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TAX FORUM: QUESTIONS & ANSWERS
Amendments proposed in the Finance Bill, 2008
What are the proposals of
interest in personal
taxation?
Exemption limit has been
raised for individuals and
Hindu Undivided Families
(HUFs) by Rs. 40,000, so
that the limit for assessment
year (AY) 2009-10 would be
Rs. 1.50 lakh. The increase in
the limit for women and senior
citizens is not corresponding
to the general
limit, in that, it has been
raised by Rs. 35,000 and Rs.
30,000 for women and senior
citizens respectively, so
that the revised limit will be
Rs. 1.80 lakh and Rs. 2.25
lakh respectively.
Slab rates have also since
been revised, so that the rate
of 10 per cent would now be
applicable for the lowest slab
of Rs. 1.5 lakh to Rs. 3 lakh,
20 per cent for Rs. 3 lakh to
Rs. 5 lakh and 30 per cent for
incomes above Rs. 5 lakh.
There would be a tax benefit
of Rs. 4,000 for those covered
by the present change.
In the light of the fact that
there is no change in the rate
of taxation for other entities
like firms and companies,
this change should be welcome
from the point of view
of personal taxation.
The area covered by Sec.
80C is now expanded to include
Five Year Post Office
Time Deposits and deposits
under Senior Citizens Savings
Scheme, subject to the
amount being taxable in the
year of withdrawal, if it is
withdrawn before the expiry
of five years. However, there
is no increase in the over all
limit of Rs. 1 lakh under Sec.
80C.
Contribution to medical
insurance under Sec. 80D is
also liberalised again from
AY 2009-10. Where senior
citizen is a beneficiary in respect
of such policy, whether
subscribed by him or for his
benefit, the limit is increased
to Rs. 20,000. The requirement
that it would be available
to an individual only if
the senior citizen is dependent
on such individual is no
longer a condition from AY
2009-10. Notes on Clauses
would understand the substituted
section to mean that
an additional deduction of
Rs. 15,000 and in case where
the beneficiary is a senior citizen,
the deduction of Rs.
20,000 would be available,
so that it is possible for the
parent and the individual to
get the deduction. In case
both of them make independent
contributions, deduction
gets enhanced to Rs.
35,000, where the beneficiary
is a senior citizen and Rs.
30,000 otherwise with Rs.
15,000 for his family and Rs.
15,000-20,000 for his
parents.
This has been explained in
Explanatory Memorandum
with an example as under:
"For example, an individual
assessee pays (through
any mode other than cash)
during the previous year
medical insurance premia as
under:
(i) Rs. 12,000 to keep in
force an insurance policy on
his health and on the health
of his wife and dependent
children; (ii) Rs. 17,000 to
keep in force an insurance
policy on the health of his
parents. Under the proposed
new provisions, he will be allowed
a deduction of Rs.
27,000 (Rs. 12,000 plus Rs.
15,000) if neither of his parents
is a senior citizen. However,
if any of his parents is a
senior citizen, he will be allowed
a deduction of Rs.
29,000 (Rs. 12,000 plus Rs.
17,000). Whether the parents
are dependent or not, is
not a consideration for deciding
the deduction under
the proposed new section.
Further, in the above example,
if the cost of insurance
on the health of the
parents is Rs. 30,000, out of
which Rs. 17,000 is paid (by
any non-cash mode) by the
son and Rs. 13,000 by the
father (who is a senior citizen),
out of their respective
taxable income, the son will
get a deduction of Rs. 17,000
(in addition to the deduction
of Rs. 12,000 for the medical
insurance on self and family)
and the father will get a deduction
of Rs. 13,000.
What is the effect of change
in the definition of
charitable purpose?
The provision is now substituted
by a proviso under
Sec. 2(15) defining "charitable
propose" as under:
"Provided that the advancement
of any other object of
general public utility shall
not be a charitable purpose,
if it involves the carrying on
of any activity in the nature
of trade, commerce or business,
or any activity of rendering
any service in
relation to any trade, commerce
or business, for a cess
or fee or any other consideration,
irrespective of the nature
of use or application, or
retention, of the income
from such activity".
The provision is best understood
in the context of
the recent decision of the
Supreme Court in CIT v Gujarat
Maritime Board (2007)
295 ITR 561 (SC), where the
expression "the object of
general public utility", it was
held, would justify the activity
of development and
maintenance of minor ports
to be such object, so as to be
eligible for exemption as the
beneficiaries were public at
large. The Supreme Court
pointed out that it has already
taken such a view in
CIT v Andhra Pradesh Road
Transport Corporation
(1986) 159 ITR 1 (SC) and
CIT v Andhra Chamber of
Commerce (1965) 55 ITR
722 (SC). The effect of the
proposed amendment is that
all these decisions would no
longer be good law, since the
newly inserted proviso
would rule out exemption
for any activity in the nature
of trade, commerce or business
or any activity of rendering
any service in
relation to such trade, commerce
or business from AY
2009-10. However, such surplus
from activities in the
nature of business relating
to relief of the poor, education
and medical relief
would continue to be not
taxable.
What are the exemptions
which are now extended by
this Finance Bill, 2008?
P>Residents of Sikkim would
be eligible for exemption excluding
however non-Sikkimese
spouse of a Sikkimese.
This retrospective benefit is
conferred with effect from
April 1, 1990. Coir Board will
be exempt prospectively
from AY 2009-10.
Another important exemption
relates to any lump
sum or instalments received
in a transaction of a reverse
mortgage. Reverse mortgage
should conform to the
scheme notified by the Central
Government. Broadly, it
represents the amount received
from a lending institution
by the owner of a
house property ordinarily
used for his residence with
such mortgage loan becoming
enforceable on the death
of the owner. Mortgage itself
is a charge and does not involve
transfer, though it relates
to an interest in real
property. Besides, the
amount received being a
loan, whether received in
lump sum or instalment,
should not be taxable even
otherwise. However, the law
makes this position clear by
exempting such transaction
from the purview of taxation
under Sec. 47(xvi) and making
it doubly clear by exempting
the receipts under
Sec. 10(43) of the Act.
(To be continued)
S. RAJARATNAM
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