After years of being conditioned to taxes being raised or new taxes being introduced (e.g. FBT and BCTT last year), one almost expects the annual Budget to upset the apple cart. But this time, the Budget was a rather pleasant disappointment - almost an anticlimax of sorts.
As most of the provisions were pretty straightforward, here's a bit of reading between the lines.
Bank deposit ban gaya NSC
Most of you must be knowing that in the case of National Savings Certificates (NSCs), the interest accrued is deemed to be reinvested. Which means, the interest also gets the Sec. 80C benefit - Why? Because it gets reinvested in the same scheme.
Now, with Bank deposits also populating the already crammed sec. 80C, will the interest get similar treatment? The answer is - Yes. It should. However, this is only in the case of cumulative deposits, those investors receiving interest in hand every year will pay full tax thereon.
Wait, don't file your tax return!
The One-by-Six scheme has been abolished. But did you know this amendment is applicable for current year - FY 05-06? It is true, at least that's what the fine print says. Funny thing is that the Bill hasn't been passed but is already passing laws on the current tax paying rules.
Course of action? If you are under the one-by-six, don't file your return immediately after the 31st of March. You technically have time till October 31st, 2006. Wait for the Bill to be passed. If it does, you don't have to file returns at all!!
Sec. 54EC: Retrospective or Not?
Sec. 54EC has been diluted with only NHAI and REC bonds being eligible. Here there is bit of a conundrum. I was taken aback when the Memorandum to the Budget specified that this amendment is applicable retrospectively for FY 05-06.
Which means that if you have already invested in NABARD or NHB Bonds, you won't get the capital gains exemption!! This couldn't be and before someone gets a pain in the chest let me clarify that the income tax section in the Finance Bill doesn't have the retrospective provision. And its always the law in the section that counts.
Balanced Funds : RIP
Another innocuous provision makes a risk averse investor willy-nilly adopt more risk. So far equity funds meant those funds who had more than 50% investments in equity shares. Therefore those investors who were slightly risk averse went with Hybrid funds or Balanced Funds instead of a pure equity scheme. Now the 50% limit has been hiked to 65% w.e.f. 1st June, 2006.
It needn't even be said that the fund manager concerned is left with no option. Else, the long-term capital gains and distribution tax benefit is lost. However, investors sure have the option either to continue or to opt out. 3 months to go and counting.
NRIs breathe a sigh of relief
For NRIs, The TDS rate on short-term capital gains on equity and equity oriented funds has been reduced to 10% in line with the tax rate imposed by Sec. 111A.
Last Point
What they say about a popular swimming costume is true about the Budget too. What it reveals is important, what it doesn't is vital. Its not like me to play Nostradamus but no mention of EET doesn't mean that its disappeared.
My guess is that the government will bring it in this year --- during the year. Those measures that aren't introduced in the Budget can always be slipped in outside of it. More convenient that way.
It's at that time that Pandora will open her box. With so many instruments crammed inside Sec. 80C, its almost like putting handcuffs on an octopus. One tip --- don't be in a hurry to make your tax saving investments for next year. You have time till March 2007.
Let's wait and watch which Sec. 80C investments gets to become the first among equals!
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