Now that the Finance Bill has received the assent of the President, it is time to evaluate the net gains to the taxpayer and the Government. Between the presentation of the Budget and its final passing by Parliament, certain amendments were effected in the Finance Bill.

The sunset clauses under Sections 10A and 10B of the Income-Tax Act 1961 have been extended and exemptions will be continued until March 31, 2010. These sections make special provisions in respect of newly established undertakings in Free Trade Zones (FTZs) and 100 per cent Export-Oriented Undertakings (EOUs).

Serving of Notice

The Finance Bill laid down that if the taxpayer appeared in any proceedings or cooperated in any enquiry relating to an assessment or reassessment, it shall be deemed that any notice under the I-T Act has been duly served in time in accordance with the provisions of the Act.

The assessee shall be precluded from taking any objection that the notice was not served or not served in time or not served in a proper manner. This amendment to Section 292BB evoked protests before the passing of the Bill.

The Finance Minister inserted provisions in the Section laying down that the amended provision will not apply wherever the assessee has raised objections before the completion of such assessment or reassessment.

This is a welcome change in the attitude of the Government. Taxpayers need not resort to writ petitions in the High Court to challenge notices from the department. They can register the objection and pursue the matter in appeal.

At the discussion stage in Parliament, the Government accepted the suggestion that audit report under Section 44AB should also be obtained on or before September 30 of the assessment year (AY) w.e.f. the AY 2008-09. This is in line with the amendment to Section 139 which requires returns to be filed on or before September 30.

Depreciation in books

The Finance Act has added Explanation 6 to Section 43(6) retrospectively from AY 2003-04 to deem depreciation provided in the books, as depreciation actually allowed for determining the written-down value (WDV) even though due to various circumstances of the case, such depreciation might not have been actually allowed in any assessment year.

This amendment seems unfair. Deprecation is for the age of the asset and its user. The Supreme Court had held that the WDV will have to be determined after reducing depreciation due for an assessment year even if it is not actually allowed (Straw Products vs ITO -- 68 ITR 227).

This was followed by the Income-Tax Appellate Tribunal (ITAT) in the recent Kandla Port Trust vs Assistant (CIT 104 ITD 1 Rajkot) case. The present amendment annuls these rulings.

A significant amendment has been effected in Section 35D relating to amortisation of preliminary expenses. This benefit was hitherto available only to industrial undertakings. The amendment now extends this benefit to the services sector. The benefit hitherto confined to the manufacturing sector for the extension of the undertaking or the setting up of a new unit will hereafter be available even to non-industrial unit. This is a big gain.

The Finance Act, 2008 represents a sea-change in the attitude of the Government with regard to the levy of taxes. As there is no system for adjusting tax brackets automatically for inflation, the Government has thought it fit to make an upward revision of tax slabs and exemption limits without lowering the tax rates.

The euphoria generated by this revision is already evaporating with inflation touching 8 per cent. European fiscal pundits are fond of criticising the tax system in Europe as leading to what they called "cold progression". Taxpayers are pushed into higher tax brackets even when real incomes have not risen. Inflation is itself a hidden tax.
Tax exemption limit

The lifting of the threshold for applying the tax rates may not be sufficient in inflationary times. This is especially true in the case of senior citizens with fixed incomes. Section 88B allowed a rebate of tax up to Rs 20,000 to senior citizens.

The Finance Act, 2005 provided for exemption limit of Rs 1,85,000 to senior citizens in lieu of the rebate. This was raised to Rs 1,95,000 last year and Rs 2,25,000 this year.

The senior citizen gets a relief of Rs 7,500 in 2008 when they were getting a relief of Rs 20,000 under the old Section 88B. The liberalisation of health insurance premium for parents under Section 80D is not much of a help.

Not many insurance companies are enthusiastic to extend insurance schemes to those aged above 70 years. While the general exemption limit has been increased by Rs 40,000 (from Rs 1,10,000 to Rs 1,50,000), the increase in the exemption limit for senior citizens is just Rs 30,000.

Many senior citizen must be wishing that the scheme of rebate under Section 88B will be restored instead of the misleading higher exemption limit.