Published Editorial

TIMES guide to indirect tax

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Times of India

Proposal: The basic threshold limit for taxpayers is proposed to be increased from Rs 2 lakh to Rs 2.5 lakh and for resident senior citizens is proposed to be increased from Rs 2.5 lakh to Rs 3 lakh. No change is proposed in existing rates of surcharge and education cess.

Impact: The increased basic threshold limit will enable maximum tax savings up to Rs 5,665.

P: The maximum deduction limit under Section 80C is proposed to be increased from Rs 1 lakh to Rs 1.5 lakh.

I: This will enable maximum tax savings up to s 16,995 and encourage household savings and investments.

P: The maximum deduction limit in respect of interest on home loan for 'self-occupied property' is proposed to be raised from Rs 1.5 lakh to Rs 2 lakh.

I: This will translate into maximum savings up to Rs 16,995. The condition that acquisition or construction of property should be completed within 3 years from the end of the financial year in which the loan was taken continues.

P: Unlisted securities and mutual funds (other than equity oriented) to qualify as 'long-term capital asset' if held for more than 36 months (earlier limit: 12 months).

I: This may result in higher tax on sale of unlisted securities and mutual funds held for more than 12 months but up to 36 months. Earlier, such unlisted securities were taxable at the rate of 20% and such listed mutual funds were taxable at the rate of 10% without indexation (indexation is adjustment for cost of inflation) or at 20% with indexation, whichever is lower. In both the cases, now, the gains will be taxable at applicable slab rate.

P: Tax rate on sale of long-term listed mutual funds (other than equity-oriented mutual funds) is proposed to be increased from 10% to 20%.

I: Sale of listed mutual funds (other than equity-oriented mutual funds) held for a period of more than 36 months will be taxed at the rate of 20% with indexation. Earlier, such gains were taxable at the rate of 10% without indexation or 20% with indexation, whichever lower.

P: Advance received and forfeited for transfer of a capital asset — such as an apartment — is proposed to be taxed as 'other income'.

I: Advance received in the course of negotiations for transfer of a capital asset will be taxable as 'other income' if such sum is forfeited and the negotiations do not result in actual transfer.

P: Annual limit for investment under Public Provident Fund (PPF) is proposed to be increased from Rs 1 lakh to Rs 1.5 lakh.

I: This will encourage increased savings in PPF. Also, this will yield additional tax exempt interest income for the taxpayer. The overall limit available under section 80-C for certain categories of investments - such as post office saving scheme, NSC et al (including PPF) will increase to 1.5 lakh.

P: Deduction for investment in New Pension Scheme (NPS) proposed for all private sector employees irrespective of the date of joining.

I: This will make the scheme more attractive for all employees, including those who joined their organization before January 1, 2004.

P: Exemption from tax on long-term capital gains on sale of residential property or any other asset is proposed on re-investment in only one residential house in India.

I: This clarifies that the exemption will not be available in respect of re-investment made in more than one property and/or re-investment in property outside India.

P: Maximum tax exemption on long-term capital gains for total re-investment in certain bonds is proposed to be capped at Rs 50 lakh.

I: This clarifies that the tax exemption will be limited to Rs 50 lakh even where re-investment in bonds is split between two different financial years.

P: It is proposed to calculate dividend distribution tax on 'gross' dividend instead of 'net' dividend. I: This may lead to lower amount of actual dividend received by the share / mutual fund holder.

P: Employee Provident Fund and Pension Scheme - Increase in threshold limit for mandatory coverage of employees, increase in monthly pension limit and introduction of 'Uniform Account Number'.

I: The increase in threshold limit will require employees with monthly pay up to Rs 15,000 to mandatorily become members of Employee Provident Fund Scheme. Earlier, such limit was set at Rs 6,500 per month. Also, employees covered under Employee Pension Scheme will receive a minimum monthly pension of Rs 1,000. The Provident Fund is also proposing to implement 'Uniform Account Number' for employees which will allow portability of funds on change of employment.