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PC to simplify tax structure, boost reforms
Haryana gets projects worth Rs 5,000 cr
CII pegs GDP growth rate above 8 pc Market update
All eyes on Budget
Gift taxable at the hands of recipient
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PC to simplify tax structure, boost reforms New Delhi, February 26 Keeping in view the pressures of the Left parties and UPA’s commitment to pursuing reforms with a ‘human face,’ he is likely to emphasise on the consolidation of economic reforms and funding of social projects. Encouraged by the indirect tax collections that are likely to cross Rs 2,00,000 crore this fiscal, well above the target of Rs 1,92,215 crore, good monsoon and a booming economy, he is unlikely to announce new taxes, and may even announce relief to the industry in the fringe benefit tax and the bank cash transaction tax. Official sources said the challenge before the ministry is to plug the loopholes in the tax system and opening up of key sectors like banking for overseas investments, widening of the tax net to garner adequate funds for infrastructure projects, Bharat Nirman, rural development, without annoying the domestic and foreign investors. India’s sizzling share market is hoping that the General Budget for the next fiscal year will significantly hike investment in infrastructure development and further open up the economy for foreign investors. It is also hoped that the
Finance Minister would rationalise income tax rates, both direct and indirect. The finance minister is likely to marginally hike the securities transaction tax on the secondary market equity trades done through the stock exchanges in view of the sharp rally on the bourses in the past one year. Analysts say the government will slash import duty to bring it more in line with Asian neighbours while still pursuing its drive to raise revenue for projects aimed at 260 million poor by phasing out some tax breaks and taxing more services. The ambit of service tax is likely to be enlarged with the addition of new services like medical services, rail and air ticket bookings, along with a roadmap for the adoption of GST on goods and services. The Finance Minister’s eagerness to grab more from services also stems from a desire to cut the fiscal deficit to about 4 per cent of the GDP in 2006-07. The deficit is likely to stand at 4.3 per cent this year. Official sources confirmed that the petroleum duty structure based on the Rangarajan Committee recommendations would be a high priority. Customs duty on crude may become 7.5 per cent, with 10 per cent for downstream products. Even with some calibration in
excise, an increase in the petrol and diesel prices is inevitable while coalition politics may leave the present level of subsidies on kerosene and LPG untouched. To calm down the Left parties, he is likely to continue compensating BPL consumers either through income transfers or stamps with a monetary value for kerosene and foodgrains. Besides, the Budget is expected to offer incentives for investment in infrastructure, particularly power, pipelines, besides lowering the licence fee for better rural tele-density. In agriculture, the FM is expected to move forward to repeal the Essential Commodities Act, Agricultural Marketing Product Act, encouraging cold chains, increasing credit availability to name a few.
What may be in store
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Haryana gets projects worth Rs 5,000 cr
Chandigarh, February 26 Haryana Industries Minister Lachhman Dass Arora said the government was also considering setting up of footwear and leather garments park at Karnal and Bahadurgarh. He said the mega projects with an investment of Rs 100 crore or more besides other projects which would provide employment to more that 500 persons, irrespective of investment to be set up in these backward areas, would be extended the facilities of financial assistance. The minister said customised package of incentives was also available to the prestigious projects having investment of Rs 30 crore and more.
— UNI
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CII pegs GDP growth rate above 8 pc
New Delhi, February 26 According to the CII, higher GDP growth this year is expected mainly due to good monsoon, impressive growth of the manufacturing and services sectors and a higher share of the services sector in the GDP. In its latest state of the economy (SOE) report, the CII has reported a growth rate of 7.8 per cent in the industrial production during April-December 2005. During April-December 2005, inflation stood at 4.7 per cent. The industry chamber feels that forward-looking policy measures would be essential if the inflation is to be contained in the range of 5-5.5 per cent in the next few quarters.
— UNI
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by Lalit Batra
All eyes on Budget
After previous week’s subdued performance, Indian stock markets, resumed their northward journey last week as the bulls came back from their brief siesta. The benchmark indices made new lifetime highs. The 30-share BSE Sensex jumped 219.76 points to settle at 10,200. It struck an all-time high at above 10,300 in intra-day trade on February 23. The S&P CNX Nifty rose 68.55 points to settle at 3,050. In the Rail Budget Railway Minister Lalu Prasad Yadav left freight and passenger fares unchanged. This may positively impact the markets. The major trigger for the market is the Union Budget, 2006-07, to be presented on February 28. The Budget is likely to focus on infrastructure, especially power, agriculture and food processing industries to aid annual GDP growth. While the controversial fringe benefit tax (FBT) is likely to be simplified, the securities transaction tax may be raised. The market has seen a strong pre-Budget run-up and, therefore, any disappointments in the Budget may lead to a sharp correction. However, strong inflows from FIIs and healthy liquidity position with local mutual funds may support the bourses at decline.
Shoppers’ Stop
Shoppers’ Stop is one of the pioneers in setting up one-stop retail outlets, offering lifestyle merchandise and inspirational products, among others. The company has a wholly owned subsidiary - Crossword - that is a specialty retail chain with 31 stores spread across the country. This store specialises in books, gift articles and stationery. The Indian retail industry has gone through a metamorphosis during the past couple of years. From having a mere 2 per cent of the market share in 2002, the organised sector currently has over 3 per cent share and is expected to capture at least 10 per cent by 2010. Indian households’ savings have risen consistently as a percentage of the GDP. The rise has gained steam beginning the early 1990s, the period when the economy was opened up to the market forces. Addition to the income levels of the rising Indian middle class (represented by the financially independent young population) in the times to come and the consequent rise in disposable incomes will fuel growth of the retailing sector. Shoppers’ Stops is going to a big beneficiary. One may expect decent returns from the company’s stock over a three-year period.
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by S.C. Vasudeva Gift taxable at the hands of recipient
Q. I gave interest-free loan, not time-bound of Rs 8.50 lakh to my nephew (son of my real elder brother) during the financial year 2002-03 for house construction. I now want to give this loan amount as gift money to my nephew in view of my natural love and affection for him. Kindly advise whether I can do it. Will there be any tax liability of this amount on being given as gift money either on me or on my nephew. — Harbhajan Singh, H.P. A. The following sub-clause was added to Section 56(2) of the Income-tax Act 1961 (the Act) as amended by the Finance (No. 2) Act 2004. “Where any sum of money exceeding Rs 25,000 is received without consideration by an individual or a Hindu Undivided Family from any person on or after the 1st day of September, 2004, the whole of such sum: Provided that this clause shall not apply to any sum of money received- (a) from any relative; or (b) on the occasion of the marriage of the individual; or (c) under a will or by way of inheritance; or (d) in contemplation of death of the payer. Explanation - For the purposes of this clause, “relative” means - (i) spouse of the individual; (ii) brother or sister of the individual; (iii) brother or sister of the spouse of the individual; (iv) brother or sister of either or the parents of the individual; (v) any lineal ascendant or descendant of the individual; (vi) any lineal ascendant or descendant of the spouse of the individual; (vii) spouse of the person referred to in clauses (ii) to (vi).” It would thus be observed from the above provisions that gift to your nephew does not fall within the exempted category. The amount received by your nephew as gift would thus become taxable as his income under Section 56 of the Act. Tax liability Q: I am a senior citizen. My income for 2005-06 is Rs 60,000 from pension and interest. We (five heirs) want to sell our ancestral house. It will bring Rs 3,00,000. All other heirs will give me their share as gift. Please tell my tax liability and how to minimise or avoid tax. I don’t want to buy any other house. — Keshiv Krishan, Gurdaspur A. According to the information given by you in your query, the sale price of the ancestral house is Rs 3 lakh. It is presumed that the house was constructed/acquired prior to 1st April 1981. The market value of the house as on 1st April 1981 will have to be ascertained so as to arrive at the deemed cost for the purpose of computing the capital gain on the sale of the ancestral house. Such capital gain would be taxable equally in the hands of the five co-owners. Since your income from pension and interest is Rs 60,000 only, your share of capital gain would be less than the amount of Rs 1,25,000 on the aforesaid basis. The maximum amount up to which tax is not payable by a senior citizen being Rs 1,85,000, there should not be any tax liability on account of the longterm capital gain arising as result of the sale of the ancestral house. Section 80C Q. During assessment year 2005-06, saving u/s 80CCC (LIC Pension Scheme maximum up to Rs 10,000) comes as deduction under chapter VI-A and saving u/s 88 (repayment of house building loan excluding interest maximum up to Rs 20,000) considered as deduction under chapter VIII-A. Now, in assessment year 2006-07 saving u/s 80CCC stands as such or shifted to u/s 80C and also repayment of house building loan u/s 80C stands as such or consider as saving how much one’s repay
irrespective of maximum limit Rs 20,000. — S.K. Digra, Pathankot A. Section 80C of the Act has been re-introduced by the Finance Act 2005 w.e.f. 01.04.2006. The said section provides that in computing the total income of an assessee, being an individual or a Hindu Undivided Family, there shall be deduction in accordance with and subject to the provisions of this section, the whole of the amount paid or deposited in the previous year, being the aggregate of the sums referred to in the said section as does not exceed Rs 1 lakh. One of the items covered by the said Section is the amount paid towards repayment of house building loan. Accordingly, w.e.f. assessment year 2006-07, the deduction in respect of such repayment can be allowed to the extent of Rs. 1 lakh under Section 80C of the Act. The deduction, which was allowable under Section 80CCC of the Act up to assessment year 2005-06, also stands included in Section 80C of the Act and as per section 80CCE of the Act, the aggregate amount of deductions under Section 80C, 80CCC and 80CCD are limited to the amount of Rs. 1 lakh only. Relief u/s 91 Q. I am working as a software engineer in a reputed company. I was sent to Hong Kong for employment on 24th October 2004. I returned from Hong Kong on 23rd July 2005. We have tax deduction at source (TDS) when I was staying in India. I sent nearly Rs 3 lakh from my salaried personal account in India. But after that I transferred the amount to my parents and friends from the personal account in India. I don’t have an NRI account Do I need to pay tax for what I had transferred from Hong Kong or how can I lessen my taxes if need to pay the taxes for what I had earned in Hong Kong? — Satish Reddy A. The information given by you in respect of your stay abroad indicates that you were resident for the assessment year 2005-06 having left India on 24th October 2004 since you were in India for a period more than 182 days in the financial year ending 31st March 2005. Similarly for the assessment year 2006-07, you would be resident, as you would be in India for a period amounting in all to 182 days, having returned from Hong Kong on 23rd July 2005. In view of the above, for assessment year 2005-06 and assessment year 2006-07 you would be taxed on the world income received by you whether in India or in Hong Kong for the aforesaid assessment years. You would, however, be entitled relief under Section 91 of the Act as there is no Double Tax Avoidance Agreement with Hong Kong. You would be entitled a deduction from the Indian income tax payable of the tax paid in Hong Kong at the Indian rate of tax or the rate of tax in that country whichever is lower. You will not have to pay any tax on the amount transferred from Hong Kong as the same would be out of taxable salary. Section 56 Q. Kindly clarify the following points:- i) I as Karta of my HUF was a member of a group housing society. After paying a sum of Rs 6 lakh to the society, I transferred the paidup interest/share to the HUF of my son. The balance amount of Rs. 14 lakh was paid by my son as individual from his own resources. How will be ownership/title of the flat be held between the HUF of my son and his individual capacity? ii) How can my son transfer his share in the flat as individual to his HUF? What formalities are required to be observed? Can a consent decree from a civil court be of any help? Will it be binding on the Income Tax Deptt? — V.S. Chaudhri, Karnal A. The information given by you does not indicate whether the amount paid by your HUF to your son’s HUF was a gift or a loan. If it is a loan, it will have to be returned by your son’s HUF to your HUF. If the said amount has been given as a gift after 1st day of September 2004, the amount of Rs 6 lakh would be taxed in the hands of your son’s HUF as the income of the said HUF in view of the amended provisions of Section 56(2) of the Act. The ownership of the flat will have to be decided on the basis of the funds provided by various persons and the ownership would, thus, be in the same ratio in which the investments have been made by various persons. I may also add that the gift by your HUF to your son’s HUF may have some legal connotations on account of the fact that the minor co-parceners of your HUF can contest the right of the Karta to give a gift as the right of Karta to make a gift of HUF property is not absolute. According to Section 64(2) of the Act, any conversion of impression of an individual property as an HUF property is disregarded for the purposes of the Act. The income derived from such HUF property is treated as the income of the individual who has converted or impressed his individual property as HUF property. In view of these provisions, no consent decree can override the provisions of the Act. |
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