PRESENTATION ON
DIRECT TAX PROPOSALS
ORGANISED BY
ON
AT
Presented by:
CA Verendra Kalra
Changes in Tax Rates
Tax Rates of Individuals/HUF/AOP/BOI
Existing
Amended
Income (Rs)
Tax Rate
Income (Rs.)
Tax Rate
0 to 50,000
NIL
0 to 1,00,000
NIL
50,001 to 60,000
10%
1,00,001 to 1,50,000
10%
60,001 to 1,50,000
20%
1,50,001 to 2,50,000
20%
1,50,001 and above
30%
2,50,001 and above
30%
Surcharge: a surcharge of 10% will now be applicable on
individuals, HUF, etc having income exceeding Rs. 10,00,000
as against Rs. 8,50,000 presently
Budget 2005
2
Changes in Tax Rates
•
Additional Exemption for women:
o The exemption limit for every resident woman who is
below the age of 65 years during the previous year, will
be Rs.1,25,000 as compared to Rs. 1,00,000 fixed
generally .
•
Additional Exemption for Senior Citizens:
o In the case of every individual who is resident in India
and is of 65 years of age or more during the previous
year, the exemption limit has been fixed at Rs. 1,50,000
as compared to Rs. 1,00,000 fixed generally.
Budget 2005
3
Changes in Tax Rates
•
Tax Rates of Firm:
o Income tax rate reduced from 35% to 30%.
o Rate of surcharge increased from 2.50% to 10%.
•
Tax Rates of Co-operative Societies/ Local Authorities:
o The existing income tax rates remain unchanged.
o Henceforth, no surcharge shall be levied.
o Education cess shall continue to be levied.
Budget 2005
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Changes in Tax Rates
• Tax Rates of Domestic Companies:
o Income tax rate reduced from 35% to 30%.
o Rate of surcharge increased from 2.50% to 10%.
• Surcharge on Dividend Distribution tax:
o The rate of surcharge enhanced from 2.50% to 10%.
• Tax rates in special cases:
o Section 115A amended to prescribe a tax rate of 10% on
royalties or fees for technical services received in respect
of agreements entered into after 1st June 2005, by a NonResident or a Foreign Company.
Budget 2005
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Definitions
•
Clause 42A of section 2 has been amended so as to treat zero
coupon bonds held not for more than twelve months as short
term capital asset.
•
Clause 47 of section 2 which defines the expression
“transfer” has been amended to provide that the maturity or
redemption of a zero coupon bond shall also be treated as
transfer.
Budget 2005
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Definitions
• Clause 48 and an Explanation has been inserted in section 2
wherein, zero coupon bond has been defined as a bond issued
by any infrastructure capital company on or after 1st June
2005, in respect of which no payment or benefit is received or
receivable before maturity or redemption.
Budget 2005
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Income from Salaries
• The standard deduction has been omitted.
• Definition of perquisites has been modified to
exclude perquisites in the nature of fringe benefits,
which are separately chargeable to tax in the hands
of the employer.
Budget 2005
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Profits & gains from Business
or Profession
• Change in Depreciation Rates
o Additional depreciation at the rate of 20% shall
be allowable on new plant & machinery which is
acquired and installed after 31st March 2005.
o The minimum threshold limit of 10% substantial
increase in capacity has been done away with.
o The normal rate of depreciation on Plant &
machinery has been reduced from 25% to 15%.
Budget 2005
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Profits & gains from Business
or Profession
•
Provision applicable to a shipping company utilizing the
reserve to purchase a ship.
o Such new ship is either sold or transferred (other than on
demerger) after the specified period of 3 years and the sale
consideration is not utilized within a period of 1 year from
the end of the financial year in which the sale or transfer
took place.
o The sale consideration only to the extent of amounts
utilized out of the reserve account for purchase of ship sold
will now be taxable in the year of sale.
o Earlier, the entire sale consideration was taxable in the year
of sale.
o Retrospective amendment effective from 1st April 2004.
Budget 2005
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Profits & gains from Business
or Profession
• Companies engaged in the business of biotechnology, manufacture of drugs, pharmaceuticals,
electronic equipments, etc, shall be allowed a
weighted deduction at 150% of
expenditure
incurred up to 31st March 2007 on scientific
research on in house research and development
facility (as approved by the prescribed authority).
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Profits & gains from Business
or Profession
• Expenditure incurred on Voluntary Retirement
Scheme.
o Each part payment made under the scheme will now be
independently entitled to deduction in five equal annual
installments.
o Such deduction to begin from the year in which such part
payment is made to the employee.
o Presently, payments in subsequent years are not allowed
as deduction.
o Retrospective amendment effective from 1st April 2004.
Budget 2005
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Profits & gains from Business
or Profession
• Deduction for discount on zero coupon bonds shall be
allowable on pro rata basis over the life of the bonds.
• Deduction for banking transaction tax paid by an assessee
shall be allowable as a deduction.
• Fringe benefit tax proposed to be introduced in the budget
will not be an allowable expenditure.
• Eligible Transactions in respect of trading in derivates carried
out in a recognized stock exchange shall not be deemed to be
a speculative transaction.
Budget 2005
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Capital Gains
• Amalgamation of a Banking Company with a
Banking Institution.
o Capital gains tax not to be charged on transfer of Capital
assets by a banking company to a banking institution in a
scheme of amalgamation.
o The scheme must be sanctioned by the Central
Government.
o The cost of acquisition of a capital asset acquired by the
banking institution under a scheme of amalgamation will
be deemed to be the cost at which the banking company
acquired it.
o This provision shall have retrospective operation from 1st
April 2005.
Budget 2005
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Capital Gains
• Long term capital gains on zero coupon bonds
shall be chargeable to tax at 10%.
Budget 2005
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Carry forward and set off of
losses
• Unabsorbed losses of a speculation can now be carried
forward only for 4 assessment years as against the present
stipulation of 8 years.
• The benefit of carry forward and set off of accumulated loss
and unabsorbed depreciation of the amalgamating company
by the amalgamated company will also be available to an
amalgamation of a banking company and a banking institution
if the scheme of amalgamation is brought into force by the
Central Government under the Banking Regulation Act, 1949.
Budget 2005
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Deductions & Rebates
• Benefit of rebate on life insurance premia,
contribution to provident fund, rebate to senior
citizens, rebate to women and, Rebate of incometax in the case of certain individuals has been
scrapped.
• In lieu of the scrapping of rebates and interest on
certain securities, a new deduction will be available
on contributions earlier eligible under section 88:
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Deductions & Rebates
o Deduction shall now be available from the Gross total
income rather than from tax.
o All Individuals and HUFs will be allowed this deduction.
o Deduction will be available up to a maximum of Rs.
1,00,000 without any sub-limit.
o Payments in respect of life insurance policies in excess of
20% of capital sum assured will not be eligible for
deduction.
o Amounts claimed as deductions in respect of contribution
to pension funds (S. 80CCC), pension scheme of Central
Government (S. 80CCD), etc. shall not be entitled to be
considered for the purpose of computing deduction u/s
80C.
o The aggregate of deductions allowable u/s 80C, 80CCC &
80D put together will not exceed Rs 1 lac.
Budget 2005
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Deductions & Rebates
• No deduction shall be allowed for the repayment of Education
loan amount.
o Interest shall be allowed as a deduction in full for a
maximum period of 8 years beginning from the year in
which the payment of interest begins.
• Deduction in respect of interest earned from certain securities
(including Rs. 3,000 from Government Securities) (section
80L) shall no longer be available.
• Section 88,88B, 88C & 88D which provide for rebates stand
omitted on account of consequential amendments
Budget 2005
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Determination of tax in special
cases
•
Credit for Minimum Alternate Tax (MAT) paid.
o Credit for MAT paid under section 115JB shall be allowed
w.e.f. 1st April 2006.
•
Tonnage Tax Scheme
o Presently, the tonnage tax scheme excludes “dredgers”.
However, this exclusion has been done away with and
dredgers shall also be taxed under the tonnage tax
scheme.
Budget 2005
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Fringe Benefits Tax
• New Sections 115W to 115WL, under a new chapter XII-H
introduced.
• Additional income tax to be levied on general benefits
provided to employees which cannot be taxed in their
personal hands, in view of the difficulty to attribute/ allocate
the benefit to each employee independently.
• Tax is payable in respect of value of fringe benefits provided
or deemed to have been provided by an employer to his
employees during the previous year.
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Fringe Benefits Tax
• The tax shall be levied at the rate of 30% (plus surcharge &
education cess).
• The tax shall be in addition to the income-tax payable by the
employer on his income.
• Fringe Benefits have been defined to mean –
o Any privilege, service, facility or amenity directly or
indirectly provided to the employees (including former
employees) by reason of their employment.
o Any reimbursement directly or indirectly to employees for
any purpose.
o Any free or concessional ticket provided for private journeys
of employees and their family members.
o Employer’s contribution to an approved superannuation
fund
Budget 2005
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Fringe Benefits Tax
• The definition to exclude perquisites on which tax
has already been paid or is payable by the employee
and free/ subsidized transport/ transport allowance
to the employee for commuting from residence to
work and vice versa.
• The value of fringe benefit will be taken as a
percentage based on the nature of such expenses/
payments and shall be as under:
Budget 2005
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Fringe Benefits Tax
o 5% of expenses incurred





Expenses incurred by employer in the hotel business
on provision of hospitality of every kind to any person
whether by way of food or beverage or in any other
manner, excluding food or beverages provided to the
employees in factory or office by an employer in the
hotel business.
Expenses incurred by employer in the business of
carriage of passengers or goods.
Repair, running and maintenance of motor cars.
Repair, running and maintenance of aircrafts.
Consumption of fuel other than industrial fuel.
Budget 2005
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Fringe Benefits Tax
•
10% of expenses incurre
o Use of telephone
•
20% of expenses incurred
o Conveyance, tour and travel including foreign travel
expenses.
o Hotel boarding and lodging.
o Repair, running and maintenance of motor cars.
o Repair, running and maintenance of aircrafts.
o Consumption of fuel other than industrial fuel.
Budget 2005
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Fringe Benefits Tax
•
50% of expenses incurred
o Entertainment
o Festival celebrations
o Gifts
o Use of club facilities
o Maintenance of guest house
o Conference
o Employee welfare
o Use of health club, sports and similar facilities
o Sales promotion including publicity
Budget 2005
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Fringe Benefits Tax
•
Actual expenses incurred
o Scholarship to the children of the employees
•
Employer shall be liable to pay fringe benefit tax and shall be
required to furnish a return of fringe benefits by the
prescribed due date.
•
Fringe benefit tax payable in advance during the financial
year on or before the 15th day of the month following each
quarter. For the quarter ending 31st March, advance tax will
be payable on or before 15th March.
Budget 2005
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Fringe Benefits Tax
•
Specific provisions relating to assessments, reassessments,
appeals, etc in respect of returns of fringe benefits have
been introduced.
•
Interest shall be payable for late payment of fringe benefit
tax.
•
Penal provisions shall be liable in case of non-compliance.
Budget 2005
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Procedure for assessment
•
Widening of Tax base
o All partnership firms will now be required to file their
return of income, irrespective of their level of income.
o The threshold limit for filing of returns shifted from total
income to Gross total income, which means that all
persons claiming deductions under chapter VI-A or U/S
10A, 10B or 10BA will now be required to file returns if
their gross total income exceeds the minimum taxable
limit.
o In the one by six scheme, amendment has been made by
removing subscribers to a cellular phone and in their place
adding persons incurring an expenditure of more than
Rs.50,000 per annum on electricity bills.
Budget 2005
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Search & Seizure
•
The time limit for assessment will now be considered up
to one year from the end of the financial year in which
the assets/ documents are handed over to the Assessing
officer having jurisdiction over person being searched.
•
Presently, the assessment/ re- assessment, if any
relating to any assessment year falling within a period of
six assessment years pending on the date of initiation of
search shall abate. It is now being provided that in place
of reference date of initiation of search, the abatement
will take place with respect to the date of handing over
of assets/ documents.
Budget 2005
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Search & Seizure
•
The third amendment relates to the manner in which
assessment can be made U/S 153A against such persons
under specified circumstances.
Budget 2005
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Tax Deduction & collection at
Source
• Banking companies, co-operative societies now required to
furnish quarterly returns reporting payment of interest
without deduction of tax.
• No tax to be deductible on payment of interest to a resident,
payable by an infrastructure capital company or infrastructure
capital fund or a public sector company on zero coupon
bonds.
• No tax shall be deductible on payment/credit of sums paid to
a sub-contractor for hiring, plying or leasing goods or
carriages, if such sub-contractor is an individual not owning
more than 2 goods carriage at any time during the year.
Budget 2005
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Tax Deduction & collection at
Source
•
The dematerialization of TDS and TCS certificates has been
postponed by one year and the said provisions shall be
applicable only from 1st April 2006.
•
Thus, for the current year, tax-payers shall have to prepare
TDS & TCS Certificates themselves.
•
Furthermore, TDS & TCS Certificates shall have to be
attached with the return of income.
Budget 2005
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Measures for additional resource
mobilization
•
Securities Transaction Tax (STT)
o The rates of STT are proposed to be amended with effect
from 1st June 2005, as under:
Nature of Taxable Securities Transaction
Payable by
Current
Rate
Proposed
Rate
Sale of a derivative entered into on a recognized stock
exchange
Seller
0.01%
0.0133%
Sale of an equity share in a company or unit of an EOF,
entered into on a recognized stock exchange, settled
otherwise then through actual delivery
Seller
0.015%
0.020%
Purchase of an equity share in a company or unit of an
EOF, entered into on a recognized stock exchange, settled
by way of actual delivery
Buyer
0.075%
0.10%
Sale of an equity share in a company or unit of an EOF,
entered into on a recognized stock exchange ,settled by
way of actual delivery
Seller
0.075%
0.10%
Sale of unit of an EOF to the Mutual Fund
Seller
0.15%
0.20%
Budget 2005
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Measures for additional resource
mobilization
•
Banking Cash Transaction Tax (BCTT)
o This chapter will come in force on 1st June 2005.
o The chapter proposes to tax certain banking transactions.
o Such taxable banking transaction means a transaction
being—
 Withdrawal of cash (by whatever mode) exceeding ten
thousand rupees
 Purchase of a bank draft or banker's cheque or any
other financial instrument on payment of cash
exceeding ten thousand rupees
 Receipt of cash exceeding ten thousand rupees on
encashment of term deposit, whether on maturity or
otherwise
on any single day by a person from any scheduled bank.
Budget 2005
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Measures for additional resource
mobilization
•
The rate of banking cash transaction tax to be 0.10% of the
value of every taxable banking transaction.
•
No banking cash transaction tax shall be payable if the amount
of term deposit is credited to any account with the bank.
•
Tax to be collected by the bank and is to be deposited on
monthly basis by 15th of the subsequent month.
•
Any scheduled bank failing to collect such tax, notwithstanding
such failure, shall be liable to pay the tax to the credit of
Central Government and shall also be liable for interest and
penalties.
Budget 2005
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Measures for additional resource
mobilization
• Every bank to prepare and deliver an annual return in respect
of all taxable banking transactions entered into during such
financial year. Such return to be submitted to the income tax
authorities in such form and before such date as may be
prescribed.
• Provisions have been prescribed for assessment/ appeal /
rectification, etc. in respect of BCTT.
• Deduction will be allowed in computing income under the
head from Profit & Gains of Business or Profession for the
amount paid as BCTT.
Budget 2005
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Thank You
Budget 2005
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