FRINGE BENEFIT TAX & SURCHARGE

THE UNION BUDGET 2009-10

RECESSIONREFORMSWHILE WALKING ON THE LINE OF FISCAL DEFICIT TRYING TO BALANCE THE RECESSION & REFORMS.BUDGET 2009-2010

EXPECTATIONS FROM BUDGET 2009-10After the UPA Govt. came into the power with almost majority everyone expecting a Dream Budget. The normal expectations are like that,The limit of Tax Free income is increased.Securities Transaction Tax should be removed.The exemption of interest paid on Housing loan should be increased from 1.5 Lacs to 2.5 Lacs.The deduction of U/S 80C should be increased from 1 Lac to 1.5 Lac.Introduction of some lucrative schemes to increase the Foreign investments in India.The excise duty on medicines should be abolished completely.The subsidies given to various sectors should be clubbed.The Companies Act, 1956 should be reformed.The Wealth tax threshold limit should be expanded. PROPOSED PERSONAL INCOME TAX INDIVIDUALTAX RATEWOMANTAX RATES. CITIZENTAX RATE0-1,60,000NIL0-1,90,000NIL0-2,40,000NIL1,60,001-3,00,00010%1,90,001-3,00,00010%2,40,000-3,00,00010%3,00,001 5,00,00020%3,00,001 5,00,00020%3,00,001 5,00,00020%>5,00,00030%>5,00,00030%>5,00,00030%INDIVIDUALINCOME LEVEL5,00,00010,00,00015,00,000Current Tax56,6502,11,1504,02,215Proposed Tax55,6202,10,1203,64,620Effective Tax Savings1,0301,03037,595Effective Tax Savings (%)2.000.59Surcharge of 10% is proposed to be removed for all non-corporate assessee ,TAX TABLE

* Inclusive of applicable Surcharge and Education cess of 3%

@ 30.90% where the total income is equal to or less than Rs 10 million

# 41.20% where the total income is equal to or less than Rs 10 million

No Surcharge is levied from Financial year 2009-10(AY 2010-11)Taxation of LLPIntroduction to LLP TaxationThe LLP Act came into effect in the year 2009,Act and the rules have been notified w.e.f. 1st April,2009All the provisions relating to the firm incorporated apply mutatis mutandis to LLP.The income of the LLP shall be taxed as the income of the firm and accordingly, the share of the partners from LLP shall be exempt in the hands of the partner.

AmendmentSection 2(23) : Definition of firm, partner and partnership extended to include LLP and LLP resp. within their scope.Section 140(cd) : Return of Income of the LLP shall be signed and verified by the designated partner . The same can be signed by any other partner in case of his absence.Section 167C : This section makes every partner of a LLP jointly and severally liable for the taxes to be paid by LLP for the period during which he was a partner.LLPs have been excluded from the provisions of presumptive taxation according to Section 44AD of the Act

Amendment effective from date:-

The amendment will be effective from April 1,2011 and will, accordingly, apply to AY 2011-12 onwards.

CONVERSION :-

Whether Conversion Taxable under Section 45 of the IT Act ??

Explanatory memorandum to the budget clarifies that no tax liability would arise in case of a conversion of a general partnership so long as there is no change in the rights and obligations of the partners and no transfer of assets or liabilities post the conversion.

TDS AMENDMENTSNature of Payment (194-I) RentExisting Rate

Proposed Rate (w.e.f 1st October 2009)a. Rent of plant , machinery or equipment10%2%b. Rent of Land , Building or Furniture to an Ind & HUF15%10%c. Rent of Land , Building or Furniture other than an Ind or HUF20%10%194 I 194 CExisting provisions :2 % on payment for a contract1% in case of sub-contract1% in case of payment for an Advertising contract.Proposed provisions (w.e.f 1st October,2009)*On payment for a contract and even for sub-contract and Advertising contracts;1% where payment for a contract are to individuals/HUFs 2% where payment for a contract are to any other entity.

PROVISIONS FOR PAYMENTS & TDS TO TRANSPORTERS (w.e.f 1.10.2009)EXISTING PROVISIONS:U/S 194C, TDS is required to be deducted on payments to transport contractors engaged in the business of plying, hiring or leasing goods carriages. However if they furnish a statement that they do not own more than two goods carriages tax is not to be deducted at source.

PROPOSED PROVISIONS:It is proposed to exempt payments to transport contractors from the purview of TDS.COMPLIANCE WITH PROVISIONS OF QUOTING PAN (w.e.f 1.4.2010)Any person whose receipts are subjected to deduction of TDS, The deductee shall mandatorily furnish his PAN to the deductor failing which the deductor shall deduct TDS at higher of the following rates;The rate prescribed in the ActAt the rate in force i.e. mentioned in the Finance Act. orAt the rate of 20%A deduction in form 15G or 15H for non-deduction of TDS is not valid without PAN.DEDUCTIONSSEC 80DD:The limit of the expenditure incurred by the assessee increased from Rs. 75,000 to Rs. 1,00,000.

SEC 80E:This section allows deduction for the interest paid on loan availed for Higher education. However, the scope of the term Higher Education has been expanded to include courses that could be pursued after SSC or its equivalent exam.

SEC 80A:No deduction under chapter VIA will be allowed if the tax deduction has already been allowed U/S 10A & 10B or under any provision of chapter VIA under the heading C-Deductions in respect of certain incomeNo deduction will be allowed under various provisions mentioned above if the same is not claimed in the return of income.

EXTENSION OF SUNSET CLAUSE FOR TAX HOLIDAY [80-IA(4)(iv) , (v)(b) & 80-IB(9)80-IA(4)(iv):Tax holiday benefit would be extended for an undertaking, who commences business on or before 31st March, 2011, in the following;Generation or Generation & Distribution of power;Transmission or Distribution by laying a network of new transmission or distribution lines;Substantial renovation & modernization of existing network of transmission or distribution lines. 80-IA(v)(b):Tax holiday benefit will also be extended to an undertaking owned by an Indian company set up for re-construction or a revival of power generation commencing the activity of generation, transmission or distribution of power on or before 31st March 2011.80-IB(9):Benefit of deduction is available to the under taking which is engaged in refining of mineral oil & which begins such refining on or after 1st October 1998, but not later than the 31st day of March,2012. It is also proposed that the benefit of deduction under the said sub-section shall be available to the undertaking which is engaged in commercial production of natural gas. TAXATION OF GIFTS (SEC-56)With a view to avoid revenue seepage through GIFT transactions the scope of taxation is expanded which now includes gifts in kind. The present scope of tax was restricted to gift of any sum of money which was interpreted to include only gifts in cash and not in kind, the proposed amendment seeks to tax all kinds of gift including the transfers of movable & immovable properties.Transfer of AssetChargeable AmountImmovable property received without consideration.Stamp duty value of the propertyImmovable property received at value which is less then stamp duty value. Difference between stamp duty valuation and consideration paid.Movable property received without consideration.Fair market value of such property.Movable property received for a consideration which is less than FMV.Difference between the FMV of such property & consideration.STAMP DUTY VALUATION (SEC-50C)PRE-BUDGET SCENARIO:In case of a disputed immovable property the AO may refer valuation of such property to a valuation officer. In such cases the provisions of Sec -50C shall be adopted which may be subsequently revised in an appeal of Income Tax.This section provides that stamp value of the property shall be considered full value consideration, if the stamp value exceeds the actual transaction value.PROPOSED SCENARIO:The scope of aforesaid section has been expanded to include transactions which are not registered with the stamp duty valuation officer. The valuation mechanism adopted by the officer has not been stated in this Bill. The amendment will be effective from October 01, 2009.

PRESUMPTIVE TAXATION SECTIONELIGIBLE CLASS OF ASSESSEESELIGIBLE CLASS OF BUSINESSAPPLICABLE LIMITPRESUMPTIVE INCOME44ADAny personCivil construction or supply of labour for civil construction.Gross receipts of Rs. 40 Lacs or less 8% 0f Total Receipts44AFAny personRetail trade in any goods or Merchandise.Turnover of Rs 40 Lacs or less5% of Total Turnover44AEAny personPlying, hiring or leasing of goods carriagesUpto 10 goods vehiclesRs 3500 p.m. per heavy goods Vehicle & Rs 3150 p.m. per light goods vehicle.44ADInd, HUF, Partnership Firm (But not LLP) who is resident & does not claim Deduction U/S 10A, 10AA, 10B, 10BA, 80HH-80RRBAny Business other than those specified U/S 44AETurnover or Gross Receipts is Rs 40 Lacs or less8% of Turnover or Gross Receipts.44AEAny personPlying, hiring or leasing of goods carriagesUpto 10 goods vehiclesRs 5000 p.m. per heavy goods Vehicle & Rs 4500 p.m. per light goods vehicle.FOR INSTANCE: PARTICULARSEXISTINGPROPOSEDTURNOVER OR GROSS RECEIPTS 30,00,00030,00,000TAXABLE PROFIT1,50,0002,40,000TAX LIABILITYNIL9,090SEC- 44ADPARTICULARSEXISTINGPROPOSEDLIGHT GOODS VEHICLE 4 nos.4 nos.TAXABLE PROFIT1,51,200{3,150 X 4 X 12}2,16,000{ 4,500 X 4 X 12}TAX LIABILITY1246,798SEC- 44AEGENERAL AMENDMENTSExemption/Deduction For Amt Recd on Voluntary Retirement [Sec 10(10C)]This Sec provides for exemption with regards to amt recd by an assessee on Voluntary Retirement.A Proviso has been added to the aforesaid Sec, to restrict availability of deduction under this Sec for amt recd on Voluntary Retirement in case the assessee has claimed relief under Sec 89.Sec 2(15)The Definition of Charitable purpose will be extended retrospectively from AY 09-10 to include activities of preservation environments or monuments or objects of artistic or historic interest.Sec 40(b)(5)

Sec 40 A(3)No disallowance for aggregate payment in cash upto Rs. 35,000 for payment made for plying, hiring or leasing goods carriages.Book Profit of the FirmAmount DeductibleLoss or profit upto Rs. 3 LacsRs. 1.5 Lac or 90% of the Book profit whichever is more.On the balance Book profit60% of such balance book profit.FRINGE BENEFIT TAX & SURCHARGEThe objective, as stated in the Finance Bill of 2005 is the difficulty in isolating the personal elements in respect of the benefits provided to the employees where there is a collective enjoyment of such benefits for purposes of business but includes partially the benefit of personal nature. It is applicable from AY 2005-06.Meaning:Objective:Fringe benefit means any consideration for employment provided by way of any privilege, service, facility or amenity directly or indirectly provided by the employer of his employees or their family members and also any contribution by the employer to an approved superannuation fund for his employees. Surcharge is a mode of collecting more tax to low down the fiscal deficit of our country.

Abolition!!!Bad news for employees, now the all the FRINGE BENEFITS are taxed in the hands of employees. Not on the 20% of the value of benefits but on the total amount of the benefits. And on the other hand SURCHAGE is also removed only from PERSONAL INCOME TAX not from the part of the CORPORATE taxation. It is illogical because if it is not a common mode of collecting tax then why it is a part of DIRECT TAX. So, as a result the tax burden is directly increased in the EMPLOYEE class peoples portfolio. For instance keep your eyes unmoved, COMPARISON OF EXISTING & PROPOSED SCENARIO IN BUDGET 2009:

MINIMUM ALTERNATE TAX (MAT)BASIC CONCEPT:MAT, as the name implies, is the minimum amount of tax which a company has to pay, even if it is not liable to pay any tax on its regular assessment. Under the regular computation, the person is entitled to all the deductions, exemptions and incentives available under the provisions of the tax code, such as Accelerated depreciation, Investment allowance, Rebate for setting up industries in a backward area etc. The resultant computed income, therefore, normally would be much lower than the book profits. However, for the computation of income for the purposes of MAT, there are very few adjustments, if any, to be made to the book profits. Most importantly, the method of depreciation followed for the purpose of accounts is different from that considered for taxation purposes. As a result, MAT ensures that every profitable company would have to pay some tax every year.OBJECTIVE:With a view to compel highly profitable companies, paying little or no tax due to availment of tax incentives, the concept of MAT was introduced in 1983 by way of insertion of section 80 VVA of the Income Tax Act 1961 (the Act). But it is practically applicable from AY 1997-98. it is the process to collect tax in Advance. CURRENT SCENARIO:By virtue of the section 115J, in case of a company whose total income was less than 10 % of the book profits, the total income to be charged to income tax was deemed to be 10 % of the book profits. The effective income tax rate is 11.33% & credit available for 7 years.

The effective rate of Minimum Alternate Tax is proposed to be increased from 11.33% to 16.995%. And also It is proposed to extend the period for carry forward and set off of MAT credit to next ten years from the existing period of seven years.This amendment will apply with prospective effect from FY 2009-2010. But the definition of Book profits changed with retrospective effect applicable from AY 1997-98. To override the SCs verdict in the case of HCL comnet systems.By the virtue of this amendment , Many other tax holidays effect gets reduced. MAT introduced by the Govt. to cover the zero tax companies under the tax net, but increasing the rate by 50% of the previous rate in not a viable solution.In the one hand giving relief by abolishing FBT and in the other hand increasing the MAT rate by 5% is not really digestible for the companies.To understand the impact of the both on the company we can take the example as mentioned in the next,Mat AMENDMENTS in BUDGET-2009For Better Understanding the Impact on Companies Profile take the example of BHARTI AIRTEL LTD.(2006-07)PARTICULARSAS PER RESPECTIVE FINANCE ACTAS PROPOSED IN BUDGET 2009-10Minimum Alternate Tax156,40,06,070234,60,09,106Fringe Benefit Tax25,49,70,000-------Net Total Liability181,89,76,070234,60,09,106Net Increment Tax Liability52,70,33,036The Finance Act, 2008 introduced the Commodity Transaction Tax (CTT) to be levied on taxable commodities transactions entered in a recognized association. But the Prime Ministers Economic Advisory Council is against of CTT. By saying these lines Finance Minister wants to abolish the CTT.This is the first time when two Finance Minister of same Alliance have different proposals in back to back years. But practically it does not have any impact on traders who deals in commodities. Because in the previous year the act is passed in the parliament but the chargeability is still to be notified.On the other side if Govt. applies tax on Commodities transaction it is not good for our economy also. The reason behind the thought that in our country farmers are not well equipped in terms of capital. On account of this they are not the part of Commodity Market & as a result they are not benefited by this speculation.COMMODITIES TRANSACTION TAXSERVICE TAX An Indirect Tax

Sheet1PARTICULARSPRE-BUDGETPOST-BUDGETACTUALTAXABLEACTUALTAXABLEBasic Salary125,000125,000125,000125,000House Rent Allowance25,00025,00025,00025,000FRINGE BENEFITS FROM EMPLOYERClub Membership10,000010,00010,000Tour & Travel Reimburshment8,00008,0008,000Loadging & Boarding15,000015,00015,000Gift Vouchers5,00005,0005,000TOTAL MONTHLY SALARY188,000150,000188,000188,000

TOTAL ANNUAL TAXABLE SALARY1,800,0002,256,000Less: 80C Deduction100,000100,000 80D Deduction20,00020,000NET TAXABLE SALARY1,680,0002,136,000INCOME TAX ON ABOVE AS PER SLAB408,000544,800SURCHARGE @ 10%40,800-EDU. & HIGHER EDU. CESS @ 3%13,46416,344

TOTAL TAX ON ABOVE462,264561,144DIRECT HAMMER ON THE EMPLOYEES98880