gt budget flash-finance bill 2012
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Grant Thornton India LLP. All rights reserved.
Overview of the Union Budget 2012-13
Contents
1 Foreword
2 Key policy announcements
3 Fiscal and economic review
4 Snapshots of tax proposals
5 Direct tax proposals
6 Indirect tax proposals
7 Contact us
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Overview of the Union Budget 2012-13 2
Key policyannouncements
Snapshot of tax
proposals
Direct tax
proposals
Indirect tax
proposals
Foreword
Fiscal and
economic review
Contact us
Foreword
Despite the crisis in Euro zone, s low recovery in the United States, politicalinstability in the Middle East and subsequent rise in crude oil prices, the resilienceof Indias domestic economy is once again evident with this years GDP
growth estimate of over 6.5%. However, this consumption-driven growth may notbe sustainable in the long run unless it is accompanied with an investment-drivengrowth.
Against this backdrop, growth and stability remained central to the Budget this year.
By setting the fiscal deficit target of 5.1% for 2012-13 and expressing its intentionsto keep central subsidies under 2% of GDP in 2012-13, and further bring themdown to 1.75% of GDP in the next 3 years, the government has steered clear of
populist measures.
The Budget endeavours to shore up investment in infrastructure with proposalsto make more sectors eligible for Viability Gap Funding under PPP scheme and
other measures including tax free bonds of Rs 60,000 crore for financinginfrastructure projects in 2012-13 alone.
Nevertheless, the common man, hard-pressed by inflation, also has some reasons to cheer while the Budget proposes revisions inincome tax exemption limit for the general category and brings forth the provision for allowing External Commercial Borrowing
(ECB) to promote low cost housing. However, an upward revision in service tax and other indirect taxes is likely to affect purchasingpower ofaam admi, on the other hand.
Overall the Budget attempts to do a balancing act with a focus on structural reforms. We have developed this report in view of
providing you a comprehensive overview of the Budget and we hope that you find it useful.
Tax & Regulatory Services Team
Grant Thornton India LLP
The Budget seemed more benign than it is.While most of the amendments wereanticipated such as tinkering of personal tax
rates, small exemptions for the middle incomegroup and widening the net of service tax andtaking the rate up, the fine print has widerramifications. Retrospective amendments toaddress Vodafone like situations, bringingdomestic related party transactions under theambit of transfer pricing are a case inpoint. Measures announced to boostinfrastructure, agriculture, aviation and powerindustries is very heartening."
Pallavi J Bakhru
Partner & Practice LeaderTax & Regulatory ServicesWalker, Chandiok & Co
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Overview of the Union Budget 2012-13 3
Subsidies
Attempt to keep subsidies below2% of Gross DomesticProduct ('GDP') during Financial Year ('FY') 2012-13
Subsidies fully provided for effective administration ofthe
proposed Food Security Legislation Nation-wide roll out of mobile-based Fertilizer Management
System to provide complete information on movement of
fertilisers and subsidies
Budget Es t imates
Gross Tax Receipts estimated at Rs 1,077,612 crores for FY2012-13
Total expenditures budgeted at Rs 1,490,925 crores for FY
2012-13
Dis investments
For FY 2012-13, while 51% ownership and managementcontrol to remain with the Government, disinvestments targethave been set at Rs 30,000 crores
Key policyannouncements
Snapshot of tax
proposals
Direct tax
proposals
Indirect tax
proposals
Foreword
Fiscal and
economic review
Contact us
Rat iona l isa t ion o f key po l ic ies
Amendment to the Fiscal Responsibility and BudgetManagement ('FRBM')Act key features being concepts of:
- Effective revenue deficit difference between revenuedeficits and grants for creation of capital assets
- Medium-term expenditure frameworkstatement to set forth a 3-year rolling target forexpenditure indicators
Goods and Service tax ('GST') networkto be set-up asNational Information Utility and operational by August 2012
20 crore people enrolled under UID-Aadhaar mission.Adequate funds allocated for further enrolment of 40 crores
White Paper on Black Money to bepresented in Parliament
in the Budget session National Food Security Bill, 2011 is presently before
Parliamentary Standing Committee
Bill regardingPublic Procurement Legislation to beintroduced in Parliament to combat corruption
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Overview of the Union Budget 2012-13 4
Key policyannouncements
Snapshot of tax
proposals
Direct tax
proposals
Indirect tax
proposals
Foreword
Fiscal and
economic review
Contact us
Financ ia l Sector
Introduction ofRajiv Gandhi Equity Saving Scheme whichallows income tax deduction of 50% to new retail investorsinvesting upto Rs 50,000 in equities
Rs 15,888 crores proposed for capitalisation of public sectorbanks and financial institutions
Central KYC depository to be developed in FY 2012-13
In f rast ruc tu re Sec to r
Government to establish joint venture companies in PPPmode by defence PSUs
Tax free bonds of Rs 60,000 crores for financing
infrastructure projects in FY 2012-13 Introduction ofNational Manufacturing Policy to raise
share of manufacturing in GDP to 25% creating 10 crore jobs
External Commercial Borrowings ('ECB') allowed for lowcost housing projects
Rural Infrastructure Development Fund allocationenhanced to Rs 20,000 crores out of which Rs 5,000 crores hasbeen assigned towards creating warehousing facilities
Tex t i l e Sec to r
Financial stimulus ofRs 3,884 crores for waiver of loans ofhandloom weavers
Power and Coal Sector
ECB topart finance Rupee debt of existing power projects
Transport Sector
Road Transport and Highways Ministry allocationenhanced by 14% to Rs 25,360 crores
ECB proposed for capital expenditures for road toll systems
Direct import of Aviation Turbine Fuel for Indian carrierspermitted
Equityparticipation of foreign airlines in an airportundertakingupto 49% is under consideration
ECB with a ceiling ofUS$1 billion to bepermitted for 1 yearin respect of working capital requirements of airline industry
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Overview of the Union Budget 2012-13 5
Snapshot of tax
proposals
Direct tax
proposals
Indirect tax
proposals
Foreword
Contact us
Employment
Allocation for National Rural Livelihood Missionincreased by 34% to Rs 3,915 crores
Prime Minister's Employment Generation Programme
allocation enhanced by 23% to Rs 1,276 crores in FY 2012-13 Allocation ofRs 1,000 crores for National Skill
Development Fund in FY 2012-13
Soc ia l Secur i t y
Allocation under National Social Assistance Programenhanced by 37% to Rs 8,447 crores in FY 2012-13
Defence
Provision ofRs 1,93,407crores made for defence services ofwhich Rs 79,579 crores is towards capital expenditure
Educat ion
Allocation for Sarva Shiksha Abhiyan enhanced by 21.7%to Rs 25,555 crores in FY 2012-13
Agr icu l tu re
Target for agriculture credit flowto increase byRs 1,00,000 crores to Rs 5,75,000 crores in FY 2012-13
Interest subvention scheme to continue in FY 2012-13
Additional subvention of3% available for prompt payments
Regional Rural Bank credit refinance fund set-up fordisbursingshort-term crop loans
Allocation forAccelerated Irrigation Benefit Programenhanced by 13% to Rs 14,242 crores
Irrigation and Water Resource Finance Company to beoperationalized to mobilise large resources to fund projects
Micro , Smal l and Medium Enterpr ises
India Opportunities Venture Fund ofRs 5,000 crores tobe set up with Small Industries Development Bank of India
Hea l thca re
No case of polio reported in the last one year
Allocation for National Rural Health Mission to Rs 20,882crores in FY 2012-13
National Urban Health Mission to be launched in FY2012-13 to meet the health needs of the urban poor
Key policyannouncements
Fiscal and
economic review
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Overview of the Union Budget 2012-13 6
Snapshot of tax
proposals
Direct tax
proposals
Indirect tax
proposals
Foreword
Contact us
Key policyannouncements
Fiscal and
economic review
Ind i rec t Tax
This year's Union Budget has proposed certain keyamendments to the structure of Indirect Taxation in India
The commitment to implement GST (Goods and ServicesTax) has been reiterated. Though there is no appointed date,the Finance Minister has given all indications for its earlyimplementation
The Constitutional Amendment Bill required to implementGST had been introduced in the Parliament and referred to theParliamentary Standing Committee in March 2011. Therecommendations of the Committee are still awaited
The Empowered Committee of State Finance Ministers hasapproved the basic structure of the proposed GST
The intention to merge the Service Tax and Central Exciselegislation into one Common Tax Code has been announced.
The levy of Service Tax has been extended to all services witha short negative list
The above developments are a clear precursor to GST
The exact date and rate of GST has not been announced andthe target date of 1 April 2012 for implementation has clearlybeen missed
Central Sales Tax has not been abolished
The Budget 2012-13 is a painful pill with ServiceTax being extended to all services (without thecredits of GST) and a sharp 2% hike in theService Tax and Central Excise rates. This willlead to price rises across the board. But thecompass is set on Indirect Tax reforms and thevarious steps taken to lead to an early
implementation of GST are welcome.
Amrita Mitra
Partner Indirect TaxGrant Thornton India LLP
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Overview of the Union Financial Budget 2012-13 7
Key policyannouncements
Snapshot of tax
proposals
Direct tax
proposals
Indirect tax
proposals
Foreword
Fiscal and
economic review
Contact us
Economic Growt h
GDP growth rate during FY 2011-12 is estimated to be 6.9%as compared to 8.4% during previous two FYs. Globaleconomic slack and oil price rise triggered this fall in GDP
growth During FY 2011-12, the services sector is expected to grow at
9.4% as against 9.3% last year. Its contribution to GDP is
estimated at 59%
However, Manufacturing sector's growth has beenlacklustre. It has seen a steep fall from 9% during April-December 2010 to 3.9% during April-December 2011
Growth in exports reduced from 40.5% during FY 2010-11 to23.5% during FY 2011-12 with insignificant change in the rateof growth in imports
Inflation remained a major concern during FY 2011-12 due toupsurge in global commodity prices and crude oil though
Wholesale Price Index moderated from 9% during April-November 2011 to 7% in February 2012
Foreign exchange reserves augmented by US$ 6.7 billionfrom US$ 304.8 billion at end of March 2011 to US$ 311.5billion at end of September 2011
8.4 8.4
6.97.6
0.00
2.00
4.00
6.00
8.00
10.00
2009-10 2010-11 2011-12 2012-13AE
%
age
Financial Years
GDP tre nds
8.1
3.8
9.6 9.1
0.00
2.00
4.006.00
8.00
10.00
12.00
2008-09 2009-10 2010-11 2011-12AE
%age
Financial Years
Headl ine In f la t ion
Financ ia lYears
Agr icu l tu re Industry Serv ices
2010 11 14.5 27.8 57.7
2011 12AE 13.9 27.0 59.0
Sectora l Compos i t ion o f GDP
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Overview of the Union Financial Budget 2012-13 8
Key policyannouncements
Snapshot of tax
proposals
Direct tax
proposals
Indirect tax
proposals
Foreword
Fiscal and
economic review
Contact us
Fisca l Def ic i t
Increase in fiscal deficit from 4.8% in FY 2010-11 toestimated 5.9% of GDP during FY 2011-12. It is expected todrop to 5.1% of GDP during FY 2012-13
Key In i t i a t i ves
Pradhan Mantri Gram Sadak Yojana (Bharat Nirman)proposes to connect 54,648 habitations involving constructionof 146,184 km of rural roads
Draft National Policy on Electronics (released on 03October 2011) envisions creating a globally competitiveelectronics system design and manufacturing industry
Draft National Policy on Information Technology 2011focuses on deployment of information communicationtechnology in all sectors of the economy
Additional budgetary support of Rs 91,800 crores to enhanceproductivity and resilience of agriculture
'Green India' mission proposes additional afforestation of 10million hectares of forest lands, wastelands and communitylands with projected expenditure of Rs 46,000 crores
6.5
4.8
5.9
5.1
0.00
1.00
2.00
3.00
4.00
5.00
6.00
7.00
2009-10 2010-11 2011-12AE 2012-13AE
%age
Financial Years
Gross F isca l Def ic i t
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Key policyannouncements
Direct tax
proposals
Indirect tax
proposals
Foreword
Contact us
Direc t tax proposa ls
No change in Corporate tax rate, Minimum Alternate Tax,Surcharge and Education Cess
Minimum Alternate Tax to be applicable to Insurance,
Banking and Companies engaged in the generation orsupply of electricity, etc
Scope forAlternate Minimum Tax extended to all taxpayers (other than companies) claiming specified deduction
Concessional rate of taxation ofdividends from foreignsubsidiaries @ 15% extended by 1 year
Cascading effect ofDividend Distribution Tax in multi-tierstructure removed
Weighted deduction introduced for expenditure on NotifiedAgriculture Projects
andSkill Development Projects
inmanufacturing sector
Weighted deduction for in-house research extended by 5years
Investment linked deduction extended coupled withweighted deduction for specified businesses
Power companies to get additional depreciation as well asextension in terminal date for availingtax holiday
'Pass through' status accorded for all investments byVenture Capital Funds / Companies
Deeming provisions introduced to treat share premiumreceived in excess of fair market value as income in the handsof closely held investee company
Share capital, share premium etc in the books of closely heldcompany treated as explained only ifsource is proved
Submission ofTax Residency Certificate made a necessary(but not the sole) condition for availing tax treaty benefits
Indirect transfer of capital asset proposed to be taxed in India.
Clause introduced tovalidate all actions of the tax officernotwithstanding anything contained in any judgement, decreeor order. (Vodafone decision reversed)
General Anti Avoidance Rules provisions introduced
Consideration for computer software (even off the shelf)proposed to be treated as royalty
Reduced withholding tax rate of5% applicable on foreignborrowings by companies engaged in specified businesses
Personal income tax slabs widened
Filing of income tax return made mandatory for residentshaving any assets outside India or having signing authority inany account outside India
Tax Officer permitted to appeal against DisputeResolution Panel order
Snapshot of tax
proposals
Fiscal and
economic review
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Key policyannouncements
Direct tax
proposals
Indirect tax
proposals
Foreword
Contact us
Transfer pr ic ing
Advance pricing agreement introduced in transfer pricing(prospective)
Definition of international transaction and intangible propertyclarified (retrospective)
International transaction includes business restructuring orreorganization, covered; whether or not it has bearing on theprofit, income, losses or assets of such enterprises at the time
of the transaction or at any future date (retrospective)
Transfer Pricing Regulations apply to specified domestic
transactions between domestic related parties (prospective)
Tax authorities can appeal against the order incorporating theDRP directions (prospective)
Currently, the arms length range is based on a uniformtolerance band of 5% around the transfer price. The 5% band
has been replaced with 3% (prospectively)
Amendments propose to eliminate viewing of this 5% rangeas a standard deduction and also clarifies that the newprovision disabling the standard deduction will be applicable
for all assessment proceedings pending before the AssessingOfficer as on 1 October 2009. However, the proposedamendment limits the tax authorities ability to re-open or
rectify assessments concluded before 1 October 2009
Snapshot of tax
proposals
While the DTC has been deferred, the UnionBudget has brought in some key provisions of theDTC in the Bill like the anticipated general anti
avoidance rules (GAAR) and the advance pricingagreements (APA). The most glaring thing thatcomes out of the amendments is the introduction ofkey provisions retrospectively to overrule recentjudgments in the area of international tax andtransfer pricing. This would surely not boost theconfidence of the foreign investor. A welcomeamendment is the APA regime introducedto provide a progressive mode of dispute resolutionin the area of transfer pricing. Of course the APAscheme should also practically turn out to be afavorable and unbiased platform for themultinationals and not be construed as anotherround of aggressive transfer pricing audit. On theother hand by bringing domestic transactions in theambit of transfer pricing, the compliance burdens onthe tax payer is going to increase multifold.
Karishma R. PhatarphekarPartner - Transfer PricingGrant Thornton India LLP
Fiscal and
economic review
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Key policyannouncements
Direct tax
proposals
Indirect tax
proposals
Foreword
Contact us
Ind i rec t tax proposa ls
Roadmap to GST la id out
There are clear indications that GST will be implemented
within a short time span
The Constitutional Amendment Bill was introduced in theParliament in March 2011 and is before the Parliamentary
Standing Committee for recommendations
The Empowered Committee of State Finance Ministers haveapproved the basic structure. The IT enabled GST Network(GSTN) has been approved and will become operational by
August 2012. A common PAN-based registration, return andpayment processing platform for all states will check taxevasion
The drafting of legislation for Centre and State GST is underprogress
The Government has extended the levy of Service Tax on allservices with a short negative list
The provisions of Central Excise and Service Tax are proposedto be merged into a Common Tax Code
Common registration and return provisions have beenproposed. The CENVAT Credit Rules are already common
Rates increase for manufac ture and serv ices
The rate of Service Tax has been increased from 10% to 12%
The standard rate of Central Excise Duty has been increasedfrom 10% to 12%
The merit rate of Central Excise duty has been increased from5% to 6%
The lower merit rate of Central Excise Duty on specified 130products has increased from 1% to 2%
The Basic Custom Duty (BCD) rate remains the same at 10%
Effec t ive Dates
The Central Excise rates will be effective from midnight of 16
March 2012
The Service Tax rate will be effective from 1 April 2012
Snapshot of tax
proposals
Fiscal and
economic review
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Overview of the Union Budget 2012-13 12
Key policyannouncements
Direct tax
proposals
Indirect tax
proposals
Foreword
Contact us
Snapshot of tax
proposals
Serv ice Tax
Proposal to tax all services except those in the negative listcomprising of 17 heads
Alignment made to harmonize Central Excise and Service Taxinto a Common Tax Code.
A common simplified registration form and a common returncomprising of one page proposed in this direction
Place of Supply Rules for determining the location of serviceand consumption to be put in public domain for stakeholders
comments
Point of Taxation Rules to be rationalized to be in line with theother proposed changes
CENVAT Credit permitted on number of services to reducecascading of taxes
New Scheme announced for simplification of refunds
Revision Application Authority and Settlement Commissionbeing introduced in Service Tax for dispute resolution
Exc ise
Duty increased to more than 12% in few cases such asautomobile and cement
Duty evasion of amount more than Rs 30 lakh is a cognizableoffence where person can be arrested without warrant
Benefit of reduced penalty, i.e. 25% of the penalty amount isavailable only if penalty along with duty and interest paid
within 30 days
Interest is not payable on credit wrongly taken unless the same
is utilized
The rate for CENVAT reversal for exempt services/ goodsunder Rule 6(3) of CENVAT Credit Rules is revised from 5%
to 6%
Customs
The peak rate of customs duty on non-agricultural goodsremains at 10%
Fiscal and
economic review
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Key policyannouncements
Snapshot of tax
proposals
Direct tax
proposals
Indirect tax
proposals
Foreword
Fiscal and
economic review
Contact us
Exemption given to the following sectors:
Agriculture
Fuel for power
Machinery for mining
Protective warning systems for railways
Specific road construction
Aircraft machineries
New leases of aircrafts
Iron ore plants
Steel coating material
Textile machinery
Specific medical devices like stents
LED and LCD TV Mobiles
Life saving drugs, etc
Export duty on chromium ore is enhanced from Rs 3,000 pertonne to 30% ad valorem
Method of computation of education cess and secondary &higher education cess is simplified to avoid computation of
such cesses twice
Transfer of unutilized credit of Additional duty ('SAD') lying inbalance at the end of each quarter to another factory of themanufacturer is permitted
The duty free allowance under Baggage Rules is increased fromRs 25,000 to Rs 35,000 for person of Indian origin and Rs
12,000 to Rs 15,000 for children upto 10 years of age
Exemption from Countervailing Duty ('CVD') is providedretrospectively to foreign going vessels from 1 March 2011 to
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Key policyannouncements
Snapshot of tax
proposals
Direct tax
proposals
Indirect tax
proposals
Foreword
Fiscal and
economic review
Contact us
Rates o f income - taxes
Personal t ax
Personal income-tax slabs proposed to be revised as under:
Minimum exemption limit for women changed from Rs190,000 to Rs 200,000 (the category of women below the age
of 60 years has been removed)
Limits remain unchanged for senior citizens (age of 60 yearsand above but less than 80 years) at Rs 250,000
Limits remain unchanged for very senior citizen (age of 80years and above) at Rs 500,000
Education Cess and Secondary and Higher Education Cess at2% and 1% respectively to continue
Corpora te tax
No change in corporate tax rate
No change in Minimum Alternate Tax ('MAT') rate (18.5%)
No change in surcharge for domestic companies (5%)
No change in surcharge on foreign companies (2%)
Marginal relief provisions to continue
Education Cess and Secondary and Higher Education Cess at2% and 1%, respectively to continue
No change with respect to excluding Education Cess andSecondary and Higher Cess on tax deducted or collected atsource, in case of domestic companies and other resident
persons Concessional rate of 15% for dividend received from foreign
subsidiary has been extended by 1 more year
Secur i t ies Transact ion Tax ( 'STT ')
STT payable by purchaser and seller in respect of deliverybased transaction for equity shares in company / units ofequity oriented fund entered into through a recognised stockexchange reduced from 0.125% to 0.1%
Existing Slab(Rs)
Revised Slab(Rs)
Tax rate (%)
Upto 180,000 Upto 200,000 NIL
180,001 to 500,000 200,001 to 500,000 10
500,001 to 800,000 500,001 to 1,000,000 20
Above 800,000 Above 1,000,000 30
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Key policyannouncements
Snapshot of tax
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Direct tax
proposals
Indirect tax
proposals
Foreword
Fiscal and
economic review
Contact us
MAT
It is proposed to widen the scope of MAT provision and levyMAT to companies which prepare their profit and loss
accounts in accordance with provisions of the Act governingsuch companies such as Insurance companies, Bankingcompanies or Companies engaged in the generation or supply
of electricity, etc
It is also proposed that 'Book profit' is to be increased by theamount standing in the revaluation reserve relating to therevalued asset which has been retired or disposed, if the same
is not credited to the profit and loss account
This amendment will take effect from Assessment Year ('AY')
2013-14 (FY 2012-13)
Alternate Min imum Tax ( 'AMT' ) to be lev ied on a l lpersons, o ther than com panies
It is proposed to widen the scope of AMT and include allclass of assesses (other than companies) under the ambit of
AMT provisions who are claiming deductions vide chapter
VI-A under the heading 'C-deduction in respect of certainincomes' (i.e. Sections 80H to 80RRA, other than Section80P) or under Section 10AA of the Income Tax Act, 1961
('IT Act')
The proposed provisions shall not apply to an individual or aHindu Undivided Family ('HUF') or an association of persons('AOP') or a body of individuals ('BOI') (whether
incorporated or not) or an artificial juridical person if theadjusted total income (i.e. total income as increased by thededuction under chapter VI-A, as mentioned above and
Section 10AA) of such person does not exceed Rs 2 million
Tax credit in respect of AMT paid would continue to beavailable for a period of subsequent 10 AYs
This amendment will take effect from AY 2013-14 (FY 2012-13)
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Key policyannouncements
Snapshot of tax
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Direct tax
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Indirect tax
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Foreword
Fiscal and
economic review
Contact us
Removal o f cascad ing e f fec t o f D iv idend Dis tr ibu t ionTax ( 'DDT')
To remove the cascading effect of DDT in multi-tiercorporate structure, it is proposed that a company (holdingcompany) receiving dividend from it Indian subsidiary where:
- such Indian subsidiary has paid DDT on the dividendpaid to the holding company;
- can take credit of the DDT that the Indiansubsidiary has paid while distributing dividend in thesame year
- additional condition that the holding company shouldnot be a subsidiary of any other company has been
removed. The proposed amendment will take effect from 1 July 2012
Expendi ture on Not i f ied Agr icu l tu ra l ex tens ionp ro jec ts
A new provision (Section 35CCC) is proposed to beintroduced in the IT Act to allow weighted deduction of150% of the expenditure incurred on notified agriculturalextension projects
The eligible projects for this weighted deduction shall benotified by the Board in accordance with the prescribed
guidelines
This amendment will take effect from AY 2013-14 (FY 2012-13)
Expendi ture on sk i l l deve lopment pro jec t
A new provision (Section 35CCD) is proposed to beintroduced in the IT Act to allow weighted deduction of150% of the expenses (not being expenditure in the nature of
cost of any land or building) incurred on skill development
projects in manufacturing sector
The eligible projects for this weighted deduction shall benotified by the Board in accordance with the prescribedguidelines
This amendment will take effect from AY 2013-14 (FY 2012-13)
Weighted deduct ion to in - house sc ient i f ic researc h
Under Section 35(2AB), weighted deduction of 200% for
expenditure (not being in the nature of cost of any land or
building) incurred on in-house research and development
facilities, have been extended for a further period of 5 years
i.e. up to 31 March 2017
This will take effect from AY 2013-14 (FY 2012-13)
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Key policyannouncements
Snapshot of tax
proposals
Direct tax
proposals
Indirect tax
proposals
Foreword
Fiscal and
economic review
Contact us
Investmen t l i nked incen t i ves
Investment linked deductions proposed to be extended to thefollowing businesses commencing operations on or after 1
April 2012:
- setting up and operating of an inland container depot
- a container freight station
- bee-keeping and production of honey and beeswax
- setting up and operating a warehousing facility for
storage of sugar Weighted deduction of 150% of the capital expenditures (as
against current 100% deduction) proposed to be allowed tothe following businesses commencing operations on or after 1
April 2012:
- setting up and operating a cold chain facility
- setting up and operating a warehousing facility forstorage of agricultural produce
- building and operating a hospital with at least onehundred beds for patients
- developing and building a housing project under ascheme for affordable housing
- production of fertilizers This amendment will take effect from AY 2013-14 (FY 2012-
13)
Investment linked deduction would continue to be available
to hotel owners where it owns the hotel but the operation ofsuch hotel is transferred to another person. This amendment
will take effect retrospectively from AY 2011-12 (FY 2010-11)
Exempt ion in respect o f income rece ived by certa infore ign companies
Exemption is provided to foreign companies in respect of anyincome received by it in India in Indian currency on account
of sale of crude oil to any person in India subject to specifiedconditions
Extens ion o f sunset c lause - pow er com panies
The terminal date of availing deduction for the undertakingengaged in business of generation and distribution of power,transmission and distribution of power by laying network of
transmission and distribution lines, undertaking renovation ormodernization of existing distribution lines is extended from31 March 2012 to 31 March 2013
Addi t iona l deprec ia t ion to power companies
It is proposed to extend the benefit of additional depreciationto taxpayers engaged in the business of generation orgeneration and distribution of power
This amendment will take effect from AY 2013-14 (FY 2012-13)
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Thresho lds fo r tax aud i t
Threshold for tax audit is proposed to be revised as under, fromAY 2013-14 (FY 2012-13)
The due date for furnishing the tax audit report is aligned withthe due date for filing the tax return
Thresho lds fo r app l icab i l i t y o f tax on presumpt ive bas is
For the purpose of presumptive taxation under Section 44AD,threshold limit of total turnover or gross receipts is proposed to
be increased from Rs 6 million to Rs 10 million This amendment will take effect from AY 2013-14 (FY 2012-13) Further, the following persons are proposed to be carved out of
presumptive taxation :
- professionals covered under Section 44AA
- persons earning income in the nature of commission orbrokerage
- persons carrying on agency business This amendment will take effect retrospectively from AY 2011-
12 (FY 2010-11)
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Computa t ion o f tonnage income
The following amendment has been proposed for calculationof tonnage income of a qualifying ship and will take effectfrom AY 2013-14 (FY 2012-13)
Qualifying
ship havingnet tonnage
Existing amount
of daily tonnageincome
Proposed
amount of dailytonnage income
up to 1,000Rs 46 for each 100tons
Rs 70 for each 100tons
exceeding 1,000but not more than10,000
Rs 460 plus Rs 35 foreach 100 tonsexceeding 1,000 tons
Rs 700 plus Rs 53 foreach 100 tonsexceeding 1,000 tons
exceeding 10,000but not more than25,000
Rs 3,610 plus Rs 28for each 100 tonsexceeding 10,000tons
Rs 5,470 plus Rs 42for each 100 tonsexceeding 10,000tons
exceeding 25,000
Rs 7,810 plus Rs 19for each 100 tonsexceeding 25,000tons
Rs 11,770 plus Rs 29for each 100 tonsexceeding 25,000tons.
Audit under
Existing
threshold(Rs)
Revised
threshold(Rs)
44AB - Tax audit for personscarrying on business
6 million 10 million
44AB - Tax audit for personscarrying on profession
1.5 million 2.5 million
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Clar i f ica t ion in re la t ion to amalgamat ion anddemerger invo lv ing subs id iary
Even where a subsidiary company amalgamates with itsholding company, in order to obtain a tax neutral treatment ofthe amalgamation in the hands of such shareholder (i.e.
holding company), there was a requirement to issues of sharesto shareholders of the amalgamating company (i.e. thesubsidiary), which was impossible to achieve as the holding
company could not issue shares to itself. This requirement hasbeen dispensed with.
Similarly, in case of a demerger, where demerged company isa subsidiary company and the resulting company itself is the
holding company, the requirement relating to issues of sharesby such resulting company (i.e. holding company) to thedemerged company (i.e. subsidiary company) has been
dispensed with This amendment will take effect from AY 2013-14 (FY 2012-13)
Prov is ions re la t ing t o Venture Cap i ta l Fund ( 'VCF' ) o rVenture Capital Company ( 'VCC')
Sectoral restrictions on business of Venture CapitalUndertaking ('VCU') to claim exemption from income by
VCF or VCC have been done away with i.e. 'pass through'status is accorded for all investments by VCF or VCC
It is also proposed that income accruing to VCF or VCC shallbe taxable in the hands of investor or accrual basis with nodeferral
This amendment will take effect from AY 2013-14 (FY 2012-13)
Share premium in exc ess o f Fa i r Market Va lue ( 'FMV')to be t rea ted as income
It is proposed to insert a new provision (Section 56(2)(viib))where any consideration received for issue of shares is inexcess of face value of shares, then the consideration
exceeding FMV of the shares shall be chargeable to incometax under the head 'Income from other sources
The FMV shall be higher of the following: FMV, as per the prescribed guidelines; or FMV as may be substantiated by the issuing company
This provision is proposed to be applicable only forcompanies in which public are not substantially interested (i.e.
closely held companies). Further, this provision is notapplicable to venture capital undertaking, with respect toshares issued to venture capital company / fund
This will take effect from AY 2013-14 (FY 2012-13)
Exempt ion o f any sum or property rec e ived by anHUF from i t s members
It is proposed to exclude any sum or property received by anHUF from its members without consideration or inadequateconsideration, from taxation
The proposed new provision will take effect retrospectivelyfrom 1 October 2009
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Clar i f i ca t ion in connec t ion w i th ' cos t t o p rev iousowner '
It is proposed that in the following transactions the cost ofcapital assets in the hands of the recipient would be equal tothe cost of such assets in the hands of the previous owner
(transferor):- transfer of capital assets in course of
demutualisation/ corporatisation of a recognisedstock exchange as a result of which AOP/BOI(previous owner) is converted into a company(recipient)
- transfer of capital assets/ intangible assets onconversion of sole proprietary concern / firm
(previous owner) into a company (recipient)
This amendment will take effect retrospectively from AY
1999-00 (FY 1998-99)
FMV to be cons idered as ' fu l l va lue o f cons idera t ion '
A new provision is proposed to be inserted (Section 50D)under which FMV of capital asset (on the date of transfer) isto be considered as 'full value of consideration' fortransactions where sales consideration is not ascertainable or
cannot be determined This amendment will take effect from AY 2013-14 (FY 2012-
13)
Rel ie f f rom long term cap i ta l ga ins tax t o anind iv idua l o r an HUF on sa le o f a res ident ia l p ropert y
A new provision (Section 54GB) is proposed to beintroduced to allow relief from long term capital gains on saleof residential property (house or a plot of land) whereby the
sale consideration is reinvested in the equity of a SmallEnterprise (as per the Micro, Small and Medium Enterprises
Act, 2006) and which is utilised by such company for the
purchase of new plant and machinery The above relief is available subject to fulfillment of certain
prescribed conditions such as lock in period for 5 years forinvestment and assets purchased, minimum shareholding
requirement, time frame for utlisation of subscription amountby the company, etc
The said exemption applies to any transfer of a residential
property made before 31 March 2017 This amendment will take effect from AY 2013-14 (FY 2012-13)
Reference to Va luat ion Off icer
The powers of Assessing officer has been widened withrespect to cases to be referred to a Valuation Officer. As perthe amended provisions, the Assessing officer could nowrefer a case to Valuation Officer even when FMV is lower
than stated by the tax payer (as against earlier provisionswhere the reference could only be made if FMV was higher)
The proposed provision will take effect from 1 July 2012
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Transfer o f cap i ta l assets not s i tua t ed in Ind ia
It is proposed to tax indirect transfer of capital assets in Indiaby inserting the following deeming / clarificatoryamendments:
definition of 'capital asset' to include controlling
interest in an Indian company. It states that any rightsin or in relation to Indian company, including rights
of management of control or any other rightswhatsoever will deemed to be regarded as 'capitalasset'
definition of 'transfer' to specifically includedisposition or parting with any interest directly orindirectly irrespective of whether such transfer iseffected or dependent upon or flowing from transfer
of shares of company registered or incorporated
outside India. the term 'through' under in Section 9(1)(i) to mean
and include 'by means of', 'in consequence of' or 'byreason of'
any share or interest in a company or entity registered
or incorporated outside India is deemed to besituated in India if the share or interest derives,directly or indirectly its value substantially from the
assets located in India withholding tax provisions under Section 195 applies
/to be applicable to non-residents irrespective of
whether non-resident has a residence or place ofbusiness or business connection in India or any otherpresence in India
This amendment will take effect retrospectively from AY1962-63 (FY 1961-62)
Transfer o f cap i ta l assets not s i tua t ed in Ind ia
A validation clause has been introduced whereby any noticesent or purported to have been sent, taxes levied, demanded,assessed, etc with regard to such transfers is deemed to havebeen valid notwithstanding anything contained in any
judgement, decree or order.
Reassessment o f inc ome in re la t ion t o any assetlocated outs ide Ind ia
To reassess the income in relation to any asset located outsideIndia (including financial interest in any entity), which has
escaped assessment, the following amendments are proposed:
time limit for issue of notice for reopening of an
assessment to be increased to 16 years
income shall be deemed to have escaped assessment
where a person is found to have any asset (includingfinancial interest in any entity) located outside India
the reassessment provisions are procedural in natureand will take effect from 1 July 2012 for enablingreopening of proceedings for an AY prior to thisdate. It is further proposed that the extended period
of 16 years for initiating reassessment will also applyto any AY beginning on or before 1 April 2012
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General Anti-Avoidance Rules ( 'GAAR')
GAAR (under Chapter X-A) is a broad set of provisionswhich seek to tax an 'impermissible avoidancearrangement'(which may be a step, a part or whole of an
arrangement and hereinafter referred to as 'Transaction')
whose main purpose is to obtain a tax benefit and: creates rights or obligation which wouldn't arise
between persons dealing at arm's length; or results in the misuse or abuse of the provisions of the
Act in any way; or
lacks commercial substance either wholly or in part;or
is entered or carried out in a manner which would
not be employed for bonafide purposes Specific provisions are inserted which describes the
circumstances under which transaction is deemed to lack'commercial substance'
Onus lies with the tax payer to prove that the main purposeof the arrangement was not to obtain tax benefit
Where GAAR is triggered, the consequences could be asfollows:
disregarding or combining any step of the
arrangement
ignoring the arrangement for the purpose of taxationlaw
disregarding or combining any party to thearrangement
reallocating expenses and income between the parties
to the arrangement relocating place of residence of a party, or location of
a transaction or situs of an asset to a place other thanprovided in the arrangement
considering or looking through the arrangement by
disregarding any corporate structure re-characterizing equity into debt, capital into revenue
etc. It is also provided that a scheme for regulating the condition
and the manner of application of GAAR provisions would be
prescribed This will take effect from AY 2013-14 (FY 2012-13)
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Tax t rea ty re la ted amendmen ts
The following amendments are proposed in relation toapplicability of provisions under Double Taxation Avoidance
Agreement or an agreement with Government of foreign
country or specified territory outside India (together referred
to as 'treaty') submission of Tax Residency Certificate ('TRC'), containing
prescribed particulars, made a necessary condition for availingtreaty benefits.
Treaty benefits cannot be availed where provisions ofChapter-X A i.e. GAAR are invoked
This amendment will take effect from AY 2013-14 (FY 2012-13)
Further any meaning assigned, through notification, to a termused in a treaty but not defined (in the IT Act or the said
treaty ) is proposed to be effective from the date on which therelevant treaty came into force
This amendment will take effect retrospectively from 1October 2009 (for Section 90) and 1 June 2006 (for Section90A)
Expans ion o f def in i t ion o f 'Roya l t ies '
The definition of 'royalty' has now been amended to clarifyand include the transfer of any 'right for use' or 'right to use' acomputer software (including granting of a licence),irrespective of the medium through which such right is
transferred Further, 'royalty' would also cover consideration in respect of
any right, property or information whether or not:
possession or control of such right, property orinformation is with the payer;
such right, property or information is used directly by
the payer; and the right, property or information is located in India.
The term 'process' which has now been specifically defined toinclude 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.
The above clarifications have been introduced withretrospective effect from 1 June 1976
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Tax Deduct ion a t Source ( 'TDS' )
Section Proposed Amendment
Section 193 of the IT Act- TDSfrom payment of interest ondebentures
TDS shall not be required on any interest payable:
a) to an individual or a HUF, who is resident in Indiab) on any debenture issued by a company in which the public are substantially interested
c) where the aggregate amount of interest paid during a FY does not exceed Rs 5,000 and the interest ispaid by account payee cheque.
This amendment will take effect from 1 July 2012.
Section 194E of the IT Act -TDS from payment to non-resident entertainer
Payments made to 'entertainer' is subject to TDS. The rate of TDS for all payments covered under Section 194Eof the IT Act is proposed to be increased to 20%
This amendment will take effect from 1 July 2012.
Section 194J of the IT Act -TDS from payment to director
Any remuneration or fees or commission payable to a director of a company, other than those on which tax isdeductible under Section 192, shall be liable for TDS under the provisions of Section 194J
This amendment will take effect from 1 July 2012.
Section 194LA of the IT Act -Exemption on enhancedcompensation
Increase in exemption limit from Rs 100,000 to Rs 200,000
This amendment will take effect from 1 July 2012
Section 194LAA TDS frompayment for immovableproperty in certain cases
Any person responsible for paying any sum to a resident transferor by way of consideration for transfer of anyimmovable property (other than agricultural land), shall deduct an amount equal to 1% of such sum as income-tax thereon. The requirement to deduct TDS applies only where the consideration exceeds the prescribedthreshold. Also, withholding tax proof is made a pre-condition for the registering office to register the property.
This amendment will take effect from 1 October 2012
Section 194LC- TDS from
payment of interest to a non-resident by an Indian company
Tax shall be charged at the rate of 5% on any income of a non-resident (not being a company) or a foreigncompany by way of interest on foreign current borrowings from sources outside India between 1 July 2012 and1 July 2015 by specified companies.
This amendment will take effect from 1 July 2012
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Tax co l lec t ion a t source ( 'TCS' )
TCS proposed to be introduced on the following:
The proposed new provision will take effect from 1 July 2012
Liab i l i ty to pay advance tax in case o f non deduct iono f tax
It is proposed that where a person receives any incomewithout TDS or TCS, he shall be liable to pay advance tax
with respect to such income. This amendment will take effectretrospectively from AY 2012-13 (FY 2011-12)
TCS onTCS Rate
(%)
Sale of certain minerals 1
Cash sale of bullion and jewellery - if saleconsideration exceeds Rs 0.2 million
1
Cases w here tax is not deduct ed a t source due tobonaf ide reasons
It is proposed to dilute the responsibility of the 'assessee indefault' by providing that a person, who fails to deduct tax onthe 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 himin such return of income
Further, the person is required to furnish a certificate to thiseffect from a Chartered Accountant in the prescribed form
Similar changes are also introduced in relation to TCS The proposed provision will take effect from 1 July 2012 It is also proposed that where the payer fails to deduct the
whole or any part of the tax on the payment made to aresident and he is not deemed to be an 'assessee in default'
(where the payee has paid the tax on such payment asexplained above), such payment will be allowed as adeduction. This will take effect from AY 2013-14 (FY 2012-
13)
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Deduct ions under Chapter VIA for ind iv idua l and HUF Ef fec t i ve f rom AY 20 13-14 (FY 201 2-13 )
Deduct ion for l i fe insurance premium
Deduction in respect of premium paid on life insurance policy
issued on or after 1 April 2012 is proposed to be allowedprovided premium payable for any of the years does not
exceed 10% (presently 20%) of actual capital sum assured(Section 80C). Corresponding amendment brought inSection 10D
Deduct ion for prevent ive hea l th check -up
Under Section 80D, a deduction of Rs 5,000 is allowed for
expenditure incurred during the year by a tax payer on
account of preventive health check-up of self, spouse,dependent children or parents
The above deduction to be within the overall limits of Rs
15,000 / Rs 20,000 prescribed under the said Section of the
Act
Deduct ion for in teres t on sav ings account
Deduction upto Rs 10,000 proposed to be allowed in respect
of interest on deposits (not being time deposit) in a savingsaccount with a banking company, co-operative societyengaged in banking business and post office (Section
80TTA)
Deduct ions under Chapter VIA in re la t ion to donat ionpayment
Deduction in respect donation (Section 80G and 80GGA) inexcess of Rs 10,000 is proposed to be allowed only if suchsum is paid by any mode other than cash
El ig ib i l i ty cond i t ions for exempt l i fe insurancepo l ic ies
Any sum received under life insurance policy issued on orafter 1 April 2012 will be exempt provided premium payablefor any of the years during the term of the policy does notexceed 10% (presently 20%) of the actual capital sum assured
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Fi l ing of income t ax re turn in re la t ion t o assetslocated outs ide Ind ia
It is proposed to make it compulsorily for a resident taxpayerto file a return of income (even if his taxable income is belowthe basic exemption limit) if any one of the following is
triggered:- the taxpayer has any asset located outside India,
including any financial interest in any entity outsideIndia; or
- the taxpayer has signing authority in any account
located outside India
This amendment will take effect retrospectively from AY
2012-13 (FY 2011-12)
Dispute Resolution Panel ( 'DRP')
The Assessing Officer shall now have the right to appeal tothe Appellate Tribunal against the order passed in pursuanceof directions of the DRP in respect of an objection filed on or
after 1 July 2012
It is further clarified that the power of the DRP to enhancethe variation shall include and shall always be deemed to have
included the power to consider any matter arising out of theassessment proceedings relating to the draft assessment order.
This power to consider any issue would be not withstanding
that such matter was raised by the eligible assessee or not.This amendment will take effect retrospectively from AY2009-10 (FY 2008-09)
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Proceedings under Section Current time frame Proposed time frame
143 Scrutiny Assessment 21 months from end of AY 24 months from end of AY
143 & 92CA Scrutiny Assessment & Transfer
Pricing Assessment
33 months from end of AY 36 months from end of AY
148 Income Escaping Assessment 9 months from end of FY in which notice issued 12 months from end of FY in which notice issued
148 & 92CA - Income Escaping Assessment &
Transfer Pricing Assessment
21 months from the end of FY in which notice
issued
24 months from end of FY in which notice issued
250 Appellate Proceedings
254 Appellate Tribunal
263 Revision of orders prejudicial to revenue
9 months from end of FY in which notice issued 12 months from end of FY in which notice issued
250 Appellate Proceedings
254 Appellate Tribunal
263 Revision of orders prejudicial to revenue
92CA Transfer Pricing
21 months from end of FY in which notice issued 24 months from end of FY in which notice issued
Extens ion o f t ime for comple t ion o f assessments and reassessments
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Penal t ies
Section Existing Provisions Proposed Amendment
Explanation 7 to Section 271 -Failure to furnish returns ,comply with notices,concealment of income
(wef FY 2012-13)
Covers 'international transaction' onlySpecified domestic transaction will be covered. Consequent amendment to be made toSection 271G and Section 271AA also
Section 271 AA - Failure tokeep and maintain informationand document in respect ofinternational transaction(wef 1 July 2012)
Provides penalty only if there is afailure to keep and maintain anyinformation and document as requiredby Section 92D(1) and 92D(2)
Additionally, penalty shall be levied : if any person fails to report the international transaction or specified domestic
transaction, or maintains or furnishes an incorrect information or document
Section 271 AAA- undisclosedincome in the case of search
The provision covers the cases ofsearch which have been initiatedunder Section 132 on or after 1 June2007
This penalty is applicable upto 1 July 2012. A new Section 271AAB has been proposedhereinafter
Section 271 AAB (New Section)Provides to charge penalty at the rateof 10% of the undisclosed income ofthe specified previous year
Penalty shall be imposable, where search has been initiated on or after 1 July 2012:
(a) at the rate of 10% of the 'undisclosed income' of the specified previous year, iftaxpayer admits during the course of search the undisclosed income
(b) at the rate of 20 % of the 'undisclosed income' of the specified previous year , iftaxpayer does not admit the undisclosed income at the time of search but at the time offiling return after search
(c) in other cases penalty may range from 30% to 90% of undisclosed income
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Penal t ies - contd
Section Existing Provisions Proposed Amendment
Section 271 H- Penalty for
failure to furnish TDS/TCSreturns (New Section wef 1July 2012)
A person shall be l iable to pay a sum between Rs 0.01 million to Rs0.1 million if he fails to deliver or delivers an incorrect informationunder Section 200(3) or 206C(3) of the IT Act
However, no penalty shall be levied if the person proves that he haddelivered the required statement within one year of the periodprescribed under the said Sections
Similar amendment shall also be made to Section 273B
Section 272 A - Penalty forfailure to answer questions,furnish statements , etc. (wef1 July 2012)
Section 272A (2)(k) provides for the penalty of Rs 100per day to be levied in case a person fails to deliver thestatement (i.e. TDS and TCS returns) within the timeprescribed in Section 200(3) or 206C(3)
A proviso is proposed to be inserted after Section 272A(2)(k) toprovide that no penalty shall be levied under this Section for latefiling of TDS /TCS returns
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Unexp la ined cash cred i ts
It is proposed to amend the existing provisions with respectto unexplained cash credits to provide that any explainationoffered by a closely held company with regard to credit of
share application money, share capital, share premium or any
such amount shall be deemed to be non-satisfactory unless: the resident person whose name credit has been
recorded offers explanation about nature and sourceof such credit; and
tax authorities find such explanation to be
satisfactory This will take effect from AY 2013-14 (FY 2012-13)
Assessment o f char i tab le organ iza t ion in casecommerc ia l rece ip ts exceed the spec i f ied th resho ld
It is proposed to provide that any charitable trust orinstitution registered under Section 12AA and 10(23C) will
not get benefit of tax exemption in the year in which it'sreceipts from commercial activities exceed the threshold
whether or not the registration or approval granted or
notification issued is cancelled, withdrawn or rescinded.
This will take effect retrospectively from AY 2009-10 (FY2008-09)
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Transfer pr ic ing
In troduc t ion o f advance pr ic ing agreement (wef 1Ju ly 2012)
An APA is an agreement between the taxpayer and the taxingauthority
It will enable determination of the arms length price orspecify the manner/ methodology in which arms length priceshall be determined
The agreement is.
- valid for not more than five years
- available to all taxpayers falling within the ambit of Indian
TP legislation
- The APA enabling provisions are imported from the DTC
and detailed rules and forms are expected to be issued bythe Government shortly
- APAs to be entered by the CBDT with the approval ofCentral Government
- Ability to use any method other than one of the prescribed
5 methods available
- The APA has binding force only on the taxpayer with
whom it is signed and in respect of the relevantinternational transaction vis--vis the jurisdictionalcommissioner of income-tax
- The APA shall not be binding/annulled in the followinginstances:
Change in Law
If the taxpayer has signed the APA with theCBDT based on misrepresentation of facts.CBDT will annul in this case by way of an order
- On conclusion of APA, the taxpayer is required to file
revised return(s) with the Assessing Officer who has tocomplete the assessment/reassessment within one year
from the end of the FY in which the revised return is f iled
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In te rna t iona l t ransac t ions ( re t rospec t i ve e f fec t f rom1 Apr i l 2002)
The definition of international transactions has been amendedto :
- elaborate on tangible, intangible property, services,financing transactions; and
- include transactions of business restructuring orreorganization, covered; whether or not it has bearing on
the profit, income, losses or assets of such enterprises atthe time of the transaction or at any future date
Spec i f ied domest ic t ransact ions (wef 1 Apr i l 2013)
Specified domestic transactions broadly comprise
transactions entered into by domestic related parties or by anundertaking with other undertakings of the same entity forthe purposes of section 40A, Chapter VI-A, section 10AA
and which exceed a monetary threshold of Rupees 5 croreduring a FY
In tang ib les ( re trospect i ve e f fec t f rom 1 Apr i l 2002)
Intangible property has been specifically explained. Otherthan marketing, technical, artistic, data processing, engineeringrelated intangibles it includes intangibles related to:
- customers like customer lists, open purchase orders;- human capital like trained & organized work force;
- location like leasehold interests and also mentions andlastly it also has an open item to include
- any item that derives its value from intellect content
rather than its physical attributes
This kind of a broad definition leaves the tax authority toconstrue significant items as intangibles and this could have a
major impact on the characterization of entities whenconducting a function, asset and risk analysis of the
international transaction
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Reduct ion in 5% var ia t ion and d isenab l ing s tandarddeduc t ion
Currently, the arms length range is based on a uniformtolerance band of 5% around the transfer price. However, the
Government had amended proviso to sub section (2) of
section 92C in the Finance Act, 2011, whereby theGovernment was to notify an allowable variation for different
business activities and types of transactions. The current 5%band has been replaced with 3%
There were two litigation issues around the 5% range. Onewas that it was not allowed as a standard deduction by the taxauthorities and the other was that new proviso of the
variation was being applied retrospectively for AYs prior tothe amendment date of 1 October 2009
Major tribunals for both these issues had ruled in favour ofthe tax payer. However, the proposed amendments overturnthese tribunal decisions and do not permit the 5% range as a
standard deduction and also clarifies that the new provisiondisabling the standard deduction will be applicable for allassessment proceedings pending before the AO as on 1
October 2009. This would mean that even for AYs prior to2010-11 pending before the AO as on 1 October 2009 thenew provisions of the variation would prevail and therebystandard deduction not permitted to the tax payers. However,
the proposed amendment limits the tax authorities ability tore-open or rectify assessments concluded before 1 October2009
Power o f the t rans fer pr ic ing o f f icer ( 'TPO' )
The TPO is empowered to determine Arms Length Price of aninternational transaction noticed by him in the course ofproceedings before him, even if the said transaction was notreferred to him by the Assessing Officer. Although this
amendment takes effect retrospectively from 1st June 2002,reopening of any proceeding would not be done only on accountof such an amendment. The proposed changes could haveramifications where taxpayer has entered in to free of costtransactions (i.e. loan guarantee or extended short term liquidityto its associated enterprises) and has not charged any price forsuch services and consequently not reporting it as internationaltransactions in its disclosure
The Assessing Officer cannot under section 147 or section 154enhance the assessment or reduce a refund in respect of
completed proceedings
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Str ingent pena l t ies fo r non report ing in ternat iona lt ransac t ions o r spec i f i ed domes t i c t ransac t ion
Section 271AA has been amended to levy penalty at the rateof 2% of the value of the international transaction or specified
domestic transaction, if the taxpayer
- fails to maintain prescribed documents or information or;
- fails to report such transaction which is required to bereported, or;
- maintains or furnishes any incorrect information ordocuments
- This would be in addition to penalties in section271BA and 271G. This amendment will take effect from 1
July, 2012
Fi l ing of account ants report
Filing of Form 3CEB under section 92E for non-corporatetaxpayer revised to 30 November
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Serv ice Tax
Rate change e f fec t ive 1 Apr i l 2012
The rate of service tax is being restored to the statutory rateof 12%. This is aligned to the excise duty rate. The earlier
notification reducing the rate to 10% has been rescinded.
Consequent changes have also been made in compositionrates such as works contract services
Taxat ion o f Serv ices based on negat ive l is t approach ef fec t ive f rom a dat e t o be not i f ied
There is paradigm shift in the way services are proposed to betaxed in future. Taxation will be based on what is popularly
known as Negative List of Services.
Negative list of services covers specified 17 services as under:
- Services provided by Government or local authority- Services provided by Reserve Bank of India
- Services by a foreign diplomatic mission located in India- Services relating to agriculture- Trading of goods
- Processes amounting to manufacture or production ofgoods
- Selling of space or time slots for advertisements otherthan advertisements broadcast by radio or television- Access to a road or a bridge on payment of toll charges
- Betting, gambling or lottery- Entry to Entertainment Events and Access to
Amusement Facilities- Transmission or distribution of electricity- Specified services relating to education- Services by way of renting of residential dwelling for use
as residence- Financial sector- Service relating to transportation of passengers
- Service relating to transportation of goods- Funeral, burial, crematorium or mortuary services
including transportation of the deceased
Presently the word service has not been defined. TheFinance Bill 2012 proposes to is specifically define the word
service. Service shall also include certain activities that have
been specified as declared services.
If an activity meets the characteristics of a service it istaxable unless specified in the negative list or otherwiseexempted by a notification.
Most of 88 exemptions to be rescinded or merged in a megaexemption notification. Proposed exemptions under MegaNotifications shall include services provided to specified
organisations, temporary transfer of copyrights incinematographic films, etc.
A new charging section is proposed to be introduced to levyservice tax on all services, other than those in the negative list,provided or agreed to be provided in the taxable territory by
one person to another.
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The existing provisions and charging sections will cease toapply after the new provisions become effective but will
remain relevant in respect of services provided prior to theapplicability of the new provisions
Other changes proposed consequent to negat ive l is t
approach e f fec t ive f rom a date t o be not i f ied
CENVAT Credit Rules
In the light of negative list it is proposed that the service-specific references in the CENVAT Credit Rules will bereplaced by broad descriptions retaining the essence of theexisting provisions
The definition of output service shall include exports ofservice where payment is not received within the period
specified under the RBI requirements. Thus the benefit of notreversing the input tax credits for exports without treatingthem exempt will continue for the period specified forrealizing export proceeds
In terms of the proposed amendment to the valuation rulesservices shall exclude interest on (a) deposits; and (b) delayed
payment of any consideration for the provisions made(services/goods). This will keep such amounts outside the
value and thus not be relevant for reversal of credits under
CENVAT Credit Rules
Interest on loans and advances will now be an exemptincome. This will require reversal of credits used for earningsuch income. Specified provisions have been proposed forsuch reversal
Serv ice Tax Rules
With the proposed introduction of the Place of Provision ofServices Rules, 2012 and the proposed omission of the Export
of Services Rules, 2005 (as amended) a transaction will qualifyas export when it meets following requirements:
- the service provider is located in Taxable territory- service recipient is located outside India- service provided is a service other than in the negative
list- the place of provision of the service is outside India and- the payment is received in convertible foreign exchange
Place of Provis ion of Services Rules, 2012
The Finance Bill 2012 proposes to introduce the Place of
Provision of Services Rules, 2012. The draft rules have beenreleased for comments and feedback for the time being. Theessence is that a service should be taxed in the jurisdiction of
consumption
It is proposed that these Rules will replace the existing Exportof Services Rules, 2005 and the Taxation of Services
(Provided from Outside India and Received in India) Rules,2006
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Valuat ion Ru les
Negative list will require some reformulations away fromservice-specific provisions. The abatements available for
certain taxable services and composition rate for workscontract services will undergo change
Presently for works contract services, value of services isequal to the total amount charged for the contract reduced bythe value of property transferred in goods for State VAT
purpose. If the value is not so deduced, it is proposed that anad-hoc percentage of the total value as would be allowed asdeduction towards goods. The input tax credit on goods
forming part of the property on which VAT is payable shallnot be available as they are not used in the provision ofservice. However taxes paid on capital goods and input
services will be available
The taxable portion for services involved in supply of foodand drinks in a restaurant or as outdoor catering is being
raised. The abatement available is being adjusted to allow theindustry to utilize credit on capital goods, specified inputs(other than foods and beverages) and input services
Value of service shall include any amount realized asdemurrage, or by any other name, for the provision of a
service beyond the period originally contracted or in any other
manner relatable to the provision of service. It shall alsoinclude accidental damages due to unforeseen actions not
relatable to the provision of service
Value of service shall exclude interest on (a) deposits; and (b)delayed payment of any consideration for the provisions made(services/goods)
Aba temen ts
With the introduction of the negative list approach, changesare proposed in the abatements available for servicesinvolving both goods and services. It is proposed to increasethe taxable portion of value and liberalise the input taxcredits. Though the taxable portion of services may appear ona higher side, but the availability of credits will lead to
reduction in costs and hence prices for the consumers. Thiswill result in neutrality of taxes i.e. the burden of taxes will notraise the cost per se but passed on to the point of
consumption
SEZ changes
There are no changes proposed in the present Budget.However it is proposed that service-specific criterion for
determination of services provided exclusively within the SEZshall be taken care at the time of introducing negative list
Prior to 1 March 2011 services provided to SEZs were treatedas exempt services and CENVAT credit had to be reversedunder CENVAT Credit Rules. The amendment introduced
with effect from 1 March 2011 has now been made effectivefrom 10 February 2006. This will neutralize the investigationsor demands for reversal of credits in respect of servicesprovided to SEZs for the past
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Reverse charge prov is ions
The term taxable territory has been defined and only servicesprovided in taxable territory will be liable to tax. Any service
provided in the State of Jammu & Kashmir will not be liableto tax. The Place of Supply Rules, 2012 will determine
whether a service is being provided in Jammu & Kashmir
Where the service provider is located in Jammu & Kashmirbut the services are provided in taxable territory, the tax will
be collected from the service receiver
A new scheme is proposed to be introduced to ensure propercollection. For the services of hiring of a motor vehicledesigned to carry passengers, supply of manpower for anypurpose and works contract both the service provider and
service receiver will be considered as persons liable to pay thetax on a predetermined percentage. The scheme can be giveneffect on enactment; however it is proposed to time it withNegative List approach as a part of the comprehensive reform
Rules o f in terpre ta t ion
Separate principles are proposed to be introduced forinterpretation of specified description of services and bundledservices
Poin t o f Taxat ion Ru les e f fec t ive 1 Apr i l 2012
Continuous supply of service has been redefined to bring outconcept with better clarity, namely recurrent nature of
services and the obligation for payment periodically or fromtime-to-time
Rules have to been amended to provide that the date ofpayment shall be the earlier of, the dates of entry into booksof accounts or actual credit in the bank account. When thereis change in effective rate of tax or an introduction of new
levy between the date of entry in books or actual credit inbank, the date of payment shall be the date of actual credit in
the bank account, if the amount is credited through a bankinginstrument more than four working days after the date ofsuch change
Best judgement provisions have been introduced where thetax-payer is unable to furnish one or more of the detailsneeded i.e. date of payment or date of invoice or both todetermine point of taxation
CENVAT changes e f fec t ive 1 Apr i l 2012
A simplified scheme for refunds is being introduced bysubstituting the earlier provisions under CENVAT Credit
Rules. The new scheme does not require correlation betweenexports and input services used in such exports. Any goods orservices that qualify as inputs or input services will be entitled
to be refunded in the ratio of the export turnover to totalturnover. The notification prescribing the detailed mannerand safeguards will be issued shortly
Credit on motor vehicles is liberalised and will be allowed
other than those falling under tariff heading 8702, 8703, 8704,8711 and their chassis. The credit of service tax paid on their
hiring, insurance and repair will also be allowed
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Credit on goods can now availed without bringing them intopremises subject to due documentation regarding their
delivery and location
Credit of tax paid by all service receivers on reverse charge isallowed on the tax payment challan
Rules relating to distribution of credits of input services by aninput service distributer have been amended to ensure
scientific allocation to only such units where they have beenput to use based on proportion of turnover
The rate for CENVAT reversal for taxable/ exempt services/goods has been revised from 5% to 6%
Serv ice Tax Rules e f fec t ive 1 Apr i l 2012
Service providers may issue invoice within 30 days from thedate completion of taxable service or receipt of any payment
towards value of taxable services whichever is earlier. Bankingor financial institutions may issue an invoice with 45 days ofsuch event
Presently individuals and firms are allowed to pay service taxon the basis of date of payment for eight specified services.
The said facility has been extended to all services up to a
turnover of Rs 50 lakh in a financial year provided the taxable
turnover did not exceed Rs 50 lakh in the previous financialyear. The above limits shall be computed taking into account
the turnover of the entity as a whole and not any singleregistration
The restrictions of Rs 2 lakh limiting the use of excess servicetax paid are being omitted allowing unlimited amount ofpermissible adjustments effective 1 April 2012
A common simplified registration format for Central Exciseand Service Tax is being placed for public comments, together
with further liberalization in registration requirements,particularly centralized registrations will come into forceafter inviting comments from stakeholders
A new simplified one page common return with CentralExcise: to be called Excise & Service Tax Return (EST forshort) is being introduced. It is also being proposed that thecycles for the payment service tax and filing of return should
coincide. Assessees paying tax of Rs25 lakh or more inprevious year and new assessees other than individuals andfirms would be required to make monthly payments and file
monthly returns. The periodicity for others would bequarterly will come into force after inviting comments fromstakeholders
Exempt ion g iven re trospect ive e f fec t ive - e f fec tw hen the B i l l rece ives the Pres ident ia l assent
Exemption provided for the setting up of common facilitiesfor treatment and recycling of eff luents and solid wastes ismade applicable effective 16 June 2005 as against 25 July 2011
Exemption relating to repair of roads is extended for theearlier period commencing from 16 June 2005 as against 27
July 2009
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Service tax exemption is granted with retrospective effect onmanagement, maintenance or repair service in relation to non-
commercial Government buildings from 16 June 2005 till thecoming into force of the negative list when such repair will beexempted by the new mega notification
Penal ty wa iver fo r Rent ing o f Imm ovable PropertyServ ice - e f fec t w hen the B i l l rece ives thePres ident ia l assent
The taxability of Renting of Immovable Property Services hadbeen a subject of litigation. In the matter of Retailers Assn. ofIndia v/s Union of India, Honourable Supreme Court, hadruled in October 2011, that litigants should pay 50% of the
arrears within six months in three equated instalments and forthe balance, solvent surety should be furnished to thesatisfaction of the Jurisdictional Commissioner. It is proposed
that penalty may be waived for those taxpayers who pay theservice tax due as on the 6 March 2012, in full along withinterest within six months
Other leg is la t ive changes - e f fec t w hen the B i l lrece ives the Pres ident ia l assent (un less spec i f iedo the rw ise )
The small scale exemption notification has been amended inline with Point of Taxation Rules stating that the threshold
exemption from service tax would be value of taxable services
charged
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