Finance minister P Chidambaram stuck to his ground on Monday by largely retaining the controversial fringe benefit tax (FBT) but left a smile on individuals’ faces by exempting savings bank accounts from cash withdrawal tax. He also hiked the income tax exemption limits for women and senior citizens.
Moving the amendments to the Finance Bill 2005, Mr Chidambaram said the FBT, in its modified form, would increase the effective corporate tax rate by 1-1.5%. The Lok Sabha approved the Finance Bill with these and a few other amendments including CVD exemption for mobile phone components.
While the minister has exempted the expenditure on advertisement from FBT, he has retained the tax on a host of benefits provided by companies like conveyance, telephone, club memberships and scholarships. For hotel, pharmaceutical, software and construction companies, the FBT threshold has been slashed to 5% of expenditure on conveyance and lodging from 20% earlier.
In his February 28 Budget, Mr Chidambaram had proposed a 0.1% tax on cash withdrawal of Rs 10,000 or more from a bank in a single day. As per the modified proposal, the tax will not be imposed on withdrawals from savings bank accounts but will be applicable on other accounts. For this, the limits have been fixed at Rs 25,000 for individuals and Hindu undivided family (HUF) and Rs 1 lakh for others, including trusts and companies.
The bad news is that the tax will also be levied on receipt of cash from a bank on a single day on encashment of one or more term deposits whether on maturity or otherwise. Here again, the limits have been fixed at Rs 25,000 for individuals and HUF and Rs 1 lakh for others. The tax will not be levied if the amount of the term deposit is credited to any account with the bank.
The I-T exemption limit for women has been raised from Rs 1.25 lakh to Rs 1.35 lakh, while for senior citizens (over 65 years) from Rs 1.5 lakh to Rs 1.85 lakh.
