DIRECT TAXES
1. Income-Tax
1.1. The exempted threshold limit for individuals has been increased by Rs.10,000/-Accordingly, liability to tax will arise only if the aggregate taxable turnover for the financial year 2007-08 exceeds:
(a) For male assessees Rs.1,10,000/-
(b) For women assessees Rs.1,45,000/-
(c) For senior citizens Rs.1,95,000/-
1.2. Deduction in respect of Medical Insurance raised to a maximum of Rs.20,000/- for senior citizens and Rs.15,000/- for others.
1.3. Surcharge on Income-tax to be withdrawn for Partnership Firms and Companies with a taxable turnover of Rs.1 Crore or less.
1.4. Minimum Alternate Tax (MAT) at 7.5% has now been made applicable also for
EPZ/STPI/ 100% EOU whose export profit was hitherto totally exempt from
Income-Tax. The rate of MAT for dividends distributed by UTI or a Mutual Fund has been raised to 25% from 12.5 / 20%.
1.5. Rates of TDS
(a) 194H – Commission & Brokerage: enhanced from 5% to 10%.
(b) 194J – Professional and Technical services: enhanced from 5% to 10%.
(c) 194I – Rent: reduced to 10% from 20% or 15% presently applicable for companies and for others respectively.
(d) 194C – Contracts: Hitherto individuals and HUF were not required to deduct TDS from payments to contractors. But, w.e.f. 01.06.2007 they have also to deduct TDS, if they are covered under the compulsory audit provisions of the I.T. Act and if they pay to contractors for business purposes – and not for purely personal purposes.
1.6 Hitherto, some exclusions were available in the matter of disallowance of
payments effected in cash and not by Account Payee cheques or by Bank Drafts. Such exclusions have been removed.
2. Dividend Distribution Tax (DDT) has not been abolished, despite repeated representations of corporates. On the other hand, the rate of DDT has been raised from 12.5% to 15% (Effective tax will be 15.45% i.e. 15% + 2% Education Cess + 1% Secondary, Higher Education Cess.)
[It looks as though this unjustified double-taxation levy will never be withdrawn and therefore, new entrepreneurs will be wise to opt for proprietary or partnership mode of organization and not private or public company, unless other considerations prevail.]
3. BCTT (Bank Cash Transaction Tax) : Exemption raised for only individuals
and HUF from Rs.25,000 to Rs.50,000 for cash withdrawals per day.
4. Fringe Benefit Tax: Only very insignificant relief announced – namely that,
expenditure on ‘free samples’ and on ‘displays’ excluded from FBT. But benefit extended to employees under ESOP has been brought under FBT.
II. INDIRECT TAXES
1. Central Sales Tax has been reduced w.e.f. 01.04.2007 to 3% from 4% against tender of C. Forms.
2. Education Cess of 2% on all taxes continues. A further 1% by way of Secondary & Higher Education Cess has been imposed, effective from 01.03.2007.
3. Customs Duty
3.1. Peak rate of customs duty on import of non-agricultural products has
been reduced from 12.5% to 10%.
3.2. Customs duty on several specified items of Printing Machinery and
Equipment as also spare parts, have been reduced to 7.5% in January
2007 itself. Details thereof have already been circulated.
4. Central Excise Duty
4.1. Our representation for withdrawal of the Central Excise Duty of 8% on articles falling under 4820 and 4821 has not been conceded. We have to
console ourselves that it has not been raised to 16%, either.
4.2. No change has been made even in the rate of 16% duty on Packaging
Materials (4819) despite our representations to reduce it to 8%.
(Education Cess at 2% on the duty already in force as well as the new 1% Secondary Higher Education Cess will also apply.)
4.3. Excise exemption limit of Rs.1 crore of initial clearances in a year for
SSIs has been raised to Rs.1.50 crores only, although all the SSI
Associations have sought upward revision at least upto Rs.3 crore. No
corresponding increase has been made in the present exemption-
eligibility-limit of Rs.4 crore.
4.4 A new rule has been bought in w.e.f. 01.04.2007 for valuation of
excisable goods IN CASES WHERE EXCISE DUTY IS CURRENTLY PAYABLE BY A JOB WORKER. The new rule stipulates that the duty payable by him, when clearing the job-worked goods from his premises, shall be reckoned NOT ON THE VALUE OF RAW MATERIALS PLUS HIS JOB-WORKING CHARGES AS HITHERTO, BUT ON THE TRANSACTION VALUE OF THE GOODS SOLD BY THE PRINCIPAL MANUFACTURER TO HIS BUYER.
(The precise implication of this amended rule is not clear - a matter for debate at the G.C. Meeting.)
5. Service Tax
5.1 Mercifully, the rate of Service Tax remains unchanged at 12%
prevailing now. But, in addition to the Education Cess @ 2% presently
paid, 1% Secondary Higher Education Cess will also be attracted taking
the net effective rate to 12.36%.
5.2 The threshold exemption limit of Rs.4 lakhs is proposed to be raised to Rs.8 Lakhs. A service provider will have to register himself with the service tax commissionerate once the value crosses Rs.7 lakhs (or, if the value has exceeded Rs.7 lakhs - but not Rs.8 lakhs - in the preceding year itself).
5.3 One of the further services proposed to be bought within the purview of Service Tax, is the proposed addition of renting of immovable properties. (other than residential properties and vacant land) for use in business or commerce. Leviable at 12% + cess on the rent, it will have a far reaching impact on industrial cost of production.
(The legality of this proposal is in question, and in all likelihood, it may be strongly opposed by all sections. As rent claims a big slice in the overall cost of production, it will seriously impact industrial units like printing which produce largely products exempt from excise duty and so the service tax payable on rent will have to be absorbed as cost of production, without scope for set off.)
