NEW DELHI doing some part-time business to make that extra buck. If amendments in the Finance Bill are passed by the Parliament, these tax payers will not have the cushion of setting off business losses against income from salary.
Right now, several taxpayers rendering part-time services like consultancy and freelancing make good their expenses on telephone bills, depreciation on cars, computers etc by showing them as a business loss. This loss is set off against their salary incomes to lower tax liability. Clearly, taxpayers are taking advantage of a loophole in the income tax law which has not gone down well with the revenue authorities
The existing income tax provisions allow taxpayers to set off the loss computed under one head of income against income computed from other source. Though losses under the head capital gains can't be set off against income under any other head.The Budget provisions seek to prevent the abuse of this benefit. It proposes an amendment to the existing law by disallowing an assessee to set off losses under the head 'profits and gains from business or profession' against salary income.
The finance minister who has targeted a 26% rise in income tax has announced a slew of measures to plug revenue leakage and another such proposal relates to deduction of tax at source from payments to contractors and sub-contractors.
Amendments to the Finance Bill seek to restrict the tax benefit on splitting of contracts. Tax is required to be deducted at source only on contracts that are valued above Rs 20,000, at present. Keeping this provision in mind, composite contracts are split into smaller ones valued under Rs 20,000 to avoid TDS.
Under the proposed amendment, tax would also have to be deducted in cases where the aggregate payments to contractors is Rs 50,000 during a financial year even if a single payment is less than Rs 20,000. As before, tax is still to be deducted at source for single payments exceeding Rs 20,000.
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