Government Circullars
Amendments to Finance Bill 2005
The following amendments to the proposals made in the Finance Bill, 2005 (which was introduced on February 28,2005 ) have been approved by both Houses of the Parliament. The Bill is yet to get the assent of the President. The details of the Amendments proposed are as under:
A. Amendments pertaining to Fringe Benefit Tax("FBT")
FBT was for the first time proposed by the Finance Bill, 2005 providing for levy of a Tax in the hands of employers ( on the value of fringe benefits provided or deemed to have been provide to the employees) @ 30% as increased by applicable Surcharge and Education Cess.
• FBT made not applicable to
- Individual or Hindu Undivided Family.
- Specified Funds, Education Institutions or Hospitals existing not for the purposes of profit and claiming exemption under section 10(23C) of the Income-Tax Act, 1961 (“the Act”) and those trusts or institutions registered under section 12AA of the Act.
• Scope of certain deemed Fringe Benefits restricted
- Provision of hospitality not to include any expenditure on paid vouchers which are not transferable and usable only at eating joints or outlets.
- Conference expenses not to include fee paid by employees for participation in any conference.
- Sales promotion (including publicity) not to include-
• Expenses (including rental) on advertisement of any form in print or electronic media or transport system.
• Expenses on holding of, or participation in any press conference or business convention, fair or exhibition.
• Expenses on sponsorship of any sports event etc.
• Expenses on advertisement by way of signs, art work, painting, banners, direct mail, electric spectaculars, kiosks, hoarding, bill boards etc.
• Expenses on publication in print or electronic media of any notice required by law.
• Any payment to the advertising agency for the above purposes.
- Employee welfare expenses to exclude any expenses incurred to fulfill any statutory obligation or mitigate occupation hazards or provide first aid facilities in hospital or dispensary run by employer.
- Expenses on maintenance of any accommodation used for training purposes excluded.
- Telephone expenses to exclude expenditure on leased telephone lines.
• Scope of certain deemed Fringe Benefits extended
- Expenses on mobile phone included.
- Scholarship to persons other than children of the employees included.
• Free or subsidized transport facility
- Specific exclusion of free or subsidized transport or any allowance provided by the employer to employees for commuting between residence and place of work withdrawn.
• Changes in valuation of deemed fringe benefits
Sr. No |
Particulars of Benefit |
Taxable Value as per the Finance Bill,2005 |
Taxable Value as Proposed Now |
1) |
Entertainment |
50% of the expenses |
20% of the expenses |
2) |
Provision of hospitality |
50% of the expenses
5% of the expenses incurred by an employer engaged in the business of running a hotel |
20% of the expenses
5% of the expenses incurred by and employer engaged in the business of running a hotel |
3) |
Conference |
50% of the expenses |
20% of the expenses |
4) |
Sales promotion including publicity |
50% of the expenses |
20% of the expenses |
5) |
Employees' welfare |
50% of the expenses |
20% of the expenses |
6) |
Conveyance, tour and travel (including foreign travel) |
20% of the expenses |
20% of the expenses
5% of the expenses incurred by and employer engaged in the
business of Construction, manufacture or production of Pharmaceuticals and manufacture or production of Computer Software |
7) |
Use of hotel, boarding and lodging facilities |
20% of the expenses |
20% of the expenses
5% of the expenses incurred by and employer engaged in the business of manufacture or production of Pharmaceuticals and manufacture or production of Computer Software |
8) |
Repair, running (including fuel and maintenance of aircrafts and the amount of depreciation thereon |
20% of the expenses
5% of the expenses incurred by an employer engaged in the business of carriage of passengers or goods by aircraft |
20% of the expenses
Nil in case of expenses incurred by and employer engaged in the business of carriage of passengers or goods by aircraft |
9) |
Use of telephone (including mobile phone) |
10% of the expenses |
20% of the expenses |
10) |
Scholarship |
Actual amount incurred |
50% of the expenses |
B. Other Amendments
Individual taxation
• Basic exemption limit enhanced
- Senior citizens : INR 150,000 to INR 185,000.
- Woman (below the age of 65 years) : INR 125,000 to INR 135,000.
• Investments/Payments for claiming deduction under section 80C.
- The requirement to invest out of income chargeable to tax withdrawn.
Corporate Taxation
• Undertakings in SEZ no longer required to begin to manufacture or produce articles or things or computer software on or before March31, 2009 to claim deduction under section 10A of the Act.
• Deduction under section 10A not to be allowed to an assessee who does furnish his return of income within the specified due date.
Banking Cash Transaction Tax
Banking Cash Transaction Tax(“BCT”) was for the first time proposed by the Finance Bill,2005 providing for a Tax @ 0.10% of the value of “taxable banking transaction” in excess of INR 10,000 entered into on or after June1, 2005.
The following changes are proposed now :
• BCT not to be charged on withdrawal of cash from a saving bank account.
• Threshold limit of INR 10,000 enhanced to INR 25,000 in case of an individual/Hindu Undivided Family and INR 100,000 in case of other persons.
• BCT to charged from the persons from whose account the cash is withdrawn.
• BCT to be charged on encashment (other than by way of credit to a bank account) of one or more term deposits if the aggregate of such encashment on any single day exceeds the above referred threshold limits.
• BCT not to be charged on purchase of a bank draft or banker's cheque or any other financial instrument on payment of cash. |