JULY 06, 2009

Dear FM, time has changed but cash payment limit remains adamantly fixed at Rs 20000

By TIOL Netizens Community

INCOME TAX - Cash Payment of more than Rs. 20,000: Sec 40A(3) disallows cash payments made in excess of Rs 20000 per day per person subject to very few exceptions. Now this limit was fixed way back in 1988 i.e more than twenty years ago and since then the cost of maintenance of truck including diesel oil and lubricants and also repairs has gone up several times. In real life situation the lorry drivers have to carry cash to meet expenses on the way especially in cases involving transportation over long distances.

Similarly, Sec 194C imposes obligation of deduction of tax at source where the freight payment exceeds Rs.20000 per each transportation or Rs.50000 per year per person in aggregate. Now the individual limit of Rs.50000 was also fixed in 1988. It is true that second proviso to cl(i) of s.194C(3) gives some relief to owners owing not more than two trucks on the submission of Form no. 15 I but unfortunately this facility is available only payments made by sub-contractors u/s.194C (2) but not where the payment is made directly by the business man to the owner of the trucks u/s.194 C(1) itself .

This problem has become most acute because most of the truck owners are only small operators and in most of the rural and semi-urban areas only such persons operate the trucks to a very large extent.

There is a new dimension added to the problem faced by the business people because of the changes in the payment of TDS amounts. Most of the small truck operators do not have the P.A.N and hence even in cases where tax is deducted at source from payments made to them, they are foregoing the TDS amount rather than filing the returns and claiming refund. Now with challan in Form 17 coming into vogue there is no possibility of the deductor to remit the TDS amount because of the absence of P.A.N in the case of the respective payees.

Now my suggestions are

a) Increase the threshold limit both under s.40A(3) & s.194 C atleast to Rs.75000 per transaction

b) Extend the benefit of Form 15I to payments made u/s.194C(1)

c) Refrain from punishing the deductor of tax at source by insisting on the furnishing of P.A.N by the deductee since it is illogical to punish the deductor for the default on the part of the payee who is prepared to forego his claim to the credit of the TDS amount.

P.V.R.Prabhakar,
Chartered Accountant

WITHHOLDING TAX:

++ Presently, any kind of foreign remittances (except towards purchases) is subject to withholding tax.  Companies have to obtain Chartered Accountant’s Certificate, pay the withholding tax and then remit the money.


++ Most of the service providers located abroad, with whom Indian Industry sign the contracts accepts their fees / remuneration net of Indian Taxes.  In other words, foreign service provider will get his full fees and withholding tax thereon is to be borne by Indian Industry.

++ Income-tax, provides that if with-holding tax is to be borne by Indian companies, then the same is required to be first grossed up and then tax to be deducted, and net to be paid e.g., if rate of withholding tax is 20% and foreign party desires to get 100 net of withholding tax then the amount is required to be grossed up i.e. 100 will become 125 and thereafter tax 20% i.e. 25% is to be borne by Indian Industry.  Here, in this example, Indian Industry is bearing withholding tax not of 20% but of 25%.


++ The misery of Indian Industry does not stop here, Service Tax Act provides that service tax is payable on value of services.  The value of service for Indian Industry is not 100 nor 120 but 125 and then Service Tax is to be borne by Indian Industry @ 10% + surcharge on 125.

From the above, you will note that at every stage, Indian Industry is paying more and more tax.  Through the medium of your channel, we would like to request Finance Minister that
 
++ Provisions relating to grossing up of Withholding Tax should be abolished.


++ Service Tax should be charged on the amount which is being remitted and not on the grossed amount i.e. value of Service + Withholding Tax.


A small amendment in this regard will help Indian Industry to become competitive and reduce paper formalities.

S.C. Kalani

Leave Travel Concession under Section 10(5) Read with Rule 2B:

In the case of leave travel concession, the provisions of section 10(5) of the Income Tax Act, 1961 read with Rule 2B of the Income Tax Rules 1962 allows exemption in the case of travel by air for an amount equivalent to cheapest economy class air fare.

These Rules were prescribed w.r.e.f. 1.10.1997 IT (First Amdt.) Rules, 1998, when govt. and public sector employees were allowed to travel (while on LTC), maximum by economy class in a National Carrier. However, now some categories of govt. and public/private sector employees are allowed to travel in business class while going on LTC.

Now, it has become essential to revise the Rules to include amount of exemption equivalent to the business class air fare where journey has been allowed and undertaken by business class.

It is suggested that the amount of exemption may be revised to include the amount of business class air fare where the journey has been allowed and undertaken by business class.

Allowances under Section 10(14) Read with Rule 2BB:

The salaried employee who are in receipt of allowances like transport allowance, children education allowance etc. are granted exemption from income tax under section 10(14) of the Income Tax Act, 1961. The amount of exemption for various allowances received by the employees was prescribed keeping in view the amount of allowance granted to govt. and public sector employees as well as the amount of expenditure prevailing on these items at that point of time in the year 1997.

Since the implementation of recommendation of the sixth Central Pay Commission in September, 2008, various allowances granted to the govt. employees has been revised upward w.e.f. 1st September, 2008. Further, the expenses now incurred in respect of above items of expenditure have actually increased manifold in past few years and the exemptions being provided to salaried class assessee are very low and need to be appropriately enhanced.

Therefore, re-fixing of monetary limits for exemption in respect of various allowances as prescribed under section 10(14) of the Income Tax Act, 1961 read with Rule 2BB of the Income Tax Rules 1962 like Transport Allowance, Children education allowance, allowance to meet hostel expenditure for child education, Special Compensatory Allowances like Remote Area, Hill Area, Bad Climate, Scheduled/Tribal Area Allowance etc. has become essential w.r.e.f. 1st September, 2008.

It is suggested that the amounts of exemption may be increased appropriately keeping in view the amount of allowances granted to the govt. and public sector employees since the implementation of the recommendation of the sixth central pay commission w.e.f. 1.9.2008.

arunagarwalca@yahoo.com

Standard deduction for salaried persons should be reintroduced and it should be at least One Lac Rupees. In view of implementation of Sixth Pay commission, minimum income tax exemption limit should be Rs. Three Lacs.

I want the personal income tax rates to be rationalised as 5% so as to spare the Govt. Servants. Because I had pay heavily due to my arrears last year and whatever advantage I derived out of my pay scale arrears was defeated.

A Govt Servant