In the second budget of the UPA Government the Finance Minister P. Chidambaram has taken some bold steps. He has enhanced the exemption limit and has also rationalized the slab rates. To compensate this, he has removed some of the exemptions and deductions presently allowed in the computation of the total income and also the tax rebate. The present EEE method adopted for exemptions and deductions has been switched over to EET method. Under this new method the new section 80C provides for deduction of up to Rs. 1 lakh in respect of certain specified investments. The whole idea seems to be to rationalize the incentives given in the form of exemptions and deductions. It seems that the Government has accepted some of the suggestions made by Dr. Kelkar Committee in its report submitted in July 2004.

Another bold step taken by the Finance Minister is to reduce the rate of tax in the case of domestic companies and firms from 35% to 30%. However, this has been compensated to some extent by reducing the rate of depreciation. Further, surcharge has been increased from 2.5% to 10%.

Employees do incur some expenditure incidental to employment. Such expenditure deserves to be deducted while computing salary income. In view of this position, section 16(1) provided standard deduction from gross salary. The Finance Act has deleted this provision. Increase in the exemption limit is not a satisfactory answer to this deletion. This is because the increase in the exemption limit applies to all and not restricted to salaried employees. There is no justification for such deletion.

Though it may be claimed that the above amendments are intended to simplify and rationalize the scheme, the introduction of the provisions for the two new taxes, Fringe Benefit Tax (FBT) and Banking Cash Transaction Tax (BCTT), can by no means be called rational or by way of simplification. The two new taxes will only add to the existing confusion, complexity and inconvenience to the assessee and also the paper work. These provisions will increase the controversies and avoidable litigation. The intended additional revenue could have been levied either by way of increasing the rate of tax or by providing for disallowance to meet the objects. The provisions for FBT are patently irrational and provide for penalty for the welfare measures undertaken by the employers. FBT is primarily a tax on expenditure and not a tax on income. FBT is payable irrespective of whether there is any taxable income or not. Literal meaning of the provisions show that it is a tax on expenditure for welfare of the employees. This tax would discourage welfare measures by the employers. Clearly, FBT is an expenditure incidental to carrying on of business. However, section 40(a) specifically provides that FBT is not an allowable deduction for computing total income.

The Finance Minister should reconsider and withdraw the said new tax and if found necessary may make necessary amendments in the provisions for deductions allowable for computing total income.

From time to time, the professional bodies like the Chamber have represented to the Government that the annual Finance Bill should not alter the basic structure of the taxing scheme and should be restricted to the change in the rate structure and the incidental changes. This is because there would be no sufficient time for public debate and proper consideration. Therefore, it was proposed that the major changes should be brought by Amendment Bills and that should be subjected to proper debate and consideration. This time the Finance Minister presented the Finance Bill, 2005 on February, 28th and introduced two new controversial taxes and the Finance Act has been passed without giving a proper opportunity for public debate and without consideration of the suggestions. On May 12th the Finance Minister has introduced the Taxation Laws (Amendment) Bill, 2005 proposing some more changes in the law. The almost simultaneous introduction of the Finance Bill and the Amendment Bill do not seem to be based on the logic, rationale or the objects as proposed by the professional bodies as stated above and it is most likely that the Amendment Bill also will be passed without any proper discussion or consideration of the suggestions. Such casual approach for economic legislation by Parliament needs immediate and serious attention.

Special Story on Filing of Return is the annual feature of our Journal and June month is most appropriate for this Special Story. Accordingly, this months Special Story is on "Filing of Return for A. Y. 2005-06". I thank  Shri Anil Sathe for his efforts in designing and co-ordinating the Special Story. I am also thankful to all the authors for giving their articles in time.