TaxTMI 
TaxTMI 
TaxTMI 
Memorandums
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....in exceptions, which have been indicated while dealing with the relevant provisions, the Bill follows the principle that changes in the provisions of the tax laws, should ordinarily be made operative prospectively in relation to the current incomes and not in relation to the incomes of past years. The substance of the main provisions in the Bill relating to direct taxes is explained in the following paragraphs :- INCOME TAX RATES OF INCOME TAX I. Rates of income-tax in respect of income liable to tax for the assessment year 2006-07 In respect of income of all categories of tax payers (corporate as well as non-corporate) liable to tax for the assessment year 2006-2007, the rates of income-tax have been specified in Part I of the First Schedule to the Bill. These are the same as those laid down in Part III of the First Schedule to the Finance Act, 2005, for the purposes of computation of "advance tax", deduction of tax at source from "Salaries" and charging of tax payable in certain cases. It has also been specified that in the case of individuals, Hindu undivided families, association of persons and body of individuals having total income exceeding Rs. 10,00,000/-, the tax so co....
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....es; (ii) in case of every firm, artificial juridical person and domestic company, at the rate of ten per cent. of such tax; (iii) in the case of every company other than a domestic company at the rate of two and one-half per cent. of such tax. No surcharge shall be levied on a cooperative society or a local authority. The additional surcharge, called the "Education Cess on Income tax" so as to fulfil the commitment of the Government to provide universalised quality education, shall be levied at the rate of two per cent. on the amount of tax inclusive of surcharge in all cases. website: http://indiabudget.nic.in 2 III. Rates for deduction of income-tax at source from "Salaries", computation of "advance tax" and charging of income-tax in special cases during the financial year 2006-2007. The rates for deduction of income-tax at source from "Salaries" during the financial year 2006-2007 and also for computation of "advance tax" payable during that year in the case of all categories of tax payers have been specified in Part III of the First Schedule to the Bill. These rates are also applicable for charging income tax during the financial year 2006-2007 on current incomes in ca....
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....otal amount payable as income-tax on a total income of ten lakh rupees by more than the amount of income that exceeds ten lakh rupees. In the case of every artificial juridical person, the amount of income-tax computed shall be reduced by the amount of rebate of income-tax calculated under Chapter VIII-A. The income-tax so reduced, shall be increased by a surcharge for purposes of the Union calculated at the rate of ten per cent. of such income-tax. The additional surcharge, called the "Education Cess on Income tax", levied so as to fulfil the commitment of the Government to provide universalised quality basic education at the rate of two per cent. on the amount of tax inclusive of surcharge, is proposed to be continued. B. Co-operative Societies In the case of co-operative societies, the rates of income-tax have been specified in Paragraph B of Part III of the First Schedule to the Bill. These rates are the same as those specified in the corresponding paragraph of Part I of the First Schedule to the Bill and will continue to be same as that for assessment year 2006-2007. No surcharge shall be levied. C. Firms In the case of firms, the rate of income tax has been specified in....
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....Under the existing provisions contained in clause (23G) of section 10, any income by way of dividends, interest or long-term capital gains of an infrastructure capital fund or an infrastructure capital company or a cooperative bank from investments made on or after the 1st day of June, 1998 by way of shares or long-term finance in approved eligible businesses is exempt. Eligible businesses include infrastructure projects, developers of Special Economic Zones, hotel projects of not less than three star category, hospital projects with at least one hundred beds for patients and certain housing projects. This exemption was intended to ensure low cost of raising capital for thrust area projects during an era of high interest rates and high tax rates. The tax rate as well as interest rate for borrowing of funds have since come down, reducing the over all cost of such projects. Exemption for dividends distributed by domestic companies is already available under section 10(34) of the Act. Long- term capital gains from transactions on which Securities Transaction Tax has been paid are also exempt under section 10(38). It is, therefore, proposed to omit clause (23G) of Section 10 so as to ....
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....ance with the provisions of section 90 or section 91, as the case may be. This amendment is clarificatory in nature and is inserted in the Income-tax Act on 1st April, 2006. It is further proposed to insert Explanation 2 to provide that any sum paid outside India and eligible for relief of tax under newly inserted section 90A will not be allowed as a deduction in the computation of profits and gains from business or profession. [Clause 10] This amendment will take effect from 1st June, 2006. Interest not 'actually paid' not eligible for deduction under section 43B Under the existing provisions contained in clause (d) and clause (e) of section 43B, any sum payable by the assessee as interest on any loan or borrowing or advance referred to in the said clauses is allowed as deduction in the computation of income if the sum payable as interest is 'actually paid' by the assessee. It is proposed to insert two new Explanations, namely, Explanation 3C and Explanation 3D to clarify that if any sum payable by the assessee as interest on any loan or borrowing or advance is converted into a loan or borrowing or advance, the interest so converted and not 'actually paid', shall not be dee....
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.... such contribution indicating the name and address of the person and such other particulars as may be prescribed. Consequential amendments are proposed to be made in section 10(23C) and section 13 so as to provide that any income by way of any anonymous donation which is taxable under the provisions of the proposed new section 115BB shall not be excluded from the total income of the assessee. These amendments will take effect from 1st April, 2007 and will accordingly apply in relation to assessment year 2007-2008 and subsequent years. Consequential amendments are also proposed to be made in sub-clause (iia) of clause (24) of section 2 to include voluntary contributions received by certain educational and medical institutions in the definition of income. The amendment is retrospective in the case of some institutions. [Clauses 3, 4, 6 and 22] Change in definition of 'long-term specified asset' for exemption under section 54EC Under the existing provisions of section 54EC capital gains arising form the transfer of a long-term capital asset is exempt from tax if the capital gains are invested in any long term specified asset. The expression "long term specified asset" has been d....
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....budget.nic.in 5 Rationalisation of provisions relating to Minimum Alternate Tax Section 115JB provides that, in case of a company, if the tax payable on the total income as computed under the Income-tax Act in respect of any previous year relevant to the assessment year commencing on or after the 1st April, 2001 is less than seven and one-half per cent. of its book profit, such book profit shall be deemed to be the total income of the assessee and the tax payable for the relevant previous year shall be seven and one-half per cent. of such book profit. Since the credit for MAT paid under section 115 JB has been introduced from assessment year 2006-07 by Finance Act 2005, and the period for availing the MAT credit is proposed to be increased from five years to seven years, it is proposed to amend sub- section (1) of the said section to provide that if the income-tax payable on the total income as computed under the Income-tax Act in respect of any previous year relevant to the assessment year commencing on or after the 1st April, 2007 is less than ten per cent. of its book profit, such book profit shall be deemed to be the total income of the assessee and the tax payable for the ....
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....l be increased by the amount of depreciation debited to the profit and loss account and to also insert a new clause (iia) in the said Explanation so as to provide that the amount of depreciation claimed in the profit and loss account, excluding the claim of depreciation on account of revaluation of assets, shall be reduced from the book profit. With a view to avoid double taxation on this account, it is also proposed to insert a new clause (iib) in the said Explanation so as to provide that the amount withdrawn from revaluation reserve and credited to the profit and loss account, to the extent it does not exceed the amount of depreciation on account of revaluation of assets referred to in the proposed new clause (iia), shall be reduced from the book profit. The proposed amendments to section 115 JB and clause (38) of section 10 will take effect from 1st April, 2007 and will, accordingly, apply in relation to the assessment year 2007-2008 and subsequent years. [Clauses 4 and 24] Enhancing the period for carry forward of MAT credit Sub-section (1) of Section 115JAA provides that where any amount of tax is paid under section 115JA by a company for any assessment year, then credit i....
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....ion to any co-operative bank other than a primary agricultural credit society or a primary co-operative agricultural and rural development bank. It is also proposed to define the expressions "co-operative bank", "primary agricultural credit society" and "primary co-operative agricultural and rural development bank". It is also proposed to insert a new sub-clause (viia) in clause (24) of the said section so as to provide that the profits and gains of any business of banking (including providing credit facilities) carried on by a co-operative society with its members shall be included in the definition of 'income'. This amendment will take effect from 1st April, 2007 and will, accordingly, apply in relation to the assessment year 2007-2008 and subsequent years. [Clauses 3 and 19] Method for allocating expenditure in relation to exempt income Under the existing provisions of section 14A, it has been provided that for the purposes of computing the total income, no deduction shall be allowed in respect of expenditure incurred by the assessee in relation to income which does not form part of the total income under the Income-tax Act. However, the existing provisions of section 14A do....
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....d amendment shall apply only in respect of applications which are made on or after 1st June, 2006. This amendment will take effect from 1st June, 2006. [Clause 4] Credit for payment of Minimum Alternate Tax (MAT) and tax paid in a country or specified territory outside India for the purposes of charge of interest under sections 234A, 234B and 234C Under the existing provisions of sections 234A, 234B and 234C, the assessee is held liable to pay simple interest at the rate of one per cent. for every month or part of a month for default in furnishing return of income, for default in payment of advance tax and for deferment of advance tax respectively. For the purposes of computing interest, credit for advance tax paid and tax deducted or collected at source is allowed. MAT credit under section 115JAA, relief of tax under section 90 and deduction from income-tax payable under section 91 are not taken into account while charging interest under the aforesaid sections. Under section 140A also interest is paid on shortfall of advance tax and for delay in furnishing return of income. Representations have been received that the tax credit allowed under section 115JAA is no different fro....
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....b-section (1A) shall pay such interest before furnishing the quarterly statement for each quarter in accordance with the provisions of sub-section (3) of section 200. On similar lines it is also proposed to amend sub-section (7) of section 206C so as to provide that the person responsible for collection of tax and liable to pay interest under the said sub-section (7) shall pay such interest before furnishing the quarterly statement for each quarter in accordance with the provisions of sub-section (3) of that section. These amendments will take effect from 1st June, 2006. It is also proposed to insert a new sub-section (6A) in section 206C to provide that any person responsible for collecting tax shall be deemed to be an assessee in default if such person does not collect the whole or any part of the tax or fails to pay such tax after having collected the tax. This amendment will take effect from 1st April, 2007 and will, accordingly, apply in relation to the assessment year 2007-2008 and subsequent years. [Clauses 42 and 47] Doing away with furnishing of annual TDS and TCS returns Under the existing provisions of section 206 and sub-section (3) of section 206C, any person resp....
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....il, 2006 and other amendments to sections 139A and 272A take effect from 1st June, 2006. [Clauses 32, 44, 46, 47 and 53] Clarificatory amendment regarding the time limit for issue of notice under section 142 The existing provisions contained in sub-section (1) of said section, inter-alia, provide that for the purposes of making assessment in a case where a person has not made a return of his income within the time specified under sub-section (1) of section 139, the Assessing Officer may serve a notice under the said sub-section on such person requiring him to furnish the return of his income in the prescribed form and manner. It is proposed to amend clause (i) of sub-section (1) so as to provide that in a case where a person has not made a return of his income before the end of the relevent assessment year, the Assessing Officer may serve a notice after the end of the relevant assessment year under said sub-section requiring such person to furnish his return of income. This amendment will take effect from 1st April, 2006. It is also proposed to insert a proviso to the said clause (i) so as to provide that where any notice has been served on or after 1st April, 1990 under sub-....
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....is also proposed to insert an Explanation in sub-section (1) so as to clarify that the provisions of the newly inserted first proviso or the second proviso shall not apply in relation to any return which has been furnished on or after 1st October, 2005 in response to a notice served under sub-section (1) of section 148. [Clause 36] This amendment will take effect retrospectively from the 1st October, 2005. Reduction of the time limits provided for completion of assessment and reassessment The existing provisions of section 153 provide the time limit for completion of assessments and reassessments. Section 153B of the Income-tax Act provides the time limit for completion of assessment in cases where search has been initiated under section 132 or books of account, other documents or any assets have been requisitioned under section 132A. The existing provisions of Section 17A of the Wealth-tax Act provide the time limit for completion of assessment sand reassessments of the net wealth. It is proposed to revise the time limits specified for completion of assessments and re-assessments in sections 153, 153B of the Income-tax Act, and in section 17A of the Wealth-tax Act so that the....
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....tion of income under this sub-section. Sections 10A and 10B provide deductions in respect of the profits and gains derived from exports. Section 10AA also provides for deduction of profits and gains derived from exports, in respect of newly established units in Special Economic Zones. With a view to rationalise the provisions of sub-section (4) of section 92C, it is proposed to amend the first proviso to the said sub-section so as to provide that no deduction under section 10AA shall be allowed in respect of the amount of income by which the total income of the assessee is enhanced after computation of income under sub-section (4). This amendment will take effect from 1st April, 2007 and will, accordingly, apply in relation to the assessment year 2007-08 and subsequent years. [Clause 21] website: http://indiabudget.nic.in 9 Penalty for false quoting of TAN Under the existing provisions of section 272BB of the Income-tax Act, a person becomes liable for penalty of a sum of ten thousand rupees if he fails to comply with the provisions of section 203A which require him to apply to the Assessing Officer for the allotment of a "tax deduction and collection account number". After a....
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....on concerned has been given a reasonable opportunity of being heard. It is proposed to amend sub-section (2) so as to include a reference of sub-section (1A) therein for the purpose of giving an opportunity of being heard to the person on whom the penalty is to be imposed under the said sub-section (1A). These amendments will take effect from 1st June, 2006. [Clauses 54 and 55] Penalty for failure to collect tax at source No penalty is so far specified under the Income-tax Act for failure to collect tax at source. Subsequent to expansion of the provisions of tax collection at source, Board has been receiving information from various quarters that in a number of cases collection of tax was not being made by the persons responsible for collecting tax. It is, therefore, proposed to insert a new section 271CA so as to provide for imposition of penalty on any person who is responsible for collecting tax and who has failed to collect tax at source in accordance with the provisions of Chapter XVII-BB of the Act. Such penalty is proposed to be a sum equal to the amount of tax which he failed to collect at source. The order of penalty is proposed to be made an appeallable order under ....
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....e Tax Accounting System (OLTAS) is yet to fully stabilize as failure to quote, and in many cases quoting of false PAN and TAN have resulted in getting the taxes deducted or collected or paid getting credited to the suspense account. The dematerialisation system is dependent upon filing of TDS or TCS statements by all the deductors or collectors with correct PAN and TAN in all the TDS and TCS statements and challans. Until all taxes deducted, collected or paid are matched in the OLTAS and complete information is populated in the deductees' or collectees' account, dematerialisation cannot fully substitute for the existing paper based system. website: http://indiabudget.nic.in 10 Keeping in view the aforementioned factors, it is proposed to defer the commencement of dematerialisation provisions by two years and make such provisions applicable for taxes deducted or paid [sub section (3) of section 203] or collected [1st proviso to sub section (5) of section 206C] on or after 1st April, 2008. These amendments will take effect retrospectively from 1st April, 2006 and will, accordingly, apply in relation to the assessment year 2006-2007 and subsequent years. [Clauses 31,41,43,45 and 4....
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....pecified number of years of the profits and gains of undertaking or an enterprise established before the specified dates in the notified areas, or engaged in thrust area activities. It is proposed to amend section 10B and insert a new section 80 AC so as to provide that no deduction under section 10 B and section 80-IA, section 80-IAB, section 80-IB and section 80-IC shall be allowed to an assessee who does not furnish a return of his income on or before the due date specified in sub-section (1) of section 139. The proposed amendments will take effect from 1st April, 2006 and will, accordingly, apply in relation to the assessment year 2006-07 and subsequent years. [Clauses 5 and 15] Prescribing new class of persons for allotment of PAN and suo-moto allotment of PAN The existing provisions of sub-sections (1) and (1A) of section 139A provide for class of persons who are required to have a Permanent Account Number: It is proposed to insert a new sub-section (1B) so as to provide that for the purpose of collecting any information which may be useful for or relevant to the purposes of this Act, the Central Government may by way of notification specify any class or classes of perso....
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....e a direction issued by the Board under the said sub-section (1). [Clause 30] This amendment will take effect retrospectively from 1st April, 1988. IMPROVING TAX PAYERS SERVICE New Scheme to facilitate submission of returns through Tax Return Preparers It is proposed to insert a new section 139B in the Act so as to provide that for the purpose of enabling any specified class or classes of persons to prepare and furnish returns of income, the Board may, by way of notification, frame a scheme providing that such persons may furnish their returns of income through a Tax Return Preparer authorised to act as such under the scheme. It is further proposed to provide that the Scheme framed under the said section shall specify the manner in which the Tax Return Preparer shall assist the persons furnishing the return of income, and shall also affix his signature on such return. It is also proposed to provide that a Tax Return Preparer may be an individual other than a person referred to in clause (ii) or clause (iv) of sub-section (2) of section 288 or an employee of the specified class or classes of persons, who has been authorised to act as a Tax Return Preparer under the proposed Sch....
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....ribution made from such funds. An open-ended equity oriented fund is defined in the Explanation to section 115T to mean such fund where the investible funds are invested by way of equity shares in domestic companies to the extent of more than fifty per cent of the total proceeds of such fund. The percentage of equity shareholding is computed with reference to the annual average of the monthly averages of the opening and closing figures. With a view to provide close-ended funds a level playing field, it is proposed to omit the word 'open-ended' from the proviso to sub-section (2) of section 115R and from the Explanation to section 115T so as to provide that all equity oriented funds shall not be liable to pay dividend distribution tax instead of only open-ended equity oriented funds. This amendment will take effect from 1st June, 2006. Further, with a view to align the definition of equity oriented fund given in section 115T with the SEBI norms, it is proposed to amend the said Explanation to section 115T so as to provide that the exemption from dividend distribution tax shall be available only to a fund where the investible funds are invested by way of equity shares in domestic ....
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.... in respect of lease rent payments under an agreement into on or after 1st April, 2006. Further, clause (6BB) of section 10 also provides exemption from grossing of tax paid by the Indian company on lease payments under an agreement entered into after the 31st March, 2006. It is proposed to provide that the exemption for lease payments shall continue with regard to agreements entered into on or before 31st March, 2007. The benefit of exemption from grossing of tax will consequently be available in respect of lease payments made in pursuance of agreements entered into after 31st March, 2007 when the lease payments become taxable. These amendments will take effect from 1st April, 2007 and will, accordingly, apply in relation to assessment year 2007-2008 and subsequent years. [Clause 4] Extending benefits of section 80 C to fixed deposits in banks Section 80 C provides for a deduction of rupees one lakh to an individual or a Hindu undivided family, with respect to sums paid or deposited in certain specified schemes. The investments or payments eligible for deduction include life insurance premia, contributions to provident fund or schemes for deferred annuities, purchase of infra....
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....e amendments will take effect from 1st April, 2007 and will, accordingly, apply in relation to the assessment year 2007- 2008 and subsequent years. [Clause 16] Rationalisation of provisions relating to deduction of health insurance premium paid by the employer and exempt status of such payments in the hands of employees Any salary due or paid or allowed to an employee by the employer is chargeable to tax under the head 'salaries'. The term 'salary' has been defined in section 17 which, inter-alia, includes wages, pension, perquisites or profits in lieu of or in addition to salary. However, clause (iii) of the proviso to clause (2) of section 17, exempts any premium paid by an employer to effect or to keep in force an insurance on the health of such an employee, from the purview of perquisite, provided it is in accordance with the scheme approved by the Central Government for the purposes of section 36(1)(ib). Section 36 (1)(ib) refers to a scheme framed by the General Insurance Corporation under section 9 of the General Insurance Business (Nationalisation) Act 1972 and approved by the Central Government. website: http://indiabudget.nic.in 13 Clause (iv) of the proviso to claus....
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....his total income of the amount paid or deposited by him to effect or keep in force a contract for any annuity plan of Life Insurance Corporation of India or any other insurer for receiving pension from the fund referred to in clause (23AAB) of section 10. Since the deduction available under section 80 C and section 80 CCC are capped by an overall limit of rupees one lakh, as laid down in section 80 CCE, and there are no sectoral caps in section 80 C, it is proposed to align the provisions of the two sections by amending the provisions of section 80 CCC so as to increase the limit of investment from rupees ten thousand to rupees one lakh. It may be reiterated that the proposed amendment will be subject to the overall cap of rupees one lakh provided under section 80CCE. This amendment will take effect from 1st April, 2007 and will, accordingly, apply in relation to the assessment year 2007-2008 and subsequent years. [Clause 17] Extension of tax benefits to the Power Sector Section 80 IA of the Income Tax Act provides for deductions in respect of profits and gains from industrial undertakings or enterprises engaged in infrastructure development etc. Clause (iv) of sub-section (4)....
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....ear 2007-2008 and subsequent years. [Clause 18] Provisions relating to exemption of specified income of certain bodies or authorities It is proposed to insert a new clause in section 10 of the Act to provide exemption from income tax to any specified income of a non-profit body or authority notified by the Central Government which is established, constituted or appointed under a multi-lateral treaty, agreement, or convention, to which the Central Government is a signatory. The nature and extent of income to be exempted will also be notified by the Central Government. This amendment will take effect retrospectively from 1st April, 2006. [Clause 4] MISCELLANEOUS Definition of infrastructure capital company, infrastructre capital fund and infrastructure facility Under the existing provision of Income-tax Act, infrastructure capital company and infrastructure capital fund have been defined in clause (23G) of section 10. Further, this definition is also with reference to section 80-IA and 80-IB. The definition of infrastracture capital company and infrastructure capital fund existing in clause (23G) of section 10 have been used in the Income-tax Act in various other provisions. ....
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....e the problems being faced by the small investors in the recognised provident funds, it is proposed to insert a new clause (ea) in the said rule so as to provide that the fund shall be of an establishment to whom the provisions of sub- section (3) or sub-section (4) of section 1 of the Employees' Provident Funds and Miscellaneous Provisions Act, 1952 are applicable and such establishment has been exempted under section 17 of the said Act from the operation of all or any of the provisions of any scheme referred to in that section. Further, Rule 3 of Part A of Schedule IV provides that the Chief Commissioner or the Commissioner of Income-tax may accord recognition to any provident fund which satisfies the conditions prescribed in Rule 4 and the rules made by the Board in this behalf. He may, at any time, withdraw such recognition if the provident fund contravenes any of such conditions. There may be a number of provident funds recognised under the said rule, which do not fulfil the conditions set out in the proposed clause (ea) of Rule 4. Since a synergy between the provisions of the Income Tax Act and the Employees' Provident Fund and Miscellaneous Provisions Act is to be establish....
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....deemed to be a speculative transaction. The definition of derivatives was earlier referred to, in clause (aa) of section 2 of the Securities Contracts (Regulation) Act, 1956. Through an amendment made in January, 2005 to the Securities Contracts (Regulation) Act, 1956, the said clause (aa) has been re-lettered as clause (ac). Accordingly, the reference to the definition of the term 'derivative' has been re-lettered in clause (5) in section 43. This amendment will take effect retrospectively from 1st April, 2006. [Clause 11] FRINGE BENEFIT TAX Rationalising the provisions of Fringe Benefit Tax Section 115 WB provides a definition of the term 'fringe benefits'. It, inter-alia, means any privilege, service, facility or amenity, directly or indirectly, provided by an employer to his employees, any contribution by the employer to an approved superannuation fund for the employees, etc. Sub-section (2) of the said section provides that the fringe benefits shall be deemed to have been provided by the employer to his employees, if the employer has in the course of his business or profession, incurred any expense on or made any payment for the purposes of entertainment, hospitality, co....
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....:- EmployeeContribution to approved superannuation ARs. 50,000 BRs. 90,000 CRs. 2,00,000 In the case of employees A and B, the value of fringe benefits shall be taken to be nil since contributions by the employer in respect of these employees does not exceed Rs. 1,00,000 in each case. However, in the case of employee C the value of fringe benefit shall be Rs. 1,00,000 (Rs. 2,00,000 - 1,00,000) for the purposes of levy of fringe benefit tax. website: http://indiabudget.nic.in 16 Under the existing provisions contained in clause (c) of sub-section (1) of said section 115WC, it is provided that twenty percent of the expenses referred to in clauses (A) to (K) of sub-section (2) of section 115WB, which includes expenses incurred on conveyance, tour and travel (including foreign travel), shall be the value of fringe benefits. It is proposed to insert a new clause (e) in sub-section (1) of section 115WC so as to provide that five percent of the expenses incurred on tour and travel (including foreign travel) shall be taken for determining the value of fringe benefits. However, twenty percent of the expenses incurred for the purposes of conveyance shall be continued to be taken for th....
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....ognised stock exchange, to be paid by the buyer, (ii) @ 0.125 % on the value of transactions of delivery based sale of an equity share in a company or a unit of an equity oriented fund, entered in a recognised stock exchange, to be paid by the seller, (iii) @ 0.025% on the value of transactions of non-delivery based sale of an equity share in a company or a unit of an equity oriented fund, entered in a recognised stock exchange to be paid by the seller, (iv) @ 0.017%, on the value of transactions of derivatives being option or future, entered in a recognised stock exchange, (v) @ 0.25% on the value of transactions of sale of units of an equity-oriented fund to the mutual fund. This amendment will take effect from 1st June, 2006. [Clause 76] website: http://indiabudget.nic.in Document 2 CUSTOMS Note: (a) "Customs Duty" means the customs duty levied under the Customs Act, 1962. (b) "CVD" means the Additional Duty of Customs levied under section 3 of the Customs Tariff Act, 1975. Changes come into effect immediately unless otherwise specified. Major proposals about the customs duties are the following: A. ADDITIONAL DUTY OF CUSTOMS: In the 2005 budget, power was taken to....
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....um, Cobalt, Titanium, etc.) (h) Calcined alumina 17 website: http://indiabudget.nic.in 18 (II) Customs duty has been reduced from 5% to 2% on mineral ores and concentrates. (III) Customs duty has been reduced from 10% to 7.5% on ferro alloys. (IV) Customs duty of 5% has been imposed on iron and steel melting scrap. (V) Concessional rate of 5% customs duty on nickel and articles of nickel has been restricted to goods falling under Chapter 75. D. MINERALS: Customs duty has been reduced from 15% to 5% on mineral products of Chapter 25, except for cement, marble, granite and asbestos. E. REFRACTORIES AND INPUTS FOR REFRACTORIES: Customs duty has been reduced on: (a) Refractories from 10% to 7.5%; and (b) Raw materials for refractories namely, natural graphite powder, aluminous cement, boron carbide, reactive alumina, silicon metal (99% purity), micro/fumed silica, brown fused alumina, fused zirconia, silicon carbide, sodium hexameta phosphate, sintered/tabular alumina and fused silica from 10% to 7.5%. F. CHEMICALS AND PETROCHEMICALS: 1) Customs duty on basic inorganic chemicals such as halogens, sulphur, carbon, hydrogen, falling under headings 2801 to 2805, has been re....
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....o 5%; 2) Customs duty on Petroleum Coke has been reduced from 10% to 5%; 3) Customs duty on natural gas including propane and butanes, has been unified at 5%. K. HEALTH 1) Customs duty on 14 specified anti-cancer and 10 specified Anti-AIDS drugs, and bulk drugs for their manufacture, has been reduced to 5% with Nil CVD by way of excise duty exemption. 2) Customs duty has been reduced to 5% on 4 specified drugs and bulk drugs for their manufacture. These drugs will be exempt from CV duty also by way of excise duty exemption. 3) Customs duty has been reduced to 5% on 2 specified diagnostic kits and 1 equipment. These kits/equipment will be exempt from CV duty also by way of excise duty exemption. L. PROJECT IMPORTS Pipeline projects for transportation of crude oil, petroleum products and natural gas have been notified as project imports under Heading 9801. M. MISCELLANEOUS: 1) Customs duty has been reduced on: (a) Non-edible grade oils having Free Fatty Acid content of 20% or above, used for manufacture of soaps, industrial fatty acids and fatty alcohols, from 15% to 12.5%; (b) Vinyl acetate monomer from 15% to 10%. (c) Butyl rubber from 15% to 10%. (d) Crude glycerine ....
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....cars with length not exceeding 4 metres and engine capacity not exceeding 1500 cc. 3) Excise duty has been reduced from 16% to 8% on: (a) Heat resistant latex rubber thread (b) LPG gas stoves of value exceeding Rs.2000 per unit (c) Compact Fluorescent Lamps (d) Footwear of retail sale price between Rs.250 and Rs.750 per pair 4) Excise duty has been fully exempted on: (a) Paddy de-husking rice rubber rolls (b) Nuclear grade sodium produced by Heavy Water Board for supply to Kalpakkam Nuclear Power Plant (c) Drawing inks (d) Quebracho and Chestnut extract (e) Gold concentrate for refining 5) Excise duty has been reduced from 16% to 12% on specified printing, writing and packing paper. B. IMPOSITION AND INCREASE IN DUTY: (I) Imposition 1) Excise duty of 8% with CENVAT credit has been imposed on: (a) Goggles (b) Articles of wood (c) Registers, accounts books, order books, receipt books, letter pads, memorandum pads, dairies, binders, folders, file covers, etc. (excluding note books and exercise books) (d) Paper labels (e) Paper pulp moulded trays (f) Articles of mica (g) Goods containing at least 25% by weight of fly ash/phospho gypsum (h) Roofing tiles (i) Raw,....
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....rom 16% to Nil. (b) Ice cream from 16% to Nil. (c) Pectic substances, pectinates and pectates, pectin esterase from 16% to Nil. (d) Yeast from 16% to Nil. (e) Processed meat, fish and poultry products from 8% to Nil. (f) Pasta, whether or not cooked or stuffed or otherwise prepared, from 16% to Nil. (g) Ready to eat packaged food from 16% to 8%. (h) Texturised vegetable protein (Soya bari) and instant food mixes, namely, pongal mix, vadai mix, pakora mix, payasam mix, gulab jamun mix, rava dosa mix, idli mix, dosai mix, murruku mix and kesari mix, from 16% to 8%. (i) Concessional rate of 8% of excise duty applicable on scented supari with retail sale price (RSP) of 50 paise or less per pouch has been extended to scented supari with RSP of Re.1 or less per pouch. D. PETROLEUM Cess leviable on domestic petroleum crude oil under the Oil Industry (Development) Act, 1974 has been increased from Rs. 1800 per tonne to Rs.2500 per tonne. website: http://indiabudget.nic.in 22 E. TOBACCO PRODUCTS: 1) Excise duty rates have been unified at 66% for all types of pan masala. 2) Tariff values have been fixed for pan masala as under: S. No.ContentsProposed tariff value (Rs.) 1.If M....
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....http://indiabudget.nic.in 23 4) Abatement from RSP for levy of excise duty on footwear of RSP exceeding Rs.250 and upto Rs.750 per pair has been reduced from 40% to 37% consequent to reduction in excise duty from 16% to 8%. 5) Abatement from RSP for levy of excise duty on ready to eat packaged food, instant food mixes has been reduced from 40% to 37% consequent to reduction of excise duty from16% to 8%. 6) Existing rate of abatement of 50% will apply to all varieties of pan masala, which are subject to RSP based assessment and also in other cases where the RSP is printed despite there being no legal requirement to do so. K. WITHDRAWAL OF EXEMPTION ON GOODS MANUFACTURED WITHOUT THE AID OF POWER: A number of excisable goods have been given exemption from excise duty if no power is used in the process of manufacture. However, it is difficult to implement such exemptions. There are disputes as to what constitutes use of power, and also whether use of power in a particular process can be considered as use of power in manufacture. Such units are likely to be small and will, therefore, be eligible for SSI exemption scheme. Having regard to this, following exemptions to goods manufac....
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....xtures or preparations of animal or vegetable fats and oils (other than margarine and linoxyn). 14) Preparations of vegetables and fruits of chapter 20. M. MISCELLANEOUS 1) Provision has been made to charge excise duty only on value addition in respect of Glued insulating rail joints, if no input tax credit is taken. 2) Excise duty exemption available on raw materials for manufacture of rotor blades of wind operated energy generators, has been extended to all glass fibre items (7019) and resin binders (3824 90). 3) Generic exemption to products of coir industry, cashew industry, tanning industry, oil mill and solvent extraction industry, and rice milling industry has been withdrawn. This should not result in any additional duty as specified products of these industries are separately exempted from excise duty. 4) Exemption has been withdrawn in cases where cost of durable packing used for specified goods was not included in the value for assessment. This exemption has become redundant after the introduction of transaction value under Section 4 of Central Excise Act. N. AMENDMENTS IN CUSTOMS AND CENTRAL EXCISE ACT AND RULES: 1) Section 12C of the Central Excise Act is being ....
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....05 and subsequently, a new notification (No.89/2005-Customs dated 4.10.2005) was issued to allow imports under DEPB Scheme without payment of customs duty upto 31.12.2005. There was a gap of three days between the expiry of the earlier notification and issue of the new one. Notification No.96/2004-Customs, issued under DEPB Scheme, is being amended so as to retrospectively permit benefit of DEPB Scheme to goods imported during the period 1.10.2005 to 3.10.2005 (both days inclusive). 10) First Schedule to the Customs Tariff Act, 1975, is being amended so as to incorporate the amendments approved by the Customs Cooperation Council (World Customs Organization) in the legal text of the International Convention on the Harmonized Commodity Description and Coding System (Harmonized System). These changes would align the First Schedule of the Customs Tariff Act with the Harmonized System. This amendment will come into force with effect from 1.1.2007. 11) Section 9 of the Customs Tariff Act, 1975 deals with levy of countervailing duty on import of goods in respect of which any subsidy has been paid. In terms of Section 9(1), the subsidy is deemed to exist if there is financial contributio....
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....of January, 1925. 3) Section 14 of the Central Sales Tax Act, 1956 is being amended to include 'liquefied petroleum gas for domestic use' in the list of goods of special importance in Inter-State trade or commerce (Declared Goods), with a view to ensure that the state sales tax/VAT on this essential commodity is kept within reasonable limits. website: http://indiabudget.nic.in Document 3 25 SERVICE TAX (I) RATE OF SERVICE TAX: The rate of service tax is being increased from 10% to 12%. The increase in service tax rate will be applicable from the date of enactment of the Finance Bill, 2006. (II) SERVICE TAX IS BEING IMPOSED ON THE FOLLOWING INDIVIDUALLY SPECIFIED SERVICES: 1) Service provided by a Registrar to an Issue; 2) Service provided by a Share Transfer Agent; 3) Automated Teller Machine operations, maintenance or management; 4) Service provided by a recovery agent; 5) Sale of space or time for advertisement, other than in print media; 6) Sponsorship services provided to any body corporate or firm, other than sponsorship of sports events; 7) Transport of passengers embarking on international journey by air, other than economy class passengers; 8) Transport of go....
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....g or analysis for the purpose of determination of the nature of diseased condition, identification of a disease, prevention of any disease or any disorder in human beings or animals. The above changes will come into effect from a date to be notified, after the enactment of the Finance Bill, 2006 (IV) THE FOLLOWING SERVICE TAX EXEMPTIONS ARE BEING WITHDRAWN: 1) The exemptions in relation to general insurance where- (i) Premium is received from re-insurance both domestic and overseas; (ii) All business for which premium is booked outside India; 2) Exemption for services, other than accounting, auditing, and statutory certification services, provided by a practicing chartered accountant, company secretary or cost accountant in his professional capacity; 3) Exemption for taxable services provided by a Call Centre or a Medical Transcription Centre; 4) Exemption for taxable service provided in relation to Enterprise Resource Planning (ERP) software system provided by a management consultant in connection with the management of any organization; 5) Exemption for catering services provided on a railway train by an outdoor caterer; 6) Exemption for catering services provided withi....
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....sion of adjudication proceedings in respect of a person who has voluntarily deposited the service tax demanded along with interest and penalty equal to 25 per cent. of the service tax specified in the demand notice [section 73(1A)]; (h) (i) provide for voluntary payment by an assessee of any amount collected in excess of the service tax leviable but not deposited with the Central Government or recovery of such excess amount; (ii) provide for voluntary payment or recovery of any amount representing service tax, that has been collected by a person but not deposited with the Central Government [section73A]; (i) enable the Central Government to collect interest on the amount referred to in section 73A [section 73B]; (j) provide for provisional attachment of property by the Central Excise Officer during the pendency of any proceedings under section 73 or section 73A [section 73C]; (k) provide for publishing the name of any person and particulars of any proceedings in relation to such person, in public interest [section 73D]; (l) substitute section 76 with a new section 76 to provide for change in method of determining penalty in case of failure to pay service tax by the due date; ....