Citing the country's poor broad band penetration, Indian internet service providers (ISPs) have asked the government for a five year income-tax holiday. According to TRAI (Telecom Regulatory Authority of India), India currently has just under 2 million broad band connections. India has failed to achieve the targets set out by the broad band policy, which had envisaged 3 miilion high-speed internet connections by 2005. The country has set an optimistic target of 10 million broad band connections by 2007. The ISP Association of India (ISPAI) also sought for 100% depreciation for computers within the first year and a similar depreciation on Broadband customer premise equipment (CPE) including set top boxes, modems and wireless radios within the first year.
Further, the association suggested that the allowance of Rs. 6,000 p.a for broad band service access at home should be exempt from tax.
We have to wait till Budget is presented in february, whether the suggestions made by the ISPAI will be accepted by our FM, Mr. Chidamaram.
Monday, December 11, 2006
Wednesday, December 6, 2006
Fringe Benefit Tax
Fringe Benefit Tax (FBT) :-
The rationale behind introducing FBt in India is to plug the loopholes in the present law and rationalisation of law. Most of the times, mainly in IT sector, the employer is spending lot of money on the employee which is included in the Cost to The Employer (CTC). Most of the times, there is a personal element involved in this expenditure. For example, a Comapny spends amount on an employee towards foreing or domestic travel, there is a fringe benefit to the employee.
In this regard, the Finance Act, 2005 has introduced Chapter XII-H to charge income tax on fringe benefits, which is known as Fringe Benefit Tax (FBT).This tax is applicable for and from the F.Y. 2005-06.
For the purpose of Income Tax Act, 1961, fringe benefit means
1. any privelege,service, facility or amenity, directly or indirectly provided by an employer.
2. any free or concessional ticket provided by the employer for private journeys of his employees or their family members and
3. any contribution by the employer to an approved superannuation fund for employees
Further, the expenditure for the following purposes shall be deemed as fringe benefit provided by the employer to the employee, whether or not the expenditure is for the purpose of deriving income, profits or gains
a) entertainment
b) provision of hospitality of every kind except food or beverages provided to the employees or non-transferable paid vouchers or coupons, which are usable only at eating joints or outlets.
c) conference other than the fee for particiaption by the employees in any conference
d) sales promotion including publicity except advertising in print or electronic media or transport system or expenditure on press conference or business convention, fair or exhibition or expenditure on sponsorship of any sport event or any other event organised by any Government agency or trade association or body or expenditure on legal publications in any print or electronic media or expenditure on advertisements by way of signs, art work, painting, banners, kiosks, hoardings, bill boards or any other such medium of advertisement etc.
e) employee's welfare
f) conveyance, tour and travel including foreign travel
g) use of hotel, boarding and lodging facilities
h) repair, running (including fuel), maintainance of motor cars and the depreciation thereon
i) repair, running (including fuel), maintainance of aircrafts and the depreciation thereon
j) use of telephone (including mobile phone) other than expenditure on leased telephone lines
k) maintenance of any accommodation in the nature of guest house other than accommodation used for training purposes
l) festival celebrations
m) use of health club and similar facilities
n) use of any other club facilities
o) gifts and
p) scholarships
q) tour and travel (including foreign travel ) (w.e.f. F.Y. 2006-07)
How the Fringe Benefit is calculated?
The fringe benefit is the aggregate of the following
1. In the case of concessional tickets, the amount spent by the employer
2. actual amount of contribution to the superannuation fund (From 01-04-2007, the amount of contribution exceeding one lkh rupees in respect of each employee)
3. 20% of the expenses referred to in (a) to (k) as above
4. 50% of the expenses referred to in (l) to (p) as above
5. 5% of the expenses reffered to in (q) (w.e.f. F.Y. 2006-07)
The above percentages are relaxed in certain sectors as under
1. For the hotel business, the rate is 5% in respect of the expenditure reffered to in (b) as above
2. For the business of carriage of passengers or goods by aircraft, the rate is 5% in respect of the expenditure reffered to in (b) as above
3. For the business of carriage of passengers or goods by ship, the rate is 5% in respect of the expenditure reffered to in (b) as above
4. For constrcution business, the rate is 5% in respect of the expenditure reffered to in (f) as above
5. For a manufacturer or producer of pharmaceuticals, the rate is 5% in respect of the expenditure reffered to in (f) and (g) as above
6. For a manufacturer or producer of computer software, the rate is 5% in respect of the expenditure reffered to in (f) and (g) as above
7. For the business of carriage of passengers or goods by aircraft, the rate is 5% in respect of the expenditure reffered to in (g) as above (w.e.f. F.Y. 2006-07)
8. For the business of carriage of passengers or goods by ship, the rate is 5% in respect of the expenditure reffered to in (g) as above (w.e.f. F.Y. 2006-07)
9. For the business of carriage of passengers or goods by motor car, the rate is 5% in respect of the expenditure reffered to in (h) as above
10. For the business of carriage of passengers or goods by aircraft, the rate is Nil in respect of the expenditure reffered to in (i) as above
What is the rate of tax for Fringe Benefit
The tax payable on the fringe benefits is 30% of the amount as arrived above.
The rationale behind introducing FBt in India is to plug the loopholes in the present law and rationalisation of law. Most of the times, mainly in IT sector, the employer is spending lot of money on the employee which is included in the Cost to The Employer (CTC). Most of the times, there is a personal element involved in this expenditure. For example, a Comapny spends amount on an employee towards foreing or domestic travel, there is a fringe benefit to the employee.
In this regard, the Finance Act, 2005 has introduced Chapter XII-H to charge income tax on fringe benefits, which is known as Fringe Benefit Tax (FBT).This tax is applicable for and from the F.Y. 2005-06.
For the purpose of Income Tax Act, 1961, fringe benefit means
1. any privelege,service, facility or amenity, directly or indirectly provided by an employer.
2. any free or concessional ticket provided by the employer for private journeys of his employees or their family members and
3. any contribution by the employer to an approved superannuation fund for employees
Further, the expenditure for the following purposes shall be deemed as fringe benefit provided by the employer to the employee, whether or not the expenditure is for the purpose of deriving income, profits or gains
a) entertainment
b) provision of hospitality of every kind except food or beverages provided to the employees or non-transferable paid vouchers or coupons, which are usable only at eating joints or outlets.
c) conference other than the fee for particiaption by the employees in any conference
d) sales promotion including publicity except advertising in print or electronic media or transport system or expenditure on press conference or business convention, fair or exhibition or expenditure on sponsorship of any sport event or any other event organised by any Government agency or trade association or body or expenditure on legal publications in any print or electronic media or expenditure on advertisements by way of signs, art work, painting, banners, kiosks, hoardings, bill boards or any other such medium of advertisement etc.
e) employee's welfare
f) conveyance, tour and travel including foreign travel
g) use of hotel, boarding and lodging facilities
h) repair, running (including fuel), maintainance of motor cars and the depreciation thereon
i) repair, running (including fuel), maintainance of aircrafts and the depreciation thereon
j) use of telephone (including mobile phone) other than expenditure on leased telephone lines
k) maintenance of any accommodation in the nature of guest house other than accommodation used for training purposes
l) festival celebrations
m) use of health club and similar facilities
n) use of any other club facilities
o) gifts and
p) scholarships
q) tour and travel (including foreign travel ) (w.e.f. F.Y. 2006-07)
How the Fringe Benefit is calculated?
The fringe benefit is the aggregate of the following
1. In the case of concessional tickets, the amount spent by the employer
2. actual amount of contribution to the superannuation fund (From 01-04-2007, the amount of contribution exceeding one lkh rupees in respect of each employee)
3. 20% of the expenses referred to in (a) to (k) as above
4. 50% of the expenses referred to in (l) to (p) as above
5. 5% of the expenses reffered to in (q) (w.e.f. F.Y. 2006-07)
The above percentages are relaxed in certain sectors as under
1. For the hotel business, the rate is 5% in respect of the expenditure reffered to in (b) as above
2. For the business of carriage of passengers or goods by aircraft, the rate is 5% in respect of the expenditure reffered to in (b) as above
3. For the business of carriage of passengers or goods by ship, the rate is 5% in respect of the expenditure reffered to in (b) as above
4. For constrcution business, the rate is 5% in respect of the expenditure reffered to in (f) as above
5. For a manufacturer or producer of pharmaceuticals, the rate is 5% in respect of the expenditure reffered to in (f) and (g) as above
6. For a manufacturer or producer of computer software, the rate is 5% in respect of the expenditure reffered to in (f) and (g) as above
7. For the business of carriage of passengers or goods by aircraft, the rate is 5% in respect of the expenditure reffered to in (g) as above (w.e.f. F.Y. 2006-07)
8. For the business of carriage of passengers or goods by ship, the rate is 5% in respect of the expenditure reffered to in (g) as above (w.e.f. F.Y. 2006-07)
9. For the business of carriage of passengers or goods by motor car, the rate is 5% in respect of the expenditure reffered to in (h) as above
10. For the business of carriage of passengers or goods by aircraft, the rate is Nil in respect of the expenditure reffered to in (i) as above
What is the rate of tax for Fringe Benefit
The tax payable on the fringe benefits is 30% of the amount as arrived above.
Direct tax revenues up 40%
Booming economic activity enabled the Government to collect Rs. 99,935 Crores from direct taxes during April-November, 2006, up 40.28% over Rs. 71,237 crore in the corresponding period of the previous fiscal. The taxes under the head FBT (Fringe Benefit Tax), BCTT (Banking Cash Transaction Tax) and STT (Securities Transaction Tax) recordeda 28.70% rise at Rs. 40,920 crores during the first eight months of this fiscal against Rs. 31,799 crores during the corresponding peiod of last fiscal.
In fact, ever growing toplines and increasing bottom lines of our corporates fetched the government 49.60% more revenue from corporation tax at Rs. 59,015 crores against Rs. 39,438 crore over the period.
In fact, ever growing toplines and increasing bottom lines of our corporates fetched the government 49.60% more revenue from corporation tax at Rs. 59,015 crores against Rs. 39,438 crore over the period.
New Income Tax bill - An Act in new avatar
The Government of India is coming up with a new Income Tax Bill that will replace existing Income Tax Act, 1961. The new legislation mainly incorporates tax policy changes, besides being simpler and easier to interpret. The new bill will be introduced in the Parliamnet during the budeget session, after the 2007-08 budget is presented.
The new bill is proposing to do away with many exemptions and deductions, which outlived their utility. The existing Income Tax Act has 700-odd sections and these sections have been reorganised scientifically. Similar provisions have been regrouped to give it a more logical structure.
The re-drafted legislation is expected to reduce ambiguities in the provisions, minimising the scope for different interpretations by the court. Provisos and explanations in the Act are also proposed to be done away with. A proviso normally refers to the exceptions in a particular section in the legislation. In some sense, it curtails the scope of the section. An explanation, on the other hand, clarifies the scope of a particular section in the legislation.
Provisos and explanations are difficult to comprehend for the normal tax payers. An attempt has been made to make the main section clear without the explanations or provisos. Most of the provisions have been made simple and shorter.
We hope, the new Income Tax Act, 2008 may usher in the liberalisation and simplification of our tax structure.
The new bill is proposing to do away with many exemptions and deductions, which outlived their utility. The existing Income Tax Act has 700-odd sections and these sections have been reorganised scientifically. Similar provisions have been regrouped to give it a more logical structure.
The re-drafted legislation is expected to reduce ambiguities in the provisions, minimising the scope for different interpretations by the court. Provisos and explanations in the Act are also proposed to be done away with. A proviso normally refers to the exceptions in a particular section in the legislation. In some sense, it curtails the scope of the section. An explanation, on the other hand, clarifies the scope of a particular section in the legislation.
Provisos and explanations are difficult to comprehend for the normal tax payers. An attempt has been made to make the main section clear without the explanations or provisos. Most of the provisions have been made simple and shorter.
We hope, the new Income Tax Act, 2008 may usher in the liberalisation and simplification of our tax structure.
Wednesday, November 15, 2006
Certified Tax Return Preparer is on the Horizon in India
Indian Finance minister P Chidambaram launched the tax return preparer (TRP) scheme in this month. This idea is borrowed from US where Tax Preparers are already in vogue. This is a good idea on the part of the Government.
As part of the scheme, the finance ministry will appoint 5,000 graduates with basic accountancy skills. In the current fiscal, the scheme is being launched only on a pilot-basis to train 5,000 TRPs at 100 centres in about 80 cities across the country.
The Income Tax Department and NIIT will then train them for nine days. At the end of the training programme, the graduates will be awarded a certificate and an identity card. The trained candidates will be referred to as `Certified Tax Return Preparers' and obtain a unique identification number from the Income Tax Department. The tax return preparers are meant to file returns of income tax payers in the lower income category. The certification programme will be over by February next year, at the time of preparing returns in April.
Under the programme, NIIT will provide special training material on the subject, developed by Taxman, a publishing house dealing in tax-related matters. All such tax return preparers would have access to a Web-based knowledge portal, for any special support while filing the returns, throughout the year. Graduates interested in this scheme can apply before 24th November, 2006 by visiting www.trpscheme.com.
The TRP will get a fee of Rs 250 from old tax payers for preparing their tax returns. However, for every new tax payer the TRP brings in, he will be reimbursed 3% of the tax collected in the first year, 2% for the second year and 1% for the third year, subject to a maximum of Rs. 1000.
The rationale behind this system of reward is that the TRPs would operate like insurance agents and bring in new taxpayers in order to get more fees, Chidambaram said. It will also solve the problem of “stop filers”, people who file returns for a year or so and then stop filing their returns.
Given the fact that around 25-30 lakh new tax payers join the tax fold every year, the scheme is likely to have a big impact.
Taxpayers who pay someone to do their taxes should choose a preparer wisely. Taxpayers are ultimately responsible for everything on their return even when it’s prepared by someone else. Taxpayers can use the following tips to choose a preparer who will offer the best service for their tax preparation needs.
• Ask about service fees. Avoid preparers who claim they can obtain larger refunds than other preparers, or those who guarantee results or base fees on a percentage of the amount of the refund.
• Plan Ahead. Choose a preparer you will be able to contact after the return is filed and one that will be responsive to your needs.
• Identity. Ask for the identity card issued by the Tax Department.
Further details of the Tax Return Preparer Scheme can be viewd at http://www.trpscheme.com/trp/index.jsp
As part of the scheme, the finance ministry will appoint 5,000 graduates with basic accountancy skills. In the current fiscal, the scheme is being launched only on a pilot-basis to train 5,000 TRPs at 100 centres in about 80 cities across the country.
The Income Tax Department and NIIT will then train them for nine days. At the end of the training programme, the graduates will be awarded a certificate and an identity card. The trained candidates will be referred to as `Certified Tax Return Preparers' and obtain a unique identification number from the Income Tax Department. The tax return preparers are meant to file returns of income tax payers in the lower income category. The certification programme will be over by February next year, at the time of preparing returns in April.
Under the programme, NIIT will provide special training material on the subject, developed by Taxman, a publishing house dealing in tax-related matters. All such tax return preparers would have access to a Web-based knowledge portal, for any special support while filing the returns, throughout the year. Graduates interested in this scheme can apply before 24th November, 2006 by visiting www.trpscheme.com.
The TRP will get a fee of Rs 250 from old tax payers for preparing their tax returns. However, for every new tax payer the TRP brings in, he will be reimbursed 3% of the tax collected in the first year, 2% for the second year and 1% for the third year, subject to a maximum of Rs. 1000.
The rationale behind this system of reward is that the TRPs would operate like insurance agents and bring in new taxpayers in order to get more fees, Chidambaram said. It will also solve the problem of “stop filers”, people who file returns for a year or so and then stop filing their returns.
Given the fact that around 25-30 lakh new tax payers join the tax fold every year, the scheme is likely to have a big impact.
Taxpayers who pay someone to do their taxes should choose a preparer wisely. Taxpayers are ultimately responsible for everything on their return even when it’s prepared by someone else. Taxpayers can use the following tips to choose a preparer who will offer the best service for their tax preparation needs.
• Ask about service fees. Avoid preparers who claim they can obtain larger refunds than other preparers, or those who guarantee results or base fees on a percentage of the amount of the refund.
• Plan Ahead. Choose a preparer you will be able to contact after the return is filed and one that will be responsive to your needs.
• Identity. Ask for the identity card issued by the Tax Department.
Further details of the Tax Return Preparer Scheme can be viewd at http://www.trpscheme.com/trp/index.jsp
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