budget at glance - nicci union-budget-of-india-2012-13.pdf · budget at glance (` in crore ) sr ......

The Union Budget – 2012 Proposals

B‐3 Mukesh M. Shah & Co. Chartered Accountants

BUDGET AT GLANCE(` In Crore )

Sr. No.

Particulars 2010‐11 2011‐12 2011‐12 2012‐13

Actuals @

Budget Estimates

Revised Estimates

Budget Estimates

1 Revenue Receipts [2+3] 788471 789892 766989 935685 2 Tax Revenue (net to centre) 569869 664457 642252 771071 3 Non‐Tax Revenue 218602 125435 124737 164614 4 Capital Receipts [5+6+7]$ 408857 467837 551730 555241 5 Recoveries of Loans 12420 15020 14258 11650 6 Other Receipts 22846 40000 15493 30000 7 Borrowings and other liabilities * 373591 412817 521980 513590

8 Total Receipts [1+4]$ 1197328 1257729 1318720 1490925 9 Non‐Plan Expenditure [10+12] 818299 816182 892116 969900

10 On Revenue Account, of which‐ 726491 733558 815740 865596

11 Interest Payments 234022 267986 275618 319759

12 On Capital Account 91808 82624 76376 104304 13 Plan Expenditure [14+15] 379029 441547 426604 521025

14 On Revenue Account 314232 363604 346201 420513

15 On Capital Account 64797 77943 80404 100512 16 Total Expenditure [9+13] 1197328 1257729 1318720 1490925

17 Revenue Expenditure [10+14] 1040723 1097162 1161940 1286109

18 Of which, Grants for creation of capital assets 87487 146853 137505 164672

19 Capital Expenditure [12+15] 156605 160567 156780 204816 20 Revenue Deficit [17‐1] 252252 307270 394951 350424 % in respect of GDP 3.3 3.4 4.4 3.4 21 Effective Revenue Deficit [20‐18] 164765 160417 257446 185752

% in respect of GDP 2.1 1.8 2.9 1.8 22 Fiscal Deficit [16‐[1+5+6]] 373591 412817 521980 513590

% in respect of GDP 4.9 4.6 5.9 5.1 23 Primary Deficit [22‐11] 139569 144831 246362 193831 % in respect of GDP 1.8 1.6 2.8 1.9

GDP for BE 2012‐2013 has been projected at ` 10159884 crore assuming 14% growth over the Advance Estimates of 2011‐2012 (` 8912179 crore) released by CSO.

@ ‐ Actuals For 2011‐12 are provisional $ ‐ Excluding receipt under market stabilization scheme * Included Draw‐Down of Cash Balance



THE UNION BUDGET : AN OVERVIEW

Direct Taxes

Income Tax :

• Positive Proposals :

• Threshold limit of exemption enhanced from present ` 180,000 to ` 200,000.

• Revision in slab of income :

- upper limit of slab for 10% tax rate revised from ` 300,000 to ` 500,000 - Slab for 20% tax rate changed to ` 500,000 – ` 1,000,000 from ` 300,000 – ` 800,000 - Lower limit of slab for 30% tax rate revised from ` 800,000 to ` 1,000,000

• Age limit of 60 years for senior citizen announced in the last budget for the purpose of basic exemption limit now applied to other beneficial provisions too.

• New deduction up to ` 10,000 introduced for interest income from saving deposit with banks and post offices.

• Deduction introduced in respect of amount incurred upto ` 5,000 on health check up within the overall limit of section 80D.

• Deduction of 50% introduced for Investment made up to ` 50,000 in Rajiv Gandhi Equity saving scheme. This benefit shall be available to retail investors having annual income less than ` 1,000,000.

• Withholding tax rate reduced from 20% to 5% on interest payment on ECB for specified purposes.

• Weighted deduction on R & D expenditure in inhouse facility extended for 5 years.

• Resident senior citizens spared from payment of advance tax who do not have any income from business or profession.

• Extension of sunset clause for tax holiday for power sector to 31st March, 2013.

• Limit for turnover for the purpose of tax audit enhanced to ` 1 Crore for business and ` 25 Lacs for profession.

• Limit for turnover for the purpose of presumptive taxation of small business enhanced to ̀ 1 Crore.

• Exemption provided to Long term capital gain on transfer of residential property in case invested in equity capital of SME company to be utilized for acquisition of new plant and machinery.

• Negative Proposals :

• Additional deduction for investment in infrastructure bonds upto ` 20,000 discontinued.

• Alternate Minimum Tax extended to all the assessees other than companies claiming deductions under section 10AA and/ or under Chapter VI‐A.



• Transfer pricing provisions enhanced and tightened. Framework for Advance Pricing Ageement proposed. Domestic transactions also covered under transfer pricing regulations.

• Retrospective amendments proposed in section 9 and 195 reversing the Vodafone judgement.

• Other Proposals : • Introduction of TCS on sale of bullion and jewellery in cash in excess of ` 200,000.

• Introduction of TCS on sale of minerals.

• Introduction of TDS on sale of immovable properties for more that specified amount.

• Income tax officers can now re‐open assessments pertaining to foreign assets for upto 16 years instead of the current limit of 6 years.

• Time limit for completion of regular assessment increased by 3 months.

• General Anti Avoidance Rules [GAAR] introduced in line with the DTC proposals.

The Direct tax proposals are estimated to result in net revenue loss of ` 4,500 Crore.

Service Tax :

Tax rate hiked from 10% to 12%.

Negative list introduced with 17 services remaining outside service tax net.

Only 34 services exempt from service tax.

Refund mechanism simplified for exporters of services.

Revision application authority and settlement commission introduced in Service Tax.

Input Tax Credit for service tax expanded.

Excise Duty :

Base rate of Excise duty hiked from 10% to 12%.

Custom Duty :

No change in the peak rate of duty.

Number of duty reductions/ exemptions provided to certain sectors like agriculture, infrastructure, mining, railways, roads, civil aviation, manufacturing, health and nutrition, environment etc.

The Indirect tax proposals are estimated to result in net revenue gain of ` 45,940 Crore.

Securities Transaction Tax :

STT rate cut by 20% on cash delivery transactions.



DIRECT TAX PROPOSALS:

INCOME TAX

PREAMBLE :

While beginning the Tax Proposals in the Budget speech, the Finance Minister quoted–

“As Hemlet, the prince of Denmark, has said in Shakespeare’s immortal words, “I may be cruel only to be kind.”

It was pronounced by the Finance Minister in the Union Budget, 2011 for the enactment of Direct Tax Code (DTC) during the year 2011‐12. Though the DTC could not be enacted during the year 2011‐12, the tax proposals for the fiscal year 2012‐13 also encompasses the progress towards the direction of the same.

Applicability :

All the provisions of the Finance Bill, 2012 will be applicable from 1st April, 2013 and apply to the Asst. Year 2013‐14 and subsequent assessment years, unless otherwise stated.

Rates of Income Tax :

Individuals, Hindu Undivided Family (HUF), AOP, BOI and Artificial Juridical person :

The basic exemption limit for Income Tax is proposed as stated below :

Type of Assessee Proposed Limit (`)

Existing Limit (`)

Remarks

Individuals below 60 years, HUF, AOP, BOI and Artificial Judicial person

200,000 180,000 Increased by ` 20,000

Resident women below 60 years 200,000 190,000 Increased by ` 10,000 Resident Individuals of 60 years or more but less than 80 years

250,000 250,000 No change

Resident individuals of 80 years or more 500,000 500,000 No change Proposed tax slabs would be as follows :

Income Individuals below 60 Years/ HUF/ AOP/

Artificial Juridical Person

Individuals above 60 years or more but less than 80 years

Individuals above 80 years

or more ` 200,001 to ` 250,000 10% Nil Nil ` 250,001 to ` 500,000 10% 10% Nil ` 500,001 to ` 1,000,000 20% 20% 20% Above ` 1,000,000 30% 30% 30%



No surcharge will be leviable to individual, HUF. However, Education Cess and Secondary and Higher Education Cess are continued as per the last year i.e. at the rate of 2% and 1% on Income Tax respectively.

The following table depicts the tax liability (inclusive of applicable Education Cess and Secondary and Higher Education Cess) on various income levels in case of individuals who are below 60 years of age and HUF :

Total Income (`)

Tax Liability (`) Proposed Existing Savings

200,000 0 2060 2060 500,000 30,900 32,960 2,060 1,000,000 133,900 156,560 22,660 1,500,000 288,400 311,060 22,660

Firms and Limited Liability Partnership (LLP), Co‐operative Societies and Local Authorities :

No change is proposed in the tax rate.

No surcharge is proposed.

Education Cess and Secondary and Higher Education Cess are continued to be levied at the rate of 2% and 1% on Income Tax respectively.

Companies :

Tax rate and Surcharge are proposed to be the same as per last year.

Surcharge shall continued to be leviable on dividend Distribution Tax (115 O), Tax on distributed profits to Unit Holders (115 R) and Minimum Alternative Tax (115 JB).

Education Cess and Secondary and Higher Education Cess shall continue to be levied at the rate 2% and 1% respectively on Income tax and Surcharge.

Provisions relating to Business Income :

Income deemed to accrue or arise in India ‐ widening of scope and applicability of section 9 and 195 :

At present Section 9 of the Income Tax Act provides cases of income, which are deemed to accrue or arise in India. This is a legal fiction created to tax income, which may or may not arise in India and would not have been taxable but for the deeming provision created by this section it is taxable.

• The Hon’ble Supreme Court in the recent landmark judgment in the case of Vodafone International Hodlings B.V. v/s Union of India [2012] 341 ITR 1 (SC) by interpreting section 5 and 9 of the I.T. Act held that the Indian Authorities did not have powers to tax Cayman Islands transaction.

• Consequential to the same, it is proposed to widen the application of Section 9 of the Income Tax Act by inserting explanation to cover incomes which are accruing or arising directly or indirectly. The section codifies source rule of taxation wherein the State where the actual



economic nexus of income is situated has a right to tax the income irrespective of the place of residence of the entity deriving the income.

• Internationally this principle is recognized by several countries, which provide that the source country has taxation right on the gains derived of offshore transactions where the value is attributable to the underlying assets.

• Correspondingly definitions of word ‘property’ and ‘transfer’ also expanded.

• Section 195 of the Income‐tax Act requires any person to deduct tax at source before making payments to a non‐resident if the income of such non‐resident is chargeable to tax in India.

• It is also proposed to expand the scope of section 195 and therefore, a non‐resident person is also required to deduct tax at source before making payments to another non‐resident, if the payment represents income of the payee non‐resident, chargeable to tax in India. Tax has to be deducted at source, whether the payment is made by a resident or a non‐resident.

• These amendments will retrospectively apply from 1st April, 1962, i.e. A.Y. 1962‐63.

At present section 9(1)(vi) provides that any income payable by way of royalty in respect of any right, property or information is deemed to be accruing or arising in India. The term “royalty” has been defined in Explanation 2 which means consideration received or receivable for transfer of all or any right in respect of certain rights, property or information.

• Some judicial decisions have interpreted definition of the term ‘royalty’ in a manner which has raised doubts as to whether consideration for use of computer software is royalty or not; whether the right, property or information has to be used directly by the payer or is to be located in India or control or possession of it has to be with the payer.

• It is proposed to amend section 9(1)(vi) by inserting explanation to clarify that the consideration for use or right to use of computer software (including granting of license) irrespective of the medium through which such right is transferred treated as is royalty.

• It is also proposed to expand scope of royalty by inserting explanation to clarify that royalty includes and has always included consideration in respect of any right, property or information, whether or not i) the possession or control of such right, property or information is with the payer; ii) such right, property or information is used directly by the payer; iii) the location of such right, property or information is in India.

Similarly, doubts have been raised regarding the meaning of the term “process” :

• It is proposed to amend section 9(1)(vi) by inserting explanation to clarify that the term “process” includes and shall be deemed to have always included transmission by satellite (including up‐linking, amplification, conversion for down‐linking of any signal), cable, optic fibre or by any other similar technology, whether or not such process is secret.

• These amendments will retrospectively apply from 1st June, 1976, i.e. A.Y. 1977‐78.



Applicability of Transfer Pricing Regulations to domestic transactions exceeding ` 5 crore in aggregate during the year :

As per the existing provisions, the assessing officer is empowered

• To disallow unreasonable expenditure incurred between related parties.

• To re‐compute the income based on fair market value of the undertaking to which profit linked deduction is provided if there are transactions with the related parties or other undertakings of the same entity.

However, no specific method to determine reasonableness of expenditure or fair market value to re‐compute the income in such related transactions is provided under these sections.

After examining the complications which may arise in cases where fair market value is to be assigned to such transaction, in order to reduce litigation occurring in complicated matters, the Supreme Court in the case of CIT Delhi vs. Glaxo Smithkline Asia (P) Ltd. [2010] 2011 TPI 324 (SC) suggested to consider appropriate provisions in to make transfer pricing regulations applicable to such related party domestic transactions. Court has also suggested to expand the definition of related parties to cover cases of companies which have the same parent company.

It is therefore proposed to amend the act to provide the following :

• Application of transfer pricing regulations to “specified domestic transaction” between related resident parties for the purpose of computation of income.

• “Specified domestic transaction” in case of an assessee means any of the following transactions where the aggregate of such transactions entered in to by the assessee in the previous year exceeds ` 5 crore viz.:

• any expenditure in respect of which payment has been made or is to be made to a person referred to in section 40A(2)(b);

• any goods or services sold, supplied or acquired by the undertaking or unit or enterprise or eligible business referred to in section 80A;

• any goods or services transferred by between the industrial undertaking or enterprises engaged in infrastructure development etc. to any other business carried on by it and vice versa referred to in section 80‐IA(8);

• any business transacted between the industrial undertaking or enterprises engaged in infrastructure development etc. referred to in section 80‐IA(10);

• any transaction referred to in any other section under Chapter VI‐A or section 10AA, to which section 80‐IA(8) or 80IA(10) are applicable; or

• any other transaction as may be prescribed.

• Related persons defined u/s 40A to include companies having the same holding company.



• Determination of Arms length price, maintenance and keeping of information and documents and obtaining of auditor’s report as per transfer pricing regulations.

• Penalty u/s 271AA at the rate of 2% of value of each specified domestic transaction entered into shall be levied if assessee fails to keep and maintain information and documents, fails to report such transaction or maintains or furnishes an incorrect information or document.

• Penalty u/s 271G at the rate of 2% of value of each specified domestic transaction shall be levied for non furnishing of any information or documents called for by assessing officer or Commissioner (Appeals).

Alternate Minimum Tax on all persons other than Companies :

At present, Minimum Alternate Tax (MAT) is levied on the companies. Further from Assessment Year (AY) 2012‐13, Alternate Minimum Tax (AMT) is levied on Limited Liability Partnerships (LLPs).

However, other assessees namely individuals/sole proprietor, partnership firm, association of persons etc. are not liable to pay either MAT or AMT.

It is proposed to amend Section 115JC and other relevant Sections to provide that a person other than a Company, who has claimed deductions under any section included in Chapter VI‐A under the Heading “C – Deductions in respect of certain Incomes” (Except Section 80P) or under Section 10AA (i.e. applicable to new units established in Special Economic Zones), shall be liable to pay AMT.

Under the proposed amendment, where the regular income tax payable by a person is less than the AMT payable for the previous year, the adjusted total income shall be deemed to be the total income of such person and it shall be liable to pay income tax on such total income.

The rate of AMT is proposed to be fixed at 18.5 % plus cess.

The following adjustments are proposed to be made in the total income for arriving at the adjusted total income for the purposes of AMT.

• The total income shall be increased by the amount of any deductions claimed under any section included in Chapter VI‐A (Except Section 80P) in respect of certain incomes.

• The total income shall also be increased by any deduction claimed under section 10AA.

It is provided that the credit for AMT paid by the person shall be allowed to the extent of the excess of the AMT paid over the regular income tax.

It is further provided that such tax credit shall be allowed to be carried forward upto the 10th assessment year immediately succeeding the assessment year in which such credit becomes allowable.

Every person, to whom this section applies, shall have to obtain a report from a Chartered Accountant in prescribed format. Such report will have to be furnished on or before the due date of filing of return.

However, the proposed Section shall not apply to an individual or a HUF or AOP etc. if adjusted total income does not exceed ` 20 Lacs.



Clarification of the meaning of international transaction and term intangible property :

Existing definition of “international transaction” by its concise nature does not mention all the nature and details of transactions resulting in to non‐ reporting of large number of transactions in audit report by tax payer.

As per views of certain judicial authorities in cases of business restructuring etc. where even if there is an international transactions transfer pricing provisions would not be applicable if it does not have bearing on profits or loss of current year or impact on profit and loss account is not determinable under normal computation provisions other than transfer pricing regulations.

An explanation has been inserted to clarify the scope of meaning of “international transaction”. Now the expression “international transaction” shall include:

• the purchase, sale, transfer, lease or use of tangible property including building, transportation vehicle, machinery, equipment, tools, plant, furniture, commodity or any other article, product or thing;

• the purchase, sale, transfer, lease or use of intangible property, including the transfer of ownership or the provision of use of rights regarding land use, copyrights, patents, trademarks, licences, franchises, customer list, marketing channel, brand, commercial secret, know‐how, industrial property right, exterior design or practical and new design or any other business or commercial rights of similar nature;

• capital financing, including any type of long‐term or short‐term borrowing, lending or guarantee, purchase or sale of marketable securities or any type of advance, payments or deferred payment or receivable or any other debt arising during the course of business;

• provision of services, including provision of market research, market development, marketing management, administration, technical service, repairs, design, consultation, agency, scientific research, legal or accounting service;

• a transaction of business restructuring or reorganisation, entered into by an enterprise with an associated enterprise, irrespective of the fact that it has bearing on the profit, income, losses or assets of such enterprises at the time of the transaction or at any future date;

Now the expression “intangible property” shall include—

• marketing related intangible assets, such as, trademarks, trade names, brand names, logos;

• technology related intangible assets, such as, process patents, patent applications, technical documentation such as laboratory notebooks, technical know‐how;

• artistic related intangible assets, such as, literary works and copyrights, musical compositions, copyrights, maps, engravings;

• data processing related intangible assets, such as, proprietary computer software, software copyrights, automated databases, and integrated circuit masks and masters;

• engineering related intangible assets, such as, industrial design, product patents, trade secrets, engineering drawing and schematics, blueprints, proprietary documentation;



• customer related intangible assets, such as, customer lists, customer contracts, customer relationship, open purchase orders;

• contract related intangible assets, such as, favourable supplier, contracts, licence agreements, franchise agreements, non‐compete agreements;

• human capital related intangible assets, such as, trained and organised work force, employment agreements, union contracts;

• location related intangible assets, such as, leasehold interest, mineral exploitation rights, easements, air rights, water rights;

• goodwill related intangible assets, such as, institutional goodwill, professional practice goodwill, personal goodwill of professional, celebrity goodwill, general business going concern value;

• methods, programmes, systems, procedures, campaigns, surveys, studies, forecasts, estimates, customer lists, or technical data;

• any other similar item that derives its value from its intellectual content rather than its physical attributes.

This amendment will retrospectively apply from 1st April, 2002, i.e. A.Y. 2002‐03. Determination of Arm’s Length Price (ALP) :

Section 92C provides for computation of ALP by adopting most appropriate method for its determination and the arithmetic mean to be taken where more than one price is determined.

Due to varying judicial decisions, to bring certainty to the issue, it proposed to reintroduce the proviso to section 92C(2) inserted by Finance Act, 2002 by inserting new section 92C(2A) that in case variation of transaction price from the arithmetic mean is within the tolerance range of 5%, no adjustment is required to be made to transaction value.

These amendments will retrospectively apply from 1st April, 2002, i.e. A.Y. 2002‐03 with a rider, not to reopen already completed assessment only on this ground. Determination of Arm’s Length Price ‐Upper ceiling of tolerance range notified as 3% :

As per existing provisions of section 92C(2), Central Government may notify a percentage of allowable variation and if the variation between the actual price of the transaction and the Arm’s Length Price (ALP) determined by the chosen method is within notified percentage of transaction price, no adjustment to be made and actual price shall be treated as ALP.

It is therefore proposed to provide and upper ceiling of 3% in respect of as power of Central Government to notify the tolerance range for determination of arms length price. Non furnishing of report of international transaction to be considered as income escaped assessment for the purpose of reassessment :



If an international transaction is not reported by the assessee, such transaction never gets benchmarked against arm’s length principle and leads to a presumption of escaped income.

It is therefore proposed to amend section 147 of the Act, to provide that where the assessee has failed to furnish report of international transaction mentioned in section 92E then such non reporting would be considered as deemed escapement of income and such a case can be reopened u/s 147 of the Act. Framework for Advance Pricing Agreement (APA) :

It is proposed to insert new sections 92CC and 92DD to provide a framework for APA under the Act.

Advance Pricing Agreement is an agreement between a taxpayer and a taxing authority on an appropriate transfer pricing methodology for a set of transactions over a fixed period of time in future. The APAs offer better assurance on transfer pricing methods and are conducive in providing certainty and unanimity of approach.

The proposed section empowers CBDT to enter into an advance pricing agreement with any person undertaking an international transaction.

Such APAs shall include manner of determination of the arm’s length price by any method provided in section 92C(1), with necessary adjustment or variations in accordance with APA.

The APA shall be valid for period as specified in the agreement not exceeding five consecutive previous years.

CBDT is empowered to prescribe a Scheme providing for the manner, form, procedure etc. in respect of APA.

On application made for entering into such APA, proceedings shall be deemed to be pending in the case of the persons like for making inquiries u/s 133(6) of the Act.

The person entering in to such APA shall necessarily have to furnish a modified return within a period of three months from the end of the month in which the said APA was entered in respect of the return of income already filed for a previous year to which the APA applies. The modified return has to reflect modification to the income only in respect of the issues arising from the APA and in accordance with it. The assessment or reassessment proceedings shall be in accordance with the modified return within extended period of 1 year.

If the assessment or reassessment proceedings for an assessment year relevant to a previous year to which the agreement applies has been completed before the expiry of period allowed for furnishing of modified return, the AO shall, in a case where modified return is filed, proceed to assess or reassess or recomputed within 1 year from the end of the financial year in which the modified return is furnished.

All the other provisions of this Act shall apply accordingly as if the modified return is a return furnished under section 139. This provision shall be effective from 1st July, 2012. Specific Power of examination by Transfer Pricing Officer (TPO) of international transaction not reported by the Assessee :



At present, TPO is competent to exercise all powers that are available to the assessing officer for determination of ALP and consequent adjustment.

During the course of proceedings, TPO may notice an international transaction not reported by assessee and of which assessing officer also would not be aware of. In the absence of specific power, TPO cannot determine ALP of such international transaction noticed by him.

Recently Mumbai Tribunal in the case of 3i Infotech Ltd. v. DCIT [2011] 51 DTR 385 held that Jurisdiction of TPO is restricted to the transactions referred by the Assessing Officer under section 92CA(1) and therefore, TPO cannot determine the ALP in relation to an international transaction not referred to him by the Assessing Officer.

It is proposed to empower TPO to determine ALP of an international transaction noticed by him in the course of assessment proceedings before him even if said transaction is referred to him neither by the assessing officer nor by the taxpayer by way of report.

This provision shall be effective from 1st July, 2012. Extension of due date of filing of return of income by all assessee having international transaction:

As per existing provisions of section 139, non‐corporate assessees who have undertaken international transactions are required to file return of income along with transfer pricing report in Form 3CEB, on or before 30th September of the assessment year.

It is proposed to extend the due date for filing of return of income along with tax audit report and transfer pricing report by all assessees to 30th November of the assessment year to overcome practical difficulties in assessing contemporary comparable data before 30th September in respect of their international transactions.

This amendment will retrospectively apply from 1st April, 2012, i.e. A.Y. 2012‐13. Scope of penalty enhanced to enforce compliance with Transfer Pricing regulations :

At present section 271BA provides penalty for failure to furnish audit report, section 271AA provides penalty for failure to keep and maintain information and documents and section 271G provides penalty to furnish information or documents u/s 92D.

To enforce better compliance with Transfer Pricing regulations, it is proposed to levy penalty at the rate of 2% of the value of the international transaction,

• if the taxpayer fails to keep and maintain any such information and document as required by sub‐section (1) or sub‐section (2) of section 92D;

• fails to report any international transaction which is required to be reported; or

• maintains or furnishes any incorrect information or documents.

This penalty would be in addition to penalties in section 271BA and 271G. Income tax return in relation to assets located outside India :



Every resident having any asset including any financial interest in any entity outside India or signing authority in any account located outside India shall have to furnish return of income u/s 139 of the Act.

Furnishing of such return would be mandatory irrespective of taxable income.

This amendment will retrospectively apply from 1st April, 2012, i.e. A.Y. 2012‐13.

It is proposed that, as provision of section 147, the income shall be deemed to have escaped assessment where a person is found to have any asset including any financial interest in any entity outside India.

It is further proposed to increase time limit for issue of notice for reopening of assessment on account of income escaping assessment to 16 years from existing 6 years where the income is in relation to any asset including any financial interest in any entity located outside India.

Similarly, in case of wealth tax, notice for reopening of assessment on account of such wealth escaping assessment can be issued if 4 years, but not more than 16 years, have elapsed from the end of the relevant assessment year.

These amendments will be applicable for any assessment year beginning on or before 1st April, 2012.

Meaning assigned to a term used in Double Taxation Avoidance Agreement (DTAA):

Existing provisions of sub‐section (3) of section 90 and 90A empowered the Central Government to assign a meaning through notification to clarify the intent of any term used in the DTAA, which was neither defined in the Act nor in the DTAA. Such clarification should normally apply form the date when the DTAA which has used such a term came in to force.

It is proposed to provide that such meaning assigned through notification to a term used in an agreement shall be effective from the date of coming in to force of the DTAA.

This amendment will retrospectively apply

• in case of agreement entered with the Government of any country from 1st October, 2009 and

• in case of agreement adopted between specified associations in the specified territory outside India from 1st June, 2006.

Extension of time limit for completion of assessment or reassessment where the information is sought under a DTAA :

As present, during the course of assessment proceedings, for the prevention of evasion or avoidance of income tax chargeable under domestic law or corresponding law in other country or territory, the information are exchanged between the countries.

Time taken in obtaining such information from foreign tax authorities (which is currently 6 months) has been excluded from the time prescribed for completion of assessment or reassessment.



Foreign enquiries generally be nature take longer time for obtaining information. So that, It is proposed to extend such period of exclusion from 6 months to 1 year.

This provision shall be effective from 1st July, 2012.

Requirement of submission of Tax Residency Certificate (TRC) for claiming relief under DTAA :

As present, as per provisions of section 90 and section 90A of the Act, tax payer, who is resident of one of the contracting country to the treaty is entitled to claim applicability of beneficial provisions either treaty or of the domestic law.

To curtail claims of unintended treaty benefits by third party residents, it is proposed to make submission of TRC containing prescribed particulars, as a necessary but not sufficient condition for availing treaty benefits. Weighted deduction for scientific research and development(R & D), to continue :

Section 35(2AB) allows weighted deduction on approved in‐house R & D facilities @ 200% of expenditure incurred (not being on the cost of land or building).However this provisions are not applicable in respect of any expenditure incurred after 31st March, 2012.

To encourage to continue in‐house R & D facilities, it is now proposed to extend the benefit of said weighted deduction for 5 more years i.e. upto 31st March, 2017.

This amendment will therefore be applicable till AY 2017‐18. Deduction in respect of capital expenditure on specified business :

Under the current provisions of Section 35AD, 100% deduction is allowed in respect of expenditure of capital nature (other than land, goodwill and financial instruments) incurred for the “specified business”. Some of the major such businesses are as under:

• Setting up and operating cold chain facility;

• Setting up and operating a warehousing facility for storage of agricultural produce;

• Building and operating anywhere in India, a new hospital with at least one hundred beds for patients;

• Production of fertilizer in India.

It is proposed to include following three new businesses as “specified business”

• Setting up and operating an inland container depot or container freight station notified or approved under the Customs Act, 1962

• Bee‐keeping and production of honey and beeswax; and

• Setting up and operating a warehousing facility for storage of sugar.

Date of commencement of operations is proposed on or after 1st April, 2012.



Further it is also proposed to allow weighted deduction @ 150% for the following specified business if operations are commenced on or after 1st April, 2012.

• Setting up and operating cold chain facility;

• Setting up and operating a warehousing facility for storage of agricultural produce;

• Building and operating anywhere in India, a new hospital with at least one hundred beds for patients;

• Developing and building a housing project under a scheme for affordable housing framed by Central Government or a State Government

• Production of fertilizers in India.

At present deduction is allowed to assessee engaged in the business of building and operating a hotel whereby the deduction can only be granted to the owner of a hotel, now it is proposed that if owner continues to own a hotel and transfers the operations to another person, even in such situation assessee is deemed to be carrying on such business and get benefit of the deduction.

This amendment will take effect retrospectively from AY 2011‐12. Dividends distribution tax (DDT) :

Section 115‐O provides that dividend liable for DDT in case of a company is to be reduced by an amount of dividend received from its subsidiary after payment of DDT if the company is not a subsidiary of any other company.

This removes the cascading effect of DDT only in a two‐tier corporate structure.

In a liberalized economy it is felt to remove cascading effect of DDT in multi‐tier corporate structure.

Hence it is proposed to provide that in case domestic company receives during the year any dividend from any of its subsidiary and subsidiary has paid DDT then the said amount, if it is distributed as dividend by the holding company (a domestic company) in the same year, shall not be liable for DDT.

This amendment will take effect from 1st July, 2012. Taxation of Cash Credits, unexplained money etc at maximum rate :

Income tax Act, 1961, contains‐

Section Particulars

68 Unexplained sum found credited in books 69 Investments not recorded in books 69A Assessee found to be owner of money, bullion, jewellery etc. not recorded in books 69B Assessee made investment/ found to be owner of bullion, jewellery etc. and amount

expended exceeds amount recorded in books 69C Assessee incurs expenditure but does not offer explanation for source of such

expenditure



69D Amount borrowed on hundi or repaid to any person otherwise than through account payee cheque

Presently, unexplained amounts under above Sections are deemed as income and chargeable to tax at the applicable rate, from time to time.

Individuals and HUFs enjoys basic exemption limit, and hence any income which is below such basic exemption limit is not chargeable to tax. Such a generous provision is misused for laundering of unaccounted money.

Proposed Section 115BBE provides that if total income of an assessee includes income referred in above stated Sections then tax will be levied at the rate of 30% plus surcharge and cess.

It is further proposed that no deduction in respect of any expenditure or allowance shall be allowed to the assessee under any provisions of the Act, while computing deemed income under above stated Sections. Taxation of dividends from foreign subsidiary :

New section 115BBD was inserted in AY 2012‐13. This section provides –

Where the total income of an Indian Company includes dividends declared, distributed or paid by a foreign subsidiary company then it will be charged at the special rate of 15% plus applicable surcharge and cess.

Foreign subsidiary company means –

• A foreign company in which Indian company holds more than 26% of the equity share capital.

The reduced rate of tax of 15 % provides an incentive to bring money to India by way of dividends. It is proposed to continue this incentive for one more year.

It is proposed to extend the applicability of this Section in respect of income by way of certain foreign dividends received in financial year 2012‐13 subject to the same conditions.

Hike in the limit of turnover for tax audit :

As per the current provision of the section 44AB, an assessee carrying on any business has to get his accounts audited in case total sales, turnover, or gross receipt in the business for the previous year exceeds ` 60 Lacs. The limit is ` 15 Lacs in case of the assessee carrying on profession.

This provision was introduced in1984 by Mr. Pranav Mukharjee himself, when he presented budget as the Finance Minister. In 28 years, the cost inflation index has increased by manifold and hence the amendment proposes to hike the limit of turnover for the purpose of tax audit. The amendment will reduce compliance burden of small businesses/professionals.

The above limit of turnover/ receipt is proposed to be hiked as under: Particulars Existing Limit (`) Proposed Limit (`) Business 60 Lacs 1 Crore



Profession 15 Lacs 25 Lacs Rationalization of provisions of disallowance on account of non‐deduction of tax :

At present, disallowance made u/s 40(a)(ia) of certain business expenditure like interest, commission, brokerage, professional fee etc. due to non‐deduction of tax.

It is proposed that where the payer fails to deduct the whole or any part of the tax on the payment made to a resident and he is not deemed to be an “assessee in default” (Where the payee has paid the tax on such payment) such payment will be allowed as a deduction.

It is also proposed to dilute the responsibility of the ‘assessee in default’ by providing that a person, who fails to deduct tax on the sum paid to a resident shall not be deemed to be an ‘assessee in default’ in respect of such tax if such resident :

• has duly furnished his return of income ;

• has taken into account such sum for computing income in such return of income ; and

• has paid the tax due on the income declared by him in such return of income.

Further, the person is required to furnish a certificate to this effect from a Chartered Accountant in the prescribed form.

Similar changes are also introduced in relation to TCS.

The proposed provision will take effect from 1st July, 2012. Tax Incentive for funding of certain infrastructure sectors :

In order to augment long‐term funds from foreign sources at lower costs for infrastructure sector, it is proposed to provide certain tax incentives. Accordingly an amendment is proposed in the section 115A of the Act. The major provisions of this proposal are as under:

• Tax incentive is proposed in respect of the interest paid by specified company to a non‐resident in respect of borrowing made in foreign currency from sources outside India.

• The incentive is proposed in respect of interest paid on the funds borrowed between 1st July, 2012 and 1st July, 2015.

• The funds have to be borrowed under an agreement, approved by the Central Government, including the rate of interest.

• The tax rate applicable on such interest will be 5% plus applicable surcharge and cess.

• The specified company shall be an Indian company engaged in the business of ‐ • construction of dam; • operation of aircraft; • manufacture or production of fertilizers; • construction of port including inland port; • construction of road, toll road or bridge;



• generation, distribution or transmission of power; • construction of ships in a shipyard; or • developing and building affordable housing project, as specified

• Under the provisions of section 194LC, the interest paid by such specified company to a non‐resident shall be subject to TDS @ 5% plus applicable surcharge and cess, effective from 1st July, 2012.

Issue of authorisation or requisition and subsequent assessment in search cases :

Under the existing provisions of section 132 and section 132A, an authorisation can be issued or a requisition can be made for search proceedings.

Allahabad High Court in the case of CIT v. Vandana Verma [2009] 31 DTR 214 held that in search cases u/s 132 warrant of authorisation must be issued individually and if not, assessment cannot be made in an individual capacity. It was also held that if it is issued jointly, the assessment will have to be made collectively in the status of association of persons/body of individuals.

Considering this decision not in accordance with the legislative intent, it is proposed to insert a new section 292CC to provide that it shall not be necessary to issue an authorisation or a requisition separately in the name of each person and it should not be deemed to construe that it was issued in the name of AOP/BOI and accordingly assessment shall be made separately.

This amendment will retrospectively apply from 1st April, 1976, i.e. A.Y. 1976‐77. Extension of sunset date for tax holiday for power sector :

Currently, the provisions of section 80IA(4)(iv) of the Act provides deduction from profits of an undertaking engaged in generation, transmission and distribution of power subject to the conditions specified therein. Originally, the benefit of this deduction was available to the units which commence specified activity during the period ending on 31st March, 2012.

It is proposed to extend the eligibility period for one year, i.e. up to 31st March, 2013.

This provision shall be effective from 1st April, 2012.

Liability to pay advance tax in case of non‐deduction of tax :

In many cases, the Courts have taken the view that the assessee can consider the amount of tax deductible/ collectible from estimated income and he can pay the balance amount only as advance tax. He is not liable to pay advance tax to the extent the tax is deductible or collectible from any amount received by him.

In order to make the assessee liable, it is proposed to amend section 209 of the Act to provide that where a person has received income without TDS/ TCS, he shall be liable to pay advance tax in respect of such income.

This provision shall be effective from 1st April, 2012. Department may file an appeal against the directions of the Dispute Resolution Penal (DRP) :



As per the existing provisions, DRP has the power to confirm, reduce or enhance the variations proposed in the draft order and are binding on the assessing officer. Unlike the taxpayer, the Income tax department does not have the right to appeal against the directions given by the DRP.

It is now proposed to amend provisions of section 253 to provide that the assessing officer may also file an appeal before the ITAT against the order passed in pursuance of directions of the DRP in respect of an objection filed on or after 1st July, 2012. Expediting prosecution proceedings under the Act and proposal to increase threshold :

It is proposed to strengthen the prosecution mechanism by inserting new sections 280A, 280B, 280C and 280D under the Income‐tax Act by providing for constitution of Special Courts for trial of offences, by application of summons trial as the procedures in a summons trial are simpler and less time consuming and providing for appointment of public prosecutors.

It is proposed to be amended section 276C, 276CC, 277, 277A and 278 so as to revise the existing threshold of ` 1 lac introduced in 1976 to ` 25 lacs.

This provision shall be effective from 1st July, 2012.

Penalty on undisclosed income found during the course of search :

As per the existing provision, no penalty is leviable on admitted undisclosed income during the course of search (related to year of search or the previous year which has ended before the search and for which return is not yet due) if normal income tax together with interest has been paid in respect of such provision.

In order to strengthen the penal provisions, it is proposed to levy following penalty u/s 271AAB in a case where search has been initiated on or after 1st July 2012 :

Situation Penalty (% of undisclosed income)

If undisclosed income is admitted during the course of search 10%

If undisclosed income is not admitted during the course of search but disclosed in the return filed after the date of search

20%

If undisclosed income not admitted/ not disclosed in the return 30% to 90%

Presumptive taxation not to apply to professions etc. :

At present u/s 44AD a sum equal to 8% of total turnover or gross receipt is deemed to be the profits and gains from business. This is applicable only to a person carrying on any business, except plying, hiring or leasing goods carriage, having turnover or gross receipt less than ` 60 Lacs.

It is proposed to amend section to clarify that this presumptive scheme is not applicable to following:



• A person carrying on profession as referred to in section 44AA (1). It includes advocates, doctors, engineers, architects, chartered accountants, interior decorators etc.

• Persons earning income in nature of commission or brokerage income; or

• A person carrying on any agency business.

This amendment will take effect retrospectively from AY 2011‐12. Cash Credits :

Section 68 of the Act states that if amounts found credited in the books maintained by the assessee during the previous year and either‐

• Assessee offers no explanation about a nature and source of credits found in books; or

• Explanation offered by the assessee, in the opinion of the Assessing Officer, is not satisfactory,

then the amount so credited may be charged to tax as the income of the assessee of that previous year.

Various Supreme Court judgments including Commissioner of Income Tax V/s Lovely Exports Pvt. Ltd.(216 CTR 195) held that the share application money received by the assessee company from alleged bogus shareholders cannot be regarded as undisclosed income of the assessee company u/s 68.

As per such judicial pronouncements, onus of proof is not on the company where sum is credited either as share capital, share premium, share application money etc.

Realizing the need to place the entire onus on the company to prove the source of money in the hands of such shareholder or persons making payments towards issue of shares before such sum is accepted as genuine credit, the Bill proposed to amend the Section 68.

It is proposed to provide that where the assessee is a company, in which public are not substantially interested, and the sum so credited consist of share application money, share capital, share premium or any such amount by whatever name called, any explanation offered by such company shall be deemed to be treated as explained only if nature and source of funds is duly explained by the company in the hands of the resident shareholder.

However the proposed amendment will not be applicable if the shareholder is a Venture Capital Fund, Venture Capital Company, registered with SEBI.

Provisions relating to Capital Gain :

Relief from Long term capital gain on transfer of residential property :

It is proposed to insert a new section 54GB to provide for relief from tax on long term capital gain on transfer of residential property (a house or a plot of land) by an individual or HUF. The relief shall be available in respect of the sale consideration of the residential property to the extent the same is invested in the equity capital of a new start‐up SME company in the manufacturing sector and such money so invested is utilized by the company for purchase of new plant and machinery. The relief would be subject to the following conditions:



• The amount of net sale consideration is invested by Individual/ HUF before the due date of furnishing of income tax return, in the equity capital of SME company, in which he holds more than 50% or more share capital or voting rights;

• The amount of such investment has to be utilized by the SME company for purchasing new plant and machinery within a period of 1 year from the date of investment;

• If the amount of such investment is not utilized by the company for purchase of new plant and machinery, before the due date of return of such individual/ HUF, the unutilized amount shall have to be deposited in a special bank account under prescribed scheme;

• If the shares acquired from such investment as well as the new plant and machinery purchased out of such investment are sold or transferred within a period of 5 years from the date of acquisition, the entire capital gain which was not subjected to tax earlier, shall be treated as income of the assessee of the year in which such transfer of shares or plant and machinery took place.

• No relief under this section would be available to any transfer of residential property affected on or after 1st April, 2017.

Capital Gain in cases of amalgamation and demerger :

For being eligible not to be regarded as transfer as per section 47(vii), among other conditions, the amalgamated company is required to issue shares to all the shareholders of amalgamating company. In case where a subsidiary company amalgamates into the holding company, the internal shareholding gets cancelled and no new shares are issued to its own making it impossible to comply with the requirement of an eligible amalgamation.

To overcome such a situation, it is proposed to exclude the requirement of issuing shares to shareholders of amalgamating company to the extent the shares are held by the holding company. However, shares will have to be issued to all other shareholders of the amalgamating company.

Similar amendments are proposed in the provision of section 2(19AA) so as to exclude the requirement to issue shares where resulting company itself is a shareholder of the demerged company. Issue of shares to other shareholders would however be necessary.

Fair market value to be considered as full value of consideration in certain cases :

In some recent rulings, it has been held by Courts that where the consideration in respect of transfer of an asset is not determinable, the gains arising out of such transfer of asset is not liable to tax. To overcome such as situation, it is proposed that where in case of a transfer, consideration for the transfer of a capital asset is not determinable; the fair market value of that asset shall be taken to be the full market value of consideration for the purpose of computing capital gain chargeable to tax. Cost of acquisition of assets:



As per Section 47, when sole proprietorship or firm is converted into company, transfer of assets is not regarded as “transfer”. Therefore, while computing capital gain on subsequent sale of such asset by the company, there is no reference in Section 49 for considering the cost of such assets.

To overcome the lacuna, it is proposed to provide that on conversion of sole proprietorship or firm into a company which is not regarded as transfer, cost of acquisition of assets to the company would be the same as that in the hands of sole proprietorship concern/firm.

This amendment will take effect retrospectively from A.Y. 1999‐2000. Capital Gains tax from sale of agricultural land by a HUF :

As per the existing provisions of Section 54B of the Act, capital gain on transfer of agricultural land is exempt from tax to the extent it is utilized for purchase of agricultural land within 2 years from the date of transfer.

It is proposed to amend this section so as to extend the benefit of exemption to HUFs.

PROVISIONS RELATING TO INCOME FROM OTHER SOURCES:

Share premium in excess of fair market value to be treated as taxable income:

A new clause is proposed in Section 56(2). It will be applicable to a company, in which public are not substantially interested, which receives from a resident person, any consideration for issue of shares. If such consideration exceeds face value of such shares then, the aggregate consideration over and above the fair market value of shares shall be chargeable to tax as “Income from other sources”.

An opportunity will be provided to a company substantiate its claim regarding the fair market value.

It is proposed that fair market value of shares shall be the higher of the following two:

• As may be determined in accordance with the method as may be prescribed; or

• As may be substantiated by the company to the satisfaction of the Assessing Officer, based on the value, on the date of issue of shares, of its assets, including intangible assets like being goodwill, know‐how, patents, copyrights, trademarks, licenses, franchises or any other business or commercial rights of similar nature.

However, the proposed amendment shall not apply where consideration for issue of shares is received by a Venture Capital Undertaking from a Venture capital Company or a Venture Capital Fund.

PROVISIONS RELATING TO EXEMPTION / DEDUCTION :

Deduction in respect of interest on deposits in savings account :



A new section 80TTA is proposed to be inserted to allow a deduction up to ` 10,000 to individual or a HUF, in respect of income by way of interest on deposits (not being time deposits) in a savings account with a bank including a co‐operative bank or a post office.

It, further, clarifies that where the aforesaid income is derived from any deposit in savings account held by, or on behalf of, a firm, an AOP or BOI, no deduction shall be allowed in respect of such income in computing the total income of any partner of the firm or any member of the association or body.

This amendment will benefit large number of Individual and HUF taxpayers. Deduction for expenditure on preventive health check‐up :

As per the existing provision of section 80D, a deduction is available to an individual or HUF, who makes payment by any mode, other than cash, to effect or keep in force an insurance on ‐

The health of assessee or his spouse, dependent children, where the assessee is individual; The health of any member of the family, where the assessee is HUF.

A further, deduction of ` 15,000 is also allowed for buying a health insurance policy of parents.

It is proposed to amend this section to provide that any payment made, subject to maximum of ` 5,000; by the assessee (by any mode, including cash) on account of preventive health check‐up of self, spouse, dependent children or parent(s) during the previous year will be eligible for deduction within the overall limit prescribed in this section.

It is to be noted that the benefit of preventive health check‐up is available to individual only and the benefit is not available to HUF.

Amendments relating to exemption / deduction on life insurance policies :

As per the current tax provisions, any sum received under a life insurance policy (including bonus) is exempt u/s. 10(10D) of the Act. For this purpose, it is necessary that the premium payable for any of the years shall not exceed 20% of sum assured.

Further, life insurance premium paid is allowed as deduction u/s. 80C of the Act. However, the deduction shall be restricted up to 20% of sum assured.

Under both the above cases, it is proposed to reduce the threshold limit from 20% to 10% of sum assured for the insurance policies issued on or after 1st April, 2012.

Certain insurance companies have structured some insurance products in such a manner that the sum assured under the policy varies year on year and hence, the basic purpose of this limit is not served. In order to avert such a situation it is proposed to provide that the term “capital sum assured” would mean to be the minimum sum assured in any of the years of the policy.



In other words, if the premium payable exceeds 10% of the sum assured at any time during the life of the policy, the amount received will be taxable in the year of receipt. Exemption of any sum or property received by a HUF from its members:

Under the current provisions of section 56(2); any sum or property received by an individual or HUF for inadequate consideration is deemed as income and is taxed under the head “Income from other sources”. However, in case of an individual, receipts from relatives are not taxable. The definition of relative is given only in relation to an individual and not in relation to a HUF.

It is proposed to amend the provisions of section 56(2) to provide that any sum or property received by HUF from its members for inadequate consideration would also be excluded from taxation.

This proposed amendment will take retrospective effect from 1st October, 2009. Exemption from Wealth tax of residential house allotted to an employee of a company :

Presently a residential house is not considered as taxable assets provided the same is allotted to any employee of a company or officer or whole‐time director, whose gross annual salary is less than ` 500,000. The said limit is proposed to be increased to ` 1,000,000 with effect from 1st April, 2013.

Provisions relating to TDS/ TCS :

TDS from remuneration to a Director :

At present, payment of remuneration to directors in the nature of salary is covered under TDS as per the provisions of section 192, but no specific provisions are provided in the Act for TDS from remuneration paid to directors which in not in the nature of salary. The type of such payments may include sitting fees, commission etc.

It is now proposed to amend the provisions of section 194J of the Act to cover the remuneration paid to directors, which is not in the nature of salary under its ambit and provide for TDS at the rate of 10% on such payments.

This amendment will be effective from 1st July, 2012.

TDS on transfer of immovable property :

At present, there is no provision in the Income Tax Act requiring TDS from the amount payable on transfer of immovable property by a resident except in case of compulsory acquisition in certain cases. In order to collect tax earlier and also to have better reporting mechanism for real estate transactions, it is proposed to insert a new section 194LAA in the Act. The major provisions are as under:

• The provisions are applicable to every transferee of an immovable property, other than an agricultural land;



• The TDS to be made at the time of making payment or crediting the amount of consideration, whichever is earlier;

• TDS shall be made at the rate of 1% on the amount of consideration paid or payable on transfer;

• TDS is deductible in cases of transfer where the amount of consideration paid or payable exceeds: • ` 5,000,000 in case such property is situated in a specified urban location; or • ` 2,000,000 in any other cases

• It is proposed that where the consideration paid or payable is less than the value adopted by the registering authority for the purpose of payment of stamp duty, then the higher amount so considered by such authority shall be deemed to be the consideration for transfer of such property.

• The registering authority shall not register any transfer of immovable property where the provisions of TDS are attracted, unless the transferee furnishes the proof of deduction and payment of TDS.

• The transferee who is required to make TDS, shall neither be required to obtain any TAN nor to furnish any TDS return. The transferor would get the credit of TDS in the basis of information furnished by the transferee in the challan for payment of TDS.

• This amendment will be effective from 1st October, 2012. TCS on Cash sale of bullion and jewellery :

In order to regulate the quantum of cash transaction in bullion and jewellery sector and for controlling the flow of unaccounted money into the trade system of bullion and jewellery, it is proposed to provide for the seller to collect tax at source @ 1% of the sale value from every buyer of bullion and jewellery if the sale consideration exceeds ` 200,000 and the same is in cash. This will be irrespective of the fact whether the buyer is a manufacturer, trader of consumer.


TCS on sale of minerals :

Trading in minerals largely remains unregulated resulting in non‐reporting or under‐reporting of minerals trading transactions for taxation purposes. In order to collect tax at the earliest point as also to improve the reporting mechanism of mining sector transactions, it is proposed to provide for collection of tax at source at the rate of 1% by every seller from the buyer of the following minerals: i) Coal; ii) Lignite; and iii) Iron ore However, the seller is not required to collect any tax on sale if the buyer has purchased the minerals for personal consumption or in case the buyer makes a declaration that the minerals purchased by him are to be utilized for the purpose of manufacturing, processing or producing articles or things.



This amendment will be effective from 1st July, 2012. Threshold for TDS on compensation or consideration on compulsory acquisition :

As per the current provisions of section 194LA, TDS at the rate of 10% is deductible in case the amount of compensation or consideration exceeds ` 100,000 on compulsory acquisition of immovable property, other than agricultural land. The said threshold limit is proposed to be increased to ` 200,000 with effect from 1st July, 2012.

Threshold for TDS on payment of interest on debentures :

Under the current provisions of section 193, no TDS is deductible on payment of interest to a resident individual on listed debentures of a company, in which public is substantially interested, if the aggregate amount of interest paid during a financial year does not exceed ` 2,500 and interest is paid by account payee cheque. However, no threshold limit is specified for TDS on interest on unlisted debentures.

It is now proposed that no TDS will be required from payment of interest to a resident individual/ HUF on any debentures, issued by a company, in which public is substantially interested, if the aggregate amount of interest paid during the financial year does exceed ` 5,000 and the payment is made by account payee cheque.

This amendment will take effect from 1st July, 2012. Fees and Penalty for delay in furnishing TDS/ TCS statements or furnishing wrong information :

Under the existing provisions, a penalty of ` 100 per day is levied for delay in furnishing of TDS/ TCS statement, however no specific penalty is provided for furnishing incorrect information in the TDS/ TCS statements and therefore, the defaults relating to late furnishing of TDS statements continue to occur. Further, the furnishing of wrong information in the TDS/ TCS statements results into delay in granting proper credit to the deductee, delay in issue of refunds or raising incorrect demands.

In order to provide better tools against such defaults, it is proposed –

• to provide for levy of fee of ` 200 per day for failure to furnish TDS/ TCS statement within due date, for the period during which the failure continues. However, the aggregate amount of fee shall not exceed the total amount of tax deductible/ collectible as per proposed new section 234E.

• to provide for a penalty, in addition to the fees as referred above. The amount of penalty shall not be less than ` 10,000 and may extend upto ` 100,000 as per proposed new section 271H.

• No penalty shall be levied, in case the person, having paid the amount of TDS/ TCS due, along with the interest and fees as aforesaid, furnishes the TDS/ TCS statement before expiry of one year from the due date.

This amendment will take effect from 1st July, 2012.



Intimation after processing of TDS/ TCS statement :

After computerization of TDS/ TCS statements, the processing is done in the computerized system and intimation is generated specifying the amount payable or refundable. It is proposed to provide that such intimation generated after processing of the TDS/ TCS statement shall be –

• subject to rectification under section 154;

• appealable under section 246A; and

• deemed as notice of demand under section 156.

These amendments will be effective from 1st July, 2012.



ASSESSMENT PROCEDURE :

Extension of time for completion of assessments and reassessment:

The existing provisions of Section 153 and 153B, provides the time limit for completion of assessment and reassessment of income by the Assessing Officer.

It is proposed to amend aforesaid sections so as to provide that the time limits for completion of assessment and reassessment shall respectively be increased by three months. The existing period and the new extended period for completion of pending proceeding and subsequent proceedings under these provisions are given below:

Proceedings under Section

Current time allowed Proposed Period

143 21 Months from end of the AY 24 Months 143 & 92CA 33 Months from end of the AY 36 Months 148 9 Months from end of the FY in which notice issued 12 Months 148 & 92CA 21 Months from end of the FY in which notice issued 24 Months 250 or 254 or 263 9 Months from end of the FY in which order received 12 Months 250 or 254 or 263 and 92CA

21 Months from end of the FY in which order received 24 Months

Consequential amendments have been made in the provisions of Section 17A of the Wealth‐tax Act for increasing the time limit by three months for completion of assessment/reassessment proceedings.

These amendments will take effect from 1st July, 2012.

Provisions relating to Charitable Trust : Assessment of charitable organization in case commercial receipts exceed the specified threshold :

The income of charitable trust or institution is exempt if it is applied for charitable purposes. As per the current provisions of the Act, the trust or institution which carries on charitable activity within the meaning of section 2(15) and also involved in carrying on of any activity in the nature of trade, commerce or business, can be considered as charitable if the aggregate value of receipts from the commercial activities does not exceed ` 2,500,000 in the previous year and the benefits of exemption shall still be available to it.

Thus, a charitable trust or institution also having receipts from commercial activities, may be a charitable trust in one year and not a charitable trust in another year depending on the aggregate value of receipts from commercial activities. It is expressly provided that the higher receipt from commercial activities in one year may not be treated as altering the very nature of the trust or institution so as to lead to cancellation of registration or withdrawal of approval of trust or institution.

This amendment will take effect retrospectively from 1st April, 2009.



Provisions relating to General Anti Avoidance Rules [GAAR] :

The doctrine of “substance over form” has gained much significance in the taxing statures. Different Courts have taken divergent views in respect of the “substance over form” both in favour of the revenue as well as the assessee. As per this doctrine, the real intention of the parties, ultimate effect of transactions and purpose of an arrangement is taken into account for determining the tax consequences, irrespective of the legal structure superimposed to camouflage the real intent and purpose. Internationally, several countries have been administering statutory General Anti Avoidance Provisions. It is equally important that India too introduces such provisions to combat the aggressive tax planning. It is hence proposed to provide GAAR in the Income Tax Act. Main features of GAAR are as under:

• An arrangement with main purpose to obtain tax benefit and also satisfying at least one of the four tests can be declared as an “impermissible avoidance arrangement”.

• The four tests referred above are – • The arrangement creates such rights and obligations that are not normally created between

parties dealing at arm’s length. • It results in misuse or abuse of provisions of tax laws. • It lacks or deemed to lack commercial substance. • It is carried out in a manner, not normally employed for a bona fide purpose.

• It shall be presumed that obtaining tax benefit is the main purpose of an agreement unless otherwise proved by the taxpayer.

• An arrangement shall be deemed to lack commercial substance, if – • the substance of the arrangement as a whole, is inconsistent with the form of its individual steps

or a part; or • it involves or includes –

i) round trip financing; ii) an accommodating party; iii) offsetting elements; or iv) transaction conducted through one or more persons that disguises value, location, source,

ownership or control of fund which is subject matter of such transaction; or • it involves the location of an asset, transaction or any party which would not have been so

located for any commercial purpose other than obtaining tax benefit.

• It is also provided that certain circumstances like period of existence of arrangement, taxes arising, exit route etc shall not be considered while determining the “lack of commercial substance” test.

• Once the arrangement is held to be an impressible avoidance arrangement, the tax authority may take further steps, such as – • disregard or combine any step of the arrangement; • ignore the arrangement;



• disregard or combine any party to the arrangement; • reallocate expenses and income between parties to the arrangement; • relocate the place of residence of a party or location of a transaction or any asset other than

what is provided in the arrangement; • consider of look through the arrangement by disregarding any corporate structure; • re‐characterize equity into debt, capital into revenue etc.

• These provisions can be used in conjunction of any other specific provisions provided in the law.

• For effective application in cross‐border transaction, a limited treaty override is also provided

The procedure for invoking GAAR is proposed as under:

• The Assessing Officer [AO] shall make a reference to the Commissioner for invoking GAAR. On receipt of reference, the Commissioner shall hear the taxpayer and if not satisfied by the reply and of the opinion that GAAR provisions are to be invoked, he shall refer the matter to an Approving Panel. In case the assessee does not object or reply, the Commissioner shall determine whether the arrangement is an impermissible avoidance arrangement or not.

• The Approving Panel has to dispose of the reference within 6 months from the end of the month in which it was received from Commissioner.

• The Approving Panel after examining the material and getting further inquiry, shall declare whether the arrangement to be impermissible or not.

• The AO will determine the consequences if the arrangement is declared as impermissible.

• The final order shall be passed by AO only after approval by Commissioner.

• The first appeal against such order shall lie before the Appellate Tribunal.

• Period taken in the proceeding before the Commissioner and Approving Panel shall be excluded from the limitation period for completion of assessment.

• The Approving Panel shall be set up by the Board and would comprise of officers of the rank of Commissioner and above with maximum of 3 members.

Other Provisions:

Processing of returns of income where scrutiny notice issued :

Under the existing provisions, every return of income is to be processed under sub‐section (1) of section 143 and refund, if any; due is to be issued to the taxpayer. Some returns of income are selected for scrutiny which may lead to raising a demand for taxes although refunds may have been issued earlier at the time of processing.

It is therefore proposed to insert a new sub‐section (1D) in section 143 so as to provide that processing of a return shall not be necessary, where a notice for scrutiny has been issued.

This proposed amendment will take from 1st July, 2012.



Exemption for Senior Citizens from payment of Advance tax :

In order to reduce the compliance burden of the senior citizens, it is proposed to provide that a senior citizen, resident in India and not having any income chargeable under the head “Profits and gains of business or profession” shall not be liable to pay advance tax and their entire tax liability (other than TDS) may be discharged by way be self‐assessment tax.

This provision shall be effectively from 1st April, 2012 and no advance tax will be required to be made for A.Y. 2012‐13 onwards. Reduction of the eligible age for senior citizens for certain tax reliefs :

In last year’s budget, the age of senior citizen was reduced from 65 years to 60 years for determining the effective slab for tax rate purposes. With a view to make the effective age of senior citizens uniform across all the provisions of the Act, it is proposed to reduce the age from 65 years to 60 years for availing of the benefits by a senior citizen under section 80D, section 80DDB and Section 197A of the Act.

Section Brief description of the section Extra benefit to person between 60 to 65 years age

Amendment effective from

80D Deduction in respect of health insurance premium

Additional deduction of ` 5,000.

A. Y. : 2013‐14

80DDB Deduction in respect of medical treatment of a specified disease/ ailment

Additional deduction of ` 20,000.

197A No TDS from income taxable under certain provisions if form 15H is furnished

No TDS from income taxable under certain provisions if form 15H is furnished

1st July, 2012

Charging of Interest on recovery of refund granted earlier :

In Finance Act, 2003, section 234D has been inserted with effect from 1st June, 2003 providing that in case where any refund is granted to the assessee under sub‐section (1) of section 143 and subsequently on regular assessment, no refund or lesser amount of refund is found due to the assessee, then, the assessee shall be liable to pay simple interest at the rate of one‐half per cent of the excess amount so refunded for the period starting from the date of refund to the date of such regular assessment.

There are many disputes regarding the assessment year from which the provisions of section 234D should apply. In the recent decision of C. A. Computer Associates Pvt. Ltd. v/s DCIT (2011) 8 ITR (Trib.) 142 (Mumbai Tribunal) and also in unreported decision of McDonald’s India (P.) Ltd. v/s DCIT (ITAT Delhi) and DCIT v/s TheUnited Western Bank Ltd. (ITAT Pune), it has been held that the provisions of section 234D inserted w.e.f. 1st June, 2003 would be applicable from the assessment year 2004‐05 only on the principle that any amendments in the Act which come into force after the first day of April of a financial



year, would not apply to the assessment for that year, even if the assessment is actually made after the amendments come into force. Accordingly no interest could be charged for earlier assessment years even though the regular assessments for such years framed after 1st June, 2003 or refund was granted for those years after the said date.

As the aforesaid judgment is not in conformity with the legislative intent of the provision, it is proposed to insert a clarification that section 234D would be applicable to any proceedings which are completed on or after 1st June, 2003, irrespective of the assessment year to which it pertains.

This amendment will take effect retrospectively from 1st June, 2003. Prohibition of cash donations in excess of ` 10,000 :

Section 80G of the Act provides for a deduction in respect of donations to certain funds, charitable institutions etc. subject to specified conditions. Similarly, section 80GGA provides for a deduction in respect of certain donations for scientific research or rural development.

Currently, there is no provision specifying the mode of payment. It is now proposed that any payment exceeding ` 10,000 shall be allowed as a deduction only if it is made by any mode other than cash. Fees for filing of applications before Authority for Advance Rulings (AAR) :

It is proposed to amend the provision of Section 245Q to increase the fees for filing an application for advance ruling on or after 1st July, 2012 from ` 2,500 to ` 10,000 or such higher fees as may be prescribed.

Reduction in the rate of Securities Transaction Tax (STT) :

It is proposed to reduce STT in Cash Delivery segment from existing 0.125% to 0.1%. The proposed new rates along with details of old rates are given in the following table.

Sr. No.

Nature of taxable securities transaction Payable by Existing Rates (%)

Proposed Rates (%)

1 Delivery based purchase of equity shares in a company/units of an equity oriented fund entered into through a recognized stock exchange in India

Purchaser 0.125 0.1

2 Delivery based sale of equity shares in a company/units of an equity oriented fund entered into through a recognized stock exchange in India

Seller 0.125 0.1




INDIRECT TAX PROPOSALS:

CUSTOMS:

Unless otherwise stated, all changes in rates of duty take effect from the midnight of 16th March i.e. from 17th March, 2012. The remaining legislative changes would come into effect only upon the enactment of the Finance Bill, 2012. Retrospective amendments in the provisions of law or notifications issued under the respective Acts shall have the force of law only upon the enactment of the Finance Bill, 2012 but with effect from the date indicated in the relevant clause or Schedule.

Important changes in respect of Customs duty are discussed below :

• There is no change in the peak rate of basic customs duty of 10% applicable to non‐agricultural goods with few exceptions which are separately discussed. The rates below the peak are also being retained.

• The method of computation of Education Cess and Secondary & Higher Education cess on imported goods is being simplified. Currently, these cesses are first charged on the CVD portion of customs duty and thereafter on the aggregate of customs duties (excluding special CVD). The portion of cesses leviable on the CVD portion of customs duty is being exempted so as to avoid computation of such cesses twice. It is illustrated as under:

Present Proposed

A Assessable value (CIF + Landing Charges) 100.00 100.00

B Basic customs duty (BCD) 10% 10.00 10.00

C Value for CVD (A+B) 110.00 110.00

D CVD equivalent to central excise duty 10% 11.00 11.00

E Educational Cess on CVD 2% 0.22 ‐

F Sec. and Higher Educational Cess 1% 0.11 ‐

G Customs duty for calculation of Cess 21.33 21.00

H Customs Educational cess 2% 0.43 0.42

I Customs Secondary and higher educational cess 1% 0.21 0.21

J Value for SAD 121.97 121.63

K SAD @ 4% 4.88 4.87

Total Duty 26.85 26.50



• The other changes are as under:

• Brass scrap, wood in the rough, dredgers and equipments for setting up of solar thermal projects are being fully exempted from SAD.

• The existing exemption from special additional duty of customs (SAD) currently available to CRGO steel is being restricted to prime quality of such steel.

• The duty‐free allowance under the Baggage Rules is being increased from ` 25,000 to ` 35,000 for passengers of Indian origin and from ` 12,000 to ` 15,000 for children up to 10 years of age.

• As per the Speech of Hon’ble Finance Minister, Proposals relating to Indirect Taxes are estimated to result in a net revenue gain of ` 45,940 crore.

• Customs Duty exemption has been provided in respect of imports of new machineries used by textile industry like shuttle less looms, parts/components of shuttle less looms by actual users for manufacture, specified silk machinery.

• Full exemption from basic customs duty is being provided for project imports by specified industries and items which include: fertilizer projects, Steam coal, Natural gas/Liquified Natural Gas imported for power generation, Equipment imported for road construction projects, Tunnel excavation and specified lining equipment, Coal mining projects, New and retreaded aircraft tyres, Parts of aircraft and testing equipment for maintenance and repair of aircraft, Tunnel boring machines for hydel and road projects etc.

• Project import status available to installation of Mechanized Handling Systems & Pallet Racking Systems in mandis or warehouses for food grains and sugar, with concessional rate of basic customs duty of 5% with full exemption from additional duty of customs (CVD) and special additional duty of customs (SAD) is extended to such systems installed for handling horticultural produce.

• A new section 28AAA is being inserted to enable recovery of duty not‐levied, or short‐levied by reason of collusion, or willful misstatement or suppression of facts by the importer or the exporter or the agent or employee of the importer or exporter in cases relating to utilization of “instruments”, where the instrument was obtained by means of collusion or willful misstatement or suppression of facts by the person to whom the instrument was issued or his agent or employee and not by the importer who utilized it without prejudice to any action that may be taken against the importer. Such instruments include any scrip or authorisation or licence or certificate or such other document, by whatever name called, issued under the Foreign Trade (Development and Regulation) Act, 1992, with respect to a reward or incentive scheme or duty exemption scheme or duty remission scheme or such other scheme bestowing financial or fiscal benefits. Such duties shall be recovered alongwith the interest at the prescribed rate from time to time for the period beginning from the date of utilisation of the instrument till the date of recovery of such duty.

• Central Government is empowered to specify the class or classes of importers who shall pay customs duty electronically by way notification in the official gazette.

• It is proposed to amend the act to provide that all offences under the Act (except an offence punishable with term of imprisonment of three years or more under section 135) shall be non‐cognizable and bailable. It also provides that all offences punishable with a term of imprisonment of three years or more under section 135 shall be cognizable. Such offences relate to evasion of duties, acquiring possession of goods liable to confiscation, etc…..



The monetary limits for adjudication of cases involving confiscation of goods and imposition of penalty is proposed to be enhanced from ` 200,000 to ` 500,000 for Deputy/ Assistant Commissioners and from ` 10,000 to ` 50,000 for Gazetted officer lower in rank to Assistant/ Deputy Commissioner.

• The Customs (Import of Goods at Concessional Rate of Duty for Manufacture of Excisable Goods) Rules, 1996 is being amended to further liberalize and simplify the procedure. The important changes are as under:

- Eligibility Certificate can be obtained for a period not exceeding a year instead of consignment wise or quarterly certificate at present;

- Permitting re‐export of unused/ rejected goods imported at concessional duty under the said Rules with the prior permission of the jurisdictional Assistant Commissioner of Deputy Commissioner of Central Excise, as the case may be, subject to the condition that‐

♦ Such re‐export takes place within six months from the date of importation

♦ The re‐export value should not be less than the value of the imports.

- Maintenance of separate accounts for these rules should not be insisted upon as long as the records maintained by the importer contain the requisite information.

CENTRAL EXCISE DUTY CHANGES:

Unless otherwise stated, all changes in rates of duty take effect from the midnight of 16th March i.e. from 17th March, 2012. The remaining legislative changes would come into effect only upon the enactment of the Finance Bill, 2012. Retrospective amendments in the provisions of law or notifications issued under the respective Acts shall have the force of law only upon the enactment of the Finance Bill, 2012 but with effect from the date indicated in the relevant clause or Schedule.

Important changes in respect of Central excise duty are discussed below :

• The standard rate of Central Excise duty for non‐petroleum products has been enhanced from 10% to 12% ad valorem.

• The merit rate of excise duty for non‐petroleum goods has been increased from 5% to 6%. Similarly, the rate of duty of 1% imposed on 130 items in the last Budget has been increased to 2%. However, the exceptions to this increase are: • Goods of heading no. 2701, i.e. coal; • All goods of Chapter 31, other than those clearly not to be used as fertilizers; • Articles of jewellery of heading 7113; and



• Mobile handsets and cellular phones of heading 8517. • It may be noted that concessional duty would be available only for goods in respect of which

credit of duty on inputs and tax on input services has not been taken. Wherever credit is taken, the applicable duty would be 6%.

• A uniform rate of duty is being prescribed on Portland cement regardless of the Retail Selling Price per bag although a difference in the rates applicable to mini and non‐mini cement plants is being retained. Another important change in respect of Portland cement is that the item is being notified under section 4A of the Central Excise Act. Accordingly, the value for the purpose of charging duty on packaged cement would be determined on the basis of the Retail Sale Price (RSP). An abatement of 30% from the RSP is also being notified.

• Rates of excise duty applicable to motor vehicles have been enhanced from 10% to 12% and from 22% to 24% as is applicable to categories of vehicles specified.

• Excise duties on cigarette, bidis, pan masala and gutkha is increased.

• Concessional excise duty rate of 6% is being prescribed for batteries supplied to manufacturers of electrically operated vehicles, including two and three‐wheeled electric motor vehicles.

• Full exemption from excise duty has been provided in the following cases:

• Specified raw materials viz. stainless steel tube and wire, cobalt chromium tube, Hayness Alloy‐25 and polypropylene mesh required for manufacture of Coronary stents/ coronary stent system and artificial heart valve on actual user basis.

• Refills and inks in bulk packs (not meant for retail sale) used for manufacture of pens of value not exceeding ` 200 per piece.

• Intraocular Lens; • Parts, components and specified accessories viz. battery chargers, PC Connectivity Cables,

Memory cards and hands‐free headphones required for the manufacture of mobile phones are fully exempt. However, excise duty at a concessional rate of 2% is now being provided for when the above items are cleared as spares on the condition that no CENVAT Credit of any inputs or input services is availed of.

• Following other changes are proposed :

• The monetary limit is proposed to be enhanced the amount from ` 1 lac to ` 30 lacs in the cases of duty evasion which is punishable with a term of imprisonment extending to seven years and with fine.

• It is proposed to amend the act to provide that all offences under the Central Excise Act, 1944 (except an offence punishable with term of imprisonment of three years or more) shall be non‐cognizable and bailable. It also provides that all offences punishable with a term of imprisonment of three years or more shall be cognizable. Such offences relate to evasion of duties, acquiring possession of goods liable to confiscation, etc…..



• If the duty along with interest is paid within 30 days of the communication of the order, the penalties leviable are proposed to be reduced. However, the benefit of reduced penalty will be available only if the reduced penalty is also paid within the specified period of thirty days.

• Amendments in Cenvat Credit Rules, 2004 :

• In case the capital goods on which Cenvat credit has been taken are cleared after being used; then the amount payable shall be either the amount calculated on the basis of Cenvat credit taken at the time of receipt reduced by a prescribed percentage or the duty on transaction value whichever is higher.

• Unutilized credit of SAD lying in balance at the end of each quarter is proposed to be permitted to be transferred to another factory of the manufacturer.

• One welcome amendment is made in Rule 14 to substitute the words “CENVAT credit has been taken or utilized wrongly” with the words “CENVAT Credit taken and utilised wrongly”” so that interest is not payable on credit wrongly taken unless the same is utilized. However, penalty provisions for such cases have not been amended.

• Rule 5 dealing with refund of CENVAT Credit is amended so as to provide for the formula for working out the refund amount of CENVAT to a manufacturer who clears a final product or an intermediate product for export without payment of duty under bond or letter of undertaking, or a service provider who provides an output service which is exported without payment of service tax subject to procedure, safeguards, conditions and limitations, as may be specified by the Board by notification in the Official Gazette as specified below:

• Refund amount = (Export turnover of goods+ Export turnover of services) x Net CENVAT credit / Total turnover

SERVICE TAX:

Generally, it is said that in matters relating to taxes, questions rarely change, but the answers do. However, the Budget 2012 has changed a number of questions relating to service tax. Whole concept of chargeability of service is changed from inclusive to “negative” list. Changes have also been made in the rules as well as exemptions. A number of other changes are slated to be introduced at the time the legislative provisions are operationalised.

Major changes/amendments are discussed in brief as hereunder:

Rate changes:

• The rate of service tax is being restored to the statutory rate of 12%. Service Tax was first introduced in 2004 – 05 with 75 services and with 10% rate generating tax revenue of ` 14,000



crore which has reached to ` 60,860 crores during April – December 2011 with 119 services being under service tax net.

• With the revision in service tax rate, consequent changes have also been made in composition rates chargeable for life insurance services, money changing services, distributor or sole‐selling agent of lotteries and works contract services.

• The rate for Cenvat reversal for exempt services has been revised likewise from 5% to 6%.

• The dual tax structure for air transportation: partly specific, partly ad valorem ‐ is being replaced with a uniform ad‐valorem levy at standard rate with an abatement of 60% on all sectors and all classes.

• All these changes will be effective 1st April, 2012. Penalty waiver for renting of immovable property service :

Recently, Delhi High Court while examining the issue of constitutionality of service tax on renting of immovable property service in the matter of Home Solutions Retail Vs UOI observed that ‘on the question of penalty due to non‐payment of tax, it is open to the Government to examine whether any waiver or exemption can be granted’.

Against the above backdrop, it is proposed that penalty may be waived for those taxpayers who pay the service tax due on the renting of immovable property service (as on the sixth day of March, 2012), in full along with interest within six months. Those who fail to avail the benefit will be treated as if this section did not exist. Amendments in “Point of Taxation Rules, 2011”:

The time period for issuance of invoice is being increased to 30 days ordinarily and 45 days for banks and financial institutions.

In case of export of services and eight specified services provided by individuals or firms, the point of taxation is the date of payment. This facility will be now available to individuals and partnership firms (including limited liability partnership) also up to a turnover of ` 50 lacs in a financial year provided the taxable turnover did not exceed this limit in the previous financial year. For computing the above limits, the turnover of the whole entity is required to be summed up and not of any single registration.

However, if the payment is not made within a period of six months of the date of invoice, the service tax liability would arise as if this rule does not exist. It may be noted that in case of transaction between “associated enterprises”, where the person providing the service is located outside India, the point of taxation shall be the date of debit in the books of account of the person receiving the service or date of making the payment whichever is earlier.



When there is a change in effective rate of tax or a new levy between the said two dates, the date of payment shall be the date of actual credit in the bank account, if the amount is credited through a banking instrument more than four working days after the date of such change. Other amendments :

A common simplified registration format for Central Excise and Service Tax is being placed for public comments, together with further liberalization in registration requirements, particularly centralized registrations.

Likewise a new simplified one page common return with Central Excise, to be called Excise & Service Tax Return (EST for short) is being introduced.

Presently credit on all motor vehicles is not available except to a few specified service providers. This is being liberalised and credit on motor vehicles, other than those falling under tariff heading 8702, 8703, 8704, 8711 and their chassis, will be allowed.

Following credits in respect of vehicles will also be allowed:

• of insurance to motor insurance companies (as re‐insurance and third party insurance) and manufacturers (as in‐transit insurance);

• of repair of vehicles to manufacturers in respect of motor vehicles manufactured by them and to insurance companies in respect of motor vehicles insured /re‐insured by them.

Provisions related to Special Audit in the Service Tax Law on the similar lines of the provisions of Central Excise Act, 1944 in the cases where the Commissioner of Central Excise has reason to believe that the credit of duty availed of or utilised Is not within the normal limits having regard to the nature of the excisable goods produced or manufactured, the type of inputs used and other relevant factors, as he may deem appropriate or has been availed of or utilised by reason of fraud, collusion or any willful mis‐statement or suppression of facts.

The one year time limit for issuance of Notice for evasion, short payment or nonpayment of collected taxes increased to 18 months.



New Scheme of Taxation of services:

There is paradigm shift in the way services are proposed to be taxed in future. Taxation will be based on what is popularly known as “Negative List of Services” meaning that if an activity meets the characteristics of a “service” it is taxable unless specified in the Negative list, comprising 17 heads listed in proposed new section 66D, or otherwise exempted by a notification issued under section 93 of the Act.

Service tax is chargeable at the rate of 12 % on the value of all services, other than those services specified in the negative list, provided or agreed to be provided in the “taxable territory” by one person to another and collected in such manner as may be prescribed.

“Service" means any activity carried out by a person for another for consideration, and includes a declared service, but shall not include—

• an activity which constitutes merely,–– • a transfer of title in goods or immovable property, by way of sale, gift or in any other manner; or • a transaction in money or actionable claim;

- a provision of service by an employee to the employer in the course of or in relation to his employment;

- fees taken in any Court or tribunal established under any law for the time being in force.

‘Consideration’ means everything received in return for a provision of service which includes monetary payment and any consideration of non‐ monetary nature as well as deferred consideration. The value of services would be determined as per section 67 of the Act and the Service Tax (Determination of Value) Rules, 2006.

Declared List :

• renting of immovable property;

• construction of a complex, building, civil structure or a part thereof, including a complex or building intended for sale to a buyer, wholly or partly, except where the entire consideration is received after issuance of certificate of completion by a competent authority;

• temporary transfer or permitting the use or enjoyment of any intellectual property right;

• development, design, programming, customization, adaptation, up gradation, enhancement, implementation of information technology software; however, Sale of pre‐packaged or canned software is in the nature of sale of goods and is not covered in this entry.

• agreeing to the obligation to refrain from an act, or to tolerate an act or a situation, or to do an act; In case a company or any other person enters into a non‐compete agreement with another person for a consideration then it would get covered under this clause to be qualifying as a provision of service.

• transfer of goods by way of hiring, leasing, licensing or any such manner without transfer of right to use such goods;

• activities in relation to delivery of goods on hire purchase or any system of payment by installments;



Negative List:

The services specified in the negative list go out of the ambit of chargeability of service tax. The negative list of service is specified in the Act itself in Section 66 D.

In all, there are seventeen heads of services that have been specified in the negative list.

1. Services by Government or a local authority excluding the following services to the extent they are not covered elsewhere: i) services by the Department of Posts by way of speed post, express parcel post, life

insurance and agency services provided to a person other than Government; ii) services in relation to an aircraft or a vessel, inside or outside the precincts of a port or an

airport; iii) transport of goods or passengers; or iv) support services, other than services covered under clauses (i) to (iii) above, provided to

business entities. 2. Services by the Reserve Bank of India. 3. Services by a foreign diplomatic mission located in India. 4. Services relating to agriculture by way of –

i) agricultural operations directly related to production of any agricultural produce including cultivation, harvesting, threshing, plant protection or seed testing;

ii) supply of farm labour; iii) processes carried out at an agricultural farm including tending, pruning, cutting, harvesting,

drying, cleaning, trimming, sun drying, fumigating, curing, sorting, grading, cooling or bulk packaging and such like operations which do not alter essential characteristics of agricultural produce but make it only marketable for the primary market;

iv) renting or leasing of agro machinery or vacant land with or without a structure incidental to its use;

v) loading, unloading, packing, storage or warehousing of agricultural produce; vi) agricultural extension services; vii) services by any Agricultural Produce Marketing Committee or Board or services provided by

a commission agent for sale or purchase of agricultural produce. 5. Trading of goods. 6. Any process amounting to manufacture or production of goods. 7. Selling of space or time slots for advertisements other than advertisements broadcast by radio

or television. 8. Service by way of access to a road or a bridge on payment of toll charges. 9. Betting, gambling or lottery. 10. Admission to entertainment events or access to amusement facilities. 11. Transmission or distribution of electricity by an electricity transmission or distribution utility. 12. Services by way of –

i) pre‐school education and education up to higher secondary school or equivalent; ii) education as a part of a curriculum for obtaining a qualification recognized by law; iii) education as a part of an approved vocational education course.

13. Services by way of renting of residential dwelling for use as residence;



14. Services by way of – i) extending deposits, loans or advances in so far as the consideration is represented by way of

interest or discount; ii) inter‐se sale or purchase of foreign currency amongst banks or authorized dealers of foreign

exchange or amongst banks and such dealers; 15. Service of transportation of passengers, with or without accompanied belongings, by –

i) a stage carriage; ii) railways in a class other than –

- first class; or - an air conditioned coach;

iii) metro, monorail or tramway; iv) inland waterways; v) public transport in a vessel of less than fifteen tonne net, other than predominantly for

tourism purpose; and vi) metered cabs, radio taxis or auto rickshaws;

16. Services by way of transportation of goods – i) by road except the services of –

- a goods transportation agency; or - a courier agency;

ii) by an aircraft or a vessel from a place outside India to the first customs station of landing in India; or iii) by inland waterways;

17. Funeral, burial, crematorium or mortuary services including transportation of the deceased.

Proposed exemptions under Mega Notification

A draft mega notification is issued containing detailed list of 34 exempted services from service tax. This notification will take effect once the amendments in provisions relating to service tax are enacted and operationalised.

Draft “Place of Provision of Services Rules, 2012”

The essence of indirect taxation is that a service should be taxed in the jurisdiction of its consumption. This principle is more or less universally applied. In terms of this principle, exports are not charged to tax, as the consumption is elsewhere, and services pay tax on their importation into the taxable territory.

Taxable territory means whole of India excluding the state of Jammu and Kashmir.

“India” means—

• the territory of India as referred to in article 1 of the Constitution;

• its territorial waters, continental shelf, exclusive economic zone or any other maritime zone as defined in the Territorial Waters, Continental Shelf, Exclusive Economic Zone and Other Maritime Zones Act, 1976(‐ of 1976);



• the sea‐bed and the subsoil underlying the territorial waters;

• the air space above its territory and territorial waters; and

• the installations structures and vessels located in the continental shelf of India and the exclusive economic zone of India, for the purposes of prospecting or extraction or production of mineral oil and natural gas and supply thereof;

The location of a service provider or receiver (as the case may be) is to be determined by applying the following steps sequentially:

• where the service provider or receiver has obtained only one registration, whether centralized or otherwise, the premises for which such registration has been obtained;

• where the service provider or receiver is not covered by above: i) the location of his business establishment; or ii) where services are provided or received at a place other than the business establishment

i.e. a fixed establishment elsewhere, the location of such other establishment; iii) where services are provided or received at more than one establishment, whether business or

fixed, the establishment most directly concerned with the provision or use of the service; and iv) in the absence of such places, the usual place of residence of the service provider or

receiver.

The main rule or the default rule provides that a service shall be deemed to be provided where the receiver is located.

The principal effect of the Main Rule is that:‐

• Where the location of receiver of a service is in the taxable territory, such service will be deemed to be provided in the taxable territory and service tax will be payable.

• However if the receiver is located outside the taxable territory, no service tax will be payable on the said service.

• In case the service provider is located in a non‐taxable territory, the tax liability would be discharged by the receiver, under the reverse charge principle.

The rules provides for various situations for determination of place of provision of services so as to determine its chargeability:

• The place of provision of services to be the location where the services are actually performed;

• The place of provision of services provided directly in relation to an immovable property to be at the place where the immovable property is located or intended to be located.

• The place of provision of services provided in relation to an event to be the place where the event is actually held.



• In case any service referred to in preceding paragraphs is provided at more than one location, including a location in the taxable territory, its place of provision shall be the location in the taxable territory where the greatest proportion of the service is provided.

• In case both the service provider and service receiver are located in the taxable territory, the place of provision of services shall be the location of the service receiver.

• The place of provision of following services shall be the location of the service provider:‐ i) Services provided by a banking company, or a financial institution, or a non‐banking financial

company, to account holders; ii) Telecommunication services provided to subscribers; iii) Online information and database access or retrieval services; iv) Intermediary services; v) Service consisting of hiring of means of transport, upto a period of one month.

• The place of provision of services of transportation of goods, other than by way of mail or courier, shall be the place of destination of the goods

• The place of provision in respect of a passenger transportation service shall be the place where the passenger embarks on the conveyance for a continuous journey.

• Place of provision of services provided on board a conveyance shall be the first scheduled point of departure of that conveyance for the journey.



KEY ANNOUNCEMENTS Tax reforms : DTC to be enacted at the earliest after the expeditious examination of the report of the Parliamentary Standing Committee.

Similarly, in case of Goods and Services Tax (GST) report from Parliamentary Standing Committee is awaited. However, the drafting of model legislation for Centre and State GST in concern with States is under process.

GST network will be set up as a National Information Utility and to become operational by August 2012. Subsidies : Endeavour to keep central subsidies under 2 % of GDP in 2012‐13. Over next 3 years, to be further brought down to 1.75 % of GDP. Disinvestment : In 2011‐12 against the target of ` 40,000 crores, government will raise about ` 14,000 crore from disinvestment. For 2012‐13, it is proposed to raise through disinvestment ` 30,000 crore. Infrastructure : During Twelfth five year plan period, infrastructure investment will go up to ` 50 Lac crore and half of this is expected from private sector.

Government has approved guidelines for establishing joint venture companies by defense PSUs in Public Private Partnership mode.

Tax free bonds of ` 60,000 crore to be allowed for financing infrastructure projects in 2012‐13. National Manufacturing Policy : The Government has announced a National Manufacturing Policy on October 25, 2011 with the objective of raising, within a decade, the share of manufacturing in GDP to 25 % and creation of 10 crore jobs.

The Policy encourages the setting‐up of National Investment and Manufacturing Zones (NIMZs) across the country. Transport and Roads : The ministry of Road Transport and Highways is set to achieve its target of covering length of 7,300 kms under NHDP during 2011‐12, this would be 44% higher than the best ever length of 5,082 kms awarded in 2010‐11.

It is proposed to set a target of covering length of 8,800 kms under NHDP next year.

In September 2011 central assistance of ` 18,500 crore spread over 5 years was approved for Delhi Mumbai Industrial Corridor. The Japanese Prime Minster has announced US$ 4.5 billion as Japanese participation in this project.



Housing : Various proposals are made to address the shortage of housing for low income groups in major cities and town:

• By allowing External Commercial Borrowings (ECB) for low cost housing projects.

• Set up credit guarantee trust fund to ensure better flow of institutional credit for housing loans.

• Enhance provisions under Rural Housing Fund from ` 3,000 crore to ` 4,000 crore.

• Extend the scheme of interest subvention of 1% on housing loan upto ` 15 lacs where the cost of the house does not exceed ` 25 lacs for another year.

• Enhance the limit of indirect finance under priority sector from ` 5 lacs to ` 10 lacs.

Micro, Small and Medium Enterprises (SMEs) : SMEs are building block to economy, and to enable these enterprises greater access to finance, two exchanges have been launched in Mumbai recently.

To enhance availability of equity to MSME sector, ` 5,000 crore is set aside for India Opportunity Venture Fund with SIDBI. Agriculture : The total plan outlay for Department of Agriculture and Co‐operation is increased by 18 % from ` 17,123 crore in 2011‐12 to ` 20,208 crore in 2012‐13.

It is proposed to raise the target for agricultural credit in 2012‐13 to ` 575,000 crore, which represents an increase of ` 100,000 crore over the target for the current year.

The allocation to Accelerated Irrigation Benefit Programme is increased by 13 % to ` 14,242 crore to improve the benefits of the irrigation projects.

Kisan Credit Card (KCC) is an effective instrument for agricultural credit. KCC scheme will be modified to make a KCC a smart card which could be used at ATMs. Inclusion : For 2012‐13 ` 25,555 crore are provided for Right to Education Act through Sarva Shiksha Abhiyan.

6000 schools are proposed to set up of which 2500 will be Public Private Partnership.

It is proposed to allocate to National Rural Health Mission from ` 18,115 crore in 2011‐12 to ` 20,882 crore in 2012‐13.

A provision of ` 193,407 crore has been made for Defense Service which include ` 79,579 crore of capital expenditure. It is envisaged to construct nearly 4,000 residential quarters for Central Armed Police Forces for which ` 1,185 crore is proposed to be allocated. Governance : Aadhaar system enrolments have crossed 20 crore under UID mission. So, it is proposed to allocate funds to complete another 40 crore enrolments starting from 1st April, 2012.

White paper on Black money is proposed in current session of Parliament.



IMPACT OF BUDGET ON SELECT INDUSTRIES

Pharmaceuticals

Neutral, The impact of the increase in excise duty ‐ to 6 % from 5 % on formulations and to 12 % from 10 % on bulk drugs ‐ will be neutral. Pharmaceutical companies are likely to pass on these hikes to consumers. The five‐year extension of the 200 % weighted deduction for in‐house R&D expenditure will marginally benefit Indian pharmaceutical players on direct tax outflows.

Steel

Marginally positive, The budget proposal to hike excise duty to 12 % from 10 % will have a neutral impact on the steel industry. Steel companies are likely to pass on the increase in excise duty. The increase in customs duty on flat steel will provide Indian flat steel players the flexibility to increase prices further by ` 500 to ` 1,000 per tonne.

Media and entertainment industry

Mixed Opening up of venture capital investment route, which was earlier not available to investments in the media and entertainment industry, will indeed help as the investments in the M&E industry will become more attractive. Also, exemption to the film industry from copyright related matters is a very positive move. Further, the inclusion of entertainment and amusement in a negative list of services for service tax would also be a big boost for live events and shows. However, Huge levy of entertainment tax (in excess of 30 %) on film exhibition, uncertainty surrounding TDS on several payments and higher withholding tax at 20 % in the absence of PAN, taxation of Foreign Telecasting Companies (FTCs), value‐added tax (VAT) and levy of service tax on DTH industry have been haunting the industry for long.

Automobiles and auto ancillaries

Negative, With an increase in the excise duty on all products in the Budget for 2012‐13, the prices of motor cars are going to increase as the industry will pass on the entire burden of excise duty to customers which may impact the demand of utility vehicles and cars. Auto component and tyre manufacturers are expected to fully pass on the increase in basic excise duty. Further, a reduction in the excise duty on replacement batteries for electric vehicles from 10 % to 6 %, and decrease in the customs duties for specified parts of hybrid vehicles will have no major positive impact on demand for auto components, given the low population of eco‐friendly vehicles in India.

Food processing and FMCG

Overall positive, a new centrally sponsored scheme titled National Mission on Food Processing, Creation of 2 million tonnes of storage capacity in the form of modern silos would result in to increased investment in this industry which would result into increased demand.



Consumer durables

Not significant, overall positive, the excise duty hike by 2 % will be passed on to consumers and it may hurt sales. However, removal of customs duty on LCD and LED panels and mobile phones parts, and the five year extension for weighted deduction of 200 % on R&D expenditure for in‐house facilities and increase in threshold limit for Income Tax would result into generating more demand would have marginal impact on growth in demand in this industry.

Gem and jewelleries

Overall negative, increased excise duty and the move to collect tax at source on cash purchase of bullion or jewellery in excess of ` 2 lacs, the increase in import duty on precious metals wil have negative impact on the demand.

Textiles

Positive, the Excise duty on branded apparels and textile made‐ups is reduced and removed the customs duty on shuttle‐less looms. Effective excise duty on branded apparels and made‐ups has been cut to 3.6 % from 4.5 %. This, along with lower cotton prices, will stimulate demand. Allocation for the Technology Upgradation Fund Scheme (TUFS) has been fixed at ` 29.1 billion for 2012‐13, compared to the revised estimate of ` 37 billion for 2011‐12.

Information technology

Negative impact, increased service tax rate from 10 % to 12 % would impact packaged software, the prices of which could go up, non‐removal of MAT in SEZ earnings would have negative impact.

Ports

Positive, Allocation of funds in the form of tax‐free infrastructure bonds for the ports sector will facilitate fund availability for the development of port projects, however, it will not have a major impact on the sector since the same amount was available last year also. The cost of external commercial borrowings (ECBs) will decrease as the rate of withholding tax on interest payments on ECBs is proposed to be reduced from 20 % to 5 % for three years.

Power

Positive, Exemption of 5 % customs duty on thermal coal, natural gas and liquified natural gas (LNG) will provide some relief to power generators reeling under high fuel costs. The extension of the sunset clause by one year to avail the 10‐year tax holiday and additional depreciation of 20 % in the first year also are positive for new power projects. The proposal to allow external commercial borrowings (ECB) to part finance the rupee debt of existing power projects and reduction of withholding tax on interest payments on ECBs (from 20 % to 5 %) will reduce the cost of borrowings for the sector. The Budget also enhanced the availability of funds for financing power projects through tax‐free bonds.

budget at glance - nicci union-budget-of-india-2012-13.pdf · budget at glance (` in crore ) sr ......

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