Budget Tidbits from
WZCC-I & Indo-Swiss Chamber of Commerce
Eminent Parsi Economists, Taxation Counsels and Tax Consultants enlightened the Corporate and Business community in Mumbai on the Budget 2005-06 analyses of virtual tax effects during March, the fiscal year ending month. Now from April, the first month of the fiscal year, real tax effects of the budget would begin. Budget and Tax analysis by Parsis luminaries in the field of Economy and Taxation is well sought and looked forward to by the Mumbai tax payers, who contribute to 36% of Nation wide collection from taxes. From 3,35,000 tax payers in Mumbai, 2,22,000 have part of their income from profession, which demonstrates how hard the people of Mumbai work, and rightly so as to why their voice is heard on taxation matters. Late Nani Palkhiwala is well remembered and applauded for his contribution at each of these public meetings. Parsis, some how have taken, and continue to take, very active participation in functioning of Chamber of Commerce set up by International countries in India, and Indo-Swiss, Indo-Japan, Indo-Iran, Indo-American are a few examples. World Zarathushti Chamber of Commerce, individually and also jointly with Indo-Swiss Chamber of Commerce held public meetings on Budget 2005-06, getting speakers like Minoo Shroff, Phiroze Andhiyarujina, Kersi Limathwalla, Hardial Singh Commissioner of Income Tax, Manijay Kherawala Chief Commissioner of Income Tax, Mumbai, Joseph Isalyn Counsel General of Switzerland to address the public meetings which were every engrossing and absorbing. WZCC-I now shares some of the tidbits with the readers.
Share market is a good yardstick for judging the budget, and highly positive share market of today, is self demonstrative of the new India Budget. There is a gross misconception during pre and post budget environment, where the public feels rejoiced and looks forward to receive plentiful of sops from the Government, least realizing that it is the time to Payout for the larger interest for the country’s economy, and not a time for ‘what’s for Me?’.
Value Added Tax (VAT) regime is the best positive thing to happen for the good of our country’s economy, which is enjoyed by other 130 countries across the world.
Direct Taxes: For the first time ever, the credit from Direct Taxes at Rs.1,77,000 Crorer, is higher than Indirect Taxes credit. This is a tremendous growth in credits from Direct Taxes which was at Rs.75,000 Crorer five-years ago.
Though the exemption slab for women standing at Rs.125K and that for the Senior Citizens at Rs.150K, appear to be very good, the rebate available for women reduces to Rs.2,500 per annum from Rs.5,000 per annum; and for senior citizen it reduces to Rs.5,000 per annum from earlier Rs.20,000 per annum.
A new criterion under 1-0-6 Scheme where the electricity bills are Rs.50K and above per annum, it is mandatory to file the Income Tax returns.
The ‘Total income’ is substituted by ‘Gross Total Income’ i.e. income before deduction, and section of people/businesses will be required to file IT returns. The IT Amendment Act would be placed in the parliament in Fiscal Year 2005-06.
For Higher Education spending, with open limit, the allowable exemption will be only on the interest paid, and not on the principal amount installment.
Depreciation Rate has been scaled down whilst initial depreciation for Plant and machinery has been scaled up.
EET System: First make an Investment and get Exemption benefit, then on Returns on Investment get Exemption, and later pay Tax on the investment withdrawal.
Provident Fund and specified investments would be taxed under an EET regime. Old investments should not be taxed, but no announcements made so far.
NRI: Earlier withdrawn benefits would now be reinstated.
Fringe Benefit Tax (FBT): This would be a separate tax and a parallel assessment. A section of employees, whose certain benefits were not taxed, would now be individually taxed. Benefits collectively enjoyed would now be taxed to the company. Expenses such as Entertainment, Gifts, Sales Promotion Expense would now be taxed. There is an assurance from the FM that the genuine Business expenses would not be taxed under FBT.
Banking Transaction Tax (BTT): Applicable to cash withdrawals, Pay orders, Demand Draft, Travelers Cheque for value of more than Rs.10,000 per day from a Bank will be taxed @ 0.1%. The cumulative cash withdrawals from Branches of a Bank in a day will attract this Tax. This is applicable for such transactions only from the Schedule Banks.
Service Tax: For income less than Rs.400K per year, from services is would exempted.
Proper Compliance to Tax Laws is of prime importance, and the compliance in India is very poor. A Study by Sujit Bhalla shows that compliance for income bracket up to Rs200K is High, where as for income bracket above Rs.200K to Rs.1000K is Low, and that for income bracket above Rs.1000K is better. In Switzerland the compliance is 100%.
The Indian Economy performed fairly well by International Standards, considering the indicator of GDP Growth Rate at 6.9% per annum. was commendable for the year when there was bad monsoon, global Inflation in Oil, Coal and Steel prices, and the Tsunami disaster. Comparatively, China has GDP growth at around 10%. In terms of value of GDP, India is way far behind with GDP Value at US$600 billion compared to USA’s GDP Value at US$10,000 billion. India’s Foreign Exchange Reserves are US$138 billion, whilst that of China is at US$610 billion and that of South Korea at US$200 billion.
In Ms. Manijay Kherawala’s exercise the tax liability of a person earning Rs.500K per annum today is Rs.102K whereas as per next years budget, the tax liability would be reduced to Rs.71.4K, which is contrary to the fears that the Tax liability in Fiscal year 2005-06 would be higher. The effective rate of tax falls down from 22% to14.2%. The threshold income of Rs.100K is four times that of per capita income, in India.
Budget 2005-06 is a Resource Mobilizing effort budget, and the one which is well crafted. We are very lucky that there is no Social upheaval in our country considering the very wide gap and disparity between the haves and the have-nots, the rich and the poor. The Issues were that whilst the savings rates are high, the Investments were comparatively low; Foreign Exchange is high so is the Growth rate, and we need to get our act together and steer our way through the woods.
For expert advice on your tax queries and guidance through the year, write to WZCCI, Room No.8, R. N. Gamadia Polyclinic, No.9 Gamadia Colony Road, Tardeo, Mumbai 400 007 or e-mail to and visit website .