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1. TAX RATES:
For Individuals and Hindu Undivided Family (HUF) there has been a significant improvement in tax rates and the revised tax rates stand as under: For Male Assesses below the Age of 65 year and All HUFs
|
Slab of Income |
Incremental Rate of Tax. |
| From Rs. Nil to Rs. 100,000/- |
No Tax |
| From Rs. 100,000/- to Rs. 150,000/- |
Rs. Nil plus 10% on income above Rs. 100000 |
| From Rs. 150,000/- to Rs. 250,000/- |
Rs. 5000 plus 20% on income above Rs. 150,000 |
| From Rs. 250,000/- onwards |
Rs. 25,000 plus 30% on income above Rs. 250000 |
For Female Assesses below the age of 65 year
|
Slab of Income |
Incremental Rate of Tax. |
| From Rs. Nil to Rs. 125,000/- |
No Tax |
| From Rs. 125,000/- to Rs. 150,000/- |
Rs. Nil plus 10% on income above Rs. 100000 |
| From Rs. 150,000/- to Rs. 250,000/- |
Rs. 2500 plus 20% on income above Rs. 150,000 |
| From Rs. 250,000/- onwards |
Rs. 22,500 plus 30% on income above Rs. 250000 |
For Male and Female Assesses above the Age of 65 year
|
Slab of Income |
Incremental Rate of Tax. |
| From Rs. Nil to Rs. 150,000/- |
No Tax |
| From Rs. 150,000/- to Rs. 250,000/- |
Rs. Nil plus 20% on income above Rs. 150,000 |
| From Rs. 250,000/- onwards |
Rs. 20,000 plus 30% on income above Rs. 250000 |
NO CHANGE ON TAXING LONG TERM & SHORT TERM CAPITAL GAINS
Long Term Capital Gain Tax has been maintained at 20% for General Capital Assets. And Long Term Capital Gains on Sale of Listed Equity Shares and Equity based Mutual Funds will be fully exempted (Section 10(38)).
Short Term Capital Gain for all general capital assets will continue to be taxed at normal slab rates. Short Term Capital Gains on Sale of Listed Equity Shares and Equity based Mutual Funds will be taxed at concessional rate of 10 %.( Section 111A)
Surcharge: @ 10% of Tax Payable only if total Income exceeds Rs. 10,00,000/- (earlier it was on incomes above Rs. 850,000)
Education Tax @ 2% of Tax and Surcharge will continue to be levied.
Registered Partnership Firm will now pay Income Tax at Flat rate of 30% (as against 35% till 31.3.2005) of its income and subject to the provisions of section 40 (b) they shall continue to get deduction on account of interest on partner's capital and remuneration to working partners.
Surcharge: has been enhanced from 2.5% to 10% of the tax. Education Cess of 2% of Income Tax and Surcharge will continue.
Domestic Companies the rate of tax on Domestic Companies has been reduced at flat rate of 30%.as against 35% till 31.3.2005
Surcharge: has been enhanced from 2.5% to 10% of the tax. Education Cess of 2% of Income Tax and Surcharge will continue.
2. INDIVIDUALS AND SALARIED CLASS.
a. The Standard Deduction u/s. 16(1) which was allowed as a deduction from Salary Income has been completely withdrawn.
b. Section 80C, 80CCC, 80L, 88, 88B and 88C: There has been a re-writing of the entire scheme of deductions and rebates that have been allowed earlier. The amendments are as under:
- Rebate u/s. 88 (Relating to investments made), Rebate u/s. 88B (to Senior Citizens) and Rebate u/s. 88C (to Female Assesses) have been withdrawn. This is done to compensate the enhancements made in the basic tax exemption income limits.
- Section 80L which gave a deduction up to a maximum of Rs. 12000/- on account of Saving Bank Interest, Interest on Notified Securities etc. stands withdrawn.
- A new section 80C is introduced where by investments up to a total sum of Rs. 100,000/- made in the below charted investments will be deducted from the Income.
|
Nature of Investment |
Remarks |
| Life Insurance Premium |
Include Premium paid for self, spouse and children.
(In case of HUF – for all the members of HUF)
Premium should not be more than 20% of Sun Assured. |
| Contribution to differed Annuity Plan |
Include contribution paid for self, spouse and children. (In case of HUF – for all the members of HUF) |
| Contribution to Provident Fund (including PPF, Employment) |
Contribution to PPF Account of self, spouse and children permitted.
(In case of HUF – for all the members of HUF) |
| Investment in certain Notified Government Securities / Saving Schemes |
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| Contribution to Unit Linked Insurance Plan |
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| Any units of Mutual Funds |
Including made in the name of self, spouse and dependent children |
| Contribution made to Any type of Pension Fund (including managed by Mutual Funds) |
Including made in the name of self, spouse and dependent children |
| Tution Fees (Donation excluded) paid to any School / University within India for education of Self, or any two children, |
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| Installment paid for repayment of Housing Loan |
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| Purchase of Equity Shares or Debentures – which are approved by CBDT. |
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- In case if the Life Insurance Contract is terminated / surrendered within two years than the deduction claimed in the earlier years will be taxed as an income in the year in which such surrender or termination takes place. Similarly in case of ULIP the period is before five years. Similarly in case of Housing loan if the person sells / transfers his house before five years of having taken possession than the deduction claimed towards repayment of housing loan will be treated as income of the year when the house is sold.
- Section 80CCC Enabled contribute up to Rs. 10000 in certain Pension Funds. This limit is clubbed together with the overall limit of Rs. 100,000/- u/a. 80C. (Section 80CCE).
- SUMMARY: NOW UNDER THE SCHEME OF DEDUCTIONS AND REBATE THE FOLLOWING WILL BE AVAILABLE:
- In the Nature of Saving – Section 80C and 80CCC / 80CCD – Over all saving up to Rs. 100,000/- is deducted from taxable income.
- In the nature of Medical / Hospitalization Insurance – Section 80D – Rs. 10000 of premium paid (Rs. 15000/- if a senior citizen is insured)
- In the nature of Disabled person / Disabled relative – Section 80DD (Rs. 50000 to Rs. 75000) / 80 DDB (Rs. 40000)
- In the nature of Higher Education Loan – Section 80E (Rs. 40000)
- Rebates are completely withdrawn.
a. Section 10(4)(ii) : In the previous Finance Bill for the year 2004 it was proposed to tax Interest received on NRE Deposits. In this Finance bill it is proposed to again exempt the Interest earned on NRE Deposits.
3. BUSINESS INCOME.
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- Section 32: Section 32 prescribes the rules for providing depreciation. In this Finance Bill the rates of depreciation have been significantly reduced. For example the Depreciation rate on Plant and Machinery has been reduced from 25% to 15%. In case of a manufacturing unit an additional deprecation @ 20% o the cost of new (second hand – not eligible) plant and machinery will be allowed on Plant and Machinery used in the Manufacturing Activity (Machines put in office/residential areas not eligible). Earlier this additional depreciation was eligible only if the installation of new machinery resulted in to increase in production capacity by a certain minimum percentage, but now no such requirement is prescribed.
- Section 36(1) This section deals with deduction of expenses which are in the nature of interest. Companies in the business of Infrastructure will be eligible to issue Zero coupon Bonds at a discount. It is proposed that the discount be allowed as a deduction in equal installment over the tenure of the Bonds. In this Finance Bill the Government as a measure to discourage Cash transactions proposes to tax all cash withdrawals from banks above Rs. 10000/- per day. The Special Cash Transaction Tax is @
0.1% of the cash withdrawn above Rs. 10000/- per day. The Cash Transaction Tax paid will be allowed as a Deduction u/s. 36(1).
- Section 40(a)(ib) The Finance Bill Proposes to tax the Employer on account of Fringe Benefits paid to employees on which no tax is deducted / paid by Employees. The Fringe Benefit tax is in the nature of Income Tax of the Employee paid by the Employer and since all direct taxes are not deductible expenses the Fringe Benefit Tax paid by Employers will also not be allowed as expenditure to them.
- Section 43(5): This section defines a Speculative Transaction. According to the earlier definition all transactions which are settled without effecting physical delivery of the goods / underlying assets, were regarded as Speculative Transactions. Accordingly all
Derivative transactions were regarded as Speculative Transactions, by this amendment it is proposed to exclude Derivative Products which are listed on Recognized Stock Exchanges from the definition of a Speculative Transaction.
- Section 73: Permitted carry forward of unabsorbed Speculative loss for a period of 8 years, the carry forward of unabsorbed Speculative loss stands reduced to 4 years only.
- Section 115JB: In case of Company Assessees a Minimum Alternate Tax (MAT) was required to be paid @ 7.5% of Book Profit, if the Tax payable under the normal tax calculation was Nil or less than that payable under MAT. And this tax paid under MAT was not allowed to be set off in future when the Assessee had taxable income under the Income Tax Act, this resulted in to double taxation. In this amendment the tax paid under MAT will be set off in future against the Normal Tax payable under the Income Tax Act.
4. TAXATION OF FRINGE BENEFITS
- A new Chapter XII-H comprising of Section 115W to 115WL is introduced where in the taxation mechanism of entire fringe benefits given to employees but to be taxed in the hands of the Employers is proposed.
- The Fringe Benefits will be taxed at a Flat rate of 30% in the hands of the Employers and the Fringe Benefit Tax Paid will not be a deductible expense to the Employer.
- Fringe Benefits include any privilege, facility, amenity, benefit (directly or indirectly) provided by Employer to his Employee (including past Employees). It also include any reimbursement of any Expenses incurred by any Employee, for any purpose (This may have very wide reparcations)
- Some of the Fringe Benefits illustrated in the Bill and its Valuation are –
| Nature of Fringe Benefit |
Valuation |
| Entertainment, Gifts, Festival Celebration, Use of Club Facility |
50% of the Actual Amount incurred |
| Free / Concessional Ticket for Private Journey to Employee and his Family members |
Cost if Actually incurred or Market Value of such Ticket (in case if in same business) Less amount recovered from Employee |
| Expenditure incurred on Hospitality (including food, beverages) provided to any person. Hospitality provided to employees in the Office / work place is however excluded from the definition of Fringe benefits. |
50% of the Actual Amount incurred In case if the Employer is in business of Hotels it will be 5% of the Actual Amount incurred. |
| Maintenance of Guest House, Conference, Employee Welfare, Health Club, Sports Facilities, Sales Promotion and Publicity |
50% of the Actual Amount incurred |
| Conveyance, Tour and Travel including Foreign Tour, Hotel, Lodging and Boarding Expenses |
20% of the Actual Amount incurred |
| Repair, Running and Maintenance of Motor Car / Aircraft |
20% of the Actual Amount incurred |
| Consumption of fuel other than industrial fuel |
20% of the Actual Amount incurred |
| Use of Telephone |
10% of the Actual Amount incurred |
| Scholarship to children of Employees |
Actual Amount incurred |
- The other provisions deal with procedure for Assessment, Recovery of tax, Penalty, Prosecution etc. in regards to Fringe Benefit Tax.
- Employers will have to file a separate Fringe Benefit Tax Return and failure to do so will attract a penalty of Rs. 100/- for every day of default (Section 271FB)
5. CAPITAL GAINS. There has been no significant change in the provisions of taxing Capital Gains.
The Security Transaction Tax has been slightly enhanced from 0.015% to 0.02% in case of Derivative Products
6. OTHER PROVISIONS.
- Section 139(1A): Under this one by six scheme for compulsory filing of income-tax return possession of Mobile phone is omitted and instead persons spending more than Rs. 50,000/- per annum for consumption of Electricity are included.
WEALTH TAX
No amendments proposed in the Wealth Tax Act.
SERVICE TAX
- Service Tax Rate is retained at 10% The Education Cess @ 2% of service tax will continued to be levied
- In addition to the existing list of services given below the following additional services are also covered by the Service Tax Net - Cleaning Activity; Club / Association Facility; Commercial or Industrial Construction Facility(including repair, renovation and alteration); Dredging Services
- The term "Construction of Complex" (Section 30a) is re-defined to include Construction of New Residential Complex or part thereof, repair, alteration, renovation to a residential complex. Residential Complex as defined u/s. 91(a) means a building having more than 12 units, a common area and any facility such a park, lift, parking space, community hall etc., located within the premises. The definition excludes Residential Complexes which are arranged to be constructed by third party and are intended to be used for personal use (including to be let out on rent).
- 4. Following services are already covered by Service Tax Stock Broker, Telegraph, Pager, Insurance, Advertisement, Courier, Custom Agent, Engineer, Architect, Shipping Agent, C & F Agent, Manpower Recruitment, Air Travel Agent, Mandap, tour Operator, Rent a Cab, Management Consultant, Chartered Accountant, Cost Accountant, company Secretary, Real Estate Agent, Security Service, Detective/investigation service, Credit Rating, Market Research, Underwriting, Scientist and Technical service, Photography, Event Management, Telephone, Fax Video production, Sound Recording, Online computer service, , broadcasting, Actuarial, Insurance, Banking, Automobile service and repair, Beauty Parlors, Dry Cleaners, Event Managers, Fashion Designers, Insurance Agents, Health Clubs, Life Insurance, Real Estate Agents, Tour Operators, Cable Operators, Commercial Coaching / Vocation Classes, Technical Testing, Health Diagnostic and certification centers, Maintenance and Repairs Services (AMC), Commissioning and Installation Services, Business Promotion and Customer Service such as product launch, customer education, seminars, help desk service, enquiries bureau, back office and front office services, Franchisee Services
BANKING CASH TRANSACTION TAX
A new tax introduced to dissuade people from conducting transactions in Cash
- The Tax will be effective from 1st June 2005.
- The Banking Transaction Tax will be @ 0.1% of the Taxable Banking Transaction. And the same will be paid by the person who incurs the Taxable Banking Transaction. However in case of a person withdrawing cash through a bearer cheque the BCTT will be paid by the payee of the bearer cheque
- Taxable Banking Transactions are -
- Cash withdrawal of more than Rs. 10,000/- a day from a Scheduled Bank
- Purchase of a Bank Draft / Pay order pf more than Rs. 10,000/- on payment of Cash
- Encashment of Term Deposit exceeding Rs. 10,000/- a day from a Schedule Bank
The BCTT will be collected by the Scheduled Bank from where the Taxable Banking Transaction is conducted, and the Bank will be required to pay such BCTT so collected during a month to the government by the 15th of next month for which the BCTT pertains.
The Scheduled Banks will be required to furnish the BCTT returns and the BCTT will be administered by the Income Tax Authorities.
Please note that we have not covered all the amendments proposed in the Finance Bill 2005 and have restricted ourselves in dealing only with those provisions which we thought are of practical relevance, particularly to our set of clients. If you desire to discus or seek clarifications on any of the provisions, please feel free to communicate with us and we will put in our best effort and be at your service.
We hope that our modest attempt to explain the provisions of Union Budget 2005-2006 and the Finance Bill 2005 will help you to plan your income and tax affairs properly
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