No new taxes, no change in personal income taxes
There will be no new taxes and no changes in income taxes. Even better is that there will be no new cess too.

The 2 per cent education cess has not been hiked and there will be no health cess. The surcharge payable by those with income of over Rs10 lakh also stays at 10 per cent. And equally important, all tax-breaks on savings will remain intact, and there are some more products to choose from.
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One-by-six is no more
Life will become a lot easier for those who were forced to file their tax returns under the one-by-six scheme. The scheme, which was introduced in 1998-99, with the aim of widening the tax base, has been abolished with effect from April 1, 2006. Hence, no returns will be required to be furnished under this provision for the assessment year 2006-07 and subsequent years.
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Tax breaks stay
Savings through products such as the Public Provident Fund (PPF) or even the Provident Fund (PF) continue to attract tax-breaks because the finance minister has not introduced the much talked about Exempt Exempt Tax (EET) regime. The government has extended tax breaks to products like fixed deposits of banks with minimum five-year tenure under the ambit of Section 80C. Tax breaks on home loans too remain unchanged.
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Tax at source
From April 1, 2007 failure to collect tax at source will attract a penalty. The penalty would be equal to the amount of tax which the person authorised to collect failed to collect at source.
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Don't forget PAN
The government proposes to issue a Permanent Account Number (PAN), suo moto, if any authority discovers that it has not been mentioned for specific transaction where it is mandatory to do so. The person will be issued a PAN by the assessing officers. The provision would be effective from June 1, 2006. Already a penalty of Rs10,000 is in force for not providing the PAN.
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False tan to attract penalty
The Budget has introduced a penalty of Rs10,000 for providing false 'tax deduction account number', 'tax collection account number', 'tax deduction and collection account number' in challans, certificates and statements, effective from June 1, 2006.
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FBT eased
The government has eased some of the provisions of the Fringe Benefit Tax (FBT). Contributions by employers to superannuation funds for employees up to Rs100,000 per annum has been exempt from fringe benefit tax. So, employees stand to gain from this. The government hopes to collect Rs4,000-Rs5,000 crore by way of FBT during the fiscal 2006-07.
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TCS, TDS returns
With the introduction of quarterly statements, the requirement of furnishing annual Tax collected at source (TCS) and Tax Deducted at source (TDS) has been done away with.
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Co-operative banks taxed
For the first time, the government will tax the income earned by a co-operative entity and has made a beginning with co-operative banks.

The proposal is likely to be opposed by co-operative banks — which enjoy strong support from state governments. To make matters worse, the tax break on long-term deposits will not be available to over 90 per cent of co-operative banks.
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Tax sops for FDs
Mumbai: Fixed deposits (FDs) of scheduled commercial banks, with a tenor exceeding five years, will now be eligible for a tax break under Section 80C of the Income Tax Act. The finance minister has also included pension funds, currently under section 80CCC, within the ambit of Section 80C. With this, investors can now park a total of Rs1 lakh in such schemes as against the existing levels of Rs10,000.

With FDs eligible for a tax break under Section 80C, a person saving through FDs can claim a deduction from his income for the amount of FD, subject to a ceiling of Rs1 lakh. For instance, if an amount of Rs10,000 is deposited, the depositor could save Rs3,360 (in the first year only), if he is paying his taxes at the rate of 33.6 per cent.

The finance minister had withdrawn Section 80L in the Union Budget for 2005-2006, which provided tax relief on interest earned through FDs up to a certain amount.

While the minister has not restored this benefit, he has made it more attractive for small savers to put their savings in bank FDs. The benefit to savers investing their funds in FDs will be huge even though the product is highly illiquid, because the amount will be locked in for five years. However, given that FDs of banks are considered safe investments, the returns could be very attractive.

Together with the interest of around 7.5 per cent per annum, the tax break should give a better return than almost all fixed income products. In fact, the returns could exceed those on an RBI bond, which gives a 6.5 per cent tax-free return, provided banks offer more than 6.5 per cent.
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Tax collection on growth path
New Delhi: Finance minister P Chidambaram is betting on tax revenues to grow by 19.35 per cent in 2006-07 to Rs3,27,205 crore from the Rs2,74,139 crore estimated in 2005-06. The growth rate is marginally lower than the 21.94 per cent growth estimated for 2005-06.

With capital receipts projected to show a marginal increase of Rs295 crore to Rs1,60,526 crore, Chidambaram is expecting high growth in service tax, customs, corporation tax and income tax to meet revenue projections.

The government has slashed its projections on total borrowing, estimated to grow by 1.71 per cent (Rs2,511 crore) to Rs148,686 crore. In 2005-06 it is estimated to grow by 16.75 per cent to Rs1,46,175 crore from Rs1,25,202 crore from a year ago.

With the service tax collection estimated to grow by 61.97 per cent (Rs8,800) to Rs23,000 crore in the current fiscal year, Chidambaram has set a target of 50 per cent growth (Rs11,500 crore) to aim at Rs34,500 crore in 2006-07 from the Rs23,000 crore estimated in 2005-06.

Despite customs collections growing at 11.46 per cent in 2005-06, the finance minister has set an ambitious target of 20.01 per cent growth (Rs12,851 crore) to target Rs77,066 crore in 2006-07 from Rs64,215 crore estimated this year.

The corporation tax is projected to grow by 28.42 per cent in 2006-07 to yield Rs1,33,010 crore, up from the Rs1,03,573 crore estimated in 2005-06. The growth is estimated at 25.26 per cent (Rs20,893 crore) in the current fiscal year.

The income tax collection growth target for 2006-07 has been set at relatively modest 16.86 per cent (Rs11,170 crore) to Rs77,409 crore, up from Rs66,239 crore in 2005-06, during which it is expected to grow by 34.47 per cent. This is expected to provide a cushion to the finance minister.

Non-tax revenue is projected to grow by Rs1,925 crore to Rs76,260 crore from Rs74,335 crore (in 2005-06, it fell by Rs6,880 crore).

Overall revenue receipts are expected to grow by 15.78 per cent (Rs54,991 crore) to Rs403,465 crore in 2006-07. In the current fiscal year, the revenue receipts target of Rs3,51,200 crore is estimated to fall Rs2,726 crore short.

On the capital receipts front, recoveries of loans are projected to decline to Rs8,000 crore in 2006-07 from Rs11,700 crore this fiscal year, and other receipts are projected to grow to Rs3,840 crore from Rs2,356 crore.

The government's net internal debt borrowings are estimated to grow by 13.35 per cent to Rs113,778 crore, up from
Rs100,373 estimated in 2005-06. The external assistance is projected to grow to Rs8324 crore, up from 7,515 crore estimated in 2005-06.
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Liquidity comfort for state-run banks
Mumbai: The Budget has proposed to convert Rs22,808 crore of recapitalisation bonds issued to 19 nationalised banks into tradable, statutory liquidity ratio (SLR) securities. The move will provide comfort to banks facing a liquidity crunch.

The proposal will help generate liquid cash from the sale of tradable securities. The move comes at a time when the banking system is starved of cash.

As part of the reforms in 1993-94, capital was infused through these bonds into those banks whose net worth eroded on account of provisioning for non-performing assets. This capital was treated as tier-I capital. The government had injected Rs16,809 crore into nationalised banks. Inclusive of perpetual securities issued in the early 1990s, total net capital support provided by the government to banks stands at Rs22,808 crore.

Total investments by banks in government securities at present stand at Rs7,00,595 crore, up by just over one per cent compared with a year ago.
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Leasing and hire purchasers to get relief
Mumbai: The Budget has proposed to rectify the anomaly in application of service tax on the Rs22,187 crore leasing and hire purchase industry. The industry was facing difficulty on account of the levy of service tax on all components of payments, including interest.

The Budget is, however, silent on Indian Banks' Association's (IBA) demand that leasing and hire purchase be either considered as sale or service for the purpose of taxation.
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Farmers to get short-term credit at 7 per cent during kharif season
New Delhi: The government has decided to ensure that the farmer will receive short-term credit at seven per cent, with an upper limit of Rs3 lakh on the principal amount said the finance minister,
P Chidambaram.

Since this would require a certain level of subvention to Nabard, he said: "I propose to give the subvention. This policy will come into force with effect from kharif 2006-07, and I shall make a detailed statement in due course."

Farmers obtain short-term credit from the cooperative credit structure and Regional Rural Banks (RRBs), with refinance from Nabard.

On farm credit, he said, "I propose to ask the banks to increase the level of credit to Rs175,000 crore in 2006-07 and also add another 50 lakh farmers to their portfolio." Farm credit increased to Rs125,309 crore in 2004-05 and is again expected to cross the target of Rs141,500 crore set for the current year.
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Superannuation scheme in favour
Mumbai: The group superannuation scheme is expected to be back as an attractive option for life insurance companies since fringe benefit tax (FBT) will not apply to contributions of up to Rs1 lakh. The good news is that about 90 per cent of the contributions to superannuation schemes fall within the Rs1 lakh bracket.
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