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Budget: changes in MAT

What are the changes in respect of MAT?

Minimum Alternate Tax (MAT) has undergone some major changes. The rate of tax is enhanced from 7.5 per cent to 10 per cent.

Dividends on long-term capital gains on sale of units and shares covered by exemption under Sec. 10(38) in computation of statutory income will now be included as taxable book profits.

One more amendment relating to MAT is that it proposes to nullify the decision of the Supreme Court in Apollo Tyres Ltd. v CIT (2001) 255 ITR 273 (SC) by ruling out the enhanced depreciation possible by revaluation of assets. The only consolation is extension of tax credit under Sec. 115JAA from five to seven years.

What are the changes in respect of capital gains tax?

Reinvestment benefit under Sec. 54ED by way of eligible issue of capital offered for public subscription is now proposed to be dropped.

In view of the short time limit and the difficulty in getting such shares within such time, it was even otherwise not easy to avail one self of the benefit.

The items available for reinvestment under Sec. 54EC will now be restricted to those bonds issued by National Highways Authority of India and Rural Electrification Corporation Limited, so that any reinvestment of capital gains has to be made only in such bonds on or after April 1, 2006. There is, however, power taken by the board to notify any other bond in future. Long-term capital gains on sale of units and shares would now be taxable for purpose of MAT.

What are the other major proposals?

Infrastructure Capital Fund and Infrastructure Capital Company would lose their right to exemption from assessment year 2007-08. In fact, they were already made liable for Minimum Alternate Tax on book profits from assessment year 2005-06. In view of the importance of infrastructure, one would think that this relief should have been the last to be withdrawn in the process of dropping such incentives.

Cooperative banks, other than cooperative credit societies and rural banks would have to pay tax, since the deduction for them under Sec. 80P is proposed to be withdrawn from assessment year 2007-08.

Period of commencement of an industrial undertaking in promotion of Industrial Parks and Special Economic Zones, besides power undertakings expiring on March 31, 2006 is extended up to March 31, 2010.

What are the amendments relating to charities?

A major amendment has been proposed by insertion of new Sec. 115BBC under which, anonymous donations received by trusts or institutions covered by Sec. 11, Sec. 10(23C) (iiiad), (iiiae), (iv), (v), (vi) and (via) would all be liable to tax .

Unless such donations are recorded with name, address, and other prescribed particulars, such donations will be liable to tax.

It follows, even where names are recorded, if they cannot be identified as real persons, such pseudonymous donations will be treated as anonymous donations in view of the definition of anonymous donations.

But then exception has been made for public religious trusts. Other trusts having both religious and non-religious activities will be liable. if they run, educational or medical institutions, in which case donations relating to them will be vulnerable for taxation in the hands of the trust, if they are anonymous.

S. Rajaratnam

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