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I had mentioned in an earlier column that with the new Direct Tax Code, with its sweeping changes, being made applicable from next year, one really could not see the government ringing in big ticket changes on the taxation front for all of just one year in budget 2010. The finance minister’s budget speech removed whatever little doubt that remained.

As it transpires, budget 2010 holds very little for the common man except for relaxation in tax slabs. The following are key highlights.
Significant benefit in personal income tax

The proposed new rates are as follows:
IncomeTax rate
Up to Rs 1.6 lakhNil
Rs 1.6 lakh to Rs 5 lakh10%
> Rs 5 lakh to Rs 8 lakh20%
> Rs 8 lakh30%

The enhanced basic exemption limits for ladies of Rs 1,90,000 and for senior citizens of Rs 2,40,000 remain unchanged. (See table for the tax benefits for different income levels.)

Tax relaxations only to higher income group
As can be seen from the table, everyone who earns an income of above Rs 8 lakh would pay a lower tax of Rs 51,500. However, what about the lower income group? Those who earn a taxable income of up to Rs 3,00,000 have been totally ignored. They stand to gain nothing. Earlier, they paid a tax of 10% on income above Rs 1.60 lakh and with the revised slabs, too, they continue to do so.

Saral II on the anvil
To call the new income tax return forms (that replaced the erstwhile Saral) complicated would be an understatement. However, soon, taxpayers (at least the salaried class) can look forward to a two-page simple and user-friendly tax return form. Since this is just an announcement by the FM in his speech, when exactly these forms will be issued and to which category of taxpayers (apart from the salaried) is not yet clear. The income tax department should be coming out with a notification in this regard soon.

Tax deduction for investment in infrastructure bonds
The good news is that budget 2010 has proposed a new Sec. 80CCF that will offer a deduction of up to Rs. 20,000 next year onwards for investment made in infrastructure bonds. The still better news is that this Rs. 20,000 is over and above the Rs. 1,00,000 Sec. 80C limit. The details as to the term of these bonds, the lock-in period, the issuing institutions etc. are yet to come out.

New Pension Scheme
The New Pension Scheme (NPS) has not taken off as expected. Now, the government proposes to contribute Rs 1,000 per year to each NPS account opened in the year 2010-11. This initiative, Swavalamban, will be available for persons who join NPS with a minimum contribution of Rs 1,000 and a maximum contribution of Rs 12,000 per annum during the financial year 2010-11.
Disallowance of expenditure on account of non-compliance with

TDS provisions
The existing provisions of section 40(a)(ia) of Income-Tax Act provide for the disallowance of expenditure like interest, commission, brokerage, professional fees, etc if tax on such expenditure was not deducted, or after deduction was not paid during the previous year. It is proposed that no disallowance will be made if after deduction of tax during the previous year, the same has been paid on or before the due date of filing of return of income. Note that this amendment is proposed to take effect retrospectively from 1st April, 2010.

Tax audit limits increased
Under the existing provisions of section 44AB, every person carrying on business is required to get his accounts audited if the total sales, turnover or gross receipts in business exceed Rs 40 lakh. Similarly, a person carrying on a profession is required to get his accounts audited if the gross receipts in profession exceed Rs 10 lakh. These limits have been increased to Rs 60 lakh and Rs 15 lakh, respectively.

Change in gift-tax provisions
Under the existing provisions of Section 56(2)(vii), any sum of money or any property in kind received without consideration or for inadequate consideration (in excess of Rs 50,000) is taxable in the hands of the recipient. Of course, receipts from relatives or on the occasion of marriage or under a will are outside the scope of this provision. Nonetheless, this law is only applicable to an individual or an HUF.

Therefore, transfer of shares of a company to a firm or a company, instead of an individual or an HUF, without consideration or at an inadequate consideration escapes the tax net completely. In order to prevent the practice of transferring unlisted shares at prices much below their fair market value, it is proposed to amend section 56 to also include within its ambit transactions undertaken in shares of a company either for inadequate consideration or without consideration where the recipient is a firm or a company

Also, in several cases of immovable property transactions, there is a time gap between the booking of a property and the receipt of such property on registration, which results in a taxable differential. It is, therefore, proposed that Sec 56 will only apply if the immovable property is received without any consideration and to remove the stipulation regarding transactions involving cases of inadequate consideration in respect of immovable property.

To sum
As you can see, for the average investor, the budget was largely a non-event.

Even the relaxations in personal income taxes pale when seen in light of what is proposed next year onwards in terms of theDTC. For example, under the DTC, an income up to as much as Rs 10 lakh will be taxed only @10%, income between Rs 10 lakh and Rs 25 lakh will be taxed @20% and the 30% rate would only be applicable to incomes above Rs 30 lakh.

Speaking of which, it was expected that this budget will create some basic groundwork for the introduction of the DTC. It’s been a while since the DTC has been put in the public domain and various stakeholders have already indicated their feedback to the government. However, there is no word on any development on this front. There have been representations that the government should re-look at proposed provisions in the DTC, such as taxing NRIs at a flat rate without offering the basic exemption limit, taxing all capital gains without any exception, scrapping of Sec 54EC bonds, cancelling the interest deduction on home loans, applying EET on existing investments, etc.vernment during the year. Watch this space for any development.