TAXING times

Taxes: what's in it for you

Finance Minister P Chidambaram has kept both individuals and corporates happy by keeping the tax rates intact and not introducing any new direct tax. He has indirectly hit both the categories by raising the services tax rate to 12 per cent from 10 per cent. So now, you would need to pay a little more if you dine out or buy some luxury good. More services are to be brought under the tax net. If you are a stockmarket investor, you would need to pay a little more as the securities transaction tax (STT) has been raised by 25 per cent. The cash transaction tax has also been retained. However, he has introduced some sops for certain category of people by abolishing the one-by-six scheme under the Income Tax Act for filing returns.
Chidambaram has proposed to include investments in fixed deposits in scheduled banks for a term of not less than five years in Section 80C of the Income Tax Act, thus responding to the demand for tax exemption on FDs of certain tenure. He has also proposed to remove the limit of Rs 10,000 in respect of contribution to certain pension funds in Section 80CC, subject to the overall ceiling of Rs 1 lakh. The Finance Minister has also proposed to remove the exemption under Section 10(23G), which he said, was not relevant when interest rates are moderate. Chidambaram's decision to keep the personal and corporate taxes intact may also have stemmmed from a healthier fiscal situation thann anticipated. The Government sees its revenue deficit for 2005-06 at 2.1 per cent of GDP compared to budgeted 2.6 per cent. The Finance Minister hopes to raise an additional Rs 6000 crore from the tax proposals.
Industry captains lauded the Finance Minister for measures to bring in fiscal discipline and cut deficit but had a mixed view on new tax proposals burdening the capital market. "The industry will be happy as there are no major negatives. It has cut down customs duty and has covered lot of industries as well," CII chief mentor Tarun Das said. JM Morgan Stanley chairman Nimesh Kampani termed the budget as a good development on fiscal side. "I think the Minister has done a great job in fiscal deficit, which will be 3.8 per cent of GDP in 2006-07," he said. Kotak Mahindra Bank vice-chairman Uday Kotak also welcomed the budget saying it was a positive budget at micro-level and was good for long term investors.
However, Ruchir Sharma of Morgan Stanley said it was an "innocuous budget" and there were no policy initiatives to take the market to higher levels. "The market hoped much more than reforms... even the Prime Minister had talked about out of the box thinking," he regretted.

FBT Implications

Agreeing to the persistent demand from industry chambers, the government on Tuesday watered down the Fringe Benefit Tax provisions, introduced last year, a move that will help employers give better perks and facilities including superannuation schemes and tour and travel to employees with less tax burden.
Announcing the changes in the Budget proposals, Finance Minister P Chidambaram doubled the limit to Rs two lakh contributed by an employer to an approved superannuation fund for tax exemption.
Tour and travel expenses will now attract just five per cent as FBT instead of 20 per cent levied last year.
In case of airline companies and shipping industry offering hospitality and hotel boarding and lodging facilities will have to pay five per cent as FBT compared to 20 per cent levied earlier.
Free samples of medicines, medical equipment distributed to doctors and expenses incurred on brand ambassadors and celebity endorsement have been excluded from the ambit of FBT.