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The Budget is an exercise giving direction or road map for the action to follow in the ensuing period. The mobilisation of sources to deploy the same both for Plan and non-Plan expenditure is the basic philosophy of budget making. In the process, the legal provisions which govern the collection of taxes are amended now and then. There are some adhoc changes made in the income-tax law, which are devoid of reasons.
Funds for infrastructure
In the Finance Act, 2010 to mobilise funds for infrastructure development Section 80 CCF was introduced. It provides for a deduction of Rs 20,000 from taxable income in the case of individual and HUF taxpayers. However, the incentive was intended for only one year viz. the financial year 2010-11. Now in the Budget 2011 this has been extended by another year. Why is such deduction given on a piece-meal basis instead of keeping the same as open-ended, if the Government is serious about mobilising funds for infrastructure development?
The lawmakers thought that collecting funds from non-residents for infrastructure development would a better idea and have inserted Section 10(47) now, called Infrastructure Debt Fund. The concessional tax rate @ 5 per cent on the interest income from such infrastructure debt fund would apply to non-residents, including foreign companies. The interest so paid is liable for tax deduction @5 per cent under the newly inserted Section 194 LB. In effect, no further amount by way of tax would be collectible or payable.
When the resident assessees have the desire to subscribe to infrastructure bonds for tax saving and to pay tax on the income arising from such bonds, why such concessional tax rate and open-ended time period is sought to be given to non-residents, including foreign companies? Most importantly, there is no limit for subscribing to such fund in contrast to cap for infrastructure bonds applicable for resident taxpayers.
No thrust for power sector
Due to rapid industrialisation and growing urbanisation, there is always a gap between the demand and supply of power. Section 80-IA (4) provides tax incentive for power generation or distribution and transmission of power including renovation and modernisation of the existing network of transmissions. The sunset clause was inserted in the Finance Act, 2010 such that there would be no such tax incentive for any undertaking established after March 31, 2011. In the Budget, 2011 this sunset clause extended by one year i.e up to 31.03.2012.
When there is a deep power crisis and huge gap between demand and supply of power, why did the lawmakers think that the tax incentive given to sector needs to be withdrawn?
Dividend from foreign subsidiaries
Dividends received from domestic companies are exempt from tax. In the case of corporates, there is some further tax relief in respect of dividend distribution tax, by reducing the amount of dividend received from yet another domestic company. Dividends from foreign companies, whether subsidiary or otherwise, were taxed at the regular rates.
In the Budget, 2011 dividend from foreign subsidiary received by any Indian parent company is eligible for concessional rate of tax at 15 per cent and this benefit is only for one assessment year i.e. 2012-13.
The reasons why is such concessional rate offered to Indian companies who own subsidiaries in foreign soil and why such short-term tax relief is sought to be given are also unknown.
(The author is an Erode-based chartered accoutant.)
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