NEW DELHI, March 1, 2006 : NO news is good news and Budget 2006 has nothing for individual taxpayers. However, there are some subtle changes made in some sections, which will largely affect the direct taxes. Like the changes in five categories of security transaction is something which noone seems to talk about but that will mobilise quite a huge sum of money. Similarly though there is no change in corporate tax rates but there is wide-ranging change in MAT, along with the provision for assessees in SEZ, banking sectors, FBT etc. Similarly on personal tax front there are some changes made for the term deposits in the banks. And some new schemes like “Tax Return Preparer” (TRP) have been introduced. Here is a ready reckoner for the field of Direct Taxes:
Personal Tax
Tax rates unchanged.
Perks not to include any premium paid by employer to cover health insurance of any employee. This also includes the fund reimbursed by the employer for the premium paid by the employee on the health insurance of his/her family member or himself.
Term deposits in scheduled banks for more than five years will no be eligible for deduction u/s 80C.
Maximum limit for deduction (u/s 80CCC) on contribution to pension funds raised from Rs.10,000 to Rs.100,000 (provided that the overall limit is Rs. 100,000 u/s 80CCE).
New scheme to be introduced from 1 June 2006 enabling taxpayers to prepare and furnish their returns of income through a “Tax Return Preparer” (TRP), (other a person in whose audit is required). The scheme will specify the manner in which the TRP shall assist the taxpayers and also makes it obligatory for the TRP to affix his signature to the return.
Corporate Tax
Corporate - Tax rates not changed
Minimum Alternate Tax (MAT) rate increased by 2.5 per cent to 10 per cent. However, carry forward and set-off of credit for MAT is extended by two years to seven assessment years now.
For calculating book profits for the MAT purpose the liability of long-term capital asset now equity shares and equity oriented mutual fund units, and STT will be included.
Self-assessment tax to be computed after reducing relief allowed for taxes paid in other countries and tax credit available against MAT paid on book profits, in addition to the existing credit for advance tax paid, TDS and TCS.
Exemption withdrawn from infrastructure projects, which are, receiving dividend, interest and long term capital gains by lenders (viz. Capital funds, banks).
Exemption to co-operative banks from not paying tax on income from banking activities, withdrawn. However primary agricultural credit society or co-operative agricultural and rural development bank will still enjoy the exemption.
Insurance premium paid by an employer for their employees will be eligible for deduction.
From assessment year 2006-07, return filing of income is made mandatory for taxpayers who are claiming deduction of profits from activities like development and operation of SEZ and multiplex or convention centers etc.
Exemption from deduction of profits derived from exports by units in SEZ withdrawn to the extent of the income enhanced by the transfer-pricing officer by determining the arms length price.
Tax benefit available for industrial parks is extended by 31 March 2009
Tax benefit to power sector (generation, up-gradation and distribution) will now be available to the projects slated to start on or before 31 March 2010 (earlier the benefits were available till March 2006 only).
FBT
Though the so-called Fast Becoming Trauma or Fringe Benefit Tax (FBT) was not abolished completely, but the Finance Minister provided the much-needed space, by exempting some touchy services like exempting free samples of medicines (provided by the Pharma companies to the doctors), and services of celebrity for promotion of their brands.
Exemption to contribution to superannuation funds to the extent of Rs. 100,000 (as done in tax deduction limit under section 80C).
Free samples of medicines or medical equipment to Doctors exempted
Expenses on promoting the sale of goods or services of the business of the employer exempted
Valuation of all kind of tour and travel reduced from 20 per cent to 5 per cent.
“Pick and drop” facility provided by employer to employees (between the place of residence and place of work) excluded from FBT.
Contribution by the employer (for every individual employee) to any approved superannuation fund up to Rs One is now exempted.
From June this year time limit for completion of assessments (including wealth tax assessment also) reduced from two years to twenty-one months.
Others
Exemption from income in investor Protection Fund is now restricted to the contributions received from stock exchanges or members of the stock exchange
Exemptions given to the income of non-profit bodies notified under multi-lateral treaties, agreement or conventions of government.
To recognise the double taxation avoidance treaties between Indian and Non Resident association, new section has been introduced. The provisions of the Act will apply to the extent they are more beneficial than the provisions of the agreement or treaties. Also higher charge of tax on the foreign entity will not be considered as discrimination against such entity.
CBDT can now direct an income tax authority to perform the functions of an authority ranked lower than him/her. Also the board has been granted power to mete out with any of the conditions to be satisfied for a return to be a valid return for any class or class of persons.
Assessing Officer is now empowered to issue notice even after the expiry of the assessment year (in case of no returns filed till the expiry of assessment year)
For completion of assessments, reassessments in response to reassessment notice the time limit is reduced from one year to nine months (now it has to be done in the month of December instead of March). This is applicable for FBT and wealth tax reassessment. This time limit is also applicable for completion of assessments pursuant to the appellate orders.
From June 2006 payment of interest on failure or delay in deduction or collection of whole or part of tax to be by way of self-assessment before filing quarterly statement
Requirement to issue TDS or TCS certificates extended up to 31 March 2008.
Now the failure of a person to collect tax (even part of tax) or to pay the tax collected shall deem such person to be an “assessee in default”.
Now it is not required of filie annual TDS / TCS returns in respect of tax deductible / collectible after 1 April 2005. This condition stands scrapped
Let's take a case of MR. ABC working with M/s XYZ. Salery drawn by MR. ABC is Rs. 1,000,000 CTC.
After the budget, Mr. ABC opt for contribution to superannuation (here onwards SA)by employee Rs. 1,00,000 & his own Rs. 1,00,000. He also contributes Rs. 60,000 to PF as earlier.
So, now salray remaining will be Rs. 740,000.
Income Tax:
contribution of 60,000 to PF + TO SA Rs. 40,000 will be exmpted from income tax.
Rest of SA Rs. 60,000 will be taxed as per rates.
Contribution of employer to SA Rs. 100,000 will be exempted.
FBT:
Complete employee (s. 100,000) & Employer (Rs. 100,000) i.e. total Rs. 200,000 will be exempted from FBT.