The Hindu Business Line : What the Finance Bill tweaks mean

The rates of tax applicable to individuals, Hindu undivided families (HUFs), association of persons (AOP) and body of individuals (BOI) on the basis of the amendments moved in the Lok Sabha will be as shown in Table 1.

In the case of women not being senior citizens and who is a resident of India, the rates will be as presented in Table 2.

And in the case of senior citizens being resident of India, the tax rates will be as shown in Table 3.

If the total income exceeds Rs 10 lakh (for all categories), these rates are to be increased by a surcharge of 10 per cent. The additional surcharge at 2 per cent is proposed to be continued. This will be applicable irrespective of the total income.

The rebate of up to Rs 20,000 for senior citizens and up to Rs 5,000 for women not being senior citizens (in both cases persons being resident in India) which are at present available will not be available from assessment year 2006-07 (previous year 2005-06).

Query

What is the change proposed with regard to deduction under Section 80C?

Reply

The rebate under Section 88 is proposed to be withdrawn and in its place a deduction is sought to be introduced through a new Section 80C. This deduction will be permitted from the gross total income of an individual or HUF in arriving at the total income. The overall deduction permitted under this section in computing the total income is a sum of Rs 1 lakh and there are no sub-limits as contained in Section 88. This means that the deduction would be available without having to look at the modes in which the investment is made so long as the investment is in one of the eligible modes/schemes contemplated by Section 80C.

The proposed Section 80C also has provisions similar to Section 88, that the investment/asset should be held for a minimum stipulated period with a difference that if the same is not complied with, the deduction claimed under this section would be treated as income; unlike in Section 88 where it is deemed to be the tax of the assessee.

The contributions to qualify for deductions under Section 80C should be made out of income chargeable to tax. Consequently, it is also proposed to amend Sections 54EC, 54ED, 80CCC and 80CCD to provide that no deduction can be claimed under Section 80C with effect from assessment year 2006-07 where a deduction or exemption is claimed under these sections in respect of the same contributions or investments. The reference to Section 88 is proposed to be removed and in its place a reference is proposed to be made to Section 80C.

It is proposed to retain the deductions under Sections 80CCC in respect of contributions to a pension fund and Section 80CCD in respect of contributions to a pension fund of the Central Government. However, the aggregate of deductions under Sections 80C, 80CCC and 80CCD cannot exceed Rs 1,00,000.

The Finance Bill, as originally presented, spelt out that the deduction would be available only if the payment/contribution was out of income chargeable to tax. The amendment proposes that the deduction would be available whether or not the payment/contribution is out of income chargeable to tax.

Query

What are the changes proposed with reference to the banking cash withdrawal tax?

Reply

It is proposed that no banking cash withdrawal tax will be charged when a withdrawal is made from a savings bank account. If the withdrawal is from any other account from a scheduled bank, the tax will be charged if:

The withdrawal is by an individual or HUF of a sum exceeding Rs 25,000 on a single day.

The withdrawal is by any other person of a sum exceeding Rs 1 lakh on a single day.

The tax will also be charged where there is the encashment of any term deposit from a scheduled bank whether on maturity or otherwise in cash (otherwise than through credit in any bank account) and where the sum exceeds Rs 25,000 on a single day if the person is an individual or HUF and where the sum exceeds Rs 1 lakh on a single day if the person is one other than an individual or HUF.

The said tax will not be charged if a demand draft or any other instrument is purchased by payment in cash. The tax will be charged at 0.10 per cent of the sum withdrawn or encashed.

Mail your queries to taxtalk@thehindu.co.in or by post to Tax Talk', Business Line, Kasturi Buildings, 859, Anna Salai, Chennai-600002.