The Hindu Business Line : Savings accounts exempt from cash transaction tax

THE Finance Minister, Mr P. Chidambaram, on Monday announced a softening of the incidence of proposed Fringe Benefit Tax (FBT) on companies, while exempting transactions in savings bank accounts from the Banking Cash Transaction Tax (BCTT).

Replying to a debate in the Lok Sabha on the Finance Bill 2005, Mr Chidambaram also introduced amendments to raise the minimum threshold limit for imposition of the 0.1 per cent BCTT for non-savings bank account transactions from the earlier Rs 10,000 withdrawal in a single day to Rs 25,000 for individuals and Hindu undivided families (HUF), and Rs 1 lakh for other accounts, including corporate accounts. The BCTT would come into effect from June 1.

On personal income tax, the Finance Minister announced additional relief to women and senior citizens by raising the exemption limits. While the exemption limit for women has been increased from Rs 1,25,000 to Rs 1,35,000, for senior citizen it would be Rs 1,85,000 from the earlier Rs 1,50,000.

Mr Chidambaram has also clarified that the additional exemption of Rs 1,00,000 on investments in specified instruments need not come from the income chargeable to tax. The Finance Bill had earlier proposed investment in the specified savings instrument would be exempt from tax up to the Rs 1-lakh limit provided it was made out of the assessee's "income chargeable to tax."

Justifying the imposition of the BCTT to create a tax-trail for large cash transactions, Mr Chidambaram said that the banking system was increasingly being used for money laundering. "There is a misconception that money put in a bank is white money and is not tainted money. The banking system is, in fact, a well-known instrument of laundering money. I have massive evidence of the banking system used for laundering," he said.

As an example, he pointed out the instance wherein a single bank branch persons who are not tax assesses had made large deposits of up to Rs 98 crore in cash, while withdrawals ranged from Rs 25 crore to Rs 622 crore.

Mr Chidambaram said that while the tax trail would be created, the tax authorities would intervene only when the withdrawals amounts are really large and recurrent.

"If withdrawals run in lakhs and crores, I will zero in on them," he said. On FBT, he said that in all but four categories he had decreased the tax incidence from the proposed 50 per cent to 20 per cent. "If every company gives every benefit to every employee the effective tax rate would go up by 1-1.5 per cent," he said. The effective corporate tax rate now works to around 20 per cent on the tax rate of 33 per cent, he pointed out.

The Finance Bill 2005 was passed by the Lok Sabha through a voice vote.

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