Proposals in Budget 2010

February 28, 2010 11:29 pm | Updated 11:29 pm IST

What are the changes proposed in Budget 2010 in respect of personal taxation?

There will be a revision on slabs favourable to all classes of taxpayers. The present slab from Rs. 1.60 lakh to Rs. 3 lakh would stand revised to Rs. 1.60 lakh to Rs. 5 lakh so that the benefit of this revision will be available for income between Rs. 3 lakh and Rs. 5 lakh which will now suffer tax at the reduced rate of 10 per cent.

There is also a revision of the next higher slab from Rs. 3 lakh to Rs. 5 lakh to Rs. 5 lakh to Rs. 8 lakh, the tax rate being 20 per cent. Income above Rs. 8 lakh will continue to suffer tax at the same rate of 30 per cent.

The effect of these changes is that persons with income above Rs. 8 lakh, including women and senior citizens, would get a relief in tax to the extent of Rs. 50,000 each without taking into account the cesses which will continue at the same rate as before.

There is also further reduction in tax liability for individuals and Hindu Undivided Families (HUFs) for investments in notified infrastructure bonds to the extent of Rs. 20,000 under Section 80CCF over and above the limit of Rs. 1 lakh already available under Sec. 80C.

It will be on outright deduction, EET scheme not having been made applicable to it.

Salary sector may feel disappointed because there was expectation of relief specifically for them either by way of standard deduction or relaxation in taxation of perquisites earlier taxable in the hands of the employer, now payable by the employees under Rule 3 on abolition of Fringe Benefits Tax (FBT).

Corporate taxation

Surcharge for companies is proposed to be reduced from 10 per cent to 7.5 per cent. But Minimum Alternate Tax (MAT) will stand increased from 15 per cent to 18 per cent.

It is a discriminatory tax leviable only on companies and had been subject matter of persistent representations for having it dropped. Late N. A. Palkhivala had described this tax as “constitutionally illegal, economically unsound and morally repugnant”. Unfortunately, this tax had become stiffer gaining strength from time to time by amendments ruling out incentive reliefs and also having book profits computed neither under company law as originally intended nor according to accounting principles so that this is a third class of income as taxable book profits.

Conversion of firm

At present, there is no provision in the statute for conversion of either firm or company to Limited Liability Partnership (LLP). However, Memorandum accompanying Finance (No.2) Bill, 2009, explaining the amendment defining LLP, conceded that “As an LLP and a general partnership is being treated as equivalent (except for recovery purposes) in the Act, the conversion from a general partnership firm to an LLP will have no tax implications if the rights and obligations of the partners remain the same after conversion and if there is no transfer of any asset or liability after conversion. If there is a violation of these conditions, the provisions of Sec. 45 shall apply”. However, there was no answer in this passage in the matter of conversion of a firm into a company for which a provision is now made.

Conversion of a company to LLP is proposed to be treated as a transfer only if the company's turnover does not exceed Rs. 60 lakh. In other words, the exception from liability will be available only for smaller companies, subject to conditions. As otherwise, liability for capital gains tax cannot be avoided.

The limit of Rs. 60 lakh has apparently been fixed with reference to the same limit for tax audit report, which has also been proposed to be raised from Rs. 40 lakh to Rs. 60 lakh in the Finance Bill, 2010.

Conversion from company to LLP should have been treated as tax neutral as for other instances of business reorganisation like mergers and demergers and more particularly from firm to company, where there is no cash generation with no change in beneficial ownership consequent on such change.

(To be continued)

0 / 0
Sign in to unlock member-only benefits!
  • Access 10 free stories every month
  • Save stories to read later
  • Access to comment on every story
  • Sign-up/manage your newsletter subscriptions with a single click
  • Get notified by email for early access to discounts & offers on our products
Sign in

Comments

Comments have to be in English, and in full sentences. They cannot be abusive or personal. Please abide by our community guidelines for posting your comments.

We have migrated to a new commenting platform. If you are already a registered user of The Hindu and logged in, you may continue to engage with our articles. If you do not have an account please register and login to post comments. Users can access their older comments by logging into their accounts on Vuukle.