The Finance Act 2005 has made some radical changes in the law, especially by way of introduction of new tax on fringe benefits, and on banking cash transactions. The law pertaining to tax treatment of savings also stands modified substantially. This article discusses in detail the various amendments brought about by the Finance Act, 2005.

Banking cash transaction tax

The new law aimed at taxing certain banking transactions is contained in Chapter VII of the Finance Bill. This chapter extends to the whole of India and shall come into force on 1st June 2005, and shall apply to taxable banking transactions entered into on or after the commencement of this chapter.

"Taxable banking transaction" has been defined to mean:

1. a transaction, being withdrawal of cash (by whatever mode) on any single day from an account (other than a saving bank account) by a person from scheduled bank exceeding-

   1. Rs 20,000 in case the cash is withdrawn is from an account of an individual or an HUF

   2. Rs One lakh, in case the withdrawal is from an account of a person other than an individual or an HUF; or

2. a transaction, being receipt of cash from any scheduled bank exceeding on any single day by a person on encashment of term deposit, whether on maturity or otherwise, from that bank exceeding-

   1. Rs 25,000 if such deposits are in the name of an individual or an HUF;

   2. Rs One lakh in case such term deposit or deposits are by any person other than any individual or HUF.

Clause 96(ii) provides that the amount for the purpose of the transaction of term deposit shall be the amount received on encashment of such deposit.

The law provides for the taxability, from 1st June 2005, in respect of the taxable banking transactions, at the rate of 0.1% of the value of such transaction.

Sub-clause (2) of Clause 95 of the Finance Bill provides that the Banking Cash Transaction (BCT) tax shall be payable:

1. in respect of cash withdrawn, by the person from whose account the amount has been withdrawn;

2. in respect of encashment of term deposits, by the person who receives cash on encashment of such deposits.

The proviso to the clause provides that no BCT tax shall be payable if the amount of term deposit is credited to any account with the bank.

While the above clause provides for the liability of payment, Clause 97 casts a responsibility on every scheduled bank to collect BCT tax from every person liable to pay such tax. The tax so collected shall be payable by the bank to the credit of the Central Govt before the 15th of the month following the month of the collection. If a bank fails to so collect the tax, it will still be the responsibility of the bank to pay such tax.

Clause 98 prescribes for furnishing of the return of BCT Tax by the bank within the prescribed time after the end of the financial year, and provides that where no such return has been furnished, the Assessing Officer may serve on the bank a notice to furnish such return. A revised return may also be submitted before the assessment is made.

Clauses 99 to 112 lay down the detailed procedure for assessment, and provides for interest, penalties, rectification of mistakes, appeals, etc.