K R Sriram & Co
Chartered Accountants

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Information Bulletin - October 2003

In this issue

Dear Sir/ Madam,

As part of our efforts to improve the quality of our service to our clients, we are sending you the first of the monthly information bulletin, which attempts to provide you the current updates on taxation, investment and other relevant issues. We expect to continue updating the information by way of monthly bulletins from henceforth.

We intend to cover regular updates and topic of interest for your business and individual needs. We would be publishing various segments in this newletter to highlight important issues such as approaching due dates for important statutory obligations for corporates, small businesses and individuals, recent changes in taxation applicable in the current year, current investment options available in India with their corresponding risk profiles, starting a small business, changes to partnership deeds, etc.,

Looking forward to valuable comments and feedbacks from you, so that we can understand your requirements better.

Regards

Sriram

Valuable Contributions from K. R. Sriram, Biswarup & Mahua.

Some of the information was collected from the following sources:


Company Law - Some Important Developments

Simplified Exit Scheme(SES) Sitting Fees for Board Meetings
The Department of Company Affairs has considered providing an easy exit route to small, non-functioning or defunct companies. It has introduced a Simplified Exit Scheme (SES), to be adopted by companies as well as the Registrar of Companies in striking off the name of defunct companies.

There will be an incentive for the companies to exit, and a penalty for continuing to remain on the register without complying with the requirement of increasing their paid-up capital to Rs. 1,00,000 in case of private companies and Rs. 5,00,000 in case of public companies. It is also proposed that companies, which actually exit, may not be prosecuted and if prosecutions have already been filed, they may be withdrawn immediately after the name of the company is struck off the register. Similarly, if there are any pending prosecutions for non-filing of Annual Return and Balance Sheet, that can be withdrawn. However, if there are other offences then prosecutions can be withdrawn only with the prior permission of the Department.

On the other hand if such companies continue to remain on the register without complying with the requirements then they will be vigorously prosecuted.

The SES will be applicable to all companies making application under Section 560 of the Companies Act, 1956.

This facility is available only till 31st December, 2003.

For each meeting of the Board of directors or a committee, the amount of remuneration by way of fee shall be as follows:
Companies with a paid up share capital and free reserves of Rs. 10 crores and above or turnover of Rs. 50 crores and above sitting fee not to exceed Rs.20,000
Other Companies sitting fee not to exceed Rs.10,000

FOR YOUR URGENT ATTENTION:

  • Three (3) copies of the balance Sheet must be submitted to Registrar of Companies within 30 days from the date of Annual General Meeting.
  • One(1) copy of the annual return must be submitted to the Registrar of Companies within 60 days from the date of Annual General Meeting.
Note: In normal circumstances Annual General Meeting of a company must to be held within 30th September, 2003.


Investment Options for Individuals

Investment options can be broadly classified as either for tax savings or additional savings (for the rainy day) purposes.

Tax Saving Investments

Broadly there are two possible alternatives,

OPTIONS RETURNS BENEFITS REMARKS
NSC - VIII
Available from local Post Office
8% per annum compounded half yearly Rebate under section 88 as applicable
  • Interest accured is exempted U/S 80L subject to overall limit
  • Interest accured except the 6th year interest is entitled to tax rebate U/S 88.
Minimum duration of (six) 6 years.
No easy early withdrawal options available.
PPF
Available from specified Banks
8% per annum compounded yearly Rebate under section 88 as applicable
  • Interest is totally free of tax
Minimum duration of (five) 5 years from the 1st date of deposit, subsequently withdrawal subject to certain limits.
Approved Infrastructure Bonds
Available depending upon the issue mainly ICICI, IDBI, IFCI, etc.,
Interest is notified at the time of issue of Bonds. Rebate under section 88 as applicable
  • Interest is exempt u/s 80L subject to overall limit
Minimum duration of (three) 3 years or as per the terms of the issue.

For the Rainy day Savings Options

The following table illustrates some additional saving options. These saving options are not necessarily tax incentives but have a higher yield. Along with the higher yield, the risk factor also increases.

You may need to evaluate the risk factors carefully with a financial consultant to ensure that the options meet your requirements. Some of these are market driven and require adequate knowledge in the share market and the implications of market fluctuations.

OPTIONS RETURNS RISK FACTOR REMARKS
Relief Bonds 6.5% Taxfree
8% Taxable (exempt U/S 80L)
None Minimum duration of (six) 6 years.
No easy early withdrawal options.
No investment limit.
Cannot be mortgaged or hypothecated.
Company Deposits Variable depends on company and period
Interest not eligible for 80L exemption
Medium Premature encashment possible subject to company rules.
No investment limit.
G-Sec Mutual Fund Moderate Medium All Funds are higly liquid and are encashable at the ruling price.
Transaction fee as applicable.
Debt Mutual Fund Moderate Medium
Balanced Mutual Fund High Flexible
Equity Mutual Fund Very High Flexible
Equity Shares Very High Flexible Need to have good understanding of the equity market.
Need to monitor the investments on a regular basis.
Transaction fee as applicable.


Taxation Changes for the Year 2003-04

Summary of important changes applicable for the current year for individuals and families not having any income from business/profession.

Income from Salary

Standard Deduction u/s 16(i) for the current year 2003-04

If salary income before standard deduction is:
Rs.5 lakhs or less 40% of gross salary (i.e. salary + allowances + perquisite) or Rs.30,000/- whichever is lower.
Above Rs.5 lakhs Rs 20,000

Income from House Property

There are no significant changes in this respect for the current year as compared to the previous year.

Income from Capital Gains

(a) Current year's Index factor for calculation of Long Term Capital Gains: 463

(b) Exemption of Long Term capital Gains on transfer of listed equity shares: u/s - 10(36)

Exemption of long term capital gains on transfer of listed eligible equity shares is applicable from the current year provided such shares are purchased on or after 1st March 2003 but before 1st March 2004 and held for a period of 12 months or more.

Eligible equity shares for this purpose means

If the aforementioned conditions are satisfied, then the long term capital gains arising on transfer is not chargeable to tax. In the other way, long term capital loss arising on transfer cannot be adjusted against any income if the aforesaid conditions are satisfied.

Income from Other Sources

Income by way of dividend from domestic company is exempted from tax in the current year.

Income from Units received by a unit holder (not being income arising from transfer of units) from Unit Trust of India or Mutual Fund or the specified company on or after 1st April 2003 is exempted from Tax in the current year.

Deductions U/S Chapter - VI A

Section 80DD:

In the current year, an assessee, who is a resident Indian or a Hindu Undivided Family(HUF) and who has incurred any expenditure for the medical treatment (including nursing), training and rehabilitation of a dependent (being a person with disability) or paid or deposited any amount under a scheme framed in this behalf by Life Insurance Corporation or any other insurer or specified company and approved by the Board in this behalf, for the maintenance of the dependent will be eligible for deduction. The dependent should be a person with disability of not less than 40% and should be wholly dependent upon the individual or the HUF.

The quantum of deduction is as follows:

Rs.50,000 if the disability is 40% or more but less than 80%.
Rs.75,000 if the disability is above 80%.

Section 80DDB:

In the current year, provision regarding deduction in respect of medical treatment has been substituted by a new one. The new provision is that the assessee should be a resident individual or HUF and actually paid for medical treatment of himself or wholly/mainly dependent husband/wife, children, parents, brother(s). In this regard a certificate has to be submitted in the prescribed form from a specialist doctor, working in a government hospital.

The quantum of deduction is as follows:

  • Rs.40,000 or the amount actually paid, whichever is lower - in general cases.
  • Rs.60,000 or the actual amount spent, whichever is lower - if the amount is paid for any senior citizen.

However, the amount of deduction will be reduced by the amount received from an insurer or reimbursed by the employer.

Section 80L:

Dividend on shares in domestic company and income from units received by a unit holder (not being income arising from transfer of units) from Unit Trust of India or Mutual Fund or the specified company on or after 1st April 2003 is exempted from tax in the current year and hence not eligible for deduction U/S 80L in the current year.

Rebate under Section 88

Tution fees will be taken into consideration in computing gross qualifying amount. The following conditions should be fulfilled for this purpose:

  • Taxpayer should be an individual.
  • He has paid tution fees.
  • The fees is paid at the time of admission or thereafter.
  • The fees is paid for full time education.
  • The fee is paid to a university, college, school or other educational institution in India.
  • The fees is paid for any two children of the taxpayer who need not be a minor only and need not be dependent on the tax payer.

The payments made towards any development fees or donation or payments of similar nature are not considered.

On fulfillment of the above conditions then tution fees paid is included in gross qualifying amount subject to a maximum of Rs. 12000/- per assessment year per child upto a maximum of two children.

Life insurance premium paid in the current year which is more than 20% of the actual capital sum assured shall not be included in the gross qualifying amount for the purpose of computation of tax rebate U/s 88.

Rebate under Section 88B

Quantum of rebate for senior citizens U/s 88B has been increased to Rs. 20,000 in the current year.

Surcharge rate for individuals

If net income is less than or equal to Rs. 8,50,000 surcharge is nil.
If net income is more than Rs. 8,50,000 surcharge is 10%

Marginal Relief

This relief will be granted to those taxpayers whose income is slightly higher than Rs. 8,50,000.


For your Urgent Attention

TDS Returns ( as per the new format to be submitted by 30th November)

Income Tax Return for corporate assessees and those assessees whose accounts are required to be audited under this Act or any other law for the Assessment Year 2003-04 to be submitted by 31st October

Tax audit Report is required to be submitted in the prescribed form by 31st October by:

Individuals who have missed last date for filing Income Tax Returns should take necessary step to submit their returns immediately. It is important to note that if no tax is payable on income then no interest or penalty is levied otherwise interest is payable for late filing of return @1% per month. Penalty of Rs. 5000 is payable if return is not submitted by 31st March, 2004 together with interest.


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