finance bill, 2010 2
TRANSCRIPT
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FINANCE BILL, 2010(Applicable for the Assessment Year 2011-12)
Presentation by : CA. S Ranganath FCA, LLB
Partner
Singhvi, Dev & UnniChartered Accountants
Bangalore
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CONTENTS Key features
Rates of Tax for Individuals
Definition of Charitable Purpose
Income deemed to accrue or arisen in India to a non-resident
Cancellation of Registration obtained u/s 12A
Weighted deduction for scientific research & development
Investment linked deduction for specified business
Expenditure disallowed on account of non-compliance with
TDS provisions
Tax Audit
Limited Liability Partnership
Transactions without adequate consideration
Deductions
Minimum Alternative Tax
TDS
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KEY FEATURES
1. Reduction in individual and HUF tax rates.
2. Increase in Corporate Tax rates.
3. Increase in limits for TDS.
4. Exempting capital gains for conversion of a Company into LLP
subject to fulfilling the specified conditions.
5. Increase in weighted deduction for donation to research and
development industry.
6. Steps to enact GST and DTC.
7. Increase in Excise duty with respect to Petroleum products, Cars,
Cement and Non-smoking cigars.8. Reduction / exemption to those agricultural equipments, Wind
mills and Solar equipments.
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RATES OF TAX-INDIVIDUALS
Taxable Income Rates (in percentage)*
Amount (in Rupees)ResidentSenior Citizen
Resident
WomenOthers
< 160,000 Nil Nil Nil
160,001 to 190,000 Nil Nil 10
190,001 to 240,000 Nil 10 10
240,001 to 500,000 10 10 10
500,001 to 800,000 20 20 20
800,001 and above 30 30 30
* Education Cess shall be levied @ 3 percent on above tax
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MINIMUM ALTERNATIVE TAX
Existing provision Proposed provision Impact/Recommendations
MAT is 15% Proposed to 18% Higher corporate tax burden
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RATES OF TAX- OTHERSDescription Existing Rate (%) Proposed Rate (%)
A) Domestic Company
Regular tax
MAT 16.995(of book profits) 19.931(of book profits)
DDT 16.995 16.609
B) Foreign company
Regular tax 42.23 42.23
C) Firm and LLP&
Regular tax 30.90 30.90
Corporate Surcharge reduced from 10% to 7.5%
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RATES OF TAX LIBERALISED
*For Resident women below 65 yrs =Rs. 1.9 Lakhs and for senior citizens =Rs. 2.4 Lakhs
Total
Income
Tax liability as per existing
rates and slabs
Tax liability as per
revised slabs
Tax Savings as per
revised slabs
1,60,000 Nil Nil Nil
2,00,000 4,000 4,000 Nil
3,00,000 14,000 14,000 Nil
4,00,000 34,000 24,000 10,000
5,00,000 54,000 34,000 20,000
6,00,000 84,000 54,000 30,000
7,00,000 1,14,000 74,000 40,000
8,00,000 1,44,000 94,000 50,000
9,00,000 1,74,000 1,24,000 50,000
10,00,000 2,04,000 1,54,000 50,000
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RATES OF TAX COMMENTS
*For Resident women below 65 yrs =Rs. 1.9 Lakhs and for senior citizens =Rs. 2.4 Lakhs
No tax relief for taxpayers whose total income isless than Rs. 3,00,000 and presently in the 10% taxslab
Thus, the only relief to individuals earning incomeof less than Rs. 3,00,000 is the deduction they canget by investing upto Rs. 20,000 in notified long-term infrastructure bonds and this would save taxto the tune of upto Rs. 2,000 for those in 10% slab,
upto Rs. 4,000 in 20% slab and upto Rs. 6,000 forthose in 30% slab
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Definition of Charitable Purpose
Existing
provision
Proposed provision Impact/Recommendations
As per Section2(15) -Theadvancement ofany other object
of general publicutility to becharitablepurpose
The advancement of anyother object of generalpublic utility to becharitable purpose even if
it involves carrying on of anyactivity in the nature oftrade, commerce orbusiness provided that thereceipts from such activitiesdo not exceed Rs.10 lakh in
the year. This amendment isproposed to take effectretrospectively from01.04.2009.
To mitigate hardship to the
organizations which receive
sundry considerations from
such activities.
Clarification is required as to
whether receipts of Rs.10
lakhs is to be reckoned as per
the method of accountingfollowed by assessee-trust or
whether it is receipts in
ordinary sense of the term.
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INCOME DEEMED TO ACCRUE OR ARISE IN INDIA TO
A NON-RESIDENT
Existing provision Proposed provision Impact/RecommendationsSection 9 provided forthe situation whereincome is deemed toaccrue or arise in India
It is proposed to substitutethe existing Explanation toSection 9 with a newExplanation to specificallystate that the income of a
non-resident shall be deemedto accrue or arise in Indiaunder clause (v)/(vi)/(vii) ofSec 9(1) and shall beincluded in his total income,whether or not;
(a) the non-resident has aresidence or place ofbusiness or businessconnection in India; or
(b) the non-resident hasrendered services in India.
This amendment is proposed totake effect retrospectively from1st June, 1976 and will,accordingly, apply in relation tothe assessment year 1977-78
and subsequent years. By thisamendment the situs ruleprevails over the source rule.
Judgements Nullified
Ishikawajima-Harima HeavyIndustries Ltd., Vs DIT (2007)
(SC); and Jindal Thermal PowerCompany Ltd. vs DCIT (TDS),[2009] (Kar)
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CANCELLATION OF REGISTRATION GRANTED U/S 12A
Existing provision Proposed provision Impact/Recommendations
The Commissionerdoes not have thepower to cancel theregistration which wasobtained earlier byany trust or institution
under provisions ofsection 12A as it is notspecifically mentionedin section 12AA.
Commissionerempowered to cancelthe registration u/s 12AAw.e.f 01.06.2010
Registration of trust wasgoverned by Section 12A ofthe Act prior to theintroduction of Section -12AA vide Finance Act,2007.
However, the provision issilent for cancellation ofregistration, where theregistration is granted u/s.12A. This was unintendedomission of powers of the
CIT to cancel registration andaccordingly amendmentshave been proposed toenabling the CIT to cancelregistration even in caseswhere the original
registration is granted u/s.12A of the Act.
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WEIGHTED DEDUCTION FOR SCIENTIFIC RESEARCH AND
DEVELOPMENT
Existing provision Proposed provision Impact/Recommendationsthe words scientificresearch association
the words researchassociation shall besubstituted
Scope Widened
Payment made toan approvedassociation engagedin research in socialsciences or statisticalresearch, is not
covered by section 35and shall be subjectto tax
Such approvedresearch associationare to be allowed as aweighted deduction of125 per cent. Theincome of such
approved researchassociation shall beexempt from tax.
Scope Widened
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INCREASE ON QUANTUM OF WEIGHTED DEDUCTION
Sec Expenditure in respect of whichweighted deduction available
Weighted deduction
available under the
extant provisions
Proposed
(Increased) rate
of weighted
deduction (w.e.f.
A.Y.2011-12)
35(2AB) expenditure (not being expenditure in the
nature of cost of any land or building)
incurred on scientific research on an
approved in-house research anddevelopment facility. [deduction available
to companies]
150% of such
expenditure
200% of such
expenditure
35(1)(ii) Contribution to an approved research
association, university, college or other
institution [Research Social Science and
Statistical Research proposed to be added]
125% of such
expenditure
175% of such
expenditure
35(2AA) any sum paid to a National Laboratory or a
university or an Indian Institute of
Technology (IIT) or a specified person for
the purpose of an approved scientific
research programme.
125% of such
expenditure
175% of such
expenditure
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114 - P1 XY, a Partnership firm, commenced production on December 1, 2009.The firm has made the following expenditure on scientific research up to the yearending on March 31, 2008:
1. On December 13, 2007, the firm pays Rs. 90,000 to the Indian statistical Institute,New Delhi, being an approved research institution under section 35 (1) (ii), for the
purpose of carrying out statistical Institute2. On December 21, 2007, the firm pays Rs. 60,000 to the Indian Institute of
Management, Ahmedabad, being an approved institute under section 35 (1) (iii),for the purpose of carrying out scientific research in social or statistical science.
3. On january 10, 2008, the firm pays Rs. 40,000 to an approved NationalLaboratory for carrying out programmes of scientific research.
4. On december 23, 2009, the firm purchases a plot of land for Rs. 2,00,000. Letteron a laboratory building constructed (cost of construction : Rs. 1,70,0000, date ofcompletion of construction : March 1, 2010) to start in-house research.
5. Before the commencement of the production, the firm had made the followingrevenue expeditor for its research laboratory:
Expenditure on salary and perquisite to research personnel and researchmaterial during the 12 months ending on November 30, 2006 : Rs. 20,0000.
Expenditure on salary of research personnel from December 1, 2006 to
November 30, 2009 : Rs. 61,000 9out of which amount certified by theprescribed authority is Rs. 42,000).
Expenditure on providing rent-free flats and club facility to research personnel,
from December 1, 2006 to November 30, 2009 : Rs. 8,000.
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Expenditure on research material from December 1, 2006 to November 30,2009 : Rs. 46,800 (out of which amount certified by the prescribed authorityis Rs. 43,800).
Capital expenditure on scientific research (not certified by the prescribed
authority)
Purchase of land for growing herbals for research
Purchase of equipments for research
Expenditure of capital nature for cultivation of herbals
Determine the amount of deduction available to XY under section 35(1) for theassessment year 2008-09, if the scientific research is (a) related or (b) unrelated to thebusiness of the assessee -firm.
Expenditure
Incurred up to
November 30, 2006
Expenditure
Incurred Between
December 1, 2006 and
November 30, 2009
Rs. Rs.
50,000 60,000
30,000 40,000
2,000 4,600
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SOLUTION: The amount of deduction under section 35 for the assessment year2010 11 will be detrained as under --
Where the scientificresearch is
Unrelated tothe business
Rs.
Related to thebusiness
Rs.
1,12,500
75,000
50,000
1,70,000
1,12,500
75,000
50,000
---
1. Payment of Rs. 90,000 to an approved scientificresearch institution for carrying on research in naturalscience is qualified for a weighted deduction undersection 35 (1) (ii) even if the research is not related tothe business of asessee [ I.e., 90,000 x 1.25]
2. Payment of Rs. 60,000 to and approved institution forcarrying on scientific research in social science isqualified for a weighted deduction section 35(1) (iii) evenif the scientific research is not related to the business ofassessee [I.e., 60,000 x 1.25]
3. Payment of Rs. 40,000 to and approved National
Laboratory is qualified for weighted deduction (even ifscientific research is not related to the business ofassessee) [I.e., 40,000 x 1.25] U/s 35 (2AA)
4. Cost of laboratory building (excluding cost of land)
5. Expenditure on salary (excluding perquisite) to researchpersonnel and expenditure on material for scientific
research incurred within 3 years before commencementof business Is deductible under section 35 Cont
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(1)(i) if the research is related to the business of the assessee ---
Rs. 20,000 being expenditure on salary and perquisites is not deductible
as it is not incurred within 3 years before commencement of business Rs. 42,000 being expenditure on salary to research personnel as
certified by the prescribed authority within 3 years beforecommencement of business is deductible if research is related to thebusiness of assesee
Rs. 8,000 being expenditure on providing perquisites to researchpersonnel before commencement of business is not deductible even if
research is related to the assessees business
Rs. 34,800 being expenditure as certified by the prescribed authority onpurchasing research material within 3 years before commencement ofbusiness is deductible if research is related to the assessees business
Cost of the land purchased for growing herbals (not deductible)
Rs. 40,000 (being the cost equipment) is deductible if research is relatedto the business
Rs. 4,600 being cost of growing herbals is deductible if research isrelated to the business
Amount deductible under section 35 for the assessment year 2008-09
NIL
42,000
NIL
34,800
--
40,000
4,600
5,28,900
NIL
NIL
NIL
NIL
--
--
--
2,37,500
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TAX DEDUCTED AT SOURCE
Existing provision Proposed provision Impact/Recommendations
Section 40 (a) (ia):
If assessee has
deducted TDS under
Sections193/194A/194
C/194H/194-I/194J in
April-February of a
previous year but
failed to deposit within
time allowed by
section 200(1)
no disallowance willbe made if afterdeduction of tax duringthe previous year, thesame has been paid on
or before the due dateof filing of return ofincome specified insub-section (1) ofsection 139, witheffect from 01.04.2010.
the provisions have beenfurther SIMPLIFIED as regardsdepositing TDS deducted toavoid disallowance. Thus,suppose assessee failed to
deposit TDS deducted inFebruary 2010 but during taxaudit under section 44ABconducted in May, 2010, thisnon-deposit is detected, thesame may be deposited on or
before 30-9-2010 to avoiddisallowance
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Provisions illustrated consider the following cases --
Q.3 Interest of 80,000 on company deposit is paid by Z Ltd. On March 10, 2008.Tax is deducted on the same day. Tax is deposited with the government throughinternet banking on August 10, 2008 (i.e., before the due date of submission of
return of income : September 30, 2008), it will be allowed as deducted for theprevious year 2007 08.
Suppose, tax is deposited on October 10, 1008, then by virtue of section 40(a)(ia)it will be allowed as deduction for the previous year 2008 09 (and not for theyear 2007 08.
Q.5 B Ltd. is a subsidiary of an overseas company. It maintains books of accounton the basis of March-February year (Accounting year starts on March 1 and endson February 28/29 of the next calendar year, Income-tax Act does not require thatbooks of account should be maintained on financial year basis). On February 29,2008, it transfers a sum of Rs. 3 lakh as commission to the account of broker in its
books of account. Tax is deducted at source at the rate of 10.3 per cent undersection 194H. Tax is deposited on April 20, 2008 [i.e., within 2 months from the lastdate of the accounting year as permitted by section 200(1) read with rule30(1)(b)(i)(1)].
By virtue of the provisions of section 40(a)(ia), Rs. 3 lakh will be allowed as
deduction for the previous year 2008-09 (and not for the previous year 2007-08
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TAX DEDUCTED AT SOURCEExisting provision Proposed provision Impact/Recommendations
Section 201(1A):
Interest on delay in
remittance of TDS
shall be 1% pm or part
thereof
A person is liable to pay
simple interest at 1% from the date onwhich tax is deductibleto the date of whichsuch tax is deducted
1.5% from the dateon which tax wasdeduced to the date ofwhich such tax isactually paid
W e f 01.07.2010
With a view to discourage the
practice of delaying the depositof tax after deduction, it isproposed to increase the rateof interest for non-payment oftax after deduction
No TDS/TCScertificates arerequired to be issuedby the deductor /collector on or after
01.04.2010
The deductor /collector will continue tofurnish TDS/TCScertificates even after01.01.2010
W r e f 01.04.2010
Considering the fact that theTDS/TCS certificateconstitutes an importantdocument for the deductee /collectee, it is proposed to
retain the existing provision
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TAX AUDIT
Gross turnover criteria for applicability of tax audit u/s 44AB revised as follow:
Nature Existing Proposed Impact/Recommendations
Business 40 Lakh 60 Lakh To reduce compliance burdenof small businesses andprofessionals
Profession 10 Lakh 15 Lakh
Turnover criteria for presumptive taxation u/s 44AD enhancedto Rs. 60 lakh.
Penalty u/s 271B increased from Rs. 1 lacs to Rs. 1.5 lacs
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LIMITED LIABLILITY PARTNERSHIP
LLP to be taxed on par with partnership firm; Accumulated losses and unabsorbed depreciation of a private company or anunlisted public company to be allowed in hands of LLP subject to specifiedconditions. It is proposed that the transfer of assets on conversion of a company into anLLP in accordance with section 56 and section 57 of the Limited LiabilityPartnership Act, 2008 shall not be regarded as a transfer for the purposes ofcapital gains tax under section 45, subject to certain conditions.
It is also proposed that if the conditions stipulated above are not complied with,the benefit availed by the company shall be deemed to be the profits and gains ofthe successor LLP chargeable to tax for the previous year in which therequirements are not complied with.
Carry forward and set-off of business loss and unabsorbed depreciation tosuccessor LLP permitted
Aggregate depreciation allowable to the predecessor company and successorLLP shall not exceed, in any previous year, the depreciation calculated
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LIMITED LIABLILITY PARTNERSHIP
Actual cost of the block of assets in the case of the successor LLP shall beshall be the WDV of the block of assets as in the case of the predecessorcompany on the date of conversion
The cost of acquisition of the capital asset for the successor LLP shall bedeemed to be the cost for which the predecessor company acquired it
No tax credit u/s 115JAA shall be allowed to the successor LLP
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TAXATION OF CERTAIN TRANSACTIONS WITHOUT /
INADEQUATE CONSIDERATION
Existing provision Proposed provision
Section 56, ExplnProperty does not include - bullion
Bullion is included in the meaning ofproperties for the purpose of taxability
of gift in kind u/s 56.
No such provision exists Any shares of a private limitedcompany received by a partnershipfirm or a private limited companywithout consideration or for aninadequate consideration will be taxedas per the provisions of section 56(viia)with effect from 01.06.2010.
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DEDUCTIONS
Existing provision Proposed provision Impact/Recommendations
No such provisionexists
Additional deductionof rupees 20,000 u/s80CCF for investment ininfrastructure bonds.
The words subscription inproposed section 80CCF areimportant. It seems deductionwill be apply only to those whoobtain these bonds byapplication and allotment
process and not to those whoacquire it from an existingholder of these bonds.
No such provisionexists
Section 80 D toinclude contributionmade to CentralGovernment HealthScheme.
The Central GovernmentHealth Scheme (CGHS) is amedical facility available toserving and retiredGovernment servants. Thisfacility is similar to the facilitiesavailable through healthinsurance policies.
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TDS-INCREASE IN THRESHOLD LIMIT
Section Nature of PaymentsExisting
limitProposed
limitImpact
194B
Winning from Lotteries &
Puzzles 5,000 10,000 To adjust forinflation andalso to reduce
the
compliance
burden of
deductors &
taxpayerslimit is
proposed to
increase
194BB Winning from Horse Races 2,500 5,000
194C Payment to Contractors:
-For Single transaction 20,000 30,000
-For aggregate oftransactions during thefinancial year 50,000 75,000
194D Insurance Commission 5,000 20,000
194H Commission/Brokerage 2,500 5,000
194 I
Rent on ImmovableProperty/Machinery/ Plant /Equipment/Furniture, etc 120,000 180,000
194J Fees for Professional /Technical Services 20,000 30,000
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