Explanatory Memorandum

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: FINANCE (NO 2) BILL, 2009

PROVISIONS RELATING TO DIRECT TAXES

Introduction

The provisions of the Finance (No.2) Bill, 2009 relating to direct taxes seek to amend the Income-tax Act, inter alia, with a view to,—

(i)Lowering the burden on the individual taxpayers by increasing the basic exemption limit available to the taxpayers.

(ii)Introducing simplified presumptive tax scheme for small businesses.

(iii)Encouraging the growth of foreign investment in India by providing for a speedy dispute resolution mechanism.

(iv)Improving efficency of the tax system by providing for investment linked tax incentives for certain sectors.

(v)Focussing on tax administration by improving the standards of service delivery and transparency in the functioning.

(vi)Simplification and rationalization of provisions relating to TDS.

2. The Finance (No.2) Bill, 2009 seeks to prescribe the rates of income-tax on incomes liable to tax for the assessment year 2009-10; the rates at which tax will be deductible at source during the financial year 2009-10 from interest (including interest on securities), winnings from lotteries or crossword puzzles, winnings from horse races, card games and other categories of income liable to deduction or collection of tax at source under the Income-tax Act; rates for computation of “advance tax”, deduction of income-tax from or payment of tax on ‘Salaries’ and charging of income-tax on current incomes in certain cases for the financial year 2009-10.

3. Subject to certain exceptions, which have been indicated while dealing with the relevant provisions, changes in the provisions of the tax laws are ordinarily proposed to be prospective in their operation.

4. The substance of the main provisions of the Bill relating to direct taxes is explained in the following paragraphs.

INCOME-TAX

Rates of Income-tax

I. Rates of income-tax in respect of income liable to tax for the assessment year 2009-10

In respect of income of all categories of assessees liable to tax for the assessment year 2009-2010, the rates of incometax have been specified in Part I of the First Schedule to the Bill. These are the same as those laid down in Part III of the First Schedule to the Finance Act, 2008, for the purposes of computation of “advance tax”, deduction of tax at source from “Salaries” and charging of tax payable in certain cases.

(1) Surcharge on income-tax—