india budget 2009 challenging agenda*. direct taxes
TRANSCRIPT
India Budget 2009Challenging Agenda*
Direct Taxes
PricewaterhouseCoopersJuly 07, 2009
Slide 3India Budget 2009
Corporate Tax Rates
No change in tax rates• Corporate tax• Surcharge & Cess• DDT
Rate of MAT hiked from 10% to 15% of book profits.
Fringe Benefit Tax withdrawn from 1st
April 2009
Commodities Transaction Tax
withdrawn from 1st April 2009
Period of MAT credit increased
from 7 years to 10 years
PricewaterhouseCoopersJuly 07, 2009
Slide 4India Budget 2009
New Tax Holiday / Deduction• Commercial production of Natural Gas for NELP VIII (Sec 80IB(9))
• Investment-linked tax incentive for Pipeline (Sec 35AD)
• Weighted deduction extended to all Manufacturing / Production of any article / thing (except Negative list) (Sec 35(2AB))
• Anomaly in formula for computing tax holiday benefits for SEZ units resolved prospectively
PricewaterhouseCoopersJuly 07, 2009
Slide 5India Budget 2009
Project Sunset Date - Earlier
Sunset Date - Now
Power Generation, T&D (Sec 80IA(4)(iv))
March 31, 2010 March 31, 2011
Reconstruction & revival of Power Plant(Sec 80IA(4)(v))
March 31, 2008 March 31, 2011
Refining of mineral oil for private sector(Sec 80IB(9))
March 31, 2009 March 31, 2012
Export units / FTZ units / 100% EOU(Sec 10A / 10B)
March 31, 2010 March 31, 2011
Tax Holiday – Sunsets Extended
PricewaterhouseCoopersJuly 07, 2009
Slide 6India Budget 2009
Pipeline Tax Holiday• Deduction under section 80IA for laying and operating a cross country
Natural Gas distribution network discontinued
• 100% deduction on capital expenditure in the year of incurrence, for Companies engaged in “specified business”
• Capital expenditure exclude land or goodwill or financial instrument
Specified Business CommencementSetting up and operating a cold chain facility April 1, 2009
Setting up and operating a warehousing facility for storage of agricultural produce
April 1, 2009
Laying and operating a cross-country natural gas or crude or petroleum pipeline network for distribution
April 1, 2007
Cross Country not defined Whether available to City Gas Distribution
PricewaterhouseCoopersJuly 07, 2009
Slide 7India Budget 2009
Pipeline Tax Holiday
• Capital asset demolished/ transferred – Business Income Subject to higher tax rate as compared to Capital Gains
• Set off of loss only against specified business as definedLoss may be carried forward for unlimited period
• Expenditure capitalised during earlier years would be allowed in March 31, 2010
PricewaterhouseCoopersJuly 07, 2009
Slide 8India Budget 2009
Tax impact - 80-IA vs. 35AD
Assumptions -• Profit before depreciation and tax (‘PBDT’) for 10 years - INR 100 per annum• Capital Expenditure for year 1 - INR 600• Depreciation rate - 15% on WDV
Y-1 Y-2 Y-3 Y-4 Y-5 Y-6 Y-7 Y-8 Y-9 Y-10 Total
80-IA 1.7 4 5.95 7.6 9.01 10.21 11.23 12.1 12.83 13.46 88.09
35AD 1.7 4 5.95 7.6 9.01 10.21 11.23* 18.29* 33.99 33.99 135.97
Average tax cost for 10 years is 8.8% of PBDT in case of section 80-IA which increases to 13.6% of
PBDT in case of section 35AD
* tax liability after MAT credit
Tax Impact
PricewaterhouseCoopersJuly 07, 2009
Slide 9India Budget 2009
Tax holiday on Natural Gas• Controversy created by memorandum explaining Finance Bill 2008,
whether mineral oil includes natural gas
• Tax holiday now proposed to be available in respect to production of natural gas – Extended only for NELP VIII blocks
Gas produced in CBM blocks ??
Gas produced in Blocks awarded other than NELP VIII ??
PricewaterhouseCoopersJuly 07, 2009
Slide 10India Budget 2009
Tax holiday to Refineries
• Welcome change to extend time period till 31 March 2012 for private refineries to commence
• Private sector refineries now at par with notified Public sector undertaking refineries
PricewaterhouseCoopersJuly 07, 2009
Slide 11India Budget 2009
Controversy regarding definition of undertaking
• Blocks licensed in a single contract to be treated as “undertaking” for the purpose of computing deduction
• Retrospective amendment wef April 1, 2000
• Position of each well a separate undertaking – not possible
PricewaterhouseCoopersJuly 07, 2009
Slide 12India Budget 2009
Taxation of Limited Liability Partnership (LLP)
• Similar to partnership firms (Not a transparent entity)
• No Dividend Distribution Tax (DDT) and Minimum Alternative Tax (MAT)
• Conversion of partnership firms to LLP – tax neutral
PricewaterhouseCoopersJuly 07, 2009
Slide 13India Budget 2009
Change in TDS Rates
Major changes to rationalise TDS rates
Nature of payments Existing ProposedRent of plant, machinery or equipment
10% 2%
Rent of land & building to individual / HUF
15% 10%
Rent of land & building to persons other than individual / HUF
20% 10%
Payments to individual / HUF contractors
2% 1%
Payments to sub-contractors 1% 2%
Payments for advertising contracts 1% 2%
Payments to small transporters 1% / 2% Nil
Tax will be deducted at 20% (or higher) in all cases if the deductee doesn’t disclose PAN to deductor
PricewaterhouseCoopersJuly 07, 2009
Slide 14India Budget 2009
Direct Tax - Others
• FBT to be abolished
• Employee to pay tax on ESOP gains
- Taxable value would be difference between FMV as on date of exercise and price paid by employee
• Employee to pay tax on contribution to approved superannuation fund exceeding Rs 1 Lakh
• Rules to be framed for other perks
PricewaterhouseCoopersJuly 07, 2009
Slide 15India Budget 2009
Direct Tax - Others
• Gifts in kind liable to tax – individuals & HUF
• Basic wealth tax exemption limit increased from 15 lakh to 30 lakh
PricewaterhouseCoopersJuly 07, 2009
Slide 16India Budget 2009
Transfer Pricing• CBDT empowered to formulate ‘Safe Harbour’ rules.
Will facilitate smooth cross-border transactions
“Safe Harbour” means circumstances in which the Revenue authorities shall accept the transfer price of the taxpayer
PricewaterhouseCoopersJuly 07, 2009
Slide 17India Budget 2009
Transfer Pricing
• New Dispute Resolution mechanism introduced for persons in whose case a Transfer Pricing (‘TP’) adjustment has been made
• Apparently applicable to all foreign companies, whether or not there is a TP adjustment
• Where any objection is received from a taxpayer, a Dispute Resolution Panel shall issue directions to the Assessing Officer to enable him to complete the assessment
• In such cases, the Assessing Officer’s order is appealable directly to the Income Tax Appellate Tribunal
PricewaterhouseCoopersJuly 07, 2009
Slide 18India Budget 2009
Present scenario
Proposed scenario
120 x 0.95= 114
100 x 1.05= 105
14
20
Particulars Revised ALP after 5% range
Transfer Price
100
100
TP Adjustment
Transfer Pricing
• 5% range benefit available only if the Arm’s Length Price falls within +/-5% range of transfer price.
Illustration - Indian captive services provider:
120
120
Arm’s Length Price
(Mean)
PricewaterhouseCoopersJuly 07, 2009
Slide 19India Budget 2009
Direct Tax - Others
• Time limit prescribed for assessment of withholding tax returns for payments to residents - Capped at four years – whether applies to reassessment as well
• Mechanism for computerised processing of statements of tax deducted at source
• Introduction of allotment of a Document Identification Number by the assessing officer
PricewaterhouseCoopersJuly 07, 2009
Slide 20India Budget 2009
Tax Rates - IndividualTax Rates Existing Slabs Proposed Slabs
Nil Upto Rs. 1.5 lakhs Upto Rs. 1.6 lakhs
10% Rs. 1.5 lakhs to Rs. 3 lakhs Rs. 1.6 lakhs to Rs. 3 lakhs
20% Rs. 3 lakhs to Rs. 5 lakhs Rs. 3 lakhs to Rs. 5 lakhs
30% Above Rs. 5 lakhs Above Rs. 5 lakhs
Basic Exemption Limit Basic Exemption Limit
Rs. 1.80 lakhs for women Rs. 1.90 lakhs for women
Rs. 2.25 lakhs for senior citizens Rs. 2.40 lakhs for senior citizens
10% Surcharge for individual tax payers removed Effective Maximum Marginal rate of tax reduced to
30.90%
PricewaterhouseCoopersJuly 07, 2009
Slide 21India Budget 2009
Unfinished Agenda
• Rationalisation of DDT regime
• Tax reforms for outbound investments
• Re-engineering of tax processes
• New Tax Code