The Hindu Business Line : On the `lakh' of confusion

MY salary income after standard deduction would be Rs 1.2 lakh during the financial year 2004-2005. Will I get reprieve on tax on Rs 1 lakh out of this?

Madusudan Aggarwal, Allahabad

The proposed new Section 88D seeks to give 100 per cent tax rebate to anyone whose taxable income does not exceed Rs 1 lakh. Contrary to the initial impression one got, the Finance Minister, Mr P. Chidambaram, has not increased the tax-free threshold across the board to Rs 1 lakh.

So much so, those whose taxable income is in excess of Rs 1 lakh will have to pay tax exactly at the same rates at which they paid tax during the previous year 2003-2004 as increased by education cess of 2 per cent on the tax liability remaining after allowing tax rebates under Sections 88, 88B and 88C. You are not a lady. And presumably you are not a senior citizen either.

Therefore rebates under Sections 88B and 88C are out. The only rebate you are entitled to is under Section 88 which comes with a price tag — you have to invest Rs 65,000 to stave off the gross tax liability of Rs 13,000 because the tax rebate in your case under this Section is 20 per cent of investments in prescribed avenues. You would already have contributed to a recognised provident fund which is one of the avenues.

To this extent, you don't have to invest. In case you are not in a position to invest, and assuming your provident fund contribution to be Rs 10,000, the tax rebate you would get is Rs 2,000 leaving you with a net tax liability of Rs 11,000. Add to this the 2 per cent education cess. Thus your net liability is Rs 11,220.

Band fixing

IN A book-building exercise, who fixes the price band within which the bidders are required to bid?

Rakesh Kalra, New Delhi

This is done by the company in league with its merchant banker. The merchant banker is free to zero in on the issue price though he must have his justifications for the same. This raises a larger issue. If book-building is a price-discovery exercise, as it is touted out to be, where is the price discovery with the hands of the bidders being tied as it were.

Suppose, the price band is Rs 63-67, the bidders are to bid in this range. In other words, the price has already been discovered with a small elbowroom allowed for the bidders. In other words, the bidders are presented with a fait accompli.

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

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