The Hindu Business Line : Ministry defends decision to retain expenditure disallowance limit

This had prompted it to refrain from making any upward revision, in the Budget, to the existing expenditure disallowance limit of Rs 20,000 under the income-tax law, a senior Finance Ministry official has said.

Currently, the income-tax law (Section 40A(3)) provides for disallowance of 20 per cent of the expenditure incurred if the payment for such an expenditure exceeded Rs 20,000 and was made otherwise than by an account payee cheque/account payee bank draft.

The Budget 2007-08 however has now proposed that the entire expenditure would be disallowed for income-tax purposes if the payments on the expenditure exceed Rs 20,000 and are not done through an account payee cheque/account payee draft.

"There were suggestions to increase the limit from Rs 20,000. Considering our intention to encourage cheque economy and encourage transactions that could be tracked down and further investigated, we have not tinkered with the limit," Ms Anita Kapur, Joint Secretary (TPL-I), Finance Ministry said at a post-Budget discussion organised by the Institute of Chartered Accountants of India (ICAI).

As the limit of Rs 20,000 has been applicable from April 1997, nearly a decade back, there were wide expectations from industry that this would be revised upwards.

The Finance Ministry official also said that the circumstances (like business expediency considerations) under which account payee cheques may not be insisted upon are yet to be prescribed by the CBDT and welcomed suggestions in this regard.

On discretionary power

Meanwhile, the Finance Ministry is unlikely to roll back its decision to remove the discretionary power that was vested with the Commissioner of Income Tax to condone delay in application for registration of trusts.

ICAI's Fiscal Laws Committee Chairman, Mr G. Ramaswamy, suggested that the Commissioner should have the discretionary power to condone delay of at least 2 years.

The Budget 2007-08 seeks to remove the power of the Commissioner to grant registration for past years by condoning the delay in filing such application.

"We had serious problems with the Parliamentary Committee on the issue of Section 12A registration. The main idea is to take away the discretion. The trend in our tax laws is to reduce the discretionary powers with officers," Ms Kapur said.

The issue of applicability of fringe benefit tax (FBT) on employee stock options (ESOPs) issued by a multinational parent to employees of its Indian subsidiary was raised. Clarity is needed as to whether FBT would apply or not in such cases, ICAI members said.