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Deciphering direct tax changes
March, 02nd 2010

What are the changes proposed on allowing deduction for health insurance premium?

Under the provisions of section 80D, deduction in respect of premium paid towards a health insurance policy up to a maximum of Rs 15,000 is available for self, spouse and dependent children. A further deduction of Rs 15,000 is also allowed for buying an insurance policy in respect of dependent parents.

The deduction is enhanced to Rs 20,000 in both cases if the person insured is of 65 years or above.

The Central Government Health Scheme (CGHS) is a medical facility available to serving and retired Government servants. This facility is similar to health insurance policies. It is, therefore, proposed to also allow deduction in respect of any contribution made to CGHS by including such contribution under the provisions of section 80D from assessment year 2011-12. The deduction will be limited to the current aggregate as mentioned in the section.

Are there any amendments proposed in respect of the definition of the term charitable purpose?

The Finance Act, 2009, had amended the provision relating to charitable or religious trusts by providing that charitable purpose, though will include relief to the poor, education and medical relief, will not include any other object to general public utility if it involves any activity in the nature of trade, commerce, business or rendering of any service in relation to trade, commerce or business though an object to general public utility will still be a charitable purpose except in the cases mentioned above.

It is proposed to amend the definition to provide that if the gross receipts from trade commerce or business or services relating thereto is not in excess of Rs 10 lakh the exemption would still be available. It may however be noted that this benefit will not be available even if the aggregate receipts from such activities marginally exceeds Rs 10 lakh. It is now proposed to amend section 12AA to provide that such registrations can also be withdrawn with effect from June1, 2010.

Are there any amendments proposed in respect of gift for inadequate consideration?

Under the provisions of section 56(2)(vii), as they presently are, any sum of money or any property in kind which is received without consideration or for inadequate consideration (in excess of the prescribed limit of Rs 50,000) by an individual or a HUF is chargeable to income tax in the hands of recipient under the head income from other sources.

However, receipts from relatives or on the occasion of marriage or under a will are outside the scope of this provision.

It is proposed to amend section 56 to also include within its ambit transactions undertaken in shares of a company (not being a company in which public are substantially interested) either for inadequate consideration or without consideration where the recipient is a firm or a company (not being a company in which public are substantially interested).

This will not apply where the transactions are undertaken for business reorganisation, amalgamation and demerger which are not regarded as transfer under the Act.

Amendments are proposed that under section 2(24), to include the value of such shares in the definition of income.

Similarly under section 49, to provide that the cost of acquisition of such shares will be the value which has been taken into account and has been subjected to tax under the provisions of section 56(2).These amendments are proposed to take effect from June 1, 2010.

It is proposed to amend clause (vii) of section 56(2) so as to provide that it would apply only if the immovable property is received without any consideration and to remove the stipulation regarding transactions involving cases of inadequate consideration in respect of immovable property.

These amendments are proposed to take effect retrospectively from October 1, 2009 even from the date on which the provision first came into force.

Are there any changes proposed in respect of the threshold limit for tax audit under Section 44AB and presumptive taxation under Section 44AD?

It is proposed to increase the aforesaid threshold limit from Rs 40 lakh to Rs 60 lakh in the case of persons carrying on business and from Rs 10 lakh to Rs 15 lakh in the case of persons carrying on profession, which will mean that tax audit under section 44 AB would be required only if the sales, turnover or gross receipts exceeds Rs 60 lakh in case of business and Rs 15 lakh in the case of profession.

It is also proposed to increase the maximum penalty, leviable under section 271B for failure to get accounts audited under section 44AB or to furnish a report of such audit, from Rs 1.0 lakh to Rs 1.5 lakh. The penalty can be half a per cent of turnover or Rs 1.5 lakh whichever is less. This will take effect from assessment year 2011-12.

Is there a change in tax rules regarding tax deducted at source?

The threshold for deduction of tax at source has been increased in certain cases. For instance TDS is deductible on rent only if it exceeds Rs 1.8 lakh (as against Rs 1.2 lakh earlier) per year.

Winnings from lottery or crossword would be subject to TDS only if it exceeds Rs 10,000 (as against Rs 5000 earlier) per annum. TDS is applicable for professional or technical services if the annual payment exceeds Rs 30,000 as against Rs 20,000 earlier.

Will there be no disallowance if deduction of tax during the previous year is paid on or before the due date for filing the return of income under the proposed amendment?

The provisions of section 40(a)(ia) of Income-Tax Act provide for the disallowance of expenditure such as interest, payment for works contracts, rent, commission, brokerage and fees for professional or technical services and royalty if tax on such expenditure was not deducted, or after deduction was not paid during the previous year. However, in case the deduction of tax is made during the last month of the previous year, no disallowance is made if the tax is deposited on or before the due date of filing of return.

It is proposed to amend the said section to provide that no disallowance will be made if after deduction of tax during the previous year, the same has been paid on or before the due date of filing of return of income specified in sub-section (1) of section 139.

Are there any changes in the rate of interest leviable for delayed remittance of TDS?

Under the provisions of section 201(1A) of the Act, a person is liable to pay simple interest at one per cent for every month or part of month in case of failure to deduct tax or to remit the tax after deduction.

It is proposed to amend section to provide that interest will be levied at one and half per cent per month or part thereof if the tax deducted is not remitted.

In a case where the tax is not deducted, however, the rate of interest until such time as the deduction takes place will continue to remain as one per cent.

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