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Slabs are proposed to be revised. The slab from Rs. 1.6 lakhs to 3 lakhs will be raised to 1.6 lakhs to 5 lakhs for 10% rate, while the slab from 3 to 5 lakhs is raised to Rs. 5 to 8 lakhs for 20% rate, so that everyone with income above Rs. 8 lakhs gets an annual tax relief of Rs. 50,000 with those having lower income will correspondingly have reduced relief. There is also an additional deduction of Rs. 20,000 for investments in notified infrastructure bonds under section 80CCF over and above the limit of Rs. 1 lakh under section 80C.

Surcharge stands reduced from 10% to 7.5%. But it is matched by an increase in the rate of of Minimum Alternate Tax (MAT) from 15% to 18%, so that MAT which is a bad tax is made worse by the tax hike.

Budget 2010 is no different from earlier budgets in extending incentive reliefs. Amendments are made to section 10AA(7) as regards relief for special economic zones, section 35(2AB) as regards weighted deduction for scientific research, section 10(21) to include those covered by section 35(1)(iii), section 35AD relaxing conditions for those in distribution of crude or petroleum oil by operating pipeline, besides extending it to hotel sector in two-star category, section 80IB relaxing some conditions for relief for housing projects and section 80ID relaxing the time limit for hotels in and around Delhi. Most of these beneficial amendments are even retrospective indicating a fair response to the taxpayers in these lines.

While conversion of firm to Limited Liability Partnership (LLP) was treated as tax neutral in the context of amendment made by the Finance (No.2) Act, 2009, the tax incidence of conversion of company to LLP was uncertain. Amendment now proposed would exempt conversion of a company to LLP from liability to capital gains tax only if those companies having turnover not exceeding Rs. 60 lakhs, a limit which is being simultaneously revised under section 44AB raising it from Rs. 40 lakhs to Rs. 60 lakhs. The right to carry forward unabsorbed depreciation and losses will be available for such converted LLP, but not MAT tax credit under section 115JAA of the Act.

Deemed incomes under section 56(2)(vii)

Welcome amendments to section 56(2)(vii) would roll back liability on concession in purchase of immovable property, which were sought to be taxed with effect from 1.10.2009 by amendment to section 56(2)(vii), so that a provision parallel to section 4(1)(a) of the Gift Tax Act (now deleted) stands retrospectively nullified. There is a similar clumsily worded newly inserted section 56(2)(viia) with effect from 1st July, 2010 deeming income in respect of transaction in shares other than listed shares apparently targetting firms and closely held companies.

An important amendment has been made in relaxation of a drastic amendment brought in by the Finance Act, 2008 depriving exemption for those with the object of general public utility, if they have any transactions treated as commercial or business nature. This has come into effect from A.Y. 2009-2010. By a retrospective amendment to section 2(15), it is now provided that in case such receipts from such transactions do not exceed Rs. 10 lakhs, exemption will not be lost. This amendment will have effect from A.Y. 2009-2010. The amendment has not come a day soon, but the limit could have been higher and left to the discretion of the Commissioner depending upon the nature of the charitable activity.

A most welcome aspect of the amendments to Income Tax Act, is one relaxing the threshold limit for tax deduction of almost all items except for interest other than interest on securities under section 194A.

There is also relaxation in section 40(a)(ia), so that tax deduction till September following will avoid disallowance of payment, but delay will cost interest at 1.5% per month as against 1% at present.

There are many other cosmetic changes in law, limited in number, probably because of the promised Code after consideration of all the suggestions to be brought in from A.Y. 2011-2012.

There are some outstanding problems presently faced in respect of international taxation, consequent on an unreasonable stand successfully taken by Commissioner, Karnataka in CIT (International Taxation) v. Samsung Electronics Co. Ltd. (2010) 320 ITR 209 (Kar) requiring tax clearance for every remittance abroad from the Assessing Officer on one hand and the Board Circular withdrawing three earlier circulars, both creating avoidable confusion in respect of tax deduction at source and assessments of non-residents. These would probably stand addressed by the responsible quarters of the Government in due course.