No withdrawal tax on savings accounts

The government has proposed to dilute the controversial fringe benefit tax (FBT), exempt savings accounts from the 0.1% banking cash transaction tax (BCCT), and raise income tax exemption limits for women and senior citizens.

Amendments to the Finance Bill, 2005, circulated today to MPs indicate that while withdrawal from savings bank accounts will be totally exempted, withdrawal beyond Rs 25,000 by individuals and Rs 1 lakh by companies and others will attract the 0.1% tax. Withdrawal from term deposits will also attract this tax.

Giving further relief to women and senior citizens, finance minister P Chidambaram has proposed to raise the income tax exemption limit for women by another Rs 10,000 to Rs 1,35,000 and for senior citizens by an additional Rs 35,000 to Rs 1,85,000.

In the the budget proposals, the finance minister had proposed to hike exemption limit for women to Rs 1,25,000 and senior citizens to Rs 1,50,000.

Chidambaran said women earning between Rs 1,35,000-1,50,000 will attract 10% tax and between Rs 1.50 lakh-2.50 lakh will attract 20%. Beyond Rs 2.50 lakh, it would be 30%.

For senior citizens, income between Rs 1.85 lakh- 2.50 lakh will attract 20%, and beyond Rs 2.50 lakh it would be 30%.

Chidambaram had originally proposed 0.1% BCTT on all withdrawals
beyond Rs 10,000.

On FBT, he proposed to exclude expenditure on advertisement from the levy. However, any privilege, service or amenity provided directly or indirectly by an employer by way of reimbursement or otherwise to employees will attract FBT, which is to be paid by employers.

Similarly, any free or concessional ticket provided by the employer for private journeys of employees or their family members, and any contribution to an approved superannuation fund for employees will come under the purview of FBT.

Entertainment, provision of hospitality of every kind by the employer to any person, whether by way of provision of food or beverages or in any other manner, will attract FBT. This includes any expenditure on or payment for food or beverages provided to employees in office or factories and any expenditure or payment through paid vouchers usable at eating joints or outlets and conference other than fee for participation by employees.

Expenditure on employees welfare will attract FBT, but not the expenditure incurred or payment made to fulfil any statutory obligation or mitigate occupational hazard or provide first aid facilities in hospital or dispensary run by employers.

Other expenditures that will come under FBT include conveyance, tour and travel, including foreign travel, use of hotel, boarding and lodging facilities, repair, running and maintenance of motor cars and aircraft and the depreciation on them.

Use of telephones, including mobile phones, will attract FBT, but expenditure on leased telephone lines will be exempt.

Maintenance of any accommodation like guest house except those used for training purposes, festival celebrations, use of health club and simillar facilities, use of any other club facilities, gifts and scholarships will also come under FBT.