Direct Taxes
28 Feb 2006
1
Personal Income Tax
No change in rates of personal income tax.
No new taxes imposed.
One-by-six scheme abolished.
Corporate tax
- No change in rates of corporate income tax.
- Marginal revision in certain tax rates in the interest of equity:
- Minimum Alternate Tax (MAT) rate increased from 7.5 per cent of book profits to 10 per cent — one-third of the normal rate.
- Long-term capital gains arising out of securities included in calculating book profits.
- Period to take credit for MAT increased from five years to seven years.
- Minimum Alternate Tax (MAT) rate increased from 7.5 per cent of book profits to 10 per cent — one-third of the normal rate.
- STT: Increase of 25 per cent, across the board.
- Section 80IA of the IT Act applies to infrastructure facilities:
- Terminal date for developing an industrial park extended from March 31, 2006 to March 31, 2009.
- For the power sector, the date extended to March 31, 2010.
Exemptions
- Fixed deposits in scheduled banks: For a term of not less than five years, included in section 80C.
- Pension funds: Limit of Rs10,000 removed in section 80CCC, subject to an overall ceiling of Rs100,000.
- Open-ended equity-oriented mutual funds: Definition aligned with the definition adopted by SEBI. Open-ended equity-oriented schemes and close-ended equity-oriented schemes to be treated on par for exemption from dividend distribution tax.
- Cooperative banks: Exemption from tax under section 80P removed. Primary agricultural credit cocieties and primary cooperative agricultural and rural development banks continue to be exempt.
- Exemption under section 10(23G) removed.
- Scope of section 54EC restricted to two institutions: NHAI and REC. NABARD, SIDBI and NHB are banks; zero coupon bonds to raise low cost funds already allowed. Support to be provided id required. Benefit of section 54ED withdrawn with effect from April 1, 2006.
- Anonymous or pseudonymous donations to wholly charitable institutions to be taxed at the highest marginal rate:
- Donations to partly religious and partly charitable institutions / trusts to be taxed only if the donation is specifically for an educational or medical purpose.
- Donations to wholly religious institutions and religious trusts not covered by the new provision.
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Fringe benefit tax
FBT is justified on the principles of horizontal and vertical equity.
The following changes are proposed:
- 'Tour and travel' benefit valued at 5 per cent instead of 20 per cent.
- 'Hospitality' and 'use of hotel boarding and lodging facilities' in case of airline and shipping industry at 5 per cent instead of 20 per cent.
- Free samples of medicines and medical equipment distributed to doctors excluded.
- Expenses incurred on brand ambassador and celebrity endorsement excluded.
- Approved superannuation fund: Employer's contribution in excess of Rs100,000 per year per employee to attract FBT under section 115WB(1)(c). Under section 80C, contribution by an employee up to Rs100,000 is already exempt.
Others
- Constituency allowances of MLAs to be treated at par with MP's constituency allowance.
- PAN: Returns (AIR) on high-value transactions shows 60 per cent transactions are without quoting PAN:
- Power to issue PAN suo moto in certain cases.
- To direct persons to apply for PAN in certain cases.
- More transactions to be notified for which quoting of PAN to be mandatory.
- More transactions to be prescribed to be reported in AIRs.
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Banking Cash Transaction Tax (BCTT) to continue, till AIR system is able to capture all significant financial transactions.
Modernising tax administration
- Departments of Income Tax and Customs & Central Excise to undergo business process
- reengineering (BPR).
- Nationwide network to connect 745 IT offices in 510 cities, and 550 customs and central excise offices in 245 cities.
- National databases, national data centres, data warehousing facilities and disaster recovery sites being set up.
- Jurisdiction-free filing of returns, online tracking of account status and IT refunds will be possible.
- Risk management system and electronic data interchange (EDI) in the Customs department to reduce dwell time for cargo.
- E-payment of customs and excise duties to be possible.
- Both departments to have fully computerised networks by end 2006.
- A statement on revenue foregone (tax expenditure statement) capturing departures from the normal tax regime introduced.
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