Change in Tax Rates

The Finance Bill, 2008
has made significant changes to the tax rates applicable to an individual,
Hindu Undivided Family, association of person and body of individuals whether
incorporated or not and every artificial juridical person. The threshold limit
for these entities has been increased from Rs. 1,10,000 To Rs. 1,50,000. The
tax rate applicable for income exceeding Rs. 1,50,000 to Rs. 3,00,000 shall be
10 per cent and for income exceeding Rs. 3,00,000 to Rs. 5,00,000 shall be 20
per cent and in respect of income exceeding Rs. 5,00,000 shall be 30 per cent.

 However, in the case of woman taxpayers,
resident in India, the threshold limit shall be Rs. 1,80,000 and in the case of
a senior citizen i.e., who is of the age of 65 years or more at any time during
the previous year, the threshold limit shall be Rs. 2,25,000. There is no
change in tax rates in respect of other assesses such as partnership firms companies
and cooperative societies.

With this amendment,
Income upto Rs 415000 could be exempt from tax assuming deduction of interest
on house loan of Rs 150,000, full investment of Rs 1 lac in permitted
instruments under section 80C and medical insurance premium of Rs 15000 u/s 80D

Security Transaction Tax to be allowed as expenditure, not as tax
credit

The Finance Bill, 2008
proposes a major amendment to Security Transaction Tax  (STT) provision, whereby STT paid shall not
be considered as tax deducted but expenditure incurred in carrying on the
business. The provision of section 88 E of the Act, whereby STT paid was
allowed as a tax credit against the tax liability in respect of the business
home arising from the taxable income from securities transactions is being
deleted. As  per the amendment, the STT
paid shall be considered expenditure and deduction shall be allowed while
computing the business income. The proposed amendment has far reaching
implications not only in terms of tax impact but also in terms of change of
principles on the basis of which STT was introduced less than four years ago.

This amendment would
severely hit day traders as well as investors who buy and sell securities in
course of traders. To calculate its broad impact on you, you stand to pay
additional tax of upto 70% of the STT paid by you.

Short-term capital gain in respect of STT paid security transaction
increased to 15 per cent

The Finance Bill, 2008
proposes to increase the tax rate in respect of the short-term capital gain arising
from the transfer of equity shares in a company or a unit of equity-oriented
firm on which STT has been paid from 10 per cent to 15 per cent. This move
would dampen the traders as they would have more incentive to stay invested.

Disallowance of expenditure incurred or payment made exceeding Rs.20,
000 in a day

The scope of existing
Section 40A(3), which presently provides that any expenditure incurred in
respect of which payment is made otherwise than by crossed cheque of draft
exceeding Rs.20,000 shall not be allowed as deduction while computing profit
and gains of business or profession is being widened. As per the proposed
amendment, as against the present ceiling of Rs.20,000 will be aggregate in one
day of all such transaction. However, no disallowance shall be made where a
payment is made in such cases and in such circumstances as may be prescribed
having regard to the nature and extent of banking facilities available,
consideration of business expediencies and other relevant factors.

 

So, what are you
waiting for, just open bank accounts and look for suppliers that would accept
payments through cheque. The move would put strong curbs on black money.

 

Due date of filing return for tax payers required to get account
audited being preponed to 30th September

The due date for filing
income tax return and Fringe Benefit Tax return for all companies and such
persons, who are required to get their accounts audited and working partners of
such firm is being preponed from 31st October to 30th
September. This provision shall be effective from 1st April 2008 and
accordingly returns for the assessment year 2008-2009 shall now be required to
be filed by 30th September. It is to be noted that a corresponding
amendment in Section 44AB preponing the specified date, which requires the
accounts to be audited before the specified date, is not in the proposal. This
appears to be an omission and may be rectified at the time of the passage of
the Finance Bill. With the preponement of this date 30th September,
probably the issue of extending the due date because of the Diwali Festival
coming in the last days of October will no longer be an issue and both the
taxpayers and professionals will be able to enjoy Diwali Festival and more so
considering the fact that FBT shall now be charged on the expenditure incurred
on festival celebration at 20 per cent value as against the existing 50 per
cent value. A corresponding amendment is being made in respect of Fringe
Benefit Tax return by preoning the same to 30th September.

 

Time period for issue of notice for scrutiny under Section 143(2) being
reduced o six months from the end of the financial year

The time period for
issue of notice under Section 143(2) for scrutiny of assessment is being
modified. As per the proposal, a notice for scrutiny shall not be served on the
assessee after the expiry of the six months from the end of the financial year
in which the return is furnished as against the existing provision whereby no
notice can be served after expiry of 12 months from the end of the month from
the end of the month in which the return is furnished. Though the time period
is being reduced to six months, the same is to be counted from the end of
financial year as against existing provision of counting 12 months from the end
of the month in which return is filed. Accordingly, the time period available
with the department where the return is filed in the beginning if the
assessment year shall be more than the existing period of 12 months, as notice
can be served up to 30th September of next year. However, the time
period shall be less where the return is filed late just before he end of the
financial year, say in March, in which case the notice has to be served by
September, as the six month period will be counted form the end of the
financial year i.e. March. Now there will be no motivation for early filing of
tax returns unless there is a refund and the department comes out with a plan
of issuing refund within a fixed period from the date of filing the return.
This amendment shall be effective from 1st April 2008 and this being
a machinery provision notice for all the returns filed during financial year
ending 31st March 2008 can be issued up to 30th September
2008.

This is bad news as an
Assessee would have sword of likely scrutiny hanging for additional six months.

 

 

Appearance before Assessing Officer to be deemed proper service of
notice and in time

An interesting
amendment is being proposed by inserting a new Section 292 BB to provide that
where an assessee appears in any proceedings or has cooperated in any enquiry
in respect of any assessment year, the same shall be deemed to mean that notice
required under the Act has been served upon him and in time and also in a
proper manner and the assessee shall not be entitled to raise any objection in
any proceeding under the Act on the ground that the notice was not served upon
him or not served in tome or was served upon him in an improper manner. The
effect of the above amendment will be that where the assessee is of the view
that notice has not been served upon him or not received in time or served upon
him in an improper manner probably, he will have no choice but not to appear
consequent to such notice or to cooperate in any such enquiry so as not to
loose the right to challenge the validity of notice including service, if any. The proposed amendment may have far
reaching implications particularly where time limitation can be an issue. The
revenue may try to force he attendance of the assessee or his appearance even
in those cases where proceedings have been time barred.

On the other side it
may now be a reasonable cause for a person to defy a summon or notice on the
ground that such appearance will lead to losing the legal right. Probably the
better alternative would have been to restrict the right of assessee in case he
does not raise an objection before the Assessing Officer. The above amendment
shall be effective from 1st April 2008 and being a machinery
provision shall be applicable to all notices served on or after 1st
April 2008

Tax Deduction at Source

Scope of Tax deduction at Source (TDS) on payment to contractor being
widened

The scope section 194C
providing for deduction of tax at source in respect of any sum credited or paid
to a resident contractor for carrying out any work is being expanded to include
payment made by Association of Persons (AOP) and Body of Individuals (BOI). As
no threshold limit is being provided as is in the case of individuals or HUF
whereby only those individuals or HUF are required to deduct tax whose turnover
exceed the prescribed limit, the implication of this amendment will be that
howsoever small an AOP or BOI may be, it will be required to go through the
complete procedure of obtaining TDS number, deduction and filing of TDS return.
It may affect a large number of welfare associations. This amendment shall be
effective from 1st June 2008.