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Changes in Finance (No.2) Bill, 2004

THERE HAVE been a number of changes by way of amendments to the Finance (No.2) Bill, 2004. Some are by way of re-drafting and some by diluting the earlier provisions in response to representations made by the taxpayers.

This amended Bill, passed by both Houses of Parliament, will become law on assent by the President.

Marginal relief for rebate under Section 88-D: The provision proposing tax rebate order new Sec. 88-D for taxpayers with total income of Rs. 1 lakh and below is substituted for granting marginal relief. In the result, there will be exemption for tax for total income up to Rs. 1,11,250.

If the marginal relief had been taken into consideration, the Finance Minister could have taken credit in the budget speech for raising minimum exemption limit for resident individuals to Rs. 1,11,250 instead of Rs. 1,00,000 earlier heralded.

Taxability for interest from NR(E) and RFC postponed: The exemption for interest on non-resident external (NRE) account was sought to be withdrawn even from September 1. Withdrawal will now be postponed to credit of interest after April 1, 2005, so that it will be effective from assessment year 2006-07. There is a similar postponement of withdrawal of exemption for Resident and not Ordinarily Residents for interest from Resident Foreign Currency (RFC) account as well. These are done by amendments to Sec. 10(4)(ii) and 10(15)(iv)(fa) respectively.

Transaction tax: Tax rebate will be available under Sec. 80E, by way of set off of securities transaction tax paid by an assessee against tax payable on income from taxable transactions in securities. Since it is available only for income from business in securities, the beneficiaries can primarily be only stock brokers, mutual funds and dealers in shares.

Capital gains on listed shares/bonds clarified: Exemption for long term capital gains and concessional rate of tax at 10 per cent on short term capital gains under Sec. 10(38) and 111A respectively are now clarified as available for equity shares and equity oriented funds. The earlier cross-reference to securities within the meaning of Sec. 2(h) of Securities Contracts (Regulation) Act, 1956 is now dispensed with for the inference of scope of these reliefs.

Transaction need not be through a stock exchange for availing the concessions. It is enough if such transactions are those on which securities transaction tax has been paid.

Computation of capital gains — treatment of transaction tax: Securities transaction tax paid at the time of purchase and sale of securities covered by the tax will not be deductible in computation of capital gains on sale of such securities as provided by an amendment to Sec. 48. There is no disability for such deduction against business income of a dealer in shares and units, while there is a tax rebate for those having income from business in taxable securities.

Tax on foreign gifts clarified: The new levy on gifts from non-relatives proposed under Sec. 2(24)(xiii) is re-drafted by shifting it from 2(24)(xiii) to 56(2)(v), so that such deemed income now becomes assessable as income from Other Sources, while Sec. 2(24)(xiii) defining income makes a cross reference to Sec. 56(2)(v).

The provision has also been reworded omitting needless exceptions relating to terminal benefits from employment and income from capital gains arising on transfers exempt under Sec. 47, since these exemptions should continue to be available even otherwise. Minimum expenditure limit of Rs. 25,000 for foreign gifts and total exemption of marriage gifts are now incorporated in Sec. 56(2)(v).

Disallowance for TDS failed amounts: Sec. 40(a)(1) is substituted and (ia) proposed in the Bill is redrafted to provide that, where tax is deducted at source during the year, the amount will be deductible, even if paid in a subsequent year, as long as it is paid on due date.

The provisions made at the end of the year require tax deduction as on that date, but required to be deposited in the succeeding year. Such provisions will be deductible in the year of provision, if deducted tax is paid before the due date.

Housing incentive explained: An amendment to Sec. 80-IB(10) explains that, where a housing project has been approved before April 1, 2004, the four year time limit for completion will be reckoned from April 1, 2004, while for others, it will count from the date of approval. There is also a change as to the scope of relief for projects for reconstruction and redevelopment requiring it now to be confined to slum areas.

Liability in respect of aircraft leases postponed: The operation of proposed amendments under Sec. 10(6BB) and 10(15A) relating to income from lease of aircraft by non-residents stands postponed to AY 2006-07.

Prosecution for abetment: There was considerable criticism of the proposed provision, Sec. 277A, in the Bill for prosecution for abetment. This provision in the Bill had an explanation to the effect that "it shall be sufficient in any charge under this section to allege a general intent to enable the second person to evade any tax, penalty or interest....... which has been or would have been evaded by such second person". Treating a mere allegation as proof of offence would be contrary to all tenets of any law. The substituted explanation provides that "it shall not be necessary to prove that the second person has actually evaded any tax, penalty or interest......".

The provision has now to be understood that falsification of records to suit third party will render the falsifier liable for prosecution, whether the benefit of such falsification is availed by such third party or not. Even the amended provision is redundant, because the law is not different even otherwise. There is already a provision in the statute in Sec. 278 for punishment of the offence of abetment.

A facilitator is also an offender under Sec. 107 of Indian Penal Code.

This section treats even attempt to commit offence of abetment, even where no offence is committed, an independent offence. Sec. 193 and 196 of Indian Penal Code do not also spare a person who fabricates records, with a view to abet a crime. Multiplicity of laws by itself do not therefore provide teeth for administration. The duty to investigate and prove an offence is not rendered easier by more and more laws.

S. Rajaratnam

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