The Finance Bill 2004 presented on July 8 had 111 clauses relating to the income-tax, central excise. Customs and central sales tax laws, 53 amendments to this Bill (nearly 50 per cent of clauses contained in the original Bill) were moved by Finance Minister P Chidambaram on August 26 to set right anomalies/deficiencies, drafting mistakes and for making numerous corrections in this Bill. | |
| Some changes made concerning income tax are lines 20 to 43 at page 4 of the Bill, relating to treating of gifts as income for tax purposes have been replaced by "(xiii) any sum referred to in clause (v) of sub-section (2) of Section 56". |
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| Section 56 of the Income Tax Act relates to taxation of income from "other sources". Thus, what had been earlier thought of for incorporation in sub-section (24) of Section 2 has now been shifted to Section 56 by inserting a new sub-clause (v) in that section. This implies that gifts in the specified situations are to be treated as income from other sources. |
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| As regards the conceptual aspects concerning gifts, the changes made are that clauses (A) and (B), which provided for taxation when the sums were received in cash or by issue of a cheque or draft or by any other mode or by way of credit, and otherwise than by way of consideration for goods or services, have been replaced by "any sum exceeding Rs 20,000 is received without consideration". |
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| The exemptions, which were earlier seven have now been reduced to four. The changes made even now do not deal with situations when sums are received as loans or where the consideration is inadequate or where the gifts are received in kind. |
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| Other changes relate to: |
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Exemption concerning housing projects under Section 80-IB has been liberalised;
In sub-section (11A) of Section 80-IB, the amendment proposed earlier has been replaced by the phrase "an undertaking deriving profit from the business of processing, preservation and packaging of fruits and vegetables or from...."
Marginal relief has been provided in cases of non-levy of tax up to Rs 100,000 through rebate under Section 88D.
Rebate in respect of the securities transactions tax by enacting a new Section 88E has been provided.
Extensive changes have been made in the new Section 111A in regard to tax on short-term capital gains.
Provisions concerning the tonnage tax have been amended substantially.
Section 273B (concerning penalties) has been amended to provide for certain clarifications.
Section 279 has been amended in a major way.
A number of changes have been made concerning the securities transaction tax. |
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Some examples are :-
- A new table regarding rates has been prescribed.
- Value of taxable securities transactions has been defined.
- Major changes have been made about collection and recovery of the securities transaction tax.
- Requirements regarding furnishing of prescribed returns have been further amplified.
- From page 43, line 25 of the Finance Bill, the words "being a recognised stock exchange" and from page 43, line 34, the words "entered into in the recognised stock exchange" have been omitted.
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| There are many other changes of the like nature, which cannot be mentioned because of constraint of space. Such piecemeal legislative changes raise the following issues for consideration: Whether it is necessary to make massive changes of a fundamental nature like introduction of the securities transaction tax and the tonnage tax, through the Finance Bill instead of through an Income Tax (Amendment) Bill, which can be thoroughly discussed/debated and then the provisions incorporated in the Income Tax Act. More care needs to be taken in drafting to avoid second legislation for setting the mistakes right. Such legislative exercises make the law cumbersome besides leaving lacunae (as in the case of taxation of gifts). In this background, it is futile to talk of simplification, rationalisation and reform of tax laws. A serious thought needs to be given to the suggestion that those provisions of the Finance Bill, where no secrecy is involved and which need to be passed urgently, could be circulated in the form of proposed law in January before being included in the Finance Bill in February. |
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| Tax legislation needs to be taken seriously as it affects a large population of taxpayers. Ushering in changes in it in the way it has been done through the Finance Bill, 2004 and subsequent amendments greatly erodes the government's credibility and voluntary compliance. |
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