• FEBRUARY 28, 2006

10 key measures that affect you!

Union Budget 2006-07 was largely a non-event. There were no announcements made by the Finance Minister (FM) that would have a telling effect on most of the sectors in any big way. Nonetheless, in this article, we try and bring out 10 key things that would affect you directly/indirectly.

Direct taxes: The FM has left the personal income tax and corporate tax rates for FY07 unchanged.

Service tax net widened: The FM has brought new services under the tax net, which would increase the costs of operation for an individual. Amongst the new services included are, ATM operations, credit card/debit card/charge card or other payment cards related services, internet telephony service, international air travel excluding economy class passengers and travel on cruise ships.

One-by-six scheme: The government has taken a significant step by abolishing the one-by-six scheme. This scheme was in existence so as to bring a larger number of persons under the tax net. It must be noted that under this scheme, any person who satisfies even one of the six indicators (owns or leases a car, occupies an immovable property, travels abroad, annual electricity bill of Rs 50,000 per annum, holds a credit card, has a club membership) is liable to file an income tax return. Since it is relatively easy for the authorities to collect the details of the members or users of these facilities, the authorities can keep a track of the persons and can make them comply with filing of income tax returns. However, the rationale of this step, considering that the number of people of people filing income tax returns in the country is still quite low, continues to elude us.

Securities Transaction Tax (STT): If you are buying or selling equity shares, then the STT (transaction tax) burden has gone up from 0.02% to 0.025% (up 25%) of transaction value. In our view, while long-term investors in equities would not be affected by such a move, it is the trader community that stands to lose.

Investments in mutual funds: Definition of open-ended equity-oriented schemes of mutual funds in the Income tax Act aligned with the definition adopted by SEBI. Thus, open-ended equity-oriented schemes and close-ended equity-oriented schemes shall be treated at par for exemption from dividend distribution tax.

Tax benefits on fixed deposits: Meeting, to a certain extent, the expectations build up on this front, the FM has included investments in fixed deposits (FDs) in scheduled banks for a term of not less than 5 years in Sec 80C of the Income Tax Act, wherein the taxpayer is allowed certain tax relief as a deduction from his/her taxable income.

Changes in Sec 80CCC: The limit of Rs 10,000 in pension funds under Section 80CCC has been removed but these investments would be brought under Sec.80C subject to a ceiling of Rs 1 lakh.

Bank Cash Transaction Tax (BCTT): This is to continue for some more time until the Annual Information Returns (AIR) system is able to capture all significant financial transactions.

Compact cars to become cheaper: Reduction in excise duty for compact cars would make these more affordable to the extent the auto manufacturer passes on the same to the consumer.

Cigarettes to become expensive: With the FM raising the excise duty on cigarettes by 5%, more likely than not, the same would be passed on to the customer, making the pursuance of this habit a tad expensive.

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