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Yet another Finance Bill

CHENNAI: The Finance Bill, 2008, as far as direct tax proposals are concerned, is yet another Finance Bill cast on conventional lines.

The exemption limit has been raised by Rs. 40,000, but the increase is limited to Rs. 35,000 for women and Rs. 30,000 for senior citizens. The expected increase for limit in Sec. 80C and the resumption of deduction under Sec. 80L have not materialised. Sec. 80D is liberalised marginally by providing for split up of contribution for health insurance between father and son/daughter.

Dropping of the Banking Cash Transaction Tax (BCTT) with effect from April, 1, 2009, is welcome. A Commodities Transaction Tax (CTT) will take effect when it becomes law.

There will be widespread disappointment that the Fringe Benefits Tax (FBT) will continue with a cosmetic change. But the tax net is spread wider by depriving the exemption for any income generating activity relating to any object of general public utility, nullifying the decision of the Supreme Court in CIT v Gujarat Maritime Board (2007) 295 ITR 561 (SC). Sec. 40A(3) disallowing payments exceeding Rs. 20,000 is made more rigid to cover the aggregate payments during the day on the one hand and for cash payments in respect of liability incurred and allowed in earlier years on the other, overruling a number of decisions in the process. Incidentally, there are more than dozen decisions in substantive law and procedural law which have been nullified, some of them retrospectively keeping up the tradition of neutralising the judicial precedents.

The corporate sector and company shareholders have every reason to feel aggrieved. The tax rate, surcharge and cesses will continue. Incidence of the Fringe Benefits Tax, which recently shifted liability on sweat equity from employees in effect to the shareholders, would also continue. Short-term capital gains tax stands enhanced for the shareholders to 15 per cent. The problem of shareholders in convincing the Assessing Officers that they are investors and not dealers finds no answer. The extension of Sec. 80IB and 80ID to some hospitals and hotels may satisfy a small section, disappointing most others, which expected some relief. Old Sec. 80M is back to an extremely limited extent by an amendment to Sec. 115-O by which 50 per cent subsidiary of a holding company in India will get credit for dividend distributed from the Dividend Distribution Tax.

Tax deduction at source is also made more rigid by insisting on liability on the deductor, even where the tax is paid by the deductee, nullifying some decisions in the process.

S. Rajaratnam

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