The Hindu Business Line : The Budget hangover

BUDGET 2003 proposes to abolish tax on long-term capital gains from shares. The former Finance Minister, Dr Manmohan Singh, has criticised the move. Your comments. -- Radhika Vasudevan, Chennai

I have been a strong critic of the impending move. But contrary to the initial impression one got, it is not a complete sell out to the capital market.

In order to be eligible for exemption from LTCG the shares should have been acquired between April 1, 2003 and March 31, 2004.

Mercifully, this is an ad hoc measure whose impact would start tapering off as we enter the next fiscal year 2004-2005.

Ironically, the move designed to pep up the capital market may well bottle it up to some extent for one full year because, while there would be a rush to buy during the year 2003-2004, there would be no buying and selling activity in quick succession as buyers would like one full year to pass out from the date of acquisition in 2003-2004 before they sell the shares so acquired. The sellers would be those who acquired their shares before 1st April 2003, those who have been shut out of this munificence for curious reasons.

March to school

IS THE tax rebate on education expenses under Section 88 in addition to the existing limit? -- Roshini Chadha, Chandigarh

No. Out of the qualifying limit of Rs 70,000 for non-infrastructure bonds investments qualifying for rebate, a new room has been carved out for this purpose.

In other words, a new avenue has been added without increasing the quantum of the qualifying amount. Thus, a person who pays school fees of up to Rs 12,000 for each of his two children need not to that extent invest in PPF, NSC, and so on, if he was driven into doing so earlier.

This is a good move. One wonders why sub-limit of Rs 12,000/24,000 has been prescribed for this noble investment. Equally galling is the sub-limit of Rs 20,000 for housing-oriented investment.

NOR redefined

THERE is a proposed amendment to the concept of residence. What exactly is this? -- M. Giridhar, New Delhi

Recently, the Gujarat High Court, in Pradeep J. Mehta vs CIT (256 ITR 646), had given a judgement on the concept of not-ordinarily resident (NOR) as enshrined in Section 6(6).

The judgement rocked the non-resident community that has been using this concept to legitimately avoid tax besides shaming the tax department which has been placing an incorrect interpretation on the subject.

The Gujarat High Court, interpreting this section as it is worded, held that in order to be a not-ordinarily resident one must have been a non-resident in at least nine out of ten years preceding the relevant previous year.

This took the wind out of the sail of non-residents who blithely believed that even if they were non-residents for two years in this block of ten years, they would have acquired the halo of not-ordinarily resident.

The Finance Minister has disabused this view and endorsed the Gujarat High Court view. Hereafter, one must ensure that one was not a resident in nine out of ten preceding previous years or was not in India for more than 729 days during the preceding seven previous years in order to be eligible for the status of not-ordinarily resident.

Choice limited

IT SEEMS now interest on borrowings have to be capitalised as provided by Budget 2003. What is the correct position? -- Shankari Padmanaban, Tiruchi

Hitherto, existing businesses had the choice of either capitalising or claiming as revenue expenditure the interest relating to the period till the date of first use of the asset in respect of which the borrowing was made.

Now this freedom has been wrenched away. Such interest will have to be capitalised.

Stipulation eased

SECTION 43B has been amended. What is the true import of the amendment proposed by Budget 2003? -- Rajesh Shenoy, Bangalore

Under the existing regime, contributions to statutory employee welfare funds such as PF were allowed as deduction only if they were paid within the time stipulated in the governing statute.

Thus if PF contributions are required to be handed over to the PF Commissioner or trust within 30 days from the last day of the wage period, even a day's delay was fatal in that the entire contribution was disallowed as expense.

Now it is proposed to take a more reasonable view. Like interest to financial institutions and so on, such contributions would be allowed on actual payment.

Section 43B will hereafter have a uniform norm — expenses spelt out therein would be allowed as deduction only in the previous year in which they have been paid with an exception being carved for the year in which they were incurred.

For that year, the thaw is in the form of extension till the due date of filing of return.

(ASK! Send in your queries on accounting, auditing, corporate law and taxation to ask@thehindu.co.in)

S. Murlidharan

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