Amendments to Finance Bill, 2001 - Some relaxations

QUESTION: What are the changes that have been brought in the Finance Bill, 2001 at the time of its passage in Parliament?

ANSWER: There are as many as 34 amendments relating to the income-tax provisions in the Finance Bill, 2001 before it has to become an Act as passed by both the Houses. Some suggestions have been accepted by the Government, but by and large the more serious ones have become the law with little discussion in the Parliament as it has happened for the past few Finance Bills.

The main changes in the Finance Bill are as below:

Standard deduction

Standard deduction is enhanced by 5 per cent for some classes of salaried employees and pensioners. The proposed rates of standard deduction are: (1) For persons with salary not exceeding Rs. 1.50 lakhs - 33 1/3 per cent of salary or 30 per cent whichever is less; (2) for persons between Rs. 1.50 lakhs and Rs. 3 lakhs - 25 per cent and (3) for persons with salary exceeding Rs. 3 lakhs but not exceeding Rs. 5 lakhs - Rs. 20,000. This is a relief which was not provided in the Bill.

Stock option scheme

Stock option schemes which had been earlier proposed to be approved by the Securities and Exchange Board of India is not now required to be so approved, since the SEBI has been substituted by the Central Government by way of amendment to the Bill in Section 17(2). Hopefully the rigidities found in SEBI regulations to qualify for exemption will not be found in the proposed guidelines.

Depreciation on foreign cars

Foreign cars are not eligible for depreciation under the present law. A foreign car purchased on or after April 1, 2001 will hereafter qualify for depreciation. Was this decision, which will encourage greater use of foreign cars, a wise decision from the point of view of the economy?

VRS payment

The deduction by staggering VRS payment was proposed to be available only for such scheme following the guidelines prescribed under Rule 2BA read with Sec. 10(10C) in the Bill, but this requirement is now dropped so that the Rule will be relevant only for exemption under Sec. 10(10C) and not for deduction of VRS payment in instalments.

Charitable institutions

Charitable institutions were allowed to carry forward the unutilised income up to ten years with the permission of the assessing officer. This was sought to be reduced to five years by the proposal in the Finance Bill. There is no going back in the curtailment of the period, which will hence forward apply to institutions exempt under Sec. 10(23C) as well. However, the lacuna in the Bill in requiring the entire income to be utilised within five years is now removed by permitting accumulation of 25 per cent of the income indefinitely to be added to the corpus without any requirement of having to be utilised within the period of five years both for purposes of Sec. 10(23C) and 11.The requirement of publication of the affairs of a public charitable institution having receipts above Rs. 10 lakhs proposed in the Bill is relaxed by enhancing the limit to Rs. 1 crore.

Bad debts

It was possible to claim bad debts if a provision therefore was specifically made. Even the provisioning of non-performing assets was recently held justifiable by the Tribunal in one of the cases of non-banking financial institutions in the context of the Reserve Bank requirement.

The amendment by way of Explanation to Sec. 36(1)(vii) would nullify any such attempt by ruling out such claim by excluding ``any provision for bad and doubtful debts made in the accounts of the assessee". Since it is given as explanation, will it be argued by revenue that it is clarificatory in nature and is applicable for past assessments as well?

Capital gains

Capital gains on corporatisation of non-corporate stockholding firms into a company will be exempt. Consequentially amendments have been made to catch up with the exemption in the event of subsequent sale. It is also ensured that the written down value of assets of the firm will be carried over as actual cost for the company.

Time limit for filing return audit

The time limit for return in all cases liable for tax audit under Sec. 44AB and working partners of such firms is now back to October 31, while the advancement of the time limit for companies both for filing return and for 44AB report from November 30 to October 31 will remain.

Section 10A and 10B relief

The restriction brought by the Finance Act, 2001 on change of ownership or benefit above 50 per cent for export concerns had created much concern, which was sought to be satisfied by excepting listed companies from the condition in the Bill. It is now further proposed to relax the condition in the case of such listed companies, where the transfer of beneficial interest is on account of public issue or disinvestment by any venture capital company or venture capital fund.

Capital gains for Unit holders

The exemption under Sec. 10(33) for income from units was made inapplicable for capital gains only on repurchase of UTI or mutual funds. The purpose was not clear in the Bill, but it has now been made clear that the exemption of capital gains on transfer of units will not be available, whether made to UTI or mutual fund approved under Sec. 10(23D) or to a person other than UTI or such mutual fund.

Relief u/s 80HHC/80HHE/80HHF

The sunset provisions are differently staggered, so that the relief that will now be available for export earning will be: 2002-2003 - 70 per cent instead of 60 per cent; 2003-2004 - 50 per cent instead of 40 per cent and 2004-2005 - 30 per cent instead of 20 per cent.

Deduction u/s 80L

While the restriction of deduction under Sec. 80L from Rs. 12,000 to Rs. 9,000 will stand, the extra deduction of Rs. 3,000 for interest from government securities sought to be done away in Bill will now be retained.

TDS

The enhancement of limit for all interest deduction under Sec. 194A from June 1, 1999 from Rs. 2,500 to Rs. 5,000 was sought to be reversed by bringing back Rs. 2,500 in the proposal the Finance Bill, 2001.

But the government has now agreed that the pre-existing limit of Rs. 5,000 will continue. The banks will also be put on a par with others, since the limit of Rs. 5,000 will be applicable to them also as against Rs. 10,000 before June 1, 2001, which was earlier sought to be reduced to Rs. 2,500 by the Finance Bill.

The limit of Rs. 5,000 will now apply for all including banks from June 1, 2001. The limit for other TDS provisions including the new one for commission under Sec. 194H will continue without change.

S. Rajaratnam

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