india budget 2012 by delliote

8/2/2019 India Budget 2012 by Delliote

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Getting to the core

Budget Highlights

March 2012

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New policy announcements

Direct Tax Code (DTC) and Goods and Service Tax (GST)

The Finance Minister reiterated -

the expeditious enactment o DTC.

the commitment on the introduction o GST, creating a structure o GST

network and towards the drating o model legislation or Centre and State GST.


3/163Getting to the core Budget Highlights

Individual

Slab Rate Current Proposed Maximum Savings

Nil `180,000 `200,0002,060

10% `180,001 to `500,000 `200,001 to `500,000

20%`500,001 to

`800,000

`500,001 to

`1,000,000 20,600

30% > `800,000 > `1,000,000

Education cess o 3% continues.

No dierentiation or basic exemption limit or women. Accordingly, the

additional benet to women is lower by `1,000.

Proposed slab rates in line with DTC Bill, 2010.

Corporate

Current ProposedCorporate

- Domestic 30% 30%

- Foreign 40% 40%

MAT 18.5% 18.5%

DDT 15% 15%

No change in base corporate tax rate or domestic and oreign companies and

DDT

No change in surcharge and cess.

Eective tax rates are as below:

For domestic companies, where income exceeds `1 crore - 32.445%, where

income is less than `1 crore 30.6%.

For oreign companies, where income exceeds `1 crore 42.024%, where

income is less than `1 crore 41.2%.

Tax rates


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Direct Taxes

Tax incentives and relies

Specifed Companies

Interest income paid by specied

companies (inrastructure companies

like construction o road, toll road or

bridge, power etc. and companies inthe business o operation o aircrat

and manuacture or production o

ertilisers) to a non-resident subject

to concessional withholding tax rate

o 5%:

in respect o monies borrowed

on or ater the 1 July 2012 but

beore the 1 July 2015 in oreign

currency, rom a source outside

India under a loan agreement

approved by the Central

Government; and

to the extent to which such

interest does not exceed the

amount o interest calculated at

the rate approved by the Central

Government in this behal, having

regard to the terms o the loan

and its repayment.

Venture Capital Undertakings

Venture capital benet is

available to all unds without

any restrictions. Existing sectoral

restrictions (sotware, inormation

technology, production o basicdrugs in the pharmaceutical sector,

biotechnology, etc.) have been

removed.

Exemption rom withholding tax

provisions on income paid or credited

by venture capital unds or venture

capital companies withdrawn.

Income o venture capital und and

companies taxable in the hands oinvestors on accrual basis with no

deerrals.

Dividend

Benecial tax rate o 15% on

dividend income rom oreign

subsidiaries extended by 1 year.

Presently, one o the conditions

or claiming credit or dividend

distribution tax is that the dividend

recipient should not be a subsidiary

o any other company. This condition

has now been dispensed with.

Tax Holiday Benefts

Sunset clause has been extended

till 31 March 2013 or undertaking

engaged in generation and / or

distribution / transmission o power.

New sectors to be added or the

purposes o investment linked

deduction.

Investment in Plant and Machinery

Benet o additional depreciation

in the initial year proposed to beextended to undertakings engaged

in generation or generation and

distribution o power.



Research and development

Weighted deduction o 200% or

in-house research expenditure is

currently available till 31 March

2012. This has been extended or a

urther period o 5 years till31 March 2017.

Securities Transaction Tax (STT)

STT on actual delivery or transer

o shares reduced rom the existing

0.125% to 0.1%.

Others

Exemption or income o oreign

company received in India in Indian

currency on account o sale o crude

oil to any person in India subject to

certain conditions including approval

rom Central Government and

oreign company not being engaged

in any activity, other than receipt o

such income, in India.

Weighted deduction o 150% on

expenses incurred on ollowing

projects notied by the board

Skill development projects in

manuacturing sector

Agricultural extension projects.

Judicial precedents reversed by

retrospective amendments

Indirect transer o capital assets

Presently, deemed income includes

income rom transer o a capital

asset situated in India. Scope o deemed income expanded

to include income rom transer

o share or interest in a Company

/ entity registered / incorporated

outside India i the share or interest

derives, directly or indirectly, its value

substantially rom the assets located

in India.1

The term property as used in the

denition o capital asset to include

any rights o management or control

or any other rights whatsoever in

relation to an Indian Company.

Enabling provisions also included in

the denition o the term transer

includes disposing o or parting

with an assets or any interest

therein notwithstanding that the

same is fowing rom the transer o

shares o a company registered or

incorporated outside India.

In respect o such transactions,

it is claried that non-residents

1 Through this, the

recent Supreme

Court ruling in the

case o Vodaone

has been reversed.


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are required to withhold taxes at

source or any payments made

to any other non-resident i the

payment represents income o the

non-resident payee, chargeable to

tax in India.

Sotware

Defnition o royalty amended

retrospectively rom 01 June 1976 to

specifcally cover the use or right to use

computer sotware (including granting

o a licence). Medium o transer not

relevant or determining taxability.

Bandwidth / Satellite transmission

The term process used in the

denition o royalty has been

claried to include transmission by

satellite, cable, optic bre or by any

other similar technology, whether or

not such process is secret. Eective

retrospectively rom 01 June 1976.

Condition to avail benefts under

the tax treaty

Residency Certicate mandatory or

claiming benet under the tax treaty.

General Anti-Avoidance Rule

(GAAR)

GAAR introduced primarily to codiythe doctrine o substance over orm

and to deal with aggressive tax

planning.

GAAR provisions may override tax

treaties to prevent treaty abuse

and bring certain cross border

transactions under taxation.

An arrangement entered into by

an assessee may be declared tobe an impermissible avoidance

arrangement with attendant tax

consequences.

Impermissible avoidance

arrangement

An arrangement would be

declared as an impermissible

avoidance arrangement i the

main purpose or one o the

purposes is to obtain a tax

benet and satises certain other

conditions (lacks commercial

substance, etc.)

Lacking commercial substance - An

arrangement will be deemed to lack

commercial substance i:

The substance o the

arrangement is inconsistent with,

or diers signicantly rom, the

orm o its individual steps or

parts; or

It involves round tripping

nancing or elements that have

eect o osetting each other or

includes an accommodating party

or a transaction which disguisesthe value, location, source,

ownership or control o und; or



It involves a location o an asset

/ transaction / place o residence

o any party which has been so

located only or the purpose o

obtaining tax benets.

Consequences o an impermissibleavoidance arrangement

Once the arrangement is held to

be an impermissible avoidance

agreement then the tax

authorities may:

disregard or ignore the

arrangement or part thereo,

recharacterise any step,

disregarding any corporate

structure,

denial o benets under tax

treaty, etc.

Framing o guidelines

GAAR provisions to be applied in

accordance with guidelines to be

prescribed by Board.

Onus

The onus to prove that the main

purpose o the arrangement is

not to obtain the tax benets

would be on the taxpayer.

Process The Assessing Ocer would be

required to make a reerence to

the Commissioner or invoking

the anti-avoidance provisions

who may reer the case to an

Approving Panel, consisting o 3

members

The Approving Panel would be

required to either declare an

arrangement to be impermissible

or otherwise within a period o

six months.

Taxpayer to le appeal beore the

Income Tax Appellate Tribunal.


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Alternate Minimum Tax (AMT)

Presently, AMT which is applicable

to LLP now extended to all

non-corporates who claim certain

deductions in computing their total

income. Threshold limit o `20 lakhs or

individuals, HUF, AOP, BOI and

articial juridical persons.

AMT Credit allowed to be carried

orward up to 10 years

Minimum Alternate Tax (MAT)

Insurance, Electricity Companies

and Banks incorporated under the

Companies Act, 1956, have been

brought under MAT regime.

Gains on disposal o revalued assets,

even i not credited to the prot and

loss account, to be considered or

MAT purposes.

Mergers and acquisitions Requirement to issue shares

dispensed with in case o

amalgamation o subsidiary

company into holding company.

Requirement to issue shares on

proportionate basis in case o

demerger is dispensed with where

the demerged company is subsidiary

o the resultant company.

Personal taxation

Basic exemption limit enhanced to

`200,000 rom `180,000.

No dierentiation or basic

exemption limit or women.

No change in basic exemption limitsor senior citizens.

Unexplained amounts/credits in

the books o accounts are deemed

to be income o the assessee and

are chargeable to income tax. Such

amounts would henceorth be

subject to tax @ 30% without any

deductions / exemptions.

Residents having assets (including

nancial interest in any entity)

located outside India are required

to urnish tax returns mandatorily

rom nancial year 2011-12

onwards. This would be irrespective

o whether they have income

chargeable to tax in India or

otherwise.

Senior citizens (individuals aged 60

years and above), not having income

rom business or proession are not

required to pay advance tax.

Any sum received under a lie

insurance policy is exempt rom tax,

provided the premium payable or

such policy or the year does not

exceed 10% o the sum assured, asagainst 20% presently.



Deduction o `15,000 under

Section 80D has been broadened toinclude expenditure on preventive

health check-up. The quantum o

such benet has been restricted to

`5,000.

Exemption o `10,000 is available

or interest earned on deposits in

savings bank account, co-operative

banks and post oce.

Capital Gains

Exemption available or capital gains

on sale o residential property (house

or land) where the net consideration

is invested in a small and medium

enterprise (SME) subject to specied

conditions.

In cases where consideration or

transer o capital asset is not

determinable, air market value

o the asset to be treated as sale

consideration.

Income rom Other Sources

Consideration or issue o shares,received rom any resident by a

company in which public is not

substantially interested, in excess

o the air market value, shall be

liable to tax. However, this does not

apply to consideration received by a

venture capital undertaking rom a

Venture Capital Company / und.

Other amendments

Time limit or issue o notice or

reopening assessments is enhanced

to 16 years where income relating

to assets situated outside India has

escaped assessment.

Withholding tax (TDS)

TDS on transer or certain immovable

properties (other than agricultural

land)


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TDS @ 1% i the consideration

on transer exceeds

`50 lakhs in case such property

situated in specied urban

agglomeration; or

`20 lakhs in case such propertyis situated in any other area.

I consideration is less than value

adopted or assessed by stamp

duty authorities, such value be

deemed as consideration or

transer o such immovable

property.

TDS on remuneration (other than

salary) to a director @ 10%.

Threshold limit to withhold taxes on

interest on debentures is increased

rom `2,500 to 5,000.

Tax Collection at Source (TCS)

Seller o bullion or jewellery

shall collect tax @ 1% o sale

consideration rom every buyer i

sale consideration in cash exceeds

`2 lakhs.

Seller to collect 1% tax on sale o

minerals (coal, lignite and iron Ore),

subject to conditions.

Other amendments

Time limit or completion oassessment, re-assessments, revisions

and appellate proceedings extended.

Rates o daily tonnage income

revised.

Additional onus on closely held

companies to explain the nature and

source o any sums credited except

in the case o the shareholder being

a well regulated entity like Venture

capital unds etc., registered with

the SEBI.



Advance Pricing Arrangement

(APA) introduced

The Finance Bill 2012 proposes to

introduce the APA which was initially

included as part o the Direct Tax Code

The Board is empowered toenter into an APA with any person

undertaking an international

transaction seeking to determine the

Arms Length Price or the manner o

determination o Arms Length Price

APA is only applicable or

international transactions and valid

or a period o 5 consecutive years or

years as specied in the agreement

The Arms Length Price under the

APA may be determined under any

method whether prescribed or not.

APA shall be legally binding on

the taxpayer and on the income

tax authorities in respect o the

international transaction or which

the APA is entered

APA shall not be binding i there is

a change in law having bearing on

such APA

The Board shall prescribe the

scheme speciying the manner, orm,

procedure and other matters in

respect o the APA

The provisions relating to the

ling o Return/ assessments/re-assessments consequent to the

conclusion o APA has also been

modied to the above eect

Introduction o Transer Pricing

provisions to Specifed Domestic

Transactions2

A new Section has been introduced by

which Specifed Domestic Transactions

have been brought under the purviewo Transer Pricing regulations

The computation o value o

Specied Domestic Transactions will

be as per Arms Length provisions

under Transer Pricing regulations

The provision would be applicable

i the value o Specied Domestic

transactions in aggregate exceeds

`5 Crore.

The Specic Domestic Transactions

or the purposes o application o

Transer Pricng provisions would be

as ollows:

Expenses/ payment transactions

between related persons as

covered under the provisions o

Section 40 A (2) (b);

Transer o goods/ services/

business rom one unit/

undertaking o the Assesse to

another unit/ undertaking o the

assesse, claiming benet under

Section 80 IA, under Chapter VI

A or 10 AA where the provisions

o 80IA are applicable;

Transfer Pricing

2 In line with Supreme

Court Ruling in

case o Glaxo

Smithkline Asia(P)

Ltd- Special Leave

to Appeal (Civil)

No(s).18121/2007


12/1612

The Assesse would be required to

maintain/ urnish documentation

and obtain certication o Specied

Domestic Transactions

The other Transer Pricing provisions

pertaining to internationaltransactions would also be

applicable or Specied Domestic

Transactions

Clarifcation on applicability o

allowable variation rom Arms

Length Price

It is claried that provision relating to

the allowable variation is applicable

to all assessment/ reassessment

proceedings pending beore the

assessing ocer as on 1st day o

October 2009

As a consequent change to the

above clarication, the assesse

cannot claim a standard deduction

o 5% or all the Financial Years

starting 2001-02, but may claim the

benet only i the variation between

Transer Price and Arms Length price

is within 5% o the Transer Price

From FY 2012-13, the variation

percentage would be limited to 3%

instead o 5%

International Transaction-

Defnition clarifed (eective

FY 2001-02)

Claried denition o tangible

property to include building,

transportation vehicle, machinery,urniture, equipment etc. or

commodity or any other article,

product or thing etc.

Claried denition o intangible

property to include use o rights

regarding land rights, customer

list, ranchise, marketing channel,

brand etc. or any other business or

commercial rights o similar nature

Denition now includes business

restructuring or re-organization

irrespective o bearing on prot,

income, losses current or uture

Dispute Resolution Panel (DRP)-

Signifcant Changes

The order o DRP is now appealable

by the Assessing Ocer to the ITAT

with eect rom 1st July 2012

DRP is empowered to pass directions

on any matter arising out o the

assessment proceedings irrespective

whether such matter was raised

by the eligible assessee or not.

Amendment eective FY 2008-09



Reerence to TPO

TPO can determine Arms Length Price

o any international transaction entered

into by the assesse, not reerred to him

by the AO, provided that assessee has

not reported the same under section92E. Amendment retrospectively rom

1 June 2002

For cases concluded beore 1 July 2012,

the Assessing ocer will not have right

to re-open the case only on account o

such amendment

Other procedural

Due date or ling Form 3CEB or

non-corporate taxpayers

Extension o timeline till

30 November eective or

FY 2011-12 onwards

Extended Scope o Penalty

Penalty provision has been

amended to included ailure to

report transactions, maintaining

or urnishing incorrect

inormation

Penalty is leviable at rate o 2%

o value o transaction

These changes will be eective

rom 1July 2012


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Customs

Peak rate o Customs Duty

maintained at 10%

Customs duty exemption on

specied equipments extended to all

inrastructure projects Cess on Countervailing Duty

exempted or on imported goods

Rate o Basic Customs Duty (BCD)

on capital goods or setting up

/ expansion o Iron ore plants

reduced rom 7.5% to 2.5%

Exemption rom BCD or setting

up/expansion o ertilizer projects

extended till 31 March 2015

Full exemption rom BCD extended

to equipments or Coal mining

projects

Full exemption rom BCD on LCD/

LED TV panels

BCD ully exempted/ reduced on

inputs or power generation like

NG/LNG, steam coal, uranium

concentrates

Exemption rom BCD and CVD

provided in respect o aircrat tyres

and maintenance spares

Duty ree limit on articles

accompanying passengers increased

rom `25,000/- to `35,000/-

Reduction in import duty on parts

o hybrid vehicles, railway saetyequipments, CFL lamps, specied

liesaving drugs, tubes and pipes or

boilers

Electronic payment o Customs duty

being contemplated or specied

importers

Excise

Standard rate o Excise duty on non-petroleum goods increased rom 10

% to 12 %

Excise duty o 2% or spare parts

o mobile phones without CENVAT

credit

Merit rate or non petroleum goods

increased rom 5% to 6% and rate

o 1% on certain items imposed in

the last Budget increased to 2%

Cement/Cigarettes to be assessed

on Specic cum- advalorem basis

(Retail Sale Price (RSP)). Abatement

on RSP also notied.

Process o packing / re-packing /

labelling/ re-labelling or alteration

o RSP in case o cigarettes shall

be deemed to be manuacture or

purpose o levy o excise duty

Abatement o RSP on readymade

Garments and made up articles o

textiles increased rom 55% to 70%

o RSP

Duty on Eco-riendly products like

electric/hybrid vehicles and LED

lamps reduced to 6%

New methodology prescribed ordistribution o credit by an input

service distributor(ISD)

Facility to transer unutilized Cenvat

Indirect Tax



Credit o Special Additional Duty

rom one actory to another o the

same manuacturer

Interest on credit wrongly taken

is not payable unless the same is

utilized

Service Tax

Service tax rate increased rom 10%

to 12%

Paradigm shit in the manner o

taxation o services. As against

the present system o dening the

taxable services, it is proposed to

dene the services that are not

taxable (Negative list approach

introduced)

List o services exempt rom tax have

been pruned to 10 rom 88

Exemption to specied inrastructure

projects have been retained

Excess service tax paid can be

adjusted without any monetary limit

Penalty is waived i Service tax or

the past period in respect o Renting

o Immovable Property service is paid

along with interest within 6 months

Time limit or issuing show cause

notice increased rom 12 month to

18 months

Provisions relating to Settlement

Commission extended to Service tax Point o Taxation Rules rationalised

In order to align with the proposed

GST, a Drat Place o Provision o

Services Rules, 2012 has been issued

Central Sales Tax

Central Sales Tax rate continues at2% with Form C

Goods and Service Tax

GST to be implemented in

consultation with the States at the

earliest

A model legislation or Centre and

State GST is under preparation

GST Network (GSTN) to be set up as

a National Inormation Utility and

will become operational by August

2012

GSTN will implement common

PAN-based registration, returns ling

and payments processing or all

States on a shared platorm

Source: Finance Bill,

2012. All amendments

are eective 01 April

2012 unless otherwise

stated.


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india budget 2012 by delliote

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