1.0 DIRECT TAX PROPOSALS

1.1 Tax Rates

• Personal tax rates remain unchanged with the maximum marginal rate of 33.66% for income exceeding Rs.10,00,000.
• Tax rate for domestic companies remains unchanged at 33.66% and additional tax on dividends distributed remains unchanged at 14.025%.
• Tax rate for foreign companies remains unchanged at 41.82%.
• Tax rate for Minimum Alternate Tax ('MAT') for domestic companies increased from 8.415% to 11.22% and for foreign companies increased from 7.84125% to 10.455%.
• Tax rate for partnership firms remains unchanged at 33.66%.

• Tax benefits to the power sector under section 80IA is extended upto 31 March 2010 .
• Tax benefits to the eligible industrial undertakings under section 80IA is extended upto 31 March 2009 .
• Deduction under section 10B / 80IA / 80IAB / 80IB / 80IC not to be allowed in cases where return is not filed within the prescribed time limit.
• Adjustments resulting due to determination of arm's length price by the assessing officer under Transfer Pricing Regulations in case of SEZ units, not eligible for deduction under section 10AA.
• Exemption of payments in respect of lease of an aircraft, extended with regard to agreements entered on or before 31 March 2007 .
• Omission of section 10(23G) so as to make income from existing as well as future investment in infrastructure and other projects taxable.
• Withdrawal of exemption of tax on capital gains in respect of listed securities under section 54ED.
• Eligible investments for exemption of capital gains under section 54EC restricted to NHAI and RECL bonds.
• Close-ended equity oriented schemes of mutual funds will be exempted from dividend distribution tax, as in the case of open-ended equity-oriented schemes.
• All co-operative banks other than Primary Agricultural Credit Societies, Primary Cooperative Agricultural and Rural Development Banks are not eligible for the purpose of claiming exemption under section 80P.

·         Any sum payable by an assessee to financial institutions / banks as interest on any loan or borrowing or advance converted into a loan or borrowing or advance and not “actually paid”, not to be allowed as a deduction in the computation of income under section 43B.

·         Enhancement of the period for carry forward and set off of MAT credit to 7 years from existing 5 years.

·         Additional depreciation in respect of revaluation of assets not eligible for deduction for MAT purposes.

·         Exempted long term capital gain arising out of sale of listed securities to be included for computation of book profits for MAT purposes.

·         Credit for payment of MAT and foreign taxes paid, shall be allowed while computing the interest under sections 234A, 234B and 234C.

·         The rate of Securities Transaction Tax for transactions through stock exchange is enhanced by 25% across all segments.

·         Deduction in the computation of income of taxes paid on income earned outside India not allowable.

·         Fringe Benefit Tax liberalized by exempting contribution to superannuation fund up to Rs.1,00,000 per employee per annum and payment to brand ambassador of repute for advertisement of goods and services, reduction in FBT rate from 6.732% to 1.683% in case of tour and travel expenses including foreign travel etc..

1.4 Proposals For Personal Taxes

• Investment in a term deposit for a fixed period of not less than 5 years, with any scheduled bank shall be eligible for deduction under section 80C.
• The limit for contribution to pension scheme of insurance companies increased from Rs.10,000 to Rs.1,00,000, subject to the overall cap of Rs.1,00,000 provided under section 80CCE.
• Any premium paid by the employer or reimbursement of premium paid by the employees, in health insurance schemes of insurers other than GIC, approved by the Insurance Regulatory and Development Authority, shall be exempt from the purview of perquisites.
• Omission of the one-by-six scheme for mandatory furnishing of income-tax return.

  1.5 Others

• Taxation of certain anonymous donations in case of charitable and nonreligious institutions at 30% (plus applicable surcharge and education cess).
• Method for allocating expenditure in relation to exempt income, to be
• prescribed by CBDT.
• Application for grant of exemption or continuance of exemption for certain charitable and religious trusts and institutions and certain educational and medical institutions to be filed during the financial year for which such exemption is sought.
• Doing away with furnishing of annual TDS and TCS returns in view of the requirements of furnishing quarterly TDS and TCS returns.
• Payment of interest for TDS or TCS default before furnishing TDS or TCS quarterly statements.
• Prescribing new class of persons for allotment of PAN and suo-moto allotment of PAN.
• Deferment of dematerialisation of TDS and TCS certificates.
• Penalty of Rs. 10,000 for quoting of false TAN.

2.0 INDIRECT TAX PROPOSALS

2.1 Service Tax

• The effective rate of service tax increased from 10.2% to 12.24%.
• 15 new services brought under tax net such as business support services, credit card related services and certain transport services.
• Extension of scope of existing services by extension of levy of 17 services to all service providers (earlier only commercial concerns) providing services exceeding the threshold limit of Rs. 4 lacs per annum and widening the definition of several services such as management consultancy services and business auxiliary services to include computerized data processing.
• Withdrawal of certain exemptions from service tax such as such as services provided by a Call Centre or a Medical Transcription Centre and exemption for taxable service provided in relation to Enterprise Resource Planning (ERP) software system.
• Charge of service tax on services received from outside India (Reverse Charge) fortified by making provisions more explicit.

  2.2 Customs Duty

• Peak rate of duty on non-agricultural products reduced from 15% to 12.5% with a few exceptions.
• Ad valorem component of customs duty on textile fabrics and garments reduced from 15% to 12.5%. There is no change in specific component of customs duty.
• Additional duty @ 4% has been extended to cover all imported goods with some exceptions.
• Jewellery will attract a lower rate of additional duty of customs @ 1%. Gold, silver, rough and cut diamonds, precious metals, precious and semiprecious stones, would be exempt from this duty.
• Exemptions from additional duty given to (i) goods which are fully exempt from Value Added Tax, Basic and Countervailing duty, (ii) certain petroleum products, (iii) goods for export promotion schemes allowed for import at nil duty, (iv) Domestic Tariff Area clearances of 100% Export Oriented Unit / Software Technology Park / Special Economic Zone units etc.

  2.3 Excise Duty

• Excise duty of 12% has been imposed on computers.
• Excise duty has been reduced from 24% to 16% on small cars with length not exceeding 4 meters and engine capacity not exceeding 1200 cc and 1500 cc in respect of petrol and diesel cars respectively.
• Excise duty of 8% eligible for Cenvat credit has been imposed on certain items like goggles, articles of wood, registers of accounts books, paper labels, portable receivers for calling, alerting or paging, packaged software on electronic media etc.
• Excise duty of 16% imposed on certain items like parts and components of motor vehicles transferred to a sister unit for manufacture of goods falling under Chapter 87, goods supplied for manufacture of PD pumps for handling water, specified goods meant for display in any fair or exhibition in India etc.

  3.0 OTHER KEY PROPOSALS

• Expert body proposed to be set up to look into the potential of the gem and jewellery sector.
• 180 items currently reserved for small scale sector, identified for dereservation.
• Comprehensive bill on insurance to be introduced in 2006-07.
• Proposal for introduction of 'Goods and Service Tax' with effect from 1 April 2010