Individual Taxation
• Rates of taxation
- Basic exemption limit for Individuals is proposed to be revised and the tax rates shall be as follows:
Income (INR) Tax Rate
Upto INR 110,000 Nil*
INR 110,001 to 150,000 10%
INR 150,001 to 250,000 20%
Above INR 250,000 30%
* Basic exemption for women is INR 145,000 and for Senior Citizens is INR 195,000.
In addition to the above:
• surcharge to be levied @ 10% on income above INR 1,000,000;
• cess called the "Education Cess on income-tax" to be levied at the rate of two percent of income-tax and surcharge;
• additional cess called the "Secondary and Higher Education Cess on income-tax" at the rate of one per cent of income-tax and surcharge.
Corporate Taxation
• Rates of taxation (other than MAT):-
– Domestic company (taxable income> 1 crore): 33.99%
– Domestic company (taxable income<= 1 crore): 30.90%.
– Foreign company (taxable income> 1 crore): 42.23%
– Foreign company (taxable income<= 1 crore): 41.20%.
• Rates of taxation (MAT):-
– Domestic company (taxable income> 1 crore): 11.33%
– Domestic company (taxable income<= 1 crore): 10.30%.
– Foreign company (taxable income> 1 crore): 10.5575%
– Foreign company (taxable income<= 1 crore): 10.30%.
Widening of Minimum Alternative Tax (MAT)
• The exemption from MAT presently allowed in respect of exempt income of STPI/EOU under the provisions of sections 10A and 10B is proposed to be withdrawn.
Tax on distributed profits of domestic companies
• The rate of additional income tax on distributed profits (dividend distribution tax) is proposed to be increased from 14.025% to 16.995% w.e.f April 1, 2007.
Scope of Income
• An explanation is proposed to be inserted after sub-section (2) of section 9 to provide that where income of the nature of interest, royalty and fee for technical services is deemed to accrue or arise in India, it shall be included in the total income of the non-resident, whether or not the non-resident has a residence or place of business or business connection in India. (w.e.f. June 1, 1976)
Exemptions
• Clause (23FB) of section 10 is proposed to be amended to exempt the income of a venture capital company from investment in a venture capital undertaking engaged in the specified business of:
- nanotechnology,
- information technology relating to hardware and software development,
- seed research and development,
- bio-technology,
- research and development of new chemical entities in the pharmaceutical sector,
- production of bio-fuels,
- building and operating composite hotel-cum-convention centre with seating capacity of more than three thousand; or
- dairy or poultry industry.
Section 10AA providing tax holiday for SEZ units, is proposed to be amended to provide for the following additional conditions to be fulfilled by the undertaking in order to be eligible for deduction under the section:
- it is not formed by the splitting up, or the reconstruction, of a business already in existence;
- it is not formed by the transfer to a new business of machinery or plant previously used for any purpose.
Other provisions are also proposed to be incorporated in section 10AA in respect of the above which are in alignment with section 80-IA.
Salary Income
• Deeming provision in respect of perquisite on account of concessional rent is proposed to be inserted in section 17(2) (w.e.f. April 1, 2004).
Fringe benefit tax (FBT)
• The scope of fringe benefits is proposed to be widened w.e.f. April 1, 2008 to include any specified security or sweat equity shares (ESOP’s) allotted or transferred by the employer to the employee free of cost or at a concessional rate. The value of such fringe benefit shall be the fair market value of the specified security or sweat equity on the date of exercise of option by the employee as reduced by the amount actually paid or recovered from the employee.
• Expenses on display of products and expenses on distribution of samples either free of cost or at concessional rates is proposed to be excluded from levy of FBT.
• The due dates and rates for payment of advance FBT are proposed to be brought in line with the corporate and non-corporate advance tax dates and rates.
Business Income
• Time limit for availing weighted deduction in respect of scientific research expenditure on in-house R&D facility in biotechnology or in the manufacture or production of drugs, pharma, electronic equipments, computers, telecom equipments etc. is proposed to be extended by another 5 years to March 31, 2012.
• Deduction under section 36 on account of insurance premium paid by cheque on the health of employees is proposed to be extended to payments made by all modes of payment other than cash.
• Deduction available to banks and financial institutions on account of provision for bad and doubtful debts is proposed to be extended to co-operative banks excluding primary agricultural credit society and primary co-operative agricultural and rural development bank.
• Deduction under section 36(1)(viii) to certain entities is proposed to be limited to 20% from existing 40% on account of special reserve created. The provision is proposed to be restructured to provide for deduction to specified entities (including co-operative banks) carrying out eligible activities.
• Payments exceeding Rs.20,000 made otherwise than by crossed cheque/bank draft are proposed to be disallowed in entirety. Where expenditure is claimed in a year and payment made in subsequent year in violation of the provisions, such payments shall be deemed as profits and gains of business or profession in the year of payment.
• Benefit of carry forward of accumulated business loss and unabsorbed depreciation available to amalgamated company is proposed to be extended to public sector companies engaged in the business of operation of aircraft.
Capital gains exemption
The capital gains exemption on reinvestment of gains arising form transfer of long term capital assets in specified bonds available under section 54EC is proposed to be restricted to Rs. 50 lacs per investor per year
Deductions under Chapter VIA
• Tax benefit on account of contribution to notified pension scheme is proposed to be extended to all employees with retrospective effect from April 1, 2004.
• Limit of deduction under section 80D on account mediclaim insurance premia is proposed to be increased from Rs.10,000 to Rs.15,000. In the case of senior citizens, the limit is proposed to be increased from Rs. 15,000 to Rs.20,000.
• Interest paid on loans taken for higher education of spouse and children proposed to be deductible under section 80E.
• ‘Infrastructure facility’ for the purpose of tax holiday under section 80-IA is proposed to be expanded to cover navigational channel in the sea, thus extending 100% tax holiday for 10 years.
• Tax holiday under section 80-IA is proposed to be extended to undertakings/enterprises engaged in the business of laying and operating cross country natural gas distribution network subject to fulfillment of certain conditions. Tax holiday shall be 100% for 10 years.
Time limit for generation or transmission or distribution of power by an undertaking of an Indian company set up for reconstruction or revival of a power generating plant is proposed to be extended to March 31, 2008 for availing the tax holiday under section 80-IA.
• Clarificatory amendment in section 80-IA is proposed, to provide that the provisions of section would not apply to the persons merely executing the civil construction work or any other works contract entered into with the undertaking or enterprise referred to in the said section with retrospective effect from April 1, 2000.
• Time limit for setting up of industrial undertakings in the state of Jammu & Kashmir for availing tax holiday under section 80-IB is proposed to be extended by another 5 years to March 31, 2012.
• Tax holiday of 5 years is proposed to be provided to hotels (two, three or four star) and convention centres located in the NCT of Delhi and the districts of Faridabad, Gurgaon, Gautam Budh Nagar and Ghaziabad, provided the construction is completed and operations are started during April 1, 2007 to March 31, 2010.
Tax Appeals
• Appealable order before the Commissioner (Appeals) is proposed to include order holding a person as an assessee in default under section 206C(6A)
• Provision of appeal by a person denying liability to deduct tax under section 195 of the Act is proposed to be restricted to person who has paid the tax deductible on income of the non-resident under ‘net of tax’ arrangement and who is denying that any tax was deductible. The prescribed time shall be counted from the date of payment of tax.
• Appellate Tribunal is proposed to be empowered to grant stay for a period not exceeding one hundred and eighty days and where the appeal is not disposed off within the said period the Appellate Tribunal may further extend the period(s) not exceeding in aggregate three hundred and sixty five days. The stay would stand vacated after the expiry of such period where the appeal is not disposed off.
Special audit of accounts and expenses related to the same
An opportunity of being heard is proposed to be given to the assessee before directing a special audit of its accounts.
The expenses on such special audit to be determined by the Chief Commissioner/Commissioner of Income Tax and paid by the Central Government (w.e.f. June 1, 2007).
Transfer Pricing
To ensure meaningful transfer pricing audit by the Transfer Pricing Officers (TPOs), the time limit for completion of assessment / reassessment is proposed to be increased by twelve months wherever reference is made to the TPO for determination of arm’s length price. It is also proposed that the TPO would determine the arm’s length price at least sixty days before the expiry of new statutory time limit for making the assessment / reassessment. It is further proposed that the Assessing Officer would proceed to compute the total income of the assessee in conformity with the arm’s length price so determined by the TPO.
Interest on securities
• TDS is proposed to be made applicable in respect of interest exceeding Rs. 10,000 payable on 8% Savings (Taxable) Bonds 2003 during a financial year. This is applicable w.e.f. June 1, 2007.
Interest other than interest on securities
• W.e.f. June 1, 2007, the threshold limit for non deduction of tax at source of Rs. 5,000 is proposed to be increased to Rs. 10,000 where the payer is a banking company or co-operative society engaged in the business of banking or a deposit with post office under any scheme framed by the Central Government.
Payment to Contractors and sub contractors
• It is proposed that individuals or HUFs whose total sales, turnover or gross receipts exceeds the monetary limits specified under section 44AB are required to withhold taxes on payments made to contractors w.e.f. June 1, 2007. However, no tax would be required to be withheld in case where such sum is paid or credited exclusively for personal purposes.
Commission or brokerage
• TDS rate on commission is proposed to be increased from 5% to 10% w.e.f. June 1, 2007. No tax to be deducted on payments of commission or brokerage by Bharat Sanchar Nigam Limited or Mahanagar Telephone Nigam Limited to their public call office franchisees.
Rent
• TDS rates are proposed to be altered as under w.e.f. June 1, 2007:
– 10% for use of plant and machinery
– 15% for use of any land or building (including factory building) or land appurtenant to a building or furniture or fittings where the payee is an individual or a HUF
– 20% for use of any land or building (including factory building) or land appurtenant to a building or furniture or fittings where the payee is a person other than an individual or a HUF
Fees for professional or technical services
• TDS rate on royalty, fees for professional or technical services etc. is proposed to be increased from 5% to 10% w.e.f. June 1, 2007.
Others
• The provisions pertaining to Settlement Commission are proposed to be revamped with a view to avoid delay in determining the tax liability of tax payer and also with a view to streamline the proceedings.
• To rationalize the penalty provisions, it is proposed that the amount of tax sought to be evaded in cases for failure to furnish returns shall mean the tax on total income assessed as reduced by the amount of advance tax, tax deducted at source, tax collected at source and self assessment tax paid.
• Definition of capital asset is proposed to be amended to include archaeological collections, drawings, paintings, sculptures, or any works of art.
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