The Finance Bill 2005 was passed by the Lok Sabha Monday after amendments to raise the exemption limit on income tax for women and senior citizens as well as the tax threshold on cash withdrawals.


The bill, passed by the lower house after a four-hour debate followed by an hour-long reply by Finance Minister P. Chidambaram, will ensure that some business expenses do not come under the fringe benefit tax.

Members of the opposition National Democratic Alliance, which had been boycotting parliamentary proceedings since April 27, participated in the debate.

According to the amendments, the cash withdrawal tax scheme now keeps all savings bank account holders out of its ambit and increases the daily cash withdrawal cap for individuals to Rs.25,000 from Rs.10,000.

For companies, the exemption limit has been raised to Rs.100,000 a day.

In his budget speech Feb 28, Chidambaram had proposed the new scheme to impose a tax of 0.1 percent on all cash withdrawals over Rs.10,000 a day with a view to curb black money.

The limit of Rs.10,000 was set for all types of assessees, whether they were individuals or companies. Chidambaram had said that banks would have to report deposits that are exempt from tax deducted at source on interest.

During the course of his reply Monday, Chidambaram said he proposed to enhance the income tax exemption limit for women and senior citizens to Rs.135,000 and Rs.185,000, respectively.

The original Finance Bill 2005 had proposed the exemption limits at Rs.125,000 for women and Rs.150,000 for senior citizens.

In the case of fringe benefit tax (FBT), which proposes a tax on the assumption that some expenditure incurred by businesses also accrued to employees, Chidambaram sought to exempt expenses on sales promotion and advertising.

But certain other items will remain under its purview, such as expenses on conferences, repairs and maintenance of cars, guesthouse and club facilities, foreign travel expenses and contribution to retirement funds.

Reacting to the amendments, industry chambers said the exemption of advertising and sales promotion was a welcome decision since these expenses are incurred for business purposes.

"But the continuation of the fringe benefit tax at 30 percent would adversely affect the competitiveness of the corporate sector," the Federation of Indian Chambers of Commerce and Industry (FICCI) said.

"No member country of the Association of Southeast Asian Nations has the concept of fringe benefit tax in their tax laws and we should also follow the same practice," FICCI president Onkar S. Kanwar said.

The Confederation of Indian Industry (CII) said it was of the view that the FBT was presumptive in nature and could lead to disputes and litigations.

"Ideally, we would have liked to see the proposal to levy FBT withdrawn," said CII president Sunil Kant Munjal.