The Hindu Business Line : Making sense of the Budget

It is proposed to amend Section 115WB to provide that expenditure on distribution of free samples of medicines or medical equipment to doctors and expenditure on payment to a person of repute for promoting sale of goods and services will be outside the ambit of the FBT.

It is also proposed to amend Sections 115WB and 115WC to provide that expenditure on tour and travel including foreign travel will only be valued at five per cent of the expense as against 20 per cent now.

It is also proposed to provide that the benefit of or amenity by way of free transport from residence to place of work and back will not be charged as a fringe benefit.

It is further proposed to amend Section 115WC to provide that only super-annuation fund contributions in excess of Rs 1,00,000 per employee will be charged to FBT.

It is further proposed to reduce the value of fringe benefits to five per cent in case of an employer engaged in the business of carriage of passengers or goods by aircraft or ship from the present 20 per cent, in respect of hospitality and use of hotel boarding and lodging facilities.

What are the changes proposed on the exemption on capital gains when an investment is made?

While the exemption available under Section 54EC, for long-term capital gains on investments in specified bonds, continues to be available, it is proposed to permit only investment in bonds of the National Highway Authority of India (NHAI) or the Rural Electrification Corporation (REC) which are redeemable after three years to be eligible for the exemption.

This would mean that investment in bonds of the National Bank for Agriculture and Rural Development (Nabard), the Small Industries Development Bank of India (SIDBI) and the National Housing Bank will not qualify for exemption.

The amendment is proposed with effect from April 1, 2006. Thus, even in respect of long-term capital gains earned prior to that date, the investments can only be in bonds of the NHAI or the REC where the investment is made on or after April 1, 2006.

The exemption available under Section 54ED, it is proposed, will no longer be available in respect of transfer of long-term capital assets being listed securities or units of a mutual fund or UTI on or after April 1, 2006.

The withdrawal of this exemption will practically have no effect since in any case the transfer of shares and units of mutual funds where the Securities Transaction Tax has been levied at the time of sale will be exempt under Section 10(38).

Are any changes proposed on the deductions available on making investments or contributions?

Section 80C allows a deduction in respect of certain payments and investments.

It is proposed to increase the scope of the investments to include deposits with a scheduled bank for five years or more.

Section 80CCC, which allows deduction in respect of investments in an annuity plan of an insurer allows a deduction up to a maximum investment of Rs 10,000.

This limit is proposed to be raised to Rs 1,00,000.

It may, however, be seen that Section 80CCE restricts the total deduction that can be claimed under Sections 80C, 80CCC and 80CCD in the aggregate to Rs 1,00,000.

This increase in limit under Section 80CCC may, therefore, have little or no impact on the deduction that can be claimed.

Are any changes proposed to the charge of tax on distributed profits?

The tax on distributed profits is not leviable on open-ended equity oriented funds.

It is proposed to amend Chapter XIIE to provide that tax on distributed profits will not be payable only if more than 65 per cent of the total proceeds of the fund is invested in equity shares of domestic companies.

There are no other changes in the tax on distributed profits. An open-ended equity oriented fund means a fund where investments in equity shares in domestic companies is more than 50 per cent of the assets.

This amendment is proposed from April 1, 2006.

Is there any proposal seeking to exempt certain assessees from filing a return?

It is proposed to make the 1/6 criteria provided for in the proviso to Section 139(1) inoperative from the assessment year 2006-2007.

What changes are proposed on obtaining a Permanent Account Number (PAN)?

Section 139A is sought to be amended to provide that the Central Government for the purpose of collecting information which will be useful for or relevant for the purpose of this Act, specify any class or class of persons to apply to the Assessing Officer for allotment of PAN within the time stipulated in the notification. The Section is also sought to be amended to provide that an Assessing Officer may having regard to the nature of transactions prescribed allot a PAN to any person in accordance with the procedure to be prescribed.

These amendments are proposed with effect from April 1, 2006.

Are any changes proposed on the rate at which the Securities Transaction Tax (STT) is levied?

The rates of Securities Transaction Tax are proposed to be raised as follows with effect from April 1.

On purchase of an equity share in a company or a unit of an equity oriented fund, where:

The transaction of such purchase is entered into in a recognised stock exchange; and the contract for the purchase of such share or unit is settled by the actual delivery or transfer of such share or unit.

STT at the rate of 0.125 per cent is payable by the purchaser.

On sale of an equity share in a company or a unit of an equity oriented fund, where:

The transaction of such sale is entered into in a recognised stock exchange; and the contract for the sale of such share or unit is settled by the actual delivery or transfer of such share or unit.

STT at the rate of 0.125 per cent is payable by the seller

On sale of an equity share in a company or a unit of an equity oriented fund, where:

The transaction of such sale is entered into in a recognised stock exchange; and the contract for the sale of such share or unit is settled otherwise than by the actual delivery or transfer of such share or unit.

STT at the rate of 0.025 per cent is payable by the seller.

On sale of a derivative, where the transaction of such sale is entered into in a recognised stock exchange:

STT at the rate of 0.017 per cent is payable by the seller.

On sale of unit of an equity-oriented fund to the Mutual Fund.

STT at the rate of 0.25 per cent is payable by the seller.

Mail your queries to taxtalk@thehindu.co.in or by post to `Tax Talk', Business Line, Kasturi Buildings, 859, Anna Salai, Chennai-600002.

T. Banusekar