1. UNION BUDGET
2012-13
Investment Environment And Tax
Aspects

2. INTrODUcTION
• The Hon’ble Finance Minister Shri Pranab Mukherjee on 16.03.2012 presented the Union
Budget 2012. During the Year, as the Growth moderated and fiscal deficit widened; the
Minister admitted that the overall performance has been disappointing but also attributed
part of it to the Global crisis, domestic inflationary pressures and weak industrial growth. It
is maintained that pace of reforms needs acceleration and tough steps needs to be taken
for improving macroeconomic environment and strengthen domestic growth drivers. The
12th Five Year Plan aims addressing the following- Domestic Growth, Private investment,
Removal of supply bottlenecks in Agriculture, Energy & Transport, Malnutrition problem
and better Governance and tackling problem of Black Money and corruption.
• The Budget 2012 proposed certain limited amendments in Direct Tax Laws. However,
increase in Indirect Taxes has been made to pave way for the big legislation of Goods and
Services Tax (GST) convergence and also for reducing the Fiscal deficit. Some steps like
introduction of GAAR have been taken in direction of movement towards DTC and
eradication of Black Money and some serious retrospective amendments have also been
proposed by this Budget

3. BUDGETs EsTImaTEs

5. cOrPOraTE TaxaTION
CORPORATE TAX RATES
 For Domestic Companies
• Tax rates have been kept same,
 For Foreign Companies
• Tax rates have been kept same,
MAT
 Rate of MAT have been kept same
DIVIDEND DISTRIBUTION TAX
 Rates unchanged
 Cascading effect on DDT in case of Multilayer Subsidiaries removed to give ease
to the Corporate Structure

6. TrEaTmENT Of sharE PrEmIUm IN
ExcEss Of fmv
New Insertion under Section 56(2) applicable in case of a closely held Company where a
Company receives consideration for Issue of Shares. FMV to be substantiated in
accordance with method as may be prescribed. This Provision may Invite Litigations
and Valuation Rules should be adequately framed in this respect.

7. ExPaNsION Of amT
For Partnership Firms (including Limited Liability
Partnerships)
 Tax rates have been kept same
AMT
It is proposed to extend levy of Alternate Minimum Tax (AMT) to all persons
other than companies and LLP also, claiming profit linked deductions under
Chapter VI-A or under Section 10AA.

8. Tax raTE
For Individual Tax Payers
Total Income Tax Rate
For GENERAL Tax Payers (Male/Female)
Income upto Rs. 2.0 Lakhs NIL
Income above Rs.2.0 Lakh and upto Rs 5 Lakhs 10%
Income above Rs 5 Lakhs and upto Rs10 Lakhs 20%
Income above Rs10 Lakhs 30%
For SENIOR CITIZENS
Income upto Rs 2.5 Lakhs NIL
Income above Rs 2.5 Lakh and upto Rs 5 Lakhs 10%
Income above Rs 5 Lakhs and upto Rs10 Lakhs 20%
Income above Rs10 Lakhs 30%

9. Tax raTE
Notes:
3.For Individual Taxpayers, exemption on Saving Bank Interest upto Rs 10,000 has been
provided. This would now provide relief to small assesses having Salary income of less than
Rs 5 lacs as there would be no need to file the ROI.
4.In case of Senior Citizens not having any Business Income, requirement of paying Advance
Tax exempted.
5.Proposal to allow deduction of upto Rs 5,000 for preventive Health check up has also been
provided.
6.The segregation in tax slabs of Male/Female has been done away with
7.For all purposes of the Income Tax Act, Age of Senior Citizens harmonized to 60 years.
8.Special Slab rates in case of senior citizens of 80 years and above have been maintained.

10. INDIvIDUal TaxaTION
INVESTMENT LINKED DEDUCTIONS/SUNSET CLAUSES
 Extention of sunset clause for tax holiday for power sector
•Section 80-IA(4)(iv) has been proposed to be amended to extend the
terminal date for further period of one year i.e. upto March 31, 2013
TAXATION OF CERTAIN FOREIGN DIVIDENDS AT REDUCED RATE
 Lower tax of 15% on dividends received by an Indian company from its
foreign subsidiary in which it has shareholding of 26% or more gets
extended by 1 more year upto 31.03.2013.

11. rEGUlaTOry
chaNGEs IN
INvEsTmENT
ENvIrONmENT

12. mIcrO small & mEDIUm
ENTErPrIsEs
 Turnover limit for Tax Audit and Presumptive Taxation of SME’s increased from
Rs 60 Lacs to Rs 1 crores.
 Capital Gains Exemption is provided to Individual/HUF on sale of residential
property if sale consideration is used for subscription in Equity of a
Manufacturing SME for purchase of Plant & Machinery.
 Rs 5000 crores Indian Opportunity Venture Fund to be set up with SIDBI
 Policy requiring ministries and CPSEs to make a minimum of 20% of their
Annual purchases from MSE’s approved. Of this 4% earmarked for
procurement from MSE’s owned by SC/ST entrepreneurs.

13. aGrIcUlTUrE
 Plan outlay increased by 18%
Allocation for Green Revolution increased to Rs 10,000 crores in 2012-13 from
Rs 400 crores in 2011-12
Interest subvention scheme for short term loans to farmers at 7% p.a. to
continue for 2012-13. Additional subvention of 3% for prompt paying farmers.
 Rs 200 crores to be set aside for incentivizing research with rewards.
Structural changes in Accelerated Irrigation Benefit Programme being made to
maximize flow of benefit from Investment in Irrigation projects.

14. hOUsING &
INfrasTrUcTUrE
HOUSING SECTOR
Various proposals addressing shortage of housing for Low Income groups in
major cities including allowing ECB’s.
INFRASTRUCTURE
Withholding rates on interest payment on ECB’s reduced from 20% to 5% for 3
years for certain sectors.
During 12th 5 Year plan, Investment in Infrastructure to go upto Rs. 50 Lakh
crores under PPP.
Tax Free Bonds of Rs. 60,000 crores to be allowed for financing Infrastructure
projects in 2012-13

15. OThErs
FOREIGN DIRECT INVESTMENT (FDI)
• FDI in Multi-Brand Retail UPTO 51% and Aviation UPTO 49% are under
active consideration of Government
 EDUCATION
• Allocation of Rs 25555 Crores provided representing 21.7% increase
• 6000 schools proposed to be set up as Model Schools
HEALTH
• Existing Vaccine units to be modenised and new units to set up in Chennai
• Allocation for NRHM increased to Rs 20,822 crores

16. OThErs
NATIONAL MANUFACTURING POLICY
National Manufacturing Policy announced to increase the share of Manufacturing in GDP to
25% in next decade and create 10 crore jobs.
POWER & COAL
External Commercial Borrowings (ECB) to be allowed to part finance rupee debt of existing
Power projects
TRANSPORT- ROADS & CIVIL AVIATION
 Allocation enhanced by 14% to Rs 25,360 crores
 ECB proposed for capital expenditure allowed if part of original project
ECB permitted for working capital of Airline Industry for 1 year period subject to total ceiling of
US $ 1 Billion

17. OThErs
FERTILISERS
Government finalizing pricing and Investment policies for Urea to reduce India’s import
dependence in Urea
TEXTILES
Financial package of Rs 3884 crores introduced for waiver of handloom weavers loans and
their co-operative societies
INCLUSION
National Food Security Bill, 2011 is before Parliamentary Standing Committee
Maternal and Child malnutrition in selected 200 high burden districts being rolled out
 Allocation made for Rs 15850 crores for Integrated Child Development Service representing
58% increase and Rs 11937 crore for national Programme of Mid Day Meals in Schools
Allocation for Rural Drinking water and sanitation increased to Rs 14000 crores representing
27% increase.

18. OThErs
SOCIAL SECURITY
Provision of Rs 193407 crores made for Defence services including Rs 79579 crores fro capital
expenditure.
 Scheme for National Population Register to complete within next 2 years
Income of Foreign Company received in India in Indian currency on account of sale of
crude oil to any person in India has been made exempt subject to conditions.
Restriction of Venture Capital Funds to invest only in 9 specified sectors removed.
Investment linked deduction of capital expenditure for certain businesses provided @
enhanced rate of 150% and also weighted deduction of 200% for R&D expenditure for In-
house facility extended for further period of 5 years beyond March 2012.

19. GOvErNaNcE
GOVERNANCE
 UID-Aadhaar
• Adequate Funds to be allocated for enrolment of another 40 crore persons
Procurement Legislature
Legislative measures for strengthening Anti-Corruption framework in various stages of
enactment

20. BlacK mONEy mEasUrE
 Black Money Prevention Measures
•White Paper on Black Money to be laid in Parliament
• Proposal to introduce GAAR (existing in DTC) to counter Tax Avoidance
• Measures proposed to deter generation & use of unaccounted Money
•Retrospectively, W.e.f. 1st April, 2011- Compulsory Reporting for Foreign Assets held by
Indians through filing ROI, whether Taxable or not
•Reassessment of Income in relation to Foreign Assets may take place upto 16 Years
•W.e.f. 1st July, 2012- TCS provisions extended to Sale consideration of Bullion &
Jewellery exceeding ` 2 Lacs in cash @1%
•W.e.f. 1st October, 2012- Withholding Taxes @1% on Immovable Property exceeding the
following thresholds as follows-
o 50 Lacs in case of Urban Property
o 25 Lacs in other cases

21. INTErNaTIONal TaxaTION
PrOvIsIONs
Sec 9(1)(i) of IT Act, 1961 “INCOME ACCRUING OR ARISING THROUGH THE TRANSFER
OF A CAPITAL ASSET SITUATED IN INDIA” has been proposed to be RETROSPECTIVELY
AMENDED FROM 1962-63.
• This is against the recent order of the Supreme Court which held in favour of Vodafone.
• Tax Residency Certificates also proposed to be amended as a necessary but not
sufficient condition
 Advance Pricing Agreements proposed to be introduced for rationalization of Transfer
Pricing provisions
 Transfer Pricing provisions to apply even to Domestic transactions exceeding monetary
threshold of Rs. 5 crores in a year.

22. GENEral aNTI-avOIDaNcE
rUlE
• GAAR would codify “substance over form” where intent is looked at over the structure of
transaction
• The provision was part of the DTC and has been picked from there.
• GAAR applicable if the Transaction meets one of the 4 tests-
o Not done at Arms Length Price
o Misuse/Abuse of Tax law
o Lacks commercial substance
o Not for Bonafide Purpose
• Commissioners and Approving Panel to decide the fate of such cases

23. INDIvIDUal TaxaTION
CAPITAL MARKETS
 Various steps being taken for reforms in capital market including simplifying IPO process,
allowing QFI’s to access Indian Bond Markets etc.
 Reduction in Securities Transaction Tax (STT) by 20% on Cash Delivery Transactions w.e.f.
1st July 2012.
 E-IPO Concept for all IPO’s exceeding Rs 10 crores for wider participation in smaller towns
WEALTH TAX
 Exemption provided for Residential house allotted to employee of a company for levying
Wealth Tax by increasing Gross Salary threshold from Rs 5 Lacs to Rs 10 Lacs.

25. sErvIcE Tax
New concept of Negative List Introduced - 17 Heads defined
 Widened Tax Base
 Rate increased from 10% to 12% to pave way for GST
 Provisions of Central Excise & Service Tax harmonized- Simple Registration
form and 1 Page Return form proposed
 Settlement Commission introduced for dispute resolution
 Utilization of Input Tax credit permitted to remove cascading effect
 Possibility for common Tax code for Excise and Service Tax to be studied
and Place of Supply Rules for determining location of services to be put in
public domain

26. ExcIsE & cUsTOm
EXCISE
 Standard Rate increased from 10% to 12%, Merit Rate from 5% to 6% and
Lower Merit Rate from 1% to 2% with few exceptions
 Excise Duty on Large Cars proposed to be enhanced
CUSTOMS
 No change in peak rate of custom duty of 10% on Non Agricultural goods

27. OUr cOmmENTs
 Shifting of focus from controlling Inflation to ensuring growth with Fiscal Consideration.
 Curbing of Direct Tax avoidance by introduction of GAAR and increase in Service
Tax/Excise Duty rates to align it with proposed GST and to make up Fiscal deficit.
 Small Impetus has been given to Capital Markets by reducing STT by 20% ONLY on cash
delivery transactions and by bringing E-IPO concept for wider participation in smaller
towns.
 Relaxation in ECB norms may provide support to the Corporate Sectors but subject to
their ill-Financial Health.
 Applicability of Transfer Pricing to Related Party Domestic transactions a challenge.
 Sec 56 capping the price for Allotment/Transfer of shares of closely held company up-to
its FMV. Now there is criterion for Minimum as well as Maximum price of shares.
 Many Retrospective Explanatory amendments have been made in cases where there was
Adverse Judicial pronouncements which may see a lot of further litigation. Govt.
estimating it at 30,000-40,000 crores.

28. cONTacT Us
M r . C h a n d e r S a w h n e y, A s s is t a n t V ic e P r e s id e n t
D-28, South Ex-Part-1, New Delhi - 110 049, India
(B): +91 11 40622200 | (D): +91 11 40622252 | (F): +91 11 40622201 |
Handphone- +91 9810557353
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i i
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29. OUr sErvIcEs

30. OUr ONlINE vENTUrEs