India: Union Budget 2003 - A Synopsis

Income Tax Proposals

For salary income upto Rs: 5 lacs, standard deduction will 40% or Rs: 30,000 whichever is lower.

For salary income above Rs: 5 lacs, standard deduction will Rs: 20,000.

VRS payments upto Rs: 5 lacs will be exempt from tax even if such a payment is made in instalments. This provision will be effective from 1^st April 2004 and available for A.Y: 2004 – 05 onwards.

Deduction of interest upto Rs: 1,50,000 on loans taken for construction or purchase of self-occupied house property shall be retained.

Income from housing projects for construction of housing units of prescribed specifications and approved by local authorities upto 31^st March 2005 will be exempt from income tax.

Long Term Capital Gains on shares, which are listed on a recognized stock exchange and bought after 1^st March 2003 and sold after 1^st March 2004 will be exempt from Long Term Capital Gains Tax.

This provision, if approved, will be available for one year and reviewed at the time of the next Budget.

It is proposed to increase the rate of depreciation on life saving medical equipment from the present 25% to 40%. This is to enable the early replacement of existing equipment with more modern and latest life saving medical equipment.

The benefit of unabsorbed loss and depreciation on amalgamation will be available to hotels u/s 72A of the Income Tax Act, 1961.

The previous budget had sought to tax dividend income in the hands of the shareholders at the rates applicable to them. This had resulted in the double taxation of the same income.

This budget seeks to rectify this anomaly and it is proposed that with effect from 1^st April 2003, dividends will be tax free in the hands of the shareholders.

This budget proposes to re-instate the distribution tax. It is proposed that all domestic Companies distributing dividends after 1^st April 2003 will have to pay a Dividend Distribution Tax @ 12.5%. This provision is proposed to be made effective for any amounts declared, distributed or paid as dividends on or after 1^st April 2003.

Exemption of export income of computer software units and 100% Export Oriented Units will continue to be available u/s 10A and 10B as originally envisaged.

Presently, this exemption is not available upon change of ownership or shareholding. It is now proposed that this benefit continue to be available even in the case of change of ownership or shareholding due to amalgamation or de-merger.

Income of senior citizens upto Rs: 1.53 lacs will now be exempt from Income Tax.

In the case of senior citizens who are also receiving pension, incomes upto Rs: 1.83 lacs will be exempt from tax.

The above provisions will be effective from 1^st April 2004 and available for A.Y: 2004 – 05 onwards.

At present, individual taxpayers are allowed a deduction u/s 80 L of upto a maximum of Rs: 9,000 on their incomes from dividend, interest etc.

It is proposed to increase this deduction to Rs: 12,000. In addition, further deduction of upto Rs: 3,000 will be allowable for interest incomes from government securities taking the total deduction allowable under this section to Rs: 15,000.

It is proposed to include within the purview of tax rebate allowable u/s 88, payments made towards tuition fees to any university, college, school or educational institution situated in India for the full time education of any two children of the assessee provided the sums so paid donot exceed Rs: 12,000 per child.

Rebate under this section shall be within the eligible limit of Rs: 70,000.

This provision will be effective from 1^st April 2004 and available for A.Y: 2004 – 05 onwards.

Presently, premiums paid on Life Insurance policies are eligible for tax rebate u/s 88. Moreover, any sum received on maturity of the policy is exempt u/s 10 (10)(d).

It is now proposed in this budget that where the premium paid exceeds 20% of the actual capital sum assured then:

1. Tax rebate u/s 88 will not be allowable on such premiums.

AND

2. The exemption available shall not be allowed on the amount received on maturity of such policies. However, the amount received on the death of the person shall continue to be exempt.

With effect from 1^st June 2002, individuals and HUF’s having gross turnover, sales or receipts exceeding the limits specified in s.44AB will have to deduct T.D.S on interest, payment to contractors, commission and brokerage, rent, professional and technical fees paid by them. Presently, the limits are Rs: 40 lacs for businessmen and Rs: 10 lacs for professionals.

This budget now proposes to remove certain practical difficulties arising out of this provision. It is now proposed that no individual shall be liable to deduct TDS fees for professional services provided such sums are paid for purely personal purposes and have no relation to the business of the individual assessee.

The basic exemption limit for individuals and HUF’s is retained at Rs: 50,000. The tax rates for individuals, HUF’s, firms and Companies have also been retained.

No surcharge will be leviable on incomes of individuals and HUF’s having taxable income upto Rs: 8.5 lacs. Taxable income over Rs:8.5 lacs will attract a surcharge of 10% on the tax payable.

Surcharge in the case of firms and Companies has been reduced from 5% to 2.5%. This has reduced the effective tax rate of Firms and Companies to 35.88% from the earlier 36.75%.

Under the existing provisions of Chapter XIV – B, the Assessing Officer is empowered to make a single assessment for the block period of six assessment years preceding the previous year in which the search was conducted.

These provisions are proposed to be replaced by a new section 158 BI to take effect after 31^st May 2003. Under the proposed provisions, returns of income for each of the six assessment years has to be filed and the Assessing Officer shall assess or reassess the total income of each of the preceding six years. Moreover the tax shall be chargeable at the rate or rates as applicable to such assessment year.

Effective 1^st June 2003, it is proposed that any bullion, jewellery or other valuable article or thing being stock in trade found as a result of the search shall not be seized but an inventory of the stock in trade will be taken.

Moreover, effective 1^st June 2003 it is proposed that the seized assets on an application by the assessee shall be released within 30 days from the end of the month in which the asset was seized.

Presently, the survey officers can impound the books of accounts or other documents for a period of 15 working days without the approval of the Chief Commissioner of Income Tax.

It is proposed to reduce this period to 10 working days.

Indian citizens leaving India or any person submitting a tender for a government contract will no longer have to produce a Tax Clearance Certificate from the IT department. Such persons have just to furnish their PAN, intended period of visit to the emigration officers.

Presently, deduction u/s 43 – B is denied for payments pf PF, superannuation or other statutory dues where such payment is made after the due date under the relevant Act.

It is proposed to allow deduction in the year of payment and if made before the due date for filing of return, then in the year for which the liability pertained.

This budget proposes to increase the rate of Service Tax from the existing 5% to 8%.

The scope of Service Tax widened and the following services also made liable for Service Tax:

1. Commercial vocational institutes, coaching centres and private tutorials.
2. Technical testing and analysis (excluding health and diagnostic testing).
3. Commissioning & installation services.
4. Business promotion services.
5. Internet cafes.
6. Franchise services.