The Hindu Business Line : What's there for women in tax law?

I AM about to get into employment after having obtained an engineering degree. Tell me if there is anything special for women in the income-tax law.

Rashmi Sahadev, New Delhi

The Finance Act, 2005, while exempting income up to Rs 1,00,000 from tax, has carved out higher exemption limits for women — Rs 1,35,000 — and senior citizens — Rs 1,85,000. Effectively what this means for you is a tax reprieve of Rs 3,500 vis-à-vis your male counterpart because the first slab rate is 10 per cent which, for young men (less than 65 years of age), means a tax of Rs 5,000 on income between Rs 1 lakh and Rs 1.5 lakh and for young ladies (less than 65 years of age) a tax of only Rs 1,500 on income between Rs 1.35 lakh and Rs 1.5 lakh.

When you become a senior citizen, you would enjoy the still higher exemption limit along with your male counterparts who also have attained that hallowed status.

Till last year, while young ladies got a tax rebate of Rs 5,000, senior citizens got Rs 20,000. Some women feel that the tax advantage vis-à-vis men has been whittled down by Rs 1,500.

Be that as it may, there seems to be nothing else special for women except that if anybody transfers any assets to his or her daughter-in-law for inadequate consideration, the income from such assets will continue to be taxed in the hands of the transferor. This you can possibly be seen as a privilege unique to women given the fact that there is no parallel provision as far as sons-in-law are concerned; daughters-in-law do not have to include such income in their own income.

Deferred tax

WHAT is deferred tax liability and what is deferred tax asset?

B. Gowrishanker, email

The idea of deferred taxation can be easily understood if one grants that there is always a difference between profit shown by the profit and loss (P&L) account and the profit shown in the income-tax return. This difference is explained by two sets of factors which are appropriately described as timing differences and permanent differences.

An example of timing difference is depreciation. Assuming the assessee follows the straight-line method (SLM) method in his books, his claim for depreciation would be less in the initial years vis-à-vis the claim under the income-tax law, which generally grants depreciation as per the written-down value (WDV) method. But over a period of time this difference would be neutralised which is why this is called a timing difference.

An example of permanent difference is the 20 per cent disallowance under Section 40A(3) for making cash payment in excesses of Rs 20,000. This would have the effect of pushing up the profit vis-à-vis the books. And this difference would never neutralise which is why this is called a permanent difference.

Provision is to be made for the future tax liability that will accrue in future years when the temporary advantage is neutralised. This is called provision for deferred tax liability. An example of deferred tax asset is business loss which would pull down the future tax liabilities. In keeping with the fundamental accounting assumption of prudence and conservatism which an accountant wears on his sleeves, while provision for deferred tax liability can be freely made, deferred tax asset can be created only when there is an absolute guarantee that there would be future profits to absorb the current year's loss. Needless to say, there is simply no scope or need for making any provision for permanent differences.

Pooling talent

WHY does the law not allow a chartered accountant, a company secretary and a cost accountant to practice under one roof and under one brand name? I think it is the best way of consulting these days, as the clients get everything done in one office.

Bilu Balakrishnan, Thiruvananthapuram

The respective Parliamentary enactments dealing with the three professions do not permit a member of a profession to enter into partnership with a person who is not a member of the same profession. I believe efforts are on to bring about a thaw in this rigour. I agree that the client would get a much more effective service when talents are pooled under one roof.

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

S. Murlidharan

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