1. Income Tax Rates
No change in existing Income Tax Rate and Surcharge otherwise stated below.
An Additional Surcharge @ 2% (on aggregate amount of Income tax and surcharge) is proposed as Education Cess.
2. INTEREST ON NRE & FCNR ACCOUNT
Any interest paid or credited on or after 1st April, 2005 in respect of deposits in NRE and FCNR account of an individual shall be taxable at normal rates of taxation. The bank shall be required to deduct tax at 33.66% (i.e. Income Tax 30% + Surcharge 10% + Education cess 2%). However, if such deposits are with an Indian company or bank which is an Indian Company not being a private company as defined in the Companies Act, 1956 (1 to 1956), the rate of TDS shall be 22.44% (i.e. Income Tax 20% + Surcharge 10% + Education cess 2%).
3. SECURITIES TRANSACTION TAX (STT) & CAPITAL GAINS
The following provisions are applicable from a date to be notified by the Central Government
Securities Transaction Tax (STT)
1. Every recognized stock exchange shall charge the STT @ 0.075% from every person at the time of purchases and sale of Equity shares in a company or a unit of a Equity oriental fund where the transaction of such purchase and sale is entered into in a recognized stock exchange.
2. Every recognized stock exchange shall charge the STT @ 0.015% from every person at the time of purchases and sale of Equity shares in a company or a unit of a Equity oriental fund where the contract is entered on a Recongised Stock exchange for the sale or purchase of such share or unit is settled otherwise than by the actual delivery or transfer of such share or unit.
3. Every recognized stock exchange shall charge the STT @ 0.01% on sale of a derivative.
4. A person shall be liable to pay STT @ 0.15% on sale of units of an Equity oriented fund to the Mutual Fund.
5. The value of taxable securities transaction, -
(a) in the case of a taxable securities transaction relating to a derivative, being "option in securities", shall be the aggregate of the strike price and the option premium of such "option” in securities
(b) in the case of a taxable securities transaction relating to a derivative, being "futures", shall be the price at which such "futures" is traded; and
(c) in the case of any other taxable securities transaction, shall be the price at which such securities are purchased or sold.
Provided that the Board may, having regard to the manner in which taxable securities transactions are settled in a recognized stock exchange or such other factors which may be relevant for the purposes of determining the price of such securities, specify by rules made by it, the method of determining the price.
6. The STT shall not be allowed as a deduction in computing capital gains
chargeable to tax.
7. The STT shall be allowed as rebate in prescribed manner from the tax payable on the income in case the securities transactions (Derivaties and trading in shares) are treated as business activity during the year (Section 88E)
Long Term Capital Gain: Sec.10(38)
The income by way of Long term capital gain in respect of investments in equity shares and units of an equity oriented fund is exempted from tax, if the transaction of sale is entered into a recognized Stock Exchange in India after a specified date and such transaction is chargeable to securities transaction tax or in case of EOMF the units are redeemed by the MF.
Short Term Capital Gain : Sec. 111A
The tax on short term capital gains in respect of investments in equity shares and units of an equity oriented fund, if the transaction of sale is entered into a recognized stock exchange in India after a specified date and such transaction is chargeable to securities transaction tax shall be chargeable to tax at the flat rate of 11.22% (i.e. Income Tax 10% + Surcharge 10% + Education cess 2%) or in case of EOMF the units are redeemed by the MF.
4. Dividend Stripping
Currently, to curb tax avoidance through dividend stripping, like shares, if units are purchase within a period of three months prior to the record date for declaration of dividend or distribution of income and are sold within three months after the record date, the loss, if any, arising is ignored to the extent of dividend or income is exempt from tax. It is now provided that in respect of units the minimum period of holding after the record date is to be increased from 3 months to 9 months to be eligible to claim loss on sale of units.
5. Bonus Stripping
The investors of the units of mutual funds were eligible to claim losses on sale of original units on which Bonus units were received irrespective of period of holding. Now, it is provided that the loss on sale of existing units (on which bonus units are issued) will be disallowed if the original units are held for a period of less than 3 months prior to the record date or for a period of less than 9 months after the Record Date.
The Loss disallowed shall be treated as cost of acquisition of the bonus units.
However, in our opinion, the loss may not be disallowed if he re-sales entire units (i.e. the bonus units as well as original units) within a period of nine months from the record date.
6. Permanent Account Number (PAN)
It is now compulsory for the NRI’s to obtain the Permanent Account Number (PAN) and submit to the payer of the income, [where TDS has been deducted by the payer]
7. Credit of Tax Deducted at Source (TDS)
For the purpose of assessment, the credit for tax deducted at source shall be given to the Non Resident Indians or Resident Indian (from whose income the tax has been deducted) on the basis of the annual statement of TDS issued by the prescribed authority. The present system of submission of TDS certificate is replaced by Annual Statement of TDS.
8.Other Miscellaneous Proposals
Any sum of money received in excess of Rs.25,000 by any individual / HUF from persons other than prescribed relatives without consideration is deemed to be income. (The receipts in nature of inheritance or under a WILL or amount received in contemplation of death or on the occasion of marriage of the individual are excluded).
9. The total exemption from tax on income up to Rs.1,00,000/- is applicable to residents only (subject to conditions) that is the NRI’s are liable to taxation on income exceeding Rs.50000.
