business of carriage of passengers or goods by aircraft/ships.
For the first time a new concept has been proposed in the Budget which speaks about filing income tax return through income tax preparers who could even sign your income tax return. More details on this would come in near future.
The provisions relating to compulsory filing of income tax return based on 1/6 economic indicators have been completely done away with. However it is expected that the govt. would now catch the tax evaders through the information gathered by Annual Information Return and the BCCT, which still continues in the statute book.
Not a single provision has been introduced which would provide any relief to women taxpayers and senior citizens. It was expected that in tune with the CMP of the UPA govt. certain new schemes to unearth black money would be coming in this year's Budget.
But the fact is that there is not even any direction on tackling the problem of black money resulting into tax evasion.
An amendment to sec 43B has been proposed on retrospective basis since the assessment year 1989-90. This proposed amendment states that if interest etc. to bank etc., has been converted into a loan or a borrowing that it shall not be deemed to have been actually paid and thus this proposed amendment would result into hardships to lakhs of business taxpayers in the country.
The best part of the Finance Bill 2006 is that the old concepts of tax and investment planning still continue to operate.
The author is tax and investment consultant at New Delhi for last 35 years. He is director of R.N. Lakhotia and Associates.
Do you want to discuss stock tips? Do you know a hot one? Join the Stock Market Discussion Group.