Budget Estimates• GDP growth estimated to be 7.6 per cent (+/- 0.25 %)• Gross Tax receipts are estimated at ` 10,77,612 crore vs ` 9,32,440 crore for the previous year.• Non-tax revenue receipts estimated at ` 1,64,614 as compared to ` 1,25,435 crore for the previous year..• Total expenditure proposed at ` 14,90,925 as against ` 12,57,729 crore for 2011-12• Increase of 18 per cent in total Plan allocation.• Fiscal deficit projected to be 5.1% of GDP as compared to 5.9% for 2011- 12.• The projection for 2011-12 was 4% with the aim of reducing it to 3.5% by 2013-14
Direct TaxesChange Impact/Comments No separate categories Personal Taxes: for men and women. New common slabs introduced for Tax rates have been individuals brought in line with Income Rate DTC rates Upto ` 2,00,000** Nil Expectations for a higher exemption limit ` 2,00,000 to ` 10 have been quashed 5,00,000 ` 5,00,000 to ` 20 10,00,000 ** ` 2,50,000 for individuals between the age of 60 and 80 ** ` 5,00,000 for individuals above 80 Additional rebate of ` 5 thousand for periodic health checks allowed Up to ` 50 thousand deduction on account of investment in equities
Direct TaxesChange Impact/Comments Benefits available under Personal Taxes (Cont.): section 80CCF of up to Deduction of up to ` 10 thousand `20,000 on account of against bank interest income investment in Senior citizens not having business infrastructure bonds income shall not be liable to have not been extended deposit advance tax in this budget
Direct TaxesChange Impact/Comments Retrospective amendments to Section 2 Indirect transfers of and section 9 from 1962, by means of Indian capital assets addition of explanations to would be subject to tax Re-define Capital Assets as all in India. rights in or related to an Indian This also raises issues company, including rights of on what constitutes a management or control or any right to manage and other rights whatsoever control the Indian Include parting of rights incidental company to ownership of shares in foreign Effect of landmark company as “transfer” ruling on Vodafone has Deem as situated in India, shares been reversed by the in a foreign company if the shares government. derive substantial value from This creates scope for assets in India. conflict with revenue authorities in other jurisdictions
Direct TaxesChange Impact/Comments Definition of “Royalty” has been Withholding tax shall retrospective amended from 1st June be applicable on such 1976 to deem the following incomes as incomes irrespective of accruing in India the residential status of Transfer of right to use ( including or lack of place of license) computer software business of the recipient Consideration in respect of any in India.The proposed right, property or information amendment attempts to tax as “royalty” Further, “process” has been deemed to embedded have always included transmission by products, online satellite (including up-linking, subscription amplification, conversion for down products, shrink-wrap linking of any signal), cable, optic fibre software or by any other similar technology. etc, notwithstanding that they are merely a sale of a good in electronic form.
Direct TaxesChange Impact/Comments VCs are now free to Venture Capital Funds (“VCF”) invest in sectors other Definition of venture capital than the 9 specified undertaking has been altered to sectors without having match the SEBI definition. to rely upon Pass through benefits are now “irrevocable available to VCs for all sectors determinate trusts ” VC income shall now be taxed in the hands of the LPs on accrual basis Exemption from applicability of DDT and withholding tax provisions on distribution of income by VCFs will remain valid.
Direct TaxesChange Impact/Comments While the submission of To claim treaty benefits under Double a TRC is mandatory for Tax Avoidance Agreements (“DTAA”) claiming DTAA non residents will have to furnish a Tax benefits, mere Residency Certificate (“TRC”) from furnishing of same shall their home state. not provide relief. Income derived by a notified foreign company on account of sale of crude oil to any person in India is now exempt from tax in India Deduction of 150% of expenditure incurred on notified agricultural extension projects. Deduction of 150% of expenditure on skill development projects
Direct TaxesChange Impact/Comments Additional cushion for Additional depreciation of 20% on power businesses . capital expansion allowed to power Encouragement to generation and distribution businesses. invest in power infrastructure. Investment linked deductions extended Benefits of 150% of to the following industries : investment now Bee keeping and production of available to these honey, beeswax specified industries. inland container depot or a container freight station Sugar warehousing Weighted deduction of 200% against in house research and expenditure on specified industries has been extended for 5 more years
Direct TaxesChange Impact/Comments Limits for compulsory tax audit hiked Lower compliance from ` 60 lakhs to ` 1crore for firms, and burden for small and from ` 15 lakhs to ` 25 lakhs medium sized enterprises as well as individuals Long term capital gain arising from sale The provision seeks to of residential property will be exempt if provide tax benefits to invested in an eligible company and entrepreneurs seeking then used by such company to acquire to finance themselves new assets by selling residential Fair market value to be considered as property consideration for the purposes of calculation of capital gains, if consideration in a certain transaction is not quantifiable. LTCG on sale of unlisted securities by all non residents will also attract tax at reduced rate of 10%.
Direct TaxesChange Impact/Comments Capital gain tax will be exempt on sale of unlisted securities in IPO provided STT @.2% has been paid. Consideration received by a private Provision has been company or unlisted public company ostensibly inserted to for shares, in excess of the Fair Market check the generation Value (“FMV”) of such shares will be and use of black money. considered incomes in the hands of the The provision fails to company and chargeable to tax as consider cases where “income from other sources”. This there is genuine provision is not applicable in the case of commercial reason for investments by a VCF and other issuing shares at notified category of persons. premium. This proposal in its current guise would pose many fold challenges for structuring of genuine investments into companies.
Direct TaxesChange Impact/Comments Lower compliance In the case of conversion of conversion burden for small and of partnership /proprietorship into medium sized corporate entity cost of acquisition of enterprises as well as assets in hands of company to be the individuals cost of acquisition for the company. Exemption on sale of agricultural land extended to HUFs Amalgamating company need not issue shares to itself to avail capital gains exemption in case of merger of subsidiary with holding company. A similar provision has been introduced in the case of a demerger. No capital gain tax will be levied in Conversion should case of conversion of Indian branch of made in accordance foreign company carrying banking with the scheme framed business in India to an Indian company by RBI.
Direct TaxesChange Impact/Comments This move looks to Onus shall now be on a private curtail the flow of company to prove source of (sic) questionable money. investments made by individuals in the The onus of proving company. source of money has been shifted from the payer to the receiver, overturning the law laid down in ”CIT vs Lovely Exports” No deduction allowed for contributions Again, cash based to charitable purposes of any sum transaction are sought exceeding ` 10 thousand unless paid in to be curbed in a bid to mode other than cash. check the circulation of black money.
Direct TaxesChange Impact/Comments Transfer pricing International transaction to now include restructuring capital financing, guarantees, purchase, sal e/lease/use of intangible property, inter company receivables, payables etc. with retrospective effect from 1.04. 2001 New Definition for “intangible property” has been introduced to cover marketing and customer related intangibles, technology and data processing related intangible assets, customer relationships, customer lists, human capital related intangibles including trained work force, employment agreements, leasehold interests, commercial rights, studies, forecasts, surveys and others
Direct TaxesChange Impact/Comments APAs are a welcome Transfer pricing (Cont.) move. APA agreements Advance Pricing Agreement would be valid for 5 (“APA”) system introduced . years and would be Specified domestic transactions to applicable both on the be covered under transfer pricing assessee and the regime if aggregate value of revenue transactions exceeds ` 5 crores in a APA benefit is not year. available for domestic Safe Harbor of 5% as allowed earlier assessees has been removed with Compliance burden of retrospective effect, upper limit of corporate tax payers safe harbor to be 3% from April shall rise as a 1, 2012 onwards consequence. Transfer Pricing Officer (“TPO”) is now empowered to review cross border transactions even if CA certificate has not been furnished.
Direct TaxesChange Impact/Comments GAAR provides Introduction of General Anti Avoidance sweeping powers to tax Rules (“GAAR”), the proposed rules authorities and is open shall crack down on “impermissible to misuse. avoidance arrangements”. If invoked GAAR has the effect of GAAR is to be invoked only on arrangements Denial of treaty benefit where the main purpose Deemed relocation of or one of the main assets, location etc to a place other purposes of the than the one envisioned arrangement should be arrangement tax avoidance and the Deemed re-characterization of onus of proving this has equity into debt, revenue etc. been shifted on Re-allocation of expenses revenue. The provisions will be applicable from A committee under the A/Y 2013-2014. chairmanship of For ensuring transparency one DGIT(international additional member from Indian Legal taxation) has been service has been added to Approving constituted to give Panel. recommendations.
Direct TaxesChange Impact/Comments For determining the applicability or GAAR provisions on any arrangements , both residents and NR are eligible to approach AAR . Provisions of AMT are the scope of Alternate Minimum Tax not applicable in case (“AMT”) to non corporate assesses the total adjusted (individuals, Sole income is less than „‟20 proprietors, partnerships etc.) lakhs Withholding taxes for external commercial borrowings in certain sectors reduced to 5% Cascading effect of Dividend Distribution Tax (“DDT”) in multi- tier structures has been negated.
Direct TaxesChange Impact/Comments Due date of returns for non corporate assessees who need to obtain and file transfer pricing report is now 30th of November Time limit for completion of assessments have been extended by a period of 3 months Residents having assets abroad need to This will not be file mandatory Income Tax Returns applicable to (“ITR”) even if they have no taxable individuals who are not incomes ordinarily residents in India. Re-assessment proceedings can be initiated after up to 16 years from relevant year in case of non disclosure of foreign assets.
Direct TaxesChange Impact/Comments Reduction in Securities Transaction Tax (“STT”) Rate to 0.1% from 0.1255% with effect from 1st July 2012 Tax collection at source on purchase of Jewelry and bullion exceeding ` 5 lakhs and on trading of coal, iron ore and lignite Interest on Debentures issued by public company will not be subject to withholding tax upto ` 5,000 Income payable to non resident, foreign entertainers subject to withholding tax at the rate of 20%
Direct TaxesChange Impact/Comments The proposed Remuneration paid to Director of amendment attempts to nature other than salary to be subject to confirm the revenue withholding at 10% position by bringing embedded products, Interest on foreign currency loans online subscription payable by all Indian companies products, shrink-wrap against approved loan agreements to be software etc within the subject to withholding tax at the rate of ambit of royalty, 5% notwithstanding that they are merely a sale of a good in electronic form.
Direct TaxesChange Impact/Comments Assessee not to be treated as assessee in default on account of non deduction of TDS in case recipient of such sum has filed return of income and deposited such taxes. The Assessing Officer can now appeal against an order passed in pursuance of directions of the DRP in respect of objections filed post July 1, 2012 MAT provisions would not be applicable on the taxpayers having income form Life Insurance business.
Indirect Taxes - ExciseChange Impact Central Excise Duty Raised to 12 per Rate increased from cent ad valorem 10% Excise duty on items subject to alternate rates hiked to 6% with and 2% without cenvat credit Lower rate of Central Excise Duty More expensive items enhanced from 5 per cent to 6 per cent Automobiles larger than 4 m subject to higher rates of excise as under : Engine Size Rates of Duty Below 1500 24% CC Above 1500 27% CC
Indirect Taxes - ExciseChange Impact Exemptions from Excise Duty enlarged to include Parts of aircraft and testing equipment used in manufacture, repair and overhauling of aircraft Duty on branded garments reduced by 20% Exemption for ships and vessels if obtained under general license. Duty at 1/120 factor upon conversion of general license to coastal license.
Indirect Taxes - CustomsChange Impact Exemptions from Excise Duty enlarged to include Parts of aircraft and testing equipment used in manufacture, repair and overhauling of aircraft Rationalization of customs duty calculation to avoid double levy of Education Cess. Exemption from customs duty on parts and testing equipments for maintenance, repair and overhaul (MRO) of aircraft. Retrospective exemption from CVD on import of supply vessels and dredgers for the past period Offences involving prohibited goods or duty evasion exceeding 5 million will be treated as „cognizable offences‟. It has been provided that all the offences has been bailable.
Service TaxChange Impact Complete overhaul of service tax regime with the introduction of the concept of “Negative Lists” All “Services” as defined in the act are “Service” is now now subject to tax defined as “any activity The only exclusions are : carried out by a person Negative list of 19 services for another for Exemption list of 34 services consideration Part payment of tax by provider and …”, thereby bringing receivers in case of specified services any “activity” Standard rate of Service Tax hiked to 12 whatsoever, regardless per cent of whether it is a Common returns for service tax and service, under the excise service tax net. The proposed law makes no distinction between service and sale of goods but excludes the activities treated as “ deemed sale”.
Service TaxChange Impact Period of limitation increased to 18 months from relevant date Introduction of settlement commission in Service tax act. Time limit for raising of invoices raised to 30 days Self adjustment of excess service tax paid without limits introduced Special audits by revenue introduced CENVAT credit now available on delivery of goods, subject to maintenance of records.
Service TaxChange Impact Rationalization of refund provisions for CENVAT credit Input Service distribution made more strict: Credit of tax attributable to a unit to be availed only by that unit Credit for common services to be availed by units in proportion of revenue from such units. Additional duty of customs can now be transferred from one unit to another in case of assessee with multiple units No interest liability in cases of wrong credit of CENVAT without actual utilization New rules for determining place of origin of services to be notified.
DisclaimerThis presentation provides general information existing at the time of preparation.The presentation is intended as a news update and Arkay & Arkay, CharteredAccountants neither assumes nor accepts any responsibility for any loss arising to anyperson acting or refraining from acting as a result of any material contained inthis presentation. It is recommended that professional advice be taken based on thespecific facts and circumstances. This presentation does not substitute the need to referto the original pronouncements. 3 5