Financial Daily from THE HINDU group of publications
Monday, Jul 12, 2004
A guided tour of the Budget from direct tax angle
V. K. Subramani
Gifts deemed as income
The gift is chargeable to tax as income under the head "income from other sources" (Section 56(v)). However, gifts received from a relative, being a spouse, brother or sister or any lineal ascendant/descendant, will not be subject to tax (Sections 10(39) and 2(24)(xiii)).
The foreign government or enterprise deriving income from an Indian company engaged in the business of operation of aircraft, as a consideration of acquiring an air craft or an aircraft engine on lease, is also eligible for exemption provided the agreement is entered into after August 31, 2004, and is approved by the Central Government (Section 10(6BB) amended). Earlier, agreements made before April 1, 1999, were only exempted from tax.
Family pension received by widow or children or a nominated heir of the armed forces personnel, including para-military forces, is exempt from tax [Section 10(19].
Agricultural lands owned by individuals or HUFs, situated within the limits specified in Section 2(14), are capital assets; yet, upon their compulsory acquisition, capital gains arising therefrom shall not be chargeable to tax. [Section 10(36)]
Income arising from transfer of long-term capital asset, being securities entered into in a recognised stock exchange shall be exempt from tax (Section 10(38)).
Securities transaction tax contained in chapter VII of the Finance (No. 2) Act, 2004 shall be applicable from the date of its notification in the Official Gazette. The proposed securities transaction tax provides for levy of tax at 0.15 per cent of the value of securities sold.
Cancellation of registration to trusts
Contribution to pension scheme
Correspondingly if the contribution of the Central Government is less than 10 per cent of the salary of the employee, it is eligible for deduction at 100 per cent under Section 80 CCD (2). The impact of section will be tax neutral if the contribution of the Central Government is below 10 per cent of the employee's salary.
However, the employee's own contribution is eligible for deduction from the total income at 100 per cent subject to the limit that the contribution does not exceed 10 per cent of his salary income. Salary, for this purpose, would mean basic pay and dearness allowance if the terms of employment so provide. However, salary does not include other allowances and perquisites (Section 80 CCD(1)).
For example, if the production capacity of a company is 1,00,000 tonnes as on March 31, 2004, and if the company installs plant and machinery during 2004-05 resulting in an increase in the production capacity to 1,10,000 tonnes, then the assessee is eligible for 15 per cent additional depreciation on the cost of plant and machinery installed during the financial year 2004-05. Before the amendment, the assessee would have had to increase the installed capacity to 1,25,000 tonnes for getting additional depreciation.
Tonnage tax for shipping companies
Section 115 VE (5) gives assessees the option either to pay tax in accordance with the normal provisions of the Income-Tax Act or presumed income in terms of Section 115 VG.
Section 115 VG provides that the tonnage income of each qualifying ship shall be the daily tonnage income of such ship multiplied by a) the number of days in the previous year; or b) the number of days in the part of the previous year where the ship is operated for only part of the previous year.
The computation of income on deeming basis is as presented in Table 1.
For example, if the daily net tonnage of the qualifying ship is 20,000 tonnes, then the income would be as shown in Table 2.
No deduction without TDS
Till now, Section 40(a)(i) covered payments outside India or payment to non-resident within India. The proposed Section 40(ia) covers payment to residents and the coverage is not only interest and fees for technical services but also payments, such as commission, brokerage or fees for professional services.
Incentives for housing projects
There has been relaxation as regards housing projects, by providing for built-up area for the shops and commercial establishments, which should not exceed 5 per cent of the aggregate built-up area or 2,000 sq.ft., whichever is less.
Earlier, there was no provision for shops and commercial establishment and, hence, such housing projects accommodating such commercial ventures were not eligible for deduction under Section 80-IB (10).
Tax incentives for electricity companies: Units engaged in generation of power or commences transmission or distribution of power are eligible for deduction under Section 80-IA even if they undertake substantial renovation and modernisation of the existing transmission or distribution lines. "Substantial renovation and modernisation" would mean increase in plant and machinery by at least 50 per cent of the book value existing as on April 1, 2004 (Section 80-IA(2)(a) amended).
The time limit for undertaking substantial renovation and modernisation is at any time during April 1, 2004 to March 31, 2006.
Units engaged in generation or generation and distribution of power get extended time limit up to March 31, 2006, for getting deduction under Section 80-IA(4) (iv) as against the earlier time limit of March 31, 2004.
(The author is an Erode-based chartered accountant.)
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