QUESTIONS & ANSWERS
Changes proposed in the Finance (No.2) Bill, 2009
What are the changes in respect of personal taxation proposed by the Finance (No.2) Bill, 2009?
Present exemption limit has been raised by Rs. 10,000 to Rs. 1.60 lakh. The limit for women is raised by Rs. 10,000 to Rs. 1.90 lakh. For senior citizens, it is raised by Rs. 15,000 to Rs. 2.40 lakh. This will be effective for the income of current financial year 2009-10, that is, assessment year (AY) 2010-11.
Surcharge at 10 per cent for personal taxation is removed. Those with income above Rs. 10 lakh are now liable for surcharge at 10 per cent will be the beneficiaries from AY 2010-11.
Sec. 80DD, which gives deduction for maintenance and support of a dependent relative with disabilities is Rs. 50,000 and for serious disability at Rs. 75,000, the latter limit alone is now enhanced to Rs. 1 lakh per annum. There is no similar enhancement of deduction for disabled persons under Sec. 80U.
Deduction for interest for educational loan under Sec. 80E is extended for graduate courses as well as for specified subjects.
Wealth tax limit is enhanced from Rs. 15 lakh to Rs. 30 lakh. The limit for payment of advance tax is now raised from Rs. 5,000 to Rs. 10.000 for the current year itself. Cash gifts from non-relatives received by an individual or a Hindu Undivided Family (HUF) is taxable under Sec. 56(2)(vi). Now it is proposed to be substituted by Sec. 56(2)(vii) to include gifts in kind as well as with basic exemption limit continuing at Rs. 50,000. This will be effective from October 1, 2009.
Retirees under voluntary retirement scheme are eligible for deduction up to Rs. 5 lakh under Sec. 10(10C). Courts have held that the taxable part of such receipts can get spread over benefit under Sec. 89 so as to avoid the tax at a higher slab rate for bunched income. An amendment to Sec. 10(10C) would deny the relief with effect from AY 2010-11 with hardly any logical justification.
Assessment of firms
What are the changes proposed for assessment of firms?
Limited Liability Partnership (LLP) will also be treated as a firm so that all provisions applicable to a firm will continue to be applicable for LLP as well. Sec. 167C provides that the limited liability of partners of LLP will not avoid personal liability of a partner for tax dues, which could not be collected from the LLP. Though conversion of existing firm to LLP will avoid liability for capital gains tax, Sec. 45 will continue to be applicable on distribution of assets to a partner on dissolution or otherwise.
Sec. 40(b) is also incidentally to be amended to provide for a higher ceiling for payment of admissible salary to partners in computation of firm’s income. It is noticed that there is no surcharge also for firms from AY 2010-11.
Charities
How are charities treated
Amendment to the definition of charitable purpose under Sec. 2(15) of the Act by the Finance Act, 2008, with effect from April 1, 2009 had deprived exemption for those trusts and institutions with the object of general public utility with business income. It is now relaxed only for those engaged in preserving the environment, which will include watersheds, forests and wild life and those engaged in preservation of monuments or places or objects of artistic and historic interest. In view of the many other objects, which are equally laudable, the relaxation is too narrow.Time limit for application for recognition of exemption under Sec. 10(23C), which was the end of the previous year, is now proposed to be extended to the end of first half of the succeeding year.
The basic exemption for anonymous donations, which were brought to tax under Sec. 115BBC with effect from AY 2007-08 will be 5 per cent of income or Rs. 1 lakh, whichever is higher. The excess will be taxed at 30 per cent. Wholly religious trusts and institutions will continue to be exempt without limit.
The need for periodical renewal of recognition under Sec. 80G to enable deduction for donations to charities in the hands of donors will hereafter be a perpetual one. Existing approval as on October 1, 2009, will not require renewal on expiry of present approval. However, power of withdrawal of recognition for any contingency requiring such withdrawal is specifically available to the Commissioner.
MAT
What are the changes to be brought about in respect of MAT?
The rate of tax for Minimum Alternate Tax (MAT) will be increased from 10 per cent to 15 per cent, while the tax credit from tax paid against regular tax on shift from MAT basis to regular basis will now be available up to ten years. Provision for bad debt, as consistently held by the Courts, including the Supreme Court, to be allowed as an ascertained liability, is proposed to be disallowed in computation of book profits, a step definitely retrograde.
(To be continued)
S. RAJARATNAM
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