The Hindu Business Line : Positives, negatives

As Budget 2009 was read out by the Finance Minister, the stock market plummeted. While various industries have differing perceptions on the impact of the Budget, the provisions of income-tax law have been tinkered with. What follows is an analysis of the various amendments applicable to non-corporate taxpayers.

Positive changes

Limited liability partnership (LLP), a new kind of business entity, has been given due recognition under the tax law, by including it in the definition of the term ‘firm’ contained in the Act. This has been neatly done in the Bill.

Again, for firms, working partner salary is allowable at Rs 1,50,000 even where the firm incurs a loss or the book profit is less than the said sum.

Similarly, the limits for working partner salary have been pruned to two-tier slabs of 90 per cent and 60 per cent. The present 40 per cent slab has been dispensed with.

For all entities — whether retail or wholesale, manufacture or trade — for turnover up to Rs 40 lakh, books of account need not be maintained if the taxpayer opts and admits income at 8 per cent of the turnover.

For firms, on such estimated income, interest on capital and working partner salary could be reduced.

As a further relief, the TDS provisions would not apply to these entities. This is a welcome change as the small business entities have to maintain only basic records to compute the turnover details for compliance. However, this presumptive scheme is not applicable for LLPs.

Tax deduction in respect of contract payments has been reduced to 1 per cent where the payee is an individual or HUF. In the case of other recipients, it has been retained at 2 per cent.

This is a welcome change as the reduction in TDS rate would result in lesser refund claim on filing the return.

Negatives

Voluntary retirement compensation exempt under Section 10(10C) has been eligible for tax relief under Section 89. The Finance Bill, 2009 says that relief under this Section can be claimed only once. This seems to be a retrograde step.

Expenditures in excess of Rs 20,000 are to be routed through banking channels by means of a regulatory provision contained in Section 40A(3). This monetary limit was prescribed long ago and Budget 2009 has enhanced the limit to Rs 35,000 applicable only in respect of freight charges paid to goods carriers. This limit could have been raised to cover all expenses.

In the case of immovable property transfer where no document is executed, the provisions of Section 50C were not applicable. It was an apparent lacuna in law which provided cover from the controversial legal provision.

Now, in the Budget, an Explanation has been added to tax those events also. Instead of removing the unjustified legal provision, Budget 2009 has improvised the same akin to approval. This is not a welcome change.

With the abolition of gift tax levy about a decade ago, transfer of assets had no tax implication. Recently, cash gifts from non-relatives were taxed. Now gifts of both movable and immovable assets are proposed to be taxed as income where the value exceed Rs 50,000.

However, as a consolation, any expenditure incurred for obtaining that gift up to 50 per cent of the value is eligible for deduction. In effect, taxing gifts, whether in cash or kind, has become complete in this Budget.

The due dates for quarterly filing of TDS/TCS returns have been dispensed with and now the statements have to be furnished for such period as may be prescribed by the administrative authority, that is, the CBDT.

Since the law was clear till now, the need for resorting to delegated legislation seems to be unwarranted and might only create confusion. This change seems to be unnecessary.

(The author is an Erode-based chartered accountant.)

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