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MONSOON BUDGET 2009.....Spells of Monsoon
Concept Conceived & Written By
Baba Kishore Mutta                                                mail your feedback at babakishore@gmail.com
Note: The discussion in the ensuing paper is an effort to simplify the proposed amendments in the Finance Bill 2009 with respect to the Direct Taxes. The article is divided into 3 sections with Executive Summary, Personal Taxation and Corporate Taxation. To add the zeal into the write up, Monsoon is taken as the backdrop which coincides with the current season. The proposed amendments are tabled in the parliament and the same will be enacted into the Finance Act one the assent is received from the President. The author does not take the responsibility for any error or discrepancy and would request the readers to co-relate the same with the fine print as contained in the Finance Bill 2009.
____________________________________________________________________________________
 
MONSOON SUMMARY: the soul of the season….
 
Recession, the most spelt out word by any working class individual and the promoters starting Jan 2008. For the last 4 quarters we have been hearing the synonym, “deficit”, across the continents and Budget 2009 is no less, which also left the Corporates and Individuals with deficit of satisfaction. It was the challenging budget for the government to frame which already is gripped with downward production figures and global recession vis-a-vis retaining the populist measures and yet strike the balance in reaching Budget Estimates containing the fiscal deficit.
 
Corporates waited for the monsoon budget, ready to get drenched under the new taxation proposals which otherwise ended with subdued mood. The proposals put forward by Mr. Pranab striked thunders, but failed to bring the smiles in the form of surplus rain. Certain proposals made at the macro level which indicated the policy direction and the mandate of the government by enhancing the rural upliftment expenditure and increasing the budget for the populist measures surely brought smiles on the faces of beneficiaries of such schemes. Mr. Pranab attended the Corporates by greeting them with abolishment of Fringe Benefit Tax (FBT), commitment towards improvement of infrastructure which indirectly provides new contracts for the corporates and encouraging capital expenditure and research by providing specific deductions. The measures announced by the Finance Minister failed to provide cheers to the market and nosedived with highest fallout by loosing more than 800 points on the BSE SENSEX. On the whole the budget also showed the recessionary trend and failed to provide the impetus as expected by the Corporate Sector with respect to the Key Expectations.. The Budget 2009 might have missed the surplus rain but the Estate would surely revisit the unattended demands as the situation is warranted and then it would be a bountiful of rain to bless the corporates with green profits.
 
 
THUNDERS - Taxation Proposals
 
Budget is keenly looked at by all the sections of the society who are concerned with Money. It signifies ‘Profit’ for corporate and business houses; ‘Take Home’ for Salaried Class (aam admi) and ‘Sasta (cheaper)’, for masses. Irrespective of the meaning the benefit starts with the transformation of the input to the usable output and one such tax which has a direct bearing is Direct & Indirect Taxes. I would take you through certain proposals proposed to be amended in the ensuing discussion.
 
The brief summary of the amendments brought in Direct Taxes by Budget 2009 for the Personal Taxation are enumerated below for easy reference –
 
FIRST CUT – PERSONAL TAXATION (AAM ADMI…)
 
  • Revision of Taxable Limits
  • Removal of Surcharge where the total income exceeds Rs.10 Lakhs
 
The Revised Slab structure would be as follows –
In the case of Men

Slab
Rate of Tax
Upto Rs.1,60,000
Nil
Rs.1,60,001 – 3,00,000
10%
Rs. 3,00,001 – 5,00,000
20%
> Rs.5,00,001 and Above
30%

 
In the case of WOMEN – resident women below the age of 65 years.

Slab
Rate of Tax
Upto Rs.1,90,000
Nil
Rs.1,90,001 – 3,00,000
10%
Rs. 3,00,001 – 5,00,000
20%
> Rs.5,00,001 and Above
30%

 
 
In the case of SENIOR CITIZEN – attained 65 years or more during the previous year.

Slab
Rate of Tax
Upto Rs.2,40,000
Nil
Rs.2,40,001 – 3,00,000
10%
Rs. 3,00,001 – 5,00,000
20%
> Rs.5,00,001 and Above
30%

Education Cess @ 3% applicable on income tax would continue.
Surcharge is not applicable.
 
SEC 80 E – Deduction in respect of Interest on Higher Education
 
Under the existing provisions, the deduction is available only for individuals for pursuing full time studies for any GRADUATE or POST GRADUATE course in engineering, medicine, management or post graduate course in applied sciences including mathematics and statistics.
 
The scope of deduction now extended to cover all fields of studies (including vocational studies) pursued after SENIOR SECONDARY EXAMINATION.
DEDUCTION: INTEREST ON LOAN PAID
 
SEC 80DD – Treatment of dependant suffering from disability
 
Under the existing provisions, the deduction is Rs.50, 000 if the dependant is suffering from disability and Rs.75, 000 if the dependant is suffering from severe disability.
 
The proposed amendment is with respect to the dependant suffering from severe disability by raising the amount from Rs.75, 000 to Rs.1,00,000.
 
SEC 80 CCD – INCLUSION OF NEW PENSION SCHEME FOR SELF EMPLOYED
 
Under the existing provisions contained in Sec 80CCD, contributions made to the New Pension Scheme, central govt employees and other employees would contribute to the extent of 10% of salary which will be eligible for deduction under the Sec 80CCE within the overall limit of Rs.1, 00,000 savings.
 
The proposed amendment would include contributions made by the SELF EMPLOYED into the NPS eligible for deduction under section 80CCE within the overall limit of Rs.1, 00,000.
 
Applicability: with effect from 1.04.09 (AY 2009-10)
 
SEC 80 GGB & 80 GGC – Donation to Electoral Trusts
 
Under the existing provisions contained in the Income Tax Act, contribution made by the company or any person to the political party would be eligible for 100 % deduction.
 
The amendment is proposed to rationalize the system and way forward any amount contributed to the ELECTORAL TRUSTSestablished as per the rules framed by the Central Government would be eligible for 100% deductions. Such electoral trusts would distribute 95% of the donations received from the donors to the political party registered under sec 29A of the Representation of the People Act, 1951.
 
ENHANCEMENT OF ADVANCE TAX LIMIT
 
Under the existing provisions, liability for payment of advance tax during a financial year arises when the amount of such tax payable is Rs.5000 or more during the year.
 
It is proposed to raise the threshold limit for payment of advance tax from Rs.5000 to Rs.10,000
 
Applicable: With effect from 01.04.2009 (applicable for FY 2009-10)
 
ENHANCEMENT OF LIMIT FOR PAYMENT OF WEALTH TAX
 
With the proposed amendment wealth tax is payable on the net wealth exceeding Rs.30 lakhs which was earlier Rs.15 lakhs @ of 1% of such excess.
 
Applicability: Valuation of Net Wealth as on 31.03.2010
 
GIFT IN KIND – TAXABLE – THE PARTY DAMPNER
 
Under the existing provisions, any amount of money exceeding Rs.50, 000 is received as gift from any person without consideration or adequate consideration, such amount is taxable as Income from Other Sources. These rule had exception with respect to amount received from relatives, on the occasion of marriage and through wills etc.
 
It is now proposed to amend, to provide that the value of any property received with consideration or for inadequate consideration will also be included in the total income of the receipient. Such properties means,
 
 
  • Immovable property being land or building or both
  • Shares and securities
  • Jewellery
  • Archaeological collections
  • Drawings
  • Paintings
  • Sculptures or work of any art
BEWARE: Receiving the gifts from the friends, professionals and unrelated people otherwise than on the occasion of marriage, would attract tax if the stamp duty value of immovable property exceeds Rs.50, 000 or Fair Market Vlaue of the Movable property exceeds Rs.50, 000.
Keep a Check to uncheck the Income Tax Officer from your account. Do remember to check the value of the gift, it may be a nice painting whose Fair Market Value would be more than Rs.50,000 or may run into lakhs. So check before you start accepting Gifts.
 
APPLICABILITY: With Effect From 01.10.2009
 
So transfer or accept the gifts as enumerated above before 01.10.2009 to minimize the tax and associated documentation.
 
 
COME BACK – PERQUISITES
 
 
With the proposed amendment of abolishing the Fringe Benefit Tax with effect from 01.04.2010 and applicable for AY 2010-11, the onus of taxation has now shifted to the employee. Sec 17 has been amended to include Fringe Benefits and Equity Stock Options taxable in the hands of employees as per the previous method. This is positive from the Corporate as the company used to pay on the expenditure which was specifically not incurred on the employees in certain cases and negative from the employees as the net tax rate has now increased from 6.85% to 30.9%. Valuation rules with respect to various Fringe Benefits would soon be made available by the tax authorities.
 
 
 
FEELERS:
 
Overall from the Individual perspective, the budget did not do much except that the basic exemption limits have been marginally revised upwards. There has been no further incentive in reducing the taxes either by way of reduction in tax rate or inclusion of new deduction or enhancement of existing deductions.
 
The sweetner would definitely be for the employees whose taxable income is more than Rs.10 Lakhs as the surcharge on the Income tax is made to nil and every sequential increase of tax is reduced by the burden of paying surcharge.
 
So far so good, the neutral aspect of the budget has been removed by introducing a new provision to tax gifts received in kind being property to include immovable and certain movable properties from unrelated people otherwise than on the occasion of marriage.
 
 
Corporate Taxation Continues…..
 
 
  
CORPORATE TAXATION
 
In the ensuing discussion, I have tried to highlight the changes which have a bearing directly or indirectly with respect to the compliance issues from the day to day operations of the company. The Policy indicators which are general and specific to related industries are not discussed in this paper.
 
Tax Rates – Unchanged
 
  • The tax rates remain unchanged and taxable income continue to be taxed @ 30%
  • Surcharge @ 10% if the total income exceeds Rs.1 crore.
  • Education Cess @ 3% on such income tax and surcharge together.
 
MAT (Minimum Alternate Tax) Rates amended:
 
  • Rate of MAT is increased from 10% to 15% on the adjusted Book Profits of the company
  • Carry Forward of MAT Credit is increased to 10 Years.
  • Surcharge is applicable @ 10% in the case of domestic companies if the adjusted book profits are in excess of Rs.1 Crore.
  • Education Cess is @ 3% on Income Tax plus Surcharge.
Applicable Date: With Effect from 01.04.2010 and from AY 2010-11.
 
Sec 40A - Enhancement of Limit of Cash Payment exceeding Rs.20000 to transporters.
 
Under the existing provisions where the assessee incurs expenditure and payment is made exceeding Rs.20, 000 otherwise than by cheque, such expenditure is not allowed as deduction.
With Effect From 01.10.2009 any payment made to the Transport Operators for plying, hiring or leasing goods, carriages, the words Twenty Thousand will be replaced with Thirty Five Thousand.  The other provisions contained in Sec 40A of the Income Tax Act and Rule 6DD remains unchanged.
 
Applicability: With Effect from 01.10.2009
 
 
 
Sec 35(2AB) - Weighted Deduction for in-house research and development
 
With a view to promoting Research and Development in all sectors of the economy (which otherwise were only applicable to biotechnology, manufacture or production of drugs, pharmaceuticals, electronic equipments, computers, telecommunication equipments, chemicals), and the benefit of weighted deduction of 150 % is extended to the companies engaged in the business of manufacture or production of an article or thing except those specified in the Eleventh Schedule of the Income Tax Act.
 
FRINGE BENEFIT TAX
 
Finance Bill introduced new Sec 115WM to abolish the Fringe Benefit Tax. Consequently the finance bill has amended Sec 17(2) by including the taxability of fringe benefits and ESOP in the hands of employees as perquisites.
 
Applicability: With effect from 01.04.2010 and will accordingly apply to the AY 20010-11.
 
IMP NOTE: Since the abolishment of Fringe Benefit Tax is applicable from AY 2010-11, the provisions would come into operation from the FY 2009-10. Hence companies are relieved with respect to the Provisions of Fringe Benefit Tax. In the cases of certain corporates where 1st Quarter Advance Fringe Benefit Tax is paid, clarity from the CBDT is awaited with respect to the adjustment or rules for refund of such tax.
Clarity from the CBDT is also awaited with respect to surcharge accounted in the challans paid while remitting the tax and the related adjustment to the Income Tax account head subsequent to the abolishment of Surcharge under Part-III of the First Schedule of the Finance Bill, 2009.
 
RATIONALISATION OF PROVISIONS RELATING TO TDS
 
Income Tax Department in a move to improve the accountability of taxes and ensure collections and achieving the centralized operations, has been introducing amendments in this arena for quite sometime now. To further rationalize the tax rates and operations, certain amendments are carried to bring uniformity in tax rates which will release short term working capital under certain sections contained in Sec 194.
 
 
The amendments are applicable from 01.10.2009 and certain operational aspects would come from 01.04.2010.
 
NO PAN – LESS MONEY – FACE THE AXE
With effect from 01.04.2010, any deductee not quoting the PAN to the deductor and where such income is subjected to deduction, TDS would be deducted at higher of the following rates,
  • The rate prescribed in the act
  • At the rate in force i.e; the rate mentioned in the Finance Act; or
  • At the rate of 20%
 
TDS RATES AMENDED
 
SEC – 194 I
 

Description
Existing Rate
New Rate
Rent of plant,machinery or equipment
10%
2%
Rent of land, building or furniture to an individual and HUF
15%
10%
Rent of land, building or furniture to a person other than an individual or HUF
20%
10%

 
SEC – 194 C
 
Under the existing provisions, TDS is deducted @ 2% in the case of contractor and 1% in the case of sub contractor and with respect to advertisement contract it is 1%.
With the view to rationalize the rate of deduction and classification of contract, one single rate is proposed with respect to contractor or sub contractor. The new rates are as follows,

Sno
Description
Existing Rate
New Rate
1
Payment to Individual/HUF Contractor
2%
1%
2
Payment to other than Indivdual/HUF Contractor
2%
2%
3
Payment to Individual/HUF Sub Contractor
1%
1%
4
Payment to other than Individual/Sub Contractor
1%
2%
5
Individual/HUF – Advertising Contract/Sub Contract
1%
1%
6
Other Than Individual/HUF – advertising contract/sub contract
1%
2%
7
Payment to Contractor in Transport Business
2%
Nil #
8
Payment to Sub Contractor in Transport Business
1%
Nil #

 
 
 
 
 
# Payment to transporter contractor/sub contractor would attract NIL TDS upto 31.3.2010 if the transporter quotes his PAN Otherwise TDS would be deducted @ 1% in the case of Individual and 2% in the case of other than individual.
 
NO SURCHARGE & CESS
 
There is no requirement to add surcharge and cess on tax Deducted when payment is made to the Resident Tax Payers other than Salary. Hence TDS rate to be deducted is the BASIC RATE only.
Applicability: With Effect from 01.10.2009
 
There are other amendments with respect to extension of Tax Holiday, deduction of capital expenditure for operating certain specified business, definition of manufacture, amendment to the definition of WDV when the income partly contains agricultural income, assessment procedures, search, reassessment and setting up of alternate dispute resolution mechanism.
 
---END OF REPORT---
 
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