1. General

• No change in rates of taxation of income. Of Individuals. However increase in basic exemption limit by Rs. 10,000/-
• Additional Cess called Secondary & Higher Education Cess proposed at 1% on Total Tax (including surcharge).

2. Section 54 - EC

The investment in long-term specified assets (i.e. capital gains tax savings bonds) by a person is now restricted to Rs. 50 lakhs during any financial year (which was permitted for any amount without limit until March, 2006.)

Any Non-resident who earns long-term capital gains (other than Equity Oriented Mutual Fund and listed Equity Shares) beyond Rs. 50 lakhs may now be liable to pay capital gains tax at the rate of 22.66% on gains in excess of Rs.50 lakhs.

The drafting of amended provision is not clear hence following questions cannot be conclusively answered.

1) Whether one can invest Rs. 50 lakhs in specified assets every year?

2) Whether one can invest Rs. 50 lakhs in specified assets only once in his lifetime?

3) Whether one can invest Rs. 50 lakhs in specified assets after he has liquidated/ encashed his first investment of Rs. 50 lakhs?

The proposed tax provisions are as under.

“Where the capital gains arises from the transfer of a long-term capital asset and the assessee has, at any time within a period of six months after the date of such transfer, invested the whole or any part of capital gains in the long-term specified asset and if the cost of the long-term specified asset is not less than the capital gains arising from the transfer of the original asset, the whole of such capital gain shall not be charged to tax.”

“Provided that the investment made on or after the 1st day of April, 2007 in the long-term specified asset by an assessee during any financial year does not exceed fifty lakhs rupees.”

3. Dividend Distribution Tax (DDT)

NRIs & other investors shall be affected by DDT on the following:

• Money Market Mutual Funds & Liquid Funds @ 25% as against previous rate of 12.5%.
• All limited companies @ 15% as against previous rate of 12.5%.

4. Capital Gains

Archaeological collections, drawings, paintings, sculptures and any work of art will be treated as Capital Assets and the sale of same shall attract capital gain tax (which was not taxable earlier).

5. Income Tax Rates

6. Tax Deducted At Source

There is no change in the basic TDS Rates. However due to additional CESS of 1%, the total rates shall be changed. The rates at which taxes shall be required to be deducted are as under:

Rates For TDS Rate of Income Tax (IT) Surcharge SC on Income Tax Cess on IT + SC Total Tax 1) Capital Gains on Equity oriented Mutual fund Units and Equity Shares sold on Recognized Stock Exchange: i)Short term 10% 10% 3% 11.33% ii)Long term NIL NIL NIL NIL 2) Capital Gain on Mutual Fund and listed securities other than (1) above i)Short Term 30% 10% 3% 33.99% ii)Long Term 10% 10% 3% 11.33% 3. Capital gain on Other Assets i)Short term 30% 10% 3% 33.99% ii)Long Term 20% 10% 3% 22.66% 4. Interest on Bank Deposits(NRO A/c) 30% 10% 3% 33.99% 5) Income From Rent 30% 10% 3% 33.99%

7. Service Tax

The rental income exceeding Rs.8 lakhs from any immovable property such as factories, office buildings warehouses, theatres, exhibition halls and multiple-use buildings shall attract service tax at 12.36% of rentals ( which one is eligible to recover from the lessee).

NOTE:
The above proposals are effective only after The Finance Bill, 2007 is passed by the Indian parliament and assented by the President of India.

Once this procedure is completed, the proposals shall be effective w.e.f.1st April 2007 (except otherwise stated) i.e. for Financial Year: 2007-08 and Assessment Year: 2008-09).

DISCLAIMER:
This document should not be considered as substitute for specialized professional advice and expert guidance may be sought before acting upon.