Monday, July 6, 2009

Budget 2009-10: IT exemption limit increased, corporate tax rate unchanged

With a view to providing interim relief to small and marginal taxpayers and senior citizens, the budget 2009-10 has increased the
personal income tax exemption limit by Rs 15,000 from Rs 2.25 lakh to Rs 2.40 lakh for senior citizens. Similarly it has aslo raised the exemption limit by Rs 10,000 from Rs 1.80 lakh to Rs 1.90 lakh for women tax payers and by Rs 10,000 from Rs 1.50 lakh to Rs 1.60 lakh for all other categories of individual taxpayers. Further, it has also increased the deduction under section 80-DD in respect of maintenance, including medical treatment, of a dependent who is a person with severe disability to Rs 1 lakh from the present limit of Rs 75,000.

In the past, surcharges on direct taxes have generally been levied to meet the revenue needs arising from natural calamities. The Government has set up the National Calamity Contingency Fund to build up resources to meet emergency situations. As a corollary, surcharge on direct taxes should be removed. However, this has to be balanced with the revenue needs of the Government. Therefore, the budget has phased out the surcharge on various direct taxes by eliminating the surcharge of 10 per cent on personal income tax.

There is no change in corporate taxation.

Deduction in respect of export profits is available under sections 10A and 10B of the Income-tax Act. The deduction under these sections would not be available beyond the financial year 2009-2010. In order to tide over the slowdown in exports, I propose to extend the sun-set clauses for these tax holidays by one more year i.e. for the financial year 2010-11.

The budget has aslo abolished the Fringe Benefit Tax that wa sintroduced in the Finance Act, 2005 on the value of certain fringe benefits provided by employers to their employees.

The budget has also extended the scope of the current provision of weighted deduction of 150% on expenditure incurred on in-house R&D to all manufacturing businesses except for a small negative list.

The budget has extended investment-linked tax incentives to the businesses of setting up and operating ‘cold chain’, warehousing facilities for storing agricultural produce and the business of laying and operating cross country natural gas or crude or petroleum oil pipeline network for distribution on common carrier principle. Under this method, all capital expenditure, other than expenditure on land, goodwill and financial instruments will be fully allowable as deduction.

Further, the period allowed to carry forward the tax credit under Minimum Alternate Tax (MAT) has been extended from seven years to ten years.

It has also exempted the income of the NPS Trust from income tax and any dividend paid to this Trust from Dividend Distribution Tax. Similarly, all purchase and sale of equity shares and derivatives by the NPS Trust will also be exempt from the Securities Transaction Tax.

Commodity Transaction Tax (CTT)introduced in The Finance Act, 2008 to be levied on taxable commodities transactions entered in a recognized association has been abolished.

To facilitate the business operations of all small taxpayers and reduce their compliance burden, the budget has proposed to expand the scope of presumptive taxation to all small businesses with a turnover upto Rs.40 lakh. All such taxpayers will have the option to declare their income from business at the rate of 8 per cent of their turnover and simultaneously enjoy exemption from the compliance burden of maintaining books of accounts. As a procedural simplification, they can also pay their entire tax liability from business at the time of filing their return by exempting them from paying advance tax. This new scheme will come into effect from the financial year 2010-11.

It has extended the tax holiday under section 80-IB(9) of the Income Tax Act, which was hitherto available in respect of profits arising from the commercial production or refining of mineral oil, also to natural gas. This tax benefit will be available to undertakings in respect of profits derived from the commercial production of mineral oil and natural gas from oil and gas blocks which are awarded under the New Exploration Licensing Policy-VIII round of bidding. Further, it has retrospectively amend the provisions of the said section to provide that “undertaking” for the purposes of section 80-IB(9) will mean all blocks awarded in any single contract.

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