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Major Amendments in Income Tax Introduced by Budget 2007

Salient amendments to the Provisions of Income Tax Act as introduced in the Budget-2007 are given below. This is just a gist of provisions that largely are applicable to your business and are by no means exhaustive. Please feel free to call me for any clarification or further information.

Tax Rates: Initial exemption limit stands increased to Rs 1,10,000, For ladies, initial exemption has been raised to Rs 1,45,000, and for Senior Citizens it is raised to Rs 1,95000. All other slabs are same, except education cess which has been increased to 3%. For most assesses, this would have effect of increase in their Tax liability. Surcharge on forms will be levied if net income exceeds 1 Crore.

Savings: Deduction limit for Medical insurance premium paid u/s 80D has been raised from 10,000/- to Rs. 15,000/- and in the case of senior citizens from 15,000/- to Rs. 20,000/-.

Investment in Bonds to Save Capital Gains Tax: This investment can not exceed Rs 50 lacs. Earlier there was no upper limit.

TDS Rates: with effect from 01.06.2007 rates of TDS has been raised from 5% to 10% in case of commission, brokerage, professional and technical fees payments. Banks to deduct tax at source only if payments of interest exceed Rs. 10,000/- during the year instead of Rs. 5000/- previously. TDS rates in case of rent payments are as follows:10% for use of plant and machinery, 15% for use of land and building in case of payee is individual and HUF, and 20% for use of land and building in case of payee is other than Individual and HUF.

Service Tax: service tax exemption rebate has been raised from Rs. 4 lacks to Rs. 8 lacs. Service tax net has also been extended to the renting of immovable property for use in commerce or business.

Income deemed to Arise in India: Section 9 has been amended to provide that if payer is resident, then all payments of interest royalty or technical services in hands of recipient will be deemed to have arisen in India. This may mean that for all the rentals of server hosting could be subject to deduction of tax at source or unless the agreements are amended.

Rent Free Accommodation: Valuation of perquisite of rent fee accommodation has been increased to 20% instead of 10% earlier.

Disallowance of Payments exceeding Rs 20,000: Earlier for payments exceeding Rs 20000/- a sum of 20% of such was disallowed and added to income. Now , entire sum would be disallowed and added to the income.

Following information is required to be disclosed while filing Income Tax Return Form:
Cash deposit of Rs. 1000000/- or more in any saving bank account in any bank
Payment of credit card bills amounting to Rs. 200000/- or more
purchase of mutual funds amounting to Rs. 200000/- or more
Payment of Rs. 500000/- or more made for acquiring bonds or debentures.
payment of Rs. 100000/- or more made for acquiring shares
purchase of any immovable property valued at Rs. 3000000/- or more.
Sale of any immovable property valued at Rs. 3000000/- or more.
Payment of Rs. 500000/- or more for investment in bonds issued by RBI.

Advance Fringe Benefit Tax: Date of payment of installment of Fringe benefit tax payable by an assessee has been preponed by one month as 15th June , 15th September, 15th December and 15th March.

Monthly compounding of the interest: As against in earlier years when the interest on default in payment of tax was charged on annual basis, the same would be charged on monthly basis. It means, now for the default, tax at monthly compounding rate would have to be paid.

Completion of Assessment: Instead of 12 months earlier, now assessments would have to be completed in 21 months. In plain words an assessee would now be on tenterhooks for 21 months waiting for scrutiny

Stay of Demand: Income Tax Appellate tribunal will not be able to stay the demand for a period exceeding 6 months at a time and at the most for one year. If the appeal is still not decided, the stay shall stand vacated.

Concealment Provisions have been made more stringent and penalty would be leviable in many circumstances not covered earlier

Delayed filing of returns: Under the provisions, now these would be subject to compulsory scrutiny. Loss can not be carried forward in case of delayed returns, Income Tax benefit for undertakings in special zone to be available only if returns file in time

TDS Rates: have been amended for almost all types of payments
For new TDS rates, pl see table below

TDS on brokerage and commission [Sec.194H]

With effect from June 2007, the rate of tax deduction under section 194H has been increased 5 per cent to 10 per cent. The impact of this upward revision is given in Table below. Moreover, from June 1, 2007, Bharat Sanchar Nigam Limited or Mahanagar Telephone Nigam Limited shall not deduct tax under section 194H on payments of commission or brokerage to their public call office franchisees.

TDS up to March 31, 2007 5% (+SC+EC)
TDS between April 1, 2007 and May 31,2007 5% (+SC+EC+SHEC)
TDS on or after June 1, 2007 10% (+SC+EC+SHEC)

Reduction in TDS rate in the case of rent of plant, machinery or equipment under section 194-I
With effect from June 1, 2007 the rate for tax deduction in the case of rent of plant, machinery or equipment under section 194-I will be reduced from 15 per cent/20 per cent to 10 per cent. TDS rate under section 194-I before and after this amendment is given below-

When recipient is an individual/HUF When recipient is any other person
Rent of plant and
Machinery or equipment Rent of land, building furniture or fitting Rent of plant and machinery or equipment Rent of land, building, furniture or fitting
TDS up to March 31, 2007 15% (+SC+EC) 15% (+SC+EC) 20% (+SC+EC) 20% (+SC+EC)
TDS between April 1, 2007 and May 31,2007 15%(+SC+EC+
SHEC) 15% (+SC+EC+
SHEC) 20%(+SC+EC+
SHEC 20% (+SC+EC
+SHEC)
TDS on or after June 1, 2007 10% (+SC+EC+
SHEC) 15% (+SC+EC+
SHEC) 10% (+SC+EC+
SHEC) 20% (+SC+EC+
SHEC)

Applicable with effect from July 13, 2006

TDS on technical fees, professional fees or royalty [See. 194J]

With effect from June 1, 2007 the rate of tax deduction under section 194J has been increased form 5 per cent t0 10 per cent. The impact of this upward revision is given in Table below-

TDS up to March 31, 2007 5% (+SC+EC)
TDS between April 1, 2007 and May 31, 2007 5% (+SC+EC+SHEC)
TDS on or after June 1, 2007 10% (+SC+EC+SHEC)


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