Written in : June 1998

Finally the Budget of 1998 has been passed but not without the largest roll back one has seen in any budget so far.

With regard to several tax proposals - several potentially extremely damaging - the Finance Minister has had to go back on the original ones. Let us see what are the various amendments to the tax laws that have been reversed by the Minister in the Finance Bill.

One of the most damaging proposals was the one to levy income tax on gifts received. In what could have been the worst amendments to tax laws in living history, virtually every capital receipt would have been subject to income tax under an innocuous looking change that was proposed. In an article published last month, I had given examples of various items which could get taxed if the proposal had become law - none of them gifts, nor ever really intended to be taxed.

Similar criticism would most certainly have been received by the Finance Minister explaining the dangers in converting the proposal to law. The criticism has been heeded to and the proposal has been totally withdrawn.

But the most surprising part is that the Finance Minister has gone ahead with the abolition of Gift tax. Gifts made after September 30, 1998 would not now suffer tax neither in the hands of the donor nor in the hands of the donee. A combination of short sighted proposals and forced reversals has resulted in this unintended situation.

There is not much doubt that this situation will result in a spate of gifts only with a view to spread the income in several hands to avoid income tax. The situation is too good to be true and unlikely to remain like this for much time. You may look forward to some plugging measures within months with a good chance of the plugging being retrospective! So, beware.

However, it does not mean - as some reports have suggested - that tax payers can introduce money into their system under the garb of gifts. All money introduced in the system will have to be proved as gifts before being exempt of tax.

There was a proposal that the Registrar's value in property transactions be taken as sale consideration instead of the actual consideration. This was unjustified and pernicious. Several commentators had criticised the proposal.

The proposal has now been withdrawn and the status quo restored. As such for capital gains purposes, the actual sale value will be relevant and not the Registrar's value.

TAccording to one proposal, it was to be made mandatory for a Permanent Account Number to be quoted for sale of shares of the value of Rs.50,000 or more. This was criticised as being retrograde on the grounds that it would turn back investors from the stock market. The Finance Minister has now increased the limit from Rs.50,000 to Rs.10,00,000. Thus sale and purchase of shares can be made upto Rs.10 lakhs without quoting the PAN.

There was also a proposal that PAN would be required to open bank accounts. This also had come under criticism. The proposal has been withdrawn on the condition that the person will have to file a declaration and furnish proof of identity at the time of opening bank accounts.

Agriculturists and foreign tourists have also been exempted from quoting PAN.

In the One by Six Scheme, every person who fulfills at least one criteria out of six is required to file a tax return, whether or not he has taxable income. One such criteria is subscription to a telephone.

The Finance Minister has now modified the Scheme to exempt senior citizens from filing returns merely because they have subscribed to a telephone. However, if they fulfill any other criteria, they are required to file a return.

There was a proposal in the Budget that the status of Not Ordinarily Resident (NOR) be abolished. Unquestionably, this was a retrograde step. It would have led to several non-residents who temporarily become residents in India to be doubly taxed on their global income. It was not only NRI-unfriendly but also affected several foreign technology suppliers who send key personnel temporarily to India.

Under legitimate criticism, the proposal has now been withdrawn and the status quo maintained.

There was a proposal that inventories should be valued after adding Excise Duty etc without reduction of Modvat credit. That is, Modvat credit should be added to the inventory cost. This proposal was to be made retrospectively with effect from 1985.

The Finance Minister has made the proposal prospective and is to be applied only from the current year.

In the Budget, the Minister had introduced the Kar Vivad Samadhan Scheme under which pending tax disputes can be closed on payment of a part of the outstanding demand. This Scheme had several anomalies and these were pointed out to the Finance Ministry. Some changes have been brought about in the Scheme. In the coming weeks, I shall deal with this Scheme in detail in a series of articles so that if you can take advantage of it you are able to do it in an informed way.

Major changes have been introduced to help the Computer industry grow at a quick pace. In a coming article I shall cover all this. Check out if these are of help to you.

In the last few weeks, there was widespread hope - almost certainty - that the service tax levied on chartered accountants would be withdrawn. This followed by a statement that the Prime Minister made in a public meeting inaugurating the Golden Jubilee Celebrations of the Institute of Chartered Accountants. To the disappointment of everyone (except the excise department, I suppose), this proposal has not been reversed.

Talking to a large number of accountants in the last two months in several meetings, I discovered an interesting thing. The virtually unanimous concern amongst all accountants is not the new 5% tax (which is collectible from clients), but the prospect of dealing with another government department, the excise department at that. Their concern is deep and worries widespread.

You can now look forward to a few challenges to the levy by accountants in courts.

Arguably, the Budget exercise this year represents the largest roll back of proposals ever made by any Finance Minister for a long time. How come this happened? We are so used to bureaucrats and politicians taking us for granted and road rolling any idiosyncratic proposal that they came upon. How come then that most damaging proposals this year have been rolled back?

It explains two things. One, that you - the citizens - have started speaking out; protesting. For instance, with regard to this Budget, your representatives in trade associations, chambers of commerce, the media etc spoke out openly and forcefully. Their voices reached the decision makers.

The other thing is that the government has become responsive to public opinion. It is now willing to listen to feedback, to public opinion. That is a very good sign.

Both together have led to the reversal of the pernicious proposals that were put up without enough thought