Some important features relating to direct Taxes in Finance Bill 2010

[DEV KUMAR KOTHARI]

Budget 2010-2011

Some important features relating to direct Taxes.

Relevant links:

Finance Bill 2010.

Revenue loss:

The Finance Minister has estimated revenue loss due to direct tax proposals at  Rs. 26,000 crore for the year. Now let us broadly see where taxpayers gain at cost of revenue and where additional burden is placed.

Proposals giving relief to tax payers are:

Reduction in tax rates:

New general income tax rates for taxpayers individual, HUF, AOP etc. will be as follows:

Income upto Rs 1.6 lakh	Nil
Income above Rs 1.6 lakh and upto Rs. 5 lakh	10 per cent
Income above Rs.5 lakh and upto Rs. 8 lakh	20 per cent
Income above Rs. 8 lakh	30 per cent

New section 80CCF -additional deduction:

For investment by way of subscription in long-term infrastructure bonds as may be notified by the Central Government deduction up to Rs. 20,000 will be allowed. This is a new deduction and as per proposal it will be allowed only for one year that is AY 2011-12. By this measure resources for infrastructure development will be made available. However, the taxpayers may really not gain much due to lower rate of interest, and higher rate of inflation expected by the time these bonds mature.

Section 80D- CGHSContributions to the Central Government Health Scheme will also be allowed as a deduction under the same provision besides contributions to health insurance schemes (medi-claim insurance premium) which is currently allowed as a deduction under the Income-tax Act. The overall limit remain unchanged.

Companies:

Surcharge of 10 per cent on domestic companies will be reduced to 7.5 per cent.

S. 35- Research enlarged and incentivized:

Scope of research will be increased substantially.

Weighted deduction on expenditure incurred on in-house R&D will be enhanced from 150 per cent to 200 per cent.

Weighted deduction on payments made to National Laboratories, research associations, colleges, universities and other institutions, for scientific research will be enhanced from 125 per cent to 175 per cent.

Payment made to any approved research association engaged in research in social sciences or statistical research to be allowed as a weighted deduction of 125 per cent.

The income of such approved research association shall be exempt from tax.

S. 80GGA- Contributions to research association will be eligible for deduction under section 80GGA.

Benefit of investment linked deduction under the Act extended to new hotels of two-star category and above anywhere in India to boost investment in the tourism

sector.

S. 80IB Completion period extended - by allowing  pending projects to be completed within a period of five years instead of four years for claiming a deduction of their profits, as a one time interim relief to the housing and real estate sector.

Norms for built-up area of shops and other commercial establishments in housing projects is rationalized.

Proposed maximum area for commercial use is 3% or 5000 sq. ft. whichever is higher instead of 5% or 2500 sq. ft. whichever is less at present.

S.80 ID- hotels and convention centres in specified area - eligibility period to start functioning is extended by four months from 31st march 2010 to 31st July, 2010.

Administrative changes relating to taxpayers:

Tax audit report S. 44AB:

Limits for compulsory TAR will be turnover of Rs. 60 lakh for businesses and to Rs. 15 lakh for professions.

S. 44AD - optional presumptive taxation system - for the purpose of small businesses turnover limit will be Rs. 60 lakh as against 40 lakh now.

TDS -nonpayment and disallowance:

The difference between TDS up to February and during March will be discontinued. If tax has been deducted and paid before due date to file return of income the relevant sums will be allowed. If TDS is deposited after such due date, then the relevant sum shall be allowed in the previous year in which TDS is deposited.

Rate of interest charged on delayed deposit of TDS will be increased from 12 per cent to 18 per cent per annum.

Conversion of private limited and unquoted public companies into Limited Liability Partnerships will not be considered as 'transfer of assets' for capital gains tax subject to compliance of various conditions.

Charitable purpose S. 2(15):

There will be exemption in relation to specified type of carrying on of any activity in the nature of trade, commerce or business provided that the receipts from such activities do not exceed Rs.10 lakh in the year. In such cases the advancement of any other object of general public utility" will to be considered as "charitable purpose".

Burden on taxpayers - companies:

Rate of Minimum Alternate Tax (MAT) will be increased from the current rate of 15 per cent to 18 per cent of book profits.

Deemed income in guise of gift:

Existing clause (vii) of section 56 will be amended to rationalize language and also to cover bullion.

 However, it appears that as per proposal immovable property received without any consideration will attract deemed income tax but property purchased for lesser consideration will not attract the deemed income aspect for taxation.

It appears that substitution should be only for sub-clause (ii) of clause (b) of S. 56(2)(vii), may be by mistake in drafting substitution is stated to be of entire sub-clause (b).

Is there some mistake in drafting?

Closely held companies and firms to attract deemed income:

As per new clause (viia) proposed in S. 56(2) closely held companies and firms who receives shares of another closely held companies without consideration or for inadequate consideration will be liable to tax as the difference of fair market value and actual consideration, if any, paid will be considered as income.