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Expectations from budget 2009-10

http://www.indiastudychannel.com/forum/32853-Expectations-about-budget.aspx
Indirect Tax
Abolition of Educational Cess
The Honble Finance Minister in the year 2004 introduced educational cess of 2% and additional secondary
and higher education cess 1% in 2007. This 3% educational cess is calculated on the aggregate of customs
duty payable on the imported item.
Further, this 3% educational cess on customs duty is not allowed for the purpose of availing CENVAT credit.
Consequently, it increases the cost of import. Such costs hinder the exporters in being price competitive in
the international market. Therefore, educational cess on customs duty should either be abolished or else
CENVAT credit of educational cess on customs duty should be allowed. Such a measure would be a step in
right direction considering the present economic crisis. The Accounting treatment of two types of education
cess also leads to lot of complications.
Therefore, the education cess may be merged for the convenience of the Trade and Industry.
Direct Tax
Corporate
Extension of tax holiday benefits to STP/ EHTP/ EOU units Section 10A/ 10B Currently, STP / EHTP /
EOU units can claim tax holiday under section 10A / 10B of the Income Tax Act, 1961, (Act), for a maximum
period of 10 years, which is available upto 31 March 2010.
However, SEZ unit can claim tax holiday under section 10AA of the Act for a period of 15 years (100%
exemption for 5 years, 50% for next five years and 50% for subsequent 5 years with re-investment criteria).
The SEZ scheme has some inherent limitations, such as, locational restrictions and regulatory constraints
on migration of work / assets from existing facilities.
Further, the IT / ITES sector has been facing the following challenges:
Economic slowdown
Minimum area requirements of 10 hectares to operate as an IT / ITeS SEZ
Challenge for small and medium companies to migrate to SEZ due to regulatory constraints
SEZs are typically located outside city limits and impose locational constraints
High leasing cost for small and medium companies to operate as an SEZ unit
Shortage in supply of talent, high attrition rates and rising wages
Increasing operating cost due to high inflation and instability of Rupee vis--vis other currencies
Poor infrastructure (connectivity, housing, electricity, water supply)
Withdrawal of income tax holiday will force companies to re-visit pricing strategies
Recommendation
Extend 100% tax holiday at least for another five years beyond 31 March 2010 for STP / EHTP / EOU units
on par with SEZ units.
Rate of depreciation on motor cars
Issue
With sharp increase in the rate at which new models of cars are being introduced, the rate at which motor
cars are becoming obsolete has also gone up considerably. As such, the current rate of depreciation of 15%
on motor cars is very less in view of the fact the average economical life of a motor car is very less.
Recommendation
The rate of depreciation on motor cars has to be increased to at least 25%.
Rate of depreciation on plant & machinery Issue
Depreciation rate on General Plant & Machinery is at present 15%. In view of the fast change in technology,
the plant & machinery gets obsolete within few years of its purchase.
Recommendation
In view of the above, it is suggested that the rate of depreciation on plant & machinery be increased from the
current rate of 15%, and be at least restored to the earlier 25%.

Threshold limit of Rs. 40 lacs for tax audit Tax Audit is applicable in cases where the turnover exceeded Rs.
40 lacs. This limit was introduced way back in 1985 and needs to be amended keeping in view the current
scenario.
Disallowance of expenses under section 40A(3) and 40A(3A)
Issue
As per section 40A (3) read with Rule 6DD, every person is required to make payments exceeding Rs.
20,000/- by way of an account payee cheque or account payee draft, failing which certain disallowances
would be made in computing taxable income.
The threshold limits of Rs. 20,000/- has been in existence since 1-4-89. This provision is causing enormous
difficulties in the day-to-day functioning of corporates as the cost of goods have increased abnormally but
proportionate increase in the threshold limits have not been looked into.
In addition to the difficulty already faced by the corporates, the Finance Act 2008 has amended section
40A(3) to the effect that payment exceeding Rs. 20,000 to a person in a day otherwise than by an account
payee cheque/ draft, shall not be allowed as deduction.
Further, Section 40A(3A) was introduced by Finance Act 2008, seeks to disallow payments exceeding Rs.
20,000 pertaining to earlier years liability, if made otherwise than by an account payee cheque/ draft.
Recommendation
To enhance the threshold limits to Rs. 50,000/-, and restore the quantum of disallowance to 20 per cent of
the total payment in excess of Rs. 50,000
Individuals
Reintroduction of Standard Deduction
Issue
The Finance Act 2005 omitted the clause relating to standard deduction to salaried individuals.
The basic exemption limit is available to all individuals irrespective of whether he has salary income or if he
has income from business or profession. An individual earning income through business or profession is
allowed to claim a deduction in respect of any business expenditure incurred by him. This benefit is not
allowed to an individual having income from salary.
Recommendation
The standard deduction for salaried class should be reintroduced and at least Rs.50,000 should be allowed
as standard deduction.
Basic exemption limit
Keeping in view the inflationary trend, the threshold exemption limits with regard to individuals /HUF has to
be raised to Rs.2,00,000/-. And accordingly limits have to be raised for women, and senior citizens as well
as increase in amount in higher tax slabs.
Increase in investment in section 80(cce )
80 (cce ) limit has to be increased from 1 lac to atleast 1.5 lac
Exemption under section 10(32)
Issue
In case the income of a minor is clubbed with the total income of an individual, as per the provisions of
section 64(1A), an amount of Rs. 1,500 is exempt in the hands of the assessee, in accordance with the
provisions of section 10(32).
Considering that the average expenditure to meet the cost of a minors education / health / living expenses
has gone up considerably in recent years, the limit of Rs. 1,500 is very low.
Recommendation
The limit of exemption prescribed under section 10(32) should be enhanced to atleast Rs. 25,000.
Transport allowance section 10(14) r.w. Rule 2BB
The exemption limit for transport allowance provided by the employer to the employee should be raised from

Rs. 800 per month to at least Rs. 2,500 per month, given the rise in the cost of fuel/ cost of commutation.
Exemption under section 17 for reimbursement of medical expense
Currently, an exemption of Rs. 15,000 is available for reimbursement of medical expenses of the employee
by the employer. It is recommended that this limit be raised to at least 25,000 in the view of rising cost of
medical facilities.
Salary of notice period An employee who leaves his employment without giving notice period as per the
company policy is required to compensate the company by paying the salary for notice period short served
or not served. While the employee is taxed on the notice salary received by him, he is not exempted for a
deduction made on this account if he has short served the notice. He is also taxed when the short notice is
compensated by the prospective employer. Appropriate amendment may be made in law to provide for relief
in such cases.
Utilisation of PAN and Bank Account Data
There is an urgent need to utilise the existing data with the Income-tax
Department scientifically and to identify persons who are not within the tax
net. This needs a very focussed strategy and can be initially started as a
pilot project in metropolitan cities like Mumbai, Delhi, Chennai, Kolkata
etc. For this purpose, a comprehensive analysis is required of PAN data,
voter list and the list of bank accounts. For effective utilisation of this data
it will be necessary that the bank account gets linked with the PAN.
Suggestion for improving the assessees welfare and the image of the
Department
In order to provide a better human face and improve the image of Income-tax
Department, a mechanism should be provided in the Act whereby the
Assessing Officer is made accountable. This can be done by appointing an
ombudsman and such cases can be referred to such ombudsman who shall
have the power to award costs to the taxpayer in appropriate cases.
TDS in respect of maturity of insurance policies which are taxable under
section 10(10D)
(a) A provision relating to TDS should be inserted in Chapter XVIIB to
cover such payments where the exemption u/s 10(10D) is denied to
the recipient of income from insurance companies.
(b) Where the premium paid is above 20% of capital sum assured,
the premium paid certificate (receipt) issued by insurance
companies for the purpose of 80C should clearly mention that the qualifying amount for 80C deduction in
respect of such premium
paid is only up to 20% of capital sum assured and that where there
is no sum-assured, the premium paid shall not be eligible for any
deduction u/s 80C.
Information to be furnished in the Annual Information Return
Section 285BA may appropriately be amended to require information
regarding the following financial transactions:
(a) Payment received by tour operators exceeding Rs.1 lakh.
(b) Information regarding Government tenders where the value exceeds
Rs.10 lakhs. This information may be provided by the concerned
Government Department.
(c) Sales and purchases of shares exceeding Rs.5 crores respectively
in the case of day traders. This information can be filed by the
concerned brokers who are dealing with the day traders.
(d) Receipt of donations by trusts or Institutions exceeding Rs.1 lakh.
Such information may be filed by the concerned trusts or
institutions.
(e) Educational fees paid in excess of Rs.1 lakh per annum. The
concerned educational institution should furnish the relevant

information to the Department.


(f) Compulsory PAN on international air-ticket bookings to Information to form part of annual information
return under section 285BA

Urban devt ministry seeks sops for realty in budget


http://in.reuters.com/news/globalcoverage/budget2009
NEW DELHI (Reuters) - India's urban development ministry has urged the finance minister to
ensure interest rate on home loans remains between 6.5 percent and 7.5 percent to give a fillip
to the realty sector, an official said on Wednesday.
In a pre-budget meeting between Jaipal Reddy, the urban development minister and Finance
Minister Pranab Mukherjee on Tuesday, Reddy asked for interest rate relief to home loan
borrowers. Mukherjee will present the federal budget on July 6.
Reddy also asked the finance minister to increase the limit of tax relief on home loan interest
payments to 300,000 rupees from 150,000 rupees, the spokesman of the urban development
ministry told reporters.
Currently, banks charge between 8 percent and 14 percent on home loans, and the realty firms
have asked the government either to subsidise interest on home loans or instruct banks to
provide cheaper loans.
Reddy has also asked the finance minister to provide relief to home loan borrowers in the
budget by raising the limit by one lakh rupees under the Income Tax Act for repayment of
principal of housing loans.
The ministry sought to raise income tax exemption limit on rental income from houses from 30
percent to 50 percent.
It also sought to exempt the procurement of buses meant for urban transport with a seating
capacity of 20 and more from state-level value added tax and central excise duty.

Remove surcharge on corporate tax, says CII


BS Reporter / New Delhi May 19, 2009, 0:35 IST

Confederation of Indian Industries (CII), an industry lobby group, has called for removal
of surcharge on corporate tax and raising of exemption limit of personal tax exemption by
Rs 50,000 in its pre-budget memorandum that was submitted today to Revenue Secretary
PV Bhide
Elaborating on the recommendations, CII Vice-President Hari Bhartia said the
forthcoming budget should focus on an investment-led growth by introducing broadbased reforms in the banking, finance and retail sectors.
We want an investment-led economy and are confident that there would be reforms.
Reintroduction of investment allowance and infrastructure bonds are some of our
suggestions, Bhartia added.

The Union Budget is expected to be presented in July, 2009.


Significantly, the industry lobby did not recommend any fresh stimulus package for the
industry. Instead, it suggested the continuation of fiscal incentives given to different
sectors for at least another year .
The government has announced three fiscal stimulus packages since December 2008.
These include, reduction in excise duty by four percentage points as well as a twopercentage points cut in service tax.
CII also demanded speedy implementation of the proposed goods and services tax (GST)
and rationalisation of other indirect taxes.
Revenue would be the major concern of the government and the new budget will be
formulated accordingly, said Chandrajit Banerjee, director general, CII.
Other prominent industry lobbies like Federation of Indian Chambers of Commerce
(Ficci), Associated Chambers of Commerce and PHD Chamber of Commerce have
already submitted their suggestions to the revenue secretary.
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