Appuonline - Regulation

The Finance Bill (as changed by Government amendments, having received the assent of the President of India is now Finance Act, 2001. The Act contains 101 sections pertaining to direct taxes, 95 of which pertain to Income-tax. A number of issues covered by the Finance Act relate to individual tax payers which are important from the point of view of pensions, retired persons and senior citizens because they are assessed in the status of individuals. Hence all changes concerning individuals affect the above 'category of persons also. However, there is a specific section in the I.T. Act—Section 88B—which relates to only senior citizens. This has already been covered in the earlier discussion. In the discussion to follow immediately, the tax measures that emerge after the Finance Act, 2001 that could be of interest to individual tax payers including pensions etc., are being considered.

[The aforesaid benefits have been calculated without taking into account the tax benefit of Rs. 15,000 available to senior citizens under section 88B. The Finance Act, 2001 has not made any change in this benefit].

Finance Act, 2001 provides that salaried persons having income upto Rs. 1,00,000 will get an enhanced tax rebate @ 30% in respect of their eligible investments under section 88 as against 20% at present. Because of this, the effective tax liability shall be substantially reduced. The tax payer can get more tax relief on the same amount of investment in eligible schemes or take the same (existing) tax relief on lesser investment. This can be seen from the following table:

Changes have been affected concerning standard reduction. The maximum benefit that can be availed of can be seen from the following table.

It needs to be reiterated that benefit of stand and deduction cannot exceed 33.33% of salary/pension or the amounts specified above whichever is lower.

Deduction presently available is for interest payable on housing loans for self occupied residential houses. The extend of deduction is as under :

This benefit can now enable a tax payer to avail of further tax savings of Rs. 15,300 on additional sum of Rs. 50,000 for interest i.e. 30% of tax (Rs. 15,000) + 2% of surcharge (Rs. 300).

Before the Finance Act, 2001 in computing the annual value of property for tax purposes, deduction for repairs and collection charges was admissible at the rate of 25%. The Finance Act, 2001 has increased this deduction to 30%. Thus the taxable income from property would get further reduced by 5%. The benefit can be seem from the following table.

The benefit at all levels works out to 6.67 per cent in further reduction of income.

However, after reduction of 30% as indicated earlier, the only other deduction that would be permissible from the ALV would be interest on borrowed capital taken for acquiring, constructing, repairing, renewal or reconstruction of property. The deduction, however, in respect of self-occupied residential property would not from the assessment year 2002-2003, exceed Rs. 1,50,000 as indicated earlier.

Section 80L provides for deduction in respect of interest on certain securities, dividends etc. from the sources specified in this section. Such deduction is available only to Individuals and Hindu Undivided Families. Presently, the limit for such deduction is Rs. 12,000 plus further deduction upto Rs. 3,000 on account of interest on any security of the Central Government or Sate Government.

The limit of Rs. 15,000 is now reduced to Rs. 12,000 with the following composition.

The extra benefit of Rs. 3,000 is respect of interest from Government securities (of Central and State Governments) continues.

A change which is going to apply to salaries employees relates to valuation of perquisites. From the assessment year 2002-2003, value of benefits, perquisites or amenities provided by an employer to its employees except in respect of houses and. cars shall be determined on the basis of their costs to the employers. This provision will have impact on those retired persons/senior citizens who are in employment and are getting salary and perquisites from their present employers.
With effect from 1.4.2002, a deduction in respect of any allowance in the nature of the entertainment allowance specifically granted by an employer to the assessee who is in receipt of a salary from the Government a sum equal to one fifth of his salary (exclusive of any allowance, benefit or other perquisite) or five thousand rupees whichever is less would be admissible.
The amount received under Voluntary Retirement Scheme (VRS) by the Central and State Government employees shall be exempt from tax. The provision will be applicable with effect from 1.4.2002 i.e. from the assessment year 2002-2003. However, in this case of State Government employees, the amendment will take effect from 1.4.2001 i.e. retrospectively from the current assessment year 2001-2002.
In the case of the employees it has been provided that any amount due on received whether in lump sum or otherwise from any person :
1. Before his joining any employment with the person;
2. After cession of employment with that person is to be treated as income from employment. This is an anti avoidance measure to check escapement of salary incomes by taking lump sum amounts for lesser salaries either before or after the employment terminates.
TDS from income from interest on time deposit which was proposed to be reduced from Rs. 10,000 to Rs. 2,500 in the Finance Bill has been fixed at Rs. 5,000 in the Finance Act.
TDS from winnings from TV shows and other game shows will be at the rate of 30%.
One by six scheme has been extended to all urban areas in the country so defined by 1991 census. Changes arising out of the 2001 census will be incorporated subsequently.
Provision for exemption of long term capital gain arising from transfer of listed securities or units of mutual funds or UTI to the extent such capital gain is invested in equity shares forming part of eligible issue of capital made by a public company and offered for subscription to the public shall be exempt.
Tax clearance certificate required to be obtained u/s 230A of the Income-tax Act where property exceeding Rs. 5 lakhs was disposed of has been dispensed with from 1.6.2001.
Tax at source from winnings from lotteries, crossword puzzles, races (including horse races) which is being deducted at the rate of 40% at present has been reduced to 30% to + surcharge to bring it at par with the maximum rate of tax in the case of all individuals.
In the case of: Companies (ii) Persons (other than companies) whose accounts are required to be audited; (iii) a working partner of a firm whose accounts are audited.
The last date of filing the return would be 31^stOctober.
In the case of persons other than companies who are required to file returns in the situation referred to in the first proviso to section 139(1)—31^st October.
The persons referred to in the 1^st proviso are those who are required to file their returns in terms of one by six scheme.
In any other case—By 31^st July.
As a measure of rationalization, Finance Act has omitted section 244 of the I.T. Act, 1961 given power to the A.O. to withhold refunds.
The provisions relating to payment of interest, whether payable by the Government or by the tax payers have been rationalized. The interest charged by the Government in all cases would be 15% p.a. The interest payable to the tax payers on refunds due to them has however been fixed at 9% p.a.
There are a number of other changes which have indirect impact on the assessment of individuals. However, these being not of interest to majority of the pensioners/senior citizens/retired persons are not been discussed in this chapter.

G. Section 88 C provides for extra tax relief to women resident in India who are below 65 years of age. Such women are entitled to relief of 100 per cent of the tax found due from them upto a maximum of Rs. 5,000/- in a year.