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Direct tax proposals: a heavy baggage
July, 07th 2009

Amendments made to the Income-tax Act and the Wealth Tax Act are substantial and numerous with the usual quota of amendments overriding judicial precedents on the one hand and extension of deductions and incentives on the other.

The most welcome step is discontinuance of the Fringe Benefits Tax (FBT). The Minimum Alternate Tax (MAT), which should have been dropped like FBT, will, however, continue with enhanced rate at 15 per cent against 10 per cent at present.

There has been a marginal increase in the exemption limit by Rs. 10,000 for all with the smallest class of taxpayers with an annual income of more than Rs. 10 lakh having the largest beneficiary on abolition of surcharge. Cesses will, however, continue.

Leakage of tax is sought to be covered by making gifts other than cash gifts also liable to tax as income by amendment to Sec. 56(2)(vi) of the Act, if received from non-relatives. Sec. 50C, which substitutes guidelines value for apparent consideration, will now be applicable even for deemed transfers like power of attorney sales without registered documents.

Political funding

Direct political funding is made deductible through the medium of electoral trust under Sec. 2(22AAA). Relief under Sec. 10A, 10B, 80IA(4), 80IB(9), weighted deduction under Sec. 35AB are all extended by another year. Capital expenditure for the petroleum and natural gas industry is made deductible under Sec. 35AD. Sec. 80E relating to educational loans is liberalised for graduate classes for specified courses. Interest subsidy granted by the Government to banks should expedite such loans.

The damage done by amendment to Sec. 2(15) defining charitable purposes by the Finance Act, 2008, depriving exemption for those with the object of general public utility, but with commercial activities, is now relaxed for those with the object covering preservation of environment including watershed, forests, wildlife or preservation of monuments or places or objects of artistic or historic interest. Many more laudable objects deserved similar exemption.

Limited Liability Partnerships are treated as firm by an amendment to Sec. 2(23), so as to cover this new class of entities.

TDS provisions are amended to make Sec. 194C for contract receipts more rigid, while there is a welcome relaxation in rate of tax for rent under Sec. 194-I. Erratic application of Transfer Pricing Rules is now sought to be met by giving powers to the Central Board of Direct Taxes for making safe harbour rules and by providing a dispute resolving mechanism in respect of international taxation. These steps should encourage entry of foreign capital without present tax hazards. Wealth tax exemption has been raised from Rs. 15 lakh to Rs. 30 lakh.

There are numerous amendments. These amendments could have been brought under an independent Amendment Act for better consideration. While there have been favourable responses to some of the demands of trade and industry, tax administration has been given free hand to make the law even more complicated, so that a promise of new Saral Form make only a mockery of the professed objective of simplification of the income-tax law.

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