Fringe Benefit Tax and Commodity Transaction tax to be aboli

Fringe Benefit Tax and Commodity Transaction tax to be abolished

NO CHANGE IN CORPORATE TAXES – MAT TO BE INCREASED TO 15%

SUN-SET CLAUSES FOR DEDUCTION OF EXPORT PROFITS UNDER INCOME TAX TO BE EXTENDED BY ONE MORE YEAR

DONATION TO ELECTORAL TRUSTS TO BE ALLOWED 100% DEDUCTION

The Finance Minister, Shri Pranab Mukherjee has proposed to abolish Fringe Benefit Tax on the value of certain fringe benefits provided by employers to their employees. This was announced by Shri Mukherjee, while presenting the Union Budget for the year 2009-10 in Lok Sabha today. He also proposed to extend the sun-set clauses for deduction in respect of export profits under Section 10A and 10B of the Income Tax Act by one more year i.e. for the Financial Year 2010-11. However, the Finance Minister proposed no changes in the Corporate Tax rates.

Shri Mukherjee stated that the tax exemptions are largely profit link under the present scheme of the Income Tax Act and such incentives are inherently inefficient and liable to misuse. He, therefore, proposed to incentivise businesses by providing investment linked tax exemptions rather than profit-linked exemptions. To begin with, the Finance Minister proposed to extend investment linked tax incentives to the businesses of setting up and operating ‘cold chain’ warehousing facilities for storing agricultural produce and business of laying and operating cross country natural gas or crude or petroleum oil pipe line network for distribution on common carrier principal. Under this method, all capital expenditure, other than expenditure on land, goodwill and financial instruments will be fully allowable as a deduction, he added.

For greater equity, under the Minimum Alternate Tax (MAT), the Finance Minister proposed to increase the rate of MAT to 15% of book profits from the present rate of 10%. However, to give relief to corporate tax payers, he also proposed to extend the period allowed to carry forward the tax credit under MAT from 7 years to 10 years. In order to incentivise the corporate sector to undertake Research and Development work, Shri Pranab Mukherjee proposed to extend the scope of the current provision of weighted deduction of 150% on expenditure incurred on in-house R&D to all manufacturing businesses except for a small negative list.

On the basis of recommendation of Prime Minister’s Economic Advisory Council, the Finance Minister also proposed to abolish the Commodity Transaction Tax (CTT) introduced in the Finance Act 2008.

With a view to reform the system of funding of political parties, the Finance Minister proposed that donation to electoral trusts shall be allowed as 100% deduction in the computation of the donor.

Announcing further reliefs on the Income Tax front, the Finance Minister proposed to extend the scope of deduction of interest on loans for pursuing higher education to cover all fields of study, including vocational studies. In order to mitigate the practical difficulties faced by charitable organizations on account of procedural requirements regarding anonymous donations, Shri Mukherjee proposed to grant relief to such organizations by not taxing anonymous donations to the extent of 5% of their total income or a sum of Rs. one lakh, whichever is higher.