Budget 2011 - Direct tax Changes
Upcoming SlideShare
Loading in...5
×
 

Budget 2011 - Direct tax Changes

on

  • 3,119 views

This was a presentation on Budget Changes in the Direct Tax Regime at Ellisbridge Study Circle. Budget 2011 Direct Tax changes were covered in an exhaustive manner.

This was a presentation on Budget Changes in the Direct Tax Regime at Ellisbridge Study Circle. Budget 2011 Direct Tax changes were covered in an exhaustive manner.

Statistics

Views

Total Views
3,119
Views on SlideShare
3,119
Embed Views
0

Actions

Likes
0
Downloads
22
Comments
0

0 Embeds 0

No embeds

Accessibility

Upload Details

Uploaded via as Microsoft PowerPoint

Usage Rights

© All Rights Reserved

Report content

Flagged as inappropriate Flag as inappropriate
Flag as inappropriate

Select your reason for flagging this presentation as inappropriate.

Cancel
  • Full Name Full Name Comment goes here.
    Are you sure you want to
    Your message goes here
    Processing…
Post Comment
Edit your comment

Budget 2011 - Direct tax Changes Budget 2011 - Direct tax Changes Presentation Transcript

  • Budget – 2011Direct Tax Proposals
    CA Sandesh Mundra
  • Deficit Estimates:
    Fiscal Deficit brought down to 5.1 per cent of GDP
    Fiscal Deficit estimated at 4.6 per cent of GDP for 2011-12.
    Fiscal Deficit to be progressively reduced to 3.5 per cent by 2013-14.“Effective Revenue Deficit” estimated at 2.3 per cent of GDP in Revised Estimates and 1.8 per cent for 2011-12.
    Government Borrowing: Net market borrowing in 2011-12 would be Rs 3.43lakh crs
    February 2011
    Budget 2011
    Slide 2
  • February 2011
    Budget 2011
    Slide 3
  • It took less than a couple of hours for the stock market to figure out that the projected improvement in the fiscal deficit to 4.6% of gross domestic product (GDP) is unlikely to happen.
    February 2011
    Budget 2011
    Slide 4
  • First, consider that growth in total expenditure is projected at 3.4% for 2011-12, compared with 18.7% growth in 2010-11.
    Since the budget assumes that nominal GDP will increase by 14% in 2011-12, growth in government expenditure is far below the increase in nominal GDP.
    Given the government’s track record, curbing expenditure to such an extent is extremely unlikely.
    February 2011
    Budget 2011
    Slide 5
  • Right to Food Bill
    Higher oil Prices – Subsidy
    The projection of growth in tax revenue for 2011-12 is 17.9%, well below this fiscal year’s growth of 23.5%.
    So lets wait and watch
    February 2011
    Budget 2011
    Slide 6
  • February 2011
    Budget 2011
    Slide 7
  • Next the market were again up
    A provision for infusion of an additional Rs 6,000-crore capital in public sector banks also helped improve sentiment.
    “The government’s conviction of achieving a 9% growth and containing deficit at 4.6% is a big positive.
    The rally in oil and gas shares was led by oil marketing companies, like BPCL, HPCL and IOC which have hiked jet fuel price prompted by soaring crude oil prices in the international market
    Cigarette major ITC led the pack, as the company is spared from any hike in excise duty on cigarettes which was contrary market expectations.
    Infrastructure and construction companies led by Larsen &Toubro and HCC are expected to benefit from the Budget which made provisions to boost investment in the sector.
    February 2011
    Budget 2011
    Slide 8
  • Fiscal Deficit
    Difference between the government's total expenditure and its total receipts (excluding borrowing).
    The fiscal deficit can be financed by borrowing from the Reserve Bank of India (which is also called deficit financing or money creation) and market borrowing (from the money market, which is mainly from banks).
    February 2011
    Budget 2011
    Slide 9
  • Lets see some of the positives from the budget
    Focus on constitutional amendment required to move to a GST regime.
    Proposed direct cash transfer that will replace subsidies in the case of fuel and fertilizer.
    The government’s decision to not borrow more from the market than it did last year .
    Innovation committee set up under Sam Pitroda
    The announcement of another committee, to create a manufacturing policy.
    Insurance companies to stick to their core business: providing risk cover. As He has included the investment part of all policies in the service tax net.
    Foreigners to invest in mutual funds is a welcome step as long as genuine money comes.
    February 2011
    Budget 2011
    Slide 10
  • Budget with the letter S.
    ‘Sevottam’ – Public Compliant System
    ‘Sugam’ – Saral Return
    ‘Swabhiman’ – Financial Inclusion
    ‘Swavalamban’ – Pension Sceme.
    February 2011
    Budget 2011
    Slide 11
  • GST – A dream or a reality
    Required a Constitutional Amendment, for which the government needs two-third majority in LokSabha and RajyaSabha. After the amendments are passed, the government can push for GST with the concurrence of half of the states.
    Mukherjee said he is prepared to go the extra mile to have a consensus on GST,
    but lacks political majority in the Parliament. “As leader of the coalition, we do not have the required numbers.”
    February 2011
    Budget 2011
    Slide 12
  • February 2011
    Budget 2011
    Slide 13
  • Contents
    • Personal / Corporate Tax
    • Tax incentives / exemptions
    • Transfer pricing
    • Non-cooperative jurisdictions
    February 2011
    Budget 2011
    Slide 14
    • Alternate Minimum Tax on LLP
    • Other amendments
    • Unfinished Agenda
  • Personal / Corporate Tax
    February 2011
    Budget 2011
    Slide 15
  • Personal Tax Rates
    February 2011
    Budget 2011
    Slide 16
    No change for resident woman tax payers
    Effective tax savings of Rs. 2,060
    Senior Citizen : 60-79 years : tax savings of Rs. 1,030
    : 80 year & above – tax savings of Rs. 26,780/-
  • Media – “Assuming you are a male below 60 years of age and have an annual taxable income of more than . 1.8 lakh, you will end up saving Rs 2,060 a year in taxes, which translates into a monthly saving of Rs 171 a month.
    “Buy term insurance plan with this saving. This will provide financial support to your family in case of an unforeseen event”.
    February 2011
    Budget 2011
    Slide 17
  • Personal Tax
    February 2011
    Budget 2011
    Slide 18
    80 CCE - For AY 2012-13
    Employer contribution towards pension scheme of Central Government excluded from the deduction limit of 100,000.
    Further deduction to employer would also be available u/s 36 which is not allowed presently
    This is done to promote the investment in the New Pension Scheme.
  • 80CCF extended for one more year – Infra Bonds – 20,000
    Media “The Finance Minister has proposed an allocation of Rs. 2,14,000 crore for infrastructure sector in 2011-2012, which is 23.3% higher than current year. This amounts to 48.5% of the Gross Budgetary support to plan expenditure.
    In order to give a boost to infrastructure development in railways, ports, housing and highways development, it has been proposed to allow tax-free bonds of Rs. 30,000 crore to be issued by various government undertakings in the year 2011-12”.
    February 2011
    Slide 19
  • Notified classes of persons exempted from filing Tax Returns – Section 139(1C) – 1st June, 2011
    Media – “FM's 'return' gift to cover all taxpayersThe plan to exempt small salaried taxpayers from filing returns is likely to be extended to a large majority, both in government and private jobs. This, however, will be done step-by-step.”
    Correction required in Memorandum –
    “When there is no other source of income”.
    Salaried employees
    who have income not more than Rs. 5 Lacs
    who declare their other income to their employers
    February 2011
    Budget 2011
    Slide 20
  • Corporate Tax
    Minimum Alternative Tax (“MAT”) increased from 18% to 18.50% - AY 12-13
    Effective rate for
    (i) Domestic companies - 20.01 per cent (from 19.93 per cent)
    Media – “Thus MAT for domestic companies at 20.01 per cent would align with the proposed rate of 20 per cent in Direct Tax Code (DTC)”.
    (ii) branches of foreign companies -19.44 per cent (from 19.53 per cent).
    February 2011
    Budget 2011
    Slide 21
  • Surcharge on tax reduced – AY 12-13From 7.5% to 5%, in case of domestic company and From 2.5% to 2% in the case of foreign company
    February 2011
    Budget 2011
    Slide 22
  • Dividend from overseas subsidiary to be taxed at the rate of 15% on gross basis – AY 12-13 – Section 115BBD
    The Budget proposals also seek to levy a concessional tax at 15% (plus sur and cess)
    on a gross basis in respect of dividends received by an Indian company from its foreign subsidiary (effective from fiscal year 2011-12).
    Media - “The rational behind introduction of this proposal is to invite Indian capital back in India. This proposal is important especially when Direct Taxes Code (DTC) which is going to be rolled out from April 1, 2012 does not contain similar provision but contains specific anti avoidance rules for Controlled Foreign Company (CFC) and seeks to tax income attributable to CFC in the hands of Indian holding company at normal tax rate. Therefore, the application of this proposal in the year of transition to DTC seems to give an opportunity to Indian companies to bring back money in India which is parked in overseas jurisdictions after paying a lower tax cost.” 
    February 2011
    Budget 2011
    Slide 23
  • Tax incentives / exemptions
    February 2011
    Budget 2011
    Slide 24
  • Investment Linked vs Profit Linked
    • Profit-linked sops are inherently inefficient and regressive.
    • Could lead to money laundering and shifting of profits to the exempted activity. Huge Turnover and profits with very less investment.
    • No incentive for investment and upgradation during the period of tax holiday.
    • Such profit-linked incentives also lead to significant loss of revenue and encourage rent-seeking behaviour.
    February 2011
    Budget 2011
    Slide 25
  • Tax incentives / exemptions
    Investment linked deductions - Section 35 AD
    Last year we had – Hotel / Hopital / Slum redevelopment
    Now after 1.4.11 –
    affordable housing scheme and
    production of fertiliser
    New as well as expansion in existing capacity
    Loss set off against any specified business – Word New Removed – Retrospective from AY 11-12
    February 2011
    Budget 2011
    Slide 26
  • Sunset clause for power sector tax holiday extended by one more year upto 31.03.2012 [s. 80-IA(4)]
    No deduction to commercial production of natural gas for blocks awarded under NELP-IX [s. 80-IB(9)]
    February 2011
    Budget 2011
    Slide 27
    Tax incentives / exemptions
    • No extension of existing tax holiday to STPI /EOU after March 31, 2011
    Media – “Industry rues death of STPI scheme
    The $76-billion information technology (IT) and IT-enabled services (ITeS) has found itself at the receiving end of the Budget. The finance minister sounded the death knell of the Software Technology Parks of Technology (STPI) scheme by being silent on its extension. The scheme ends on March 31, 2011.”
    February 2011
    Slide 28
  • SEZ units(10AA) / developers to pay MAT effective from AY 2012-13 -115JB(6)
    Media – “The commerce department will make a case for roll-back of minimum alternate tax imposed on SEZ.
    “The government gave a commitment of no taxes while attracting investments into special economic zones. This is a big negative for foreign investors and another sign of India reneging on commitments.
    SEZ developers, taken aback by the imposition of the tax burden, are drafting representations for the Prime Minister’s Office (PMO) and the finance and commerce ministries stating that it amounts to breach of trust.” 
    February 2011
    Budget 2011
    Slide 29
  • DDT exemption removed for SEZ developers after 1 June 2011 – Section 115-O(6) – After 1st June, 2011
    Pranab Pulls the MAT from Under the Industry’s Feet
    Developers will not be spared either of the dividend distribution tax of 15% after June 1, this year.
    Shows government resolve to end concessions before DTC.
    February 2011
    Budget 2011
    Slide 30
  • From AY 12-13
    Weighted deduction increased from 175% to 200% for contribution to National Laboratory, University, IIT or a specified person [s.35(2AA)]
    February 2011
    Budget 2011
    Slide 31
  • Transfer Pricing Non-cooperative jurisdictions
    February 2011
    Budget 2011
    Slide 32
  • Media – “Thankfully, Mukherjee has not announced any scheme to reward tax cheats.
    Instead, there are proposals to curb tax evasion and prevent companies from stashing billions of dollars in tax havens.
    Any sanction on countries that refuse to share information on suspected tax evaders is an indirect punishment. It will make the cost of doing business in these places more expensive, diminishing their attractiveness.
    New transfer pricing rules for multinational companies will ensure that they do not shift profits outside the country. Overall, compliance and collections will improve.”
    February 2011
    Budget 2011
    Slide 33
  • Transfer Pricing – CUP/PS/TNMM etc.
    Sec 92 c - Fixed variation of +/-5% replaced with range to be prescribed for difference with the Mean – AY 12-13
    Due date for tax returns by companies subject to Transfer Pricing, extended to November 30 – AY 11-12
    What about other entities?
    TPO’s power widened - 1st June, 2011
    Sec 92 ca to examine all international transactions covered under the reference or not
    Sec 92 ca (7) power to survey
    Overturn the Delhi Tribunal ruling in Amadeus India Pvt. Ltd's case, which restricted the TPO's power to examine only AO referred international transactions.
    February 2011
    Budget 2011
    Slide 34
  • Media – “Pranab gets tough with tax havens not sharing dataTransactions with entities in ‘non-cooperative' jurisdictions that do not effectively exchange information with India may soon attract TDS (tax deduction at source) of at least 30 per cent. This is one of the several ‘anti-avoidance' measures that the Finance Minister, MrPranabMukherjee, has proposed in Budget 2011-12, to discourage residents from transacting with entities in ‘non-cooperative' jurisdictions”.
    February 2011
    Budget 2011
    Slide 35
  • Non-cooperative jurisdictions...
    Memorandum to Finance Bill – New Section 94A – 1st June, 2011
    “In order to discourage transactions by a resident assessee with persons located in any country or jurisdiction which does not effectively exchange information with India, anti-avoidance measures have been proposed in the Income-tax Act”
    Transfer pricing provisions to apply
    Deemed “associated enterprises” and “international transaction”
    Treatment of receipts
    Potential taxation of Indian assessee if receipt is unexplained
    February 2011
    Budget 2011
    Slide 36
  • ...Non-cooperative jurisdictions
    Treatment of payments
    Disallowance of expenditure/payments
    If adequate supporting documentation not maintained (over and above TP documentation?)
    Payments to financial institutions unless authorisation provided by resident tax payer to seek information from such financial institution
    Higher withholding tax applicable on payments made (30% or higher applicable rate)
    February 2011
    Slide 37
  • Alternate Minimum Tax (“AMT”) on LLP – AY 12-13
    AMT @ 18.5% on Adjusted Total Income (“ATI”)
    ATI is total income plus
    deductions claimed u/Chapter VIA under heading "Deduction in respect of certain income“, and,
    s. 10AA (SEZ) deduction
    AMT credit allowable
    no interest payable on such credit
    Carry forward for set-off permissible for 10 years
    February 2011
    Budget 2011
    Slide 38
  • February 2011
    Budget 2011
    Slide 39
  • Other amendments
    February 2011
    Budget 2011
    Slide 40
  • Liaison offices of foreign companies to file statement with prescribed information – 60 days from end of FY – Sec 285 1st June, 2011
    In view of several judicial rulings suggesting liaison offices cannot be treated as permanent establishment as they do not carry business functions in India, liaison offices are not filing tax returns in India.
    The tax department is clueless.
    Now, the tax department would analyse the actual conduct of a liaison office - whether they would initiate inquiries based on the information obtained or will they do some deeper investigation.
    A more challenging tax environment for liaison offices in India. 
    February 2011
    Budget 2011
    Slide 41
  • Money market mutual fund / liquid funds - DDT rate increased from 20 / 25% to 30% - Section 115R(2)
    Bring Taxation levels on a par with that of bank fixed deposits (FDs).
    “There was some tax arbitrage for corporates if they parked their money in debt schemes, but with this move it will be removed.
    However, DDT for retail investors and high net worth individual have been kept at same level.
    Leading MF, says, “I don’t think it will have major consequences on the liquid funds as corporates park their money not only for tax benefits but also for decent returns and liquidity.” He added that this move will have more of a psychology impact than otherwise.
    February 2011
    Budget 2011
    Slide 42
  • From 1st June, 2011 – 115R(2)
    February 2011
    Budget 2011
    Slide 43
    • Income of notified 'Infrastructure debt funds' (“IDF”) to get exemption. Interest income to a non-resident from IDF to be taxed at 5% - 115A.
    Media – “Tax Break for Cheaper Foreign Funds Debt funds for financing infrastructure will get tax exemptions.
    The government is betting big on cheaper overseas funds, with FII investment cap in corporate bonds of infrastructure firms raised from $5 billion to $25 billion.
    NRIs and others investing in infrastructure funds will now enjoy a lower withholding tax of 5%, encouraging them to bring back the money they may be holding on behalf of residents.”
    February 2011
    Budget 2011
    Slide 44
  • Section 194 LB – For TDS deduction at 5%
    However corresponding amendment is required in Section 206AA which presribes TDS at 20% when PAN is not available.
    W.e.f 1st June, 2011
    February 2011
    Budget 2011
    Slide 45
  • Section 245C(1)(ia) - Additional amount of tax in case of related persons exceeds Rs. 10 Lacs
    Section 245D (6B) - SC would be empowered to rectify, within 6 months, any apparent mistake in its orders.
    Prospectively reverse the Supreme Court ruling in BrijLal's case, which held that the SC cannot amend its order.
    February 2011
    Budget 2011
    Slide 46
    Settlement commission – 1st June, 2011
  • Some more Points….
    Tax officers in India empowered to collect information from persons, based on requests received from overseas Tax office, notwithstanding that no proceedings are pending in respect of that person in India. – Section 131(1) – 1st June, 2011
    Time lapsed in obtaining information from overseas tax authorities to be excluded from assessment timelines. Section 153 – 1st June, 2011
    Time-limit for obtaining exemption from EPFO extended till March 31, 2012.
    Ceiling for receipts by charitable institutions from advancement of any other object of general public utility increased to Rs 25,00,000
    February 2011
    Budget 2011
    Slide 47
  • Some more Points….
    Three more Centralised Processing Centres to be set up for faster processing of tax returns
    Sec 282 B - Requirement of Document Identification Number dispensed with
    Perquisites earned by Chairman and Member of UPSC – From 1/4/08.
    Specified Income of a Board / Authority under an Act – 10(46) – Six Years back covered u/s 10(20)
    February 2011
    Budget 2011
    Slide 48
  • Unfinished AgendaNo mention of IFRSNo Roadmap for FDI in insurance and retail sectorNo clear roadmap / Timeline for GST implementation
    February 2011
    Budget 2011
    Slide 49
  • Thank You