MEASURES TO WIDEN THE TAX BASE

Tax deduction at source on payment of compensation relating to compulsory acquisition of a capital asset.

An effective method of widening the tax base is to enlarge the scope of deduction of income-tax at source. An item which needs to be covered within the scope of deduction of income-tax at source is the compensation received on account of compulsory acquisition of capital asset under any law. The Bill proposes to insert a new section 194L, to provide for deduction of tax at source at 10% on payments, exceeding rupees one lakh during the financial year, made on account of compensation on compulsory acquisition of capital assets under any law.

The Bill seeks to amend section 197 of the Income-tax Act, relating to certificate for deduction of income-tax at a lower rate so as to include the new section 194L within the scope of the said section.

The Bill also seeks to amend sections 198 to 200 and 202 to 205 of the Income-tax Act, relating to provisions in respect of deduction of income-tax at source. This amendment is consequential to the proposed insertion of new section 194-L in the Act.

The proposed amendment will take effect from 1st June, 1999.