Check If It Smells Right

Lost in the fine print of the Finance Bill and the Explanatory Memorandum is stuff that you should actually need to know about. Don’t overlook this article:


India Inc is well and truly on the MAT(Minimum Alternate Tax). Not only has the levy increased by 5% to stand at 15% (effective rate being 17%), but there are many hidden devils. If a company has devalued an asset and debited it to profit & loss (P&L), this debited amount in the P&L will be added back to the book profits. MAT will be calculated on the enhanced book profits. Brace yourself as this comes with retrospective effect from April 1, 1998.

Fringe Benefit Tax stands abolished, but a tad too late. India Inc has paid the first installment of FBT. Further, rules will be introduced to determine the perquisite value that should be taxable in the employees’ hands. You thought that a tax was abolished? It is just transfer of the onus of paying tax from the employer to the employee. ESOPs, employers contribution to superannuation and much much more will also be a perquisite, taxable in your hands and mine.

What could the future hold? Anything, just anything is possible. The tax authorities can actually withdraw an approval given by them for anything and at anytime. The only saving grace is that an opportunity will be given to the taxpayer of being heard before doing so.

Donation to electoral trusts shall be allowed as a 100% deduction in your hands. Yes, you can keep the wheels of democracy turning and get a tax break. The hitch is you have to show your allegiance on paper to a political party so as to get a tax break.

If you thought that you were subject to reassessment only to the extent of income escaped in respect of issues recorded by the Assessing Officer, think again. With a view to further clarifying the legislative intent, the Assessing Officer can reassess income in respect of any issue which comes to his notice, which are not only restricted to the recorded reasons.
You can no longer evade tax through a gift. Now, any gift worth above Rs 50,000 in the form of immovable property, shares, jewellery, archaeological collections, drawings, paintings, sculptures or any work of art is taxable in the hands of the recipient.

If any person whose income is to be subject to withholding of tax at source does not provide his Permanent Account Number (PAN) to the deductor, then the deductor shall have to deduct tax at a higher rate — at 20 per cent. Even non-residents will be forced to obtain a PAN. However, fortunately this is with prospective effect from April 1, 2010.

In some cases, employees used to claim exemption for voluntary retirement scheme income, and further relief for high tax burden of advance salary. Now, this double benefit cannot be claimed.
Presumptive tax benefit is not as rosy for small retailers. Earlier, persons engaging in retail trade were subject to tax on a presumptive basis of 5%. Now, although the FM has broadened the presumptive taxation option to most small businesses, the presumptive tax rate has been increased to 8%.