Budget 2011: No major tax proposal for banking industry

Though in terms of fiscal measures there is no significant proposal in the Finance Bill that could impact the tax regime for the banking industry, on policy front the changes to Banking regulations through a new Amendment Bill to be moved by the Finance Minister should bring about some of the key changes proposed by the Reserve Bank of India and the ones the industry has been waiting for, including the ones relating to restrictions on voting rights and ceiling in foreign investment in private sector banks.

There was an expectation of the Banking Industry from the Finance Minister that an express exemption from taxes should have been provided on conversion of a foreign bank branch in India to a wholly owned subsidiary, which has not been discussed by the Finance Minister in Budget 2011. These changes along with the other legislative changes referred to by the Finance Minister in his speech should provide the required impetus to the financial markets in general.

Govt drops plan to tax PF, pension funds withdrawals

NEW DELHI: In a major relief to the middle class, the Centre has proposed to drop earlier suggestions of taxing withdrawals from provident funds, pension funds and pure life insurance schemes and of imposing tax on retirement and service perks given by employers.

The revisions in the Direct Tax Code (DTC), originally proposed in August 2009, also clarified that the tax exemption on interest up to Rs 1.5 lakh per annum on housing loans will continue. In a major concession to industry, the proposal to impose minimum alternate tax (MAT) on gross assets of a company was also shelved. MAT will continue to be applied on book profits as at present.

Another significant change is in the manner in which long-term capital gains on assets held for over a year will be treated. In the case of listed securities, where there is now no long-term capital gains tax, the proposal is that a proportion of the gain in the value of the securities will be added to the person’s income, with the proportion declining as the period of investment increases.

Revenue secretary Sunil Mitra said the government would entertain suggestions on the revised DTC draft till June 30. A Bill will be brought before Parliament in the monsoon session. Once passed by Parliament, the new tax code will replace the 1961 Income Tax Act and be implemented from April 1, 2011.

Under the revised DTC, retirement benefits, subject to specified limits, will be exempt unlike in the earlier version. These include gratuity, amounts received under VRS, commutation of pension linked to gratuity received or from encashment of leave at the time of retirement.

TOI