UNION BUDGET 2012-13Investment Environment And Tax Aspects
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
cOrPOraTE TaxaTIONCORPORATE 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
TrEaTmENT Of sharE PrEmIUm IN ExcEss Of fmvNew 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.
ExPaNsION Of amTFor Partnership Firms (including Limited LiabilityPartnerships) 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.
Tax raTEFor 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%
Tax raTENotes:3.For Individual Taxpayers, exemption on Saving Bank Interest upto Rs 10,000 has beenprovided. This would now provide relief to small assesses having Salary income of less thanRs 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 AdvanceTax exempted.5.Proposal to allow deduction of upto Rs 5,000 for preventive Health check up has also beenprovided.6.The segregation in tax slabs of Male/Female has been done away with7.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.
INDIvIDUal TaxaTIONINVESTMENT 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 theterminal date for further period of one year i.e. upto March 31, 2013TAXATION OF CERTAIN FOREIGN DIVIDENDS AT REDUCED RATE Lower tax of 15% on dividends received by an Indian company from itsforeign subsidiary in which it has shareholding of 26% or more getsextended by 1 more year upto 31.03.2013.
rEGUlaTOry chaNGEs IN INvEsTmENTENvIrONmENT
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.
aGrIcUlTUrE Plan outlay increased by 18%Allocation for Green Revolution increased to Rs 10,000 crores in 2012-13 fromRs 400 crores in 2011-12Interest subvention scheme for short term loans to farmers at 7% p.a. tocontinue 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 tomaximize flow of benefit from Investment in Irrigation projects.
hOUsING & INfrasTrUcTUrEHOUSING SECTORVarious proposals addressing shortage of housing for Low Income groups inmajor cities including allowing ECB’s.INFRASTRUCTUREWithholding rates on interest payment on ECB’s reduced from 20% to 5% for 3years for certain sectors.During 12th 5 Year plan, Investment in Infrastructure to go upto Rs. 50 Lakhcrores under PPP.Tax Free Bonds of Rs. 60,000 crores to be allowed for financing Infrastructureprojects in 2012-13
OThErsFOREIGN 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
OThErsNATIONAL MANUFACTURING POLICYNational Manufacturing Policy announced to increase the share of Manufacturing in GDP to25% in next decade and create 10 crore jobs.POWER & COALExternal Commercial Borrowings (ECB) to be allowed to part finance rupee debt of existingPower projectsTRANSPORT- ROADS & CIVIL AVIATION Allocation enhanced by 14% to Rs 25,360 crores ECB proposed for capital expenditure allowed if part of original projectECB permitted for working capital of Airline Industry for 1 year period subject to total ceiling ofUS $ 1 Billion
OThErsFERTILISERSGovernment finalizing pricing and Investment policies for Urea to reduce India’s importdependence in UreaTEXTILESFinancial package of Rs 3884 crores introduced for waiver of handloom weavers loans andtheir co-operative societiesINCLUSIONNational Food Security Bill, 2011 is before Parliamentary Standing CommitteeMaternal and Child malnutrition in selected 200 high burden districts being rolled out Allocation made for Rs 15850 crores for Integrated Child Development Service representing58% increase and Rs 11937 crore for national Programme of Mid Day Meals in SchoolsAllocation for Rural Drinking water and sanitation increased to Rs 14000 crores representing27% increase.
OThErsSOCIAL SECURITYProvision of Rs 193407 crores made for Defence services including Rs 79579 crores fro capitalexpenditure. Scheme for National Population Register to complete within next 2 yearsIncome of Foreign Company received in India in Indian currency on account of sale ofcrude 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.
GOvErNaNcEGOVERNANCE 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
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
INTErNaTIONal TaxaTION PrOvIsIONsSec 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.
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
INDIvIDUal TaxaTIONCAPITAL 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 townsWEALTH 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.
sErvIcE TaxNew 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 Registrationform 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 studiedand Place of Supply Rules for determining location of services to be put inpublic domain
ExcIsE & cUsTOmEXCISE 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 enhancedCUSTOMS No change in peak rate of custom duty of 10% on Non Agricultural goods
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.
cONTacT UsM 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 (E): i n f o @ n d i a c p . c o m /c h a n d e r @ n d i a c p . c o m i i (W): w w w . c o r p o r a t e p r o f e s s i o n a l s . c o m