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Don't Expect big changes in direct taxes in Budget 07-08By djain128, Section Finance & Taxes
Tax payers may have to wait at least a year for some big-ticket changes in the direct tax policy. The finance ministry has decided to introduce key changes in direct taxes in the revised income tax Bill rather than pushing them in the coming Budget.
The impact of these critical changes will be felt only from 2008-09. Action on direct taxes in the forthcoming Budget could be limited to extending the scope of minimum alternate tax (MAT). Substantive changes in the tax treatment of charitable institutions, phaseout of some open-ended I-T exemptions and taxation of non-residents, including PE investors and FIIs, are set to be reflected in the revised I-T Bill or the direct tax code. While the government plans to table this Bill after the 2007-08 Budget, indications are that it will take a year for the policy changes to come into force. Over the past few years, the government has been tightening the reporting requirements of charitable institutions to capture the flow of unaccounted money in the economy. These institutions have to pay income tax now on anonymous donations. Pruning of tax sops for these institutions could be reflected in the direct tax code. In an interview to ET last month, finance minister P Chidambaram had said the government wants to end some exemptions and also ensure that new ones do not get grafted in the direct tax code. Currently, companies enjoy two kinds of open-ended I-T exemptions. One, where the exemption is perennial. Two, where the exemption is for a finite period but companies are free to claim it at any point in time. The tax deduction available to companies under a section in the Income Tax Act known as 80G falls in the first category. Companies can claim a tax deduction on donations to charitable trusts and institutions under this section. The second category of open-ended exemptions includes the tax holiday for developers of special economic zones (SEZ). This is billed as the biggest I-T exemption, estimated to cost the government around Rs 1,00,000 crore. Another benefit is the tax holiday available to a host of infrastructure service providers under Section 80 IA of the Income Tax Act. The exemption has no terminal date, unlike in the case of investments in the power sector where a developer cannot claim 80 IA benefits after March 2010. Tax breaks are also available to companies engaged in commercial production and or refining of mineral oil for seven years, whenever it is commissioned. The government may stipulate the time period for ending some of these exemptions in the direct tax code. click full story for more.....
Similarly, individual tax payers also enjoy several tax breaks on savings and investments. For instance, a deduction from income tax is available up to Rs 1 lakh on the principal amount paid for a home loan. A tax payer can also get tax benefit on payment of tuition fees. Although these are non-financial instruments--unlike bank deposits, PPF, insurance premia--a deduction is allowed under Section 80 C of the Income Tax Act.
One option will be to remove these two categories of expenses from Section 80 C and move it to a separate section. Such a shift may be warranted if the government decides to tax savings instruments at the time of maturity. This could mean a policy change. Another area that could see major changes is the taxation of non-residents. The introduction of anti-abuse rules in the domestic law to curb the practice of treaty shopping, controlled foreign corporation regulations, norms on thin capitalisation and so on are likely to be incorporated in the direct tax code. Provisos and explanations in the existing Act are proposed to be done away with. A provision usually refers to the exceptions in a particular section in the legislation. In a sense, it restricts the scope of the section. An explanation, on the other hand, clarifies the scope of a particular section in the legislation. But tax payers find these difficult to comprehend. All the provisions will be made simple, shorter and easier to understand in the direct tax code. source http://www.indiancaonline.com/story/2007/2/22/74743/0301
Don't Expect big changes in direct taxes in Budget 07-08 | 0 comments (0 topical, 0 hidden)
Related Links. tuition. http://www .indiancaonline.com/story/2007/2/22/74743/0301 . Also by djain128 |
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