Written in : January 1999

With a view to give a boost to some sectors in the economy, the government has introduced a bill in the Parliament last December. The bill is not yet law but is almost certain to become one. And you might just find it interesting enough tax-wise. So here are the details.

Some years back it was possible for you to claim normal depreciation on assets purchased as late as March 31 and put to use for business or profession before that date. For example, you could have purchased an asset on say, March 30, and use it for business to get benefits of normal depreciation. Government found that this provision was 'misused' and businessmen and professionals took advantage of this to get accelerated depreciation without using the asset for a good part of the year. It then amended the law to say that you can claim full normal depreciation if you purchase the asset and use it on or before September 30. If you purchase the asset after that, you can get only 50% of the normal depreciation. Thus, purchasing a car or a truck on March 30 or 31 did not have great attraction tax-wise. You could get only a small amount as depreciation.

Government now seems to have woken up to the severest recession that the economy has gone through of late. It is well known that the commercial vehicles industry is in deep trouble. Demand has slumped so much that survival of several units is in doubt.

The government ought to do something isn't it? So it gives a tax break!

According to an amendment proposed in the law, if you purchase a commercial vehicle on or after October 1, 1998 but before April 1, 1999 and put it to use for your business or profession before April 1, 1999 you will be entitled to claim depreciation at the normal rates applicable to the vehicles.

That is, you will get not 50% of the normal depreciation on such vehicles but 100% (remember, it is 100% of the normal depreciation, not 100% depreciation).

If you have noticed:

• the amendment applies only to commercial vehicles, not all vehicles or other assets; and
• it applies only for this one year, not subsequent years.

What is a commercial vehicle? It is defined to mean: 'heavy goods vehicle', 'heavy passenger motor vehicle', 'light motor vehicle', 'medium goods vehicle', and 'medium passenger motor vehicle'. Commercial vehicle is not to include 'maxi-cab', 'motor-cab', 'tractor' and 'road-roller'.

Remember also that the vehicle should be purchased and put to use before April 1, 1999, ie, during the financial year itself.

One wonders if the government really believes this will give a boost to a sagging sector in the economy.

A few months back I had discussed the law of presumptive taxation. To simplify taxation and assessment of small businessmen, the law now has several provisions of presumptive taxation: retail traders, civil contractors, transporters. All such businessmen having turnover of less than Rs.40 lakhs can declare income on the basis of an assumption and once they do so, their income will be accepted without a scrutinised assessment nor will they be asked even to keep proper books of account.

Suppose you did not have even the amount presumed by law to be your income but had lower income? Or a loss? In such an event, the law said that you would be required to get the accounts tax-audited by a chartered accountant and submit a tax audit report with your return of income.

Now amendments are proposed to the law. According to the proposed amendments, if you have declared income lower than the presumed income, for the assessment year 1997-98 or earlier years, then you ought to produce evidence and prove that such was the case. Further, the assessing officer is required to make a scrutiny assessment in such cases (during which proceedings you can produce the evidence). These provisions are applicable to civil contractors and transporters – for only those years these businesses were covered by the law.

The Memorandum explaining these amendments says that the amendments are proposed so that even for these years the businesses have the option to offer lower income if they so had provided they were willing to go through a scrutiny assessment. This is a welcome provision. However, such a late amendment may not really be of much use since the returns for those years will have already been filed and summary assessments completed.

Besides, there are amendments proposed to sections 10(23) and 80P. These, not being of general interest, we shall not discuss here.

You would have thought the KVSS saga was over. It isn't. Watch this space.