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Union Budget 2009 Accretive Special Communique


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Union Budget 2009 Accretive Special Communique

  1. 1. T A X A TAX UPDATE
  2. 2. Budget 2009 FOREWORD: In the run-up to the budget proposals, the Finance The budget has been characterized with an Minister had to address the Aam admi promises increased government expenditure of 36% over made during the elections in addition to managing the budget estimates of 2008-09 and purports to the challenging economic climate. stimulate the growth in the challenging times. The FM has chosen to take the risk of FM speaks - “the Government moving away from the Fiscal recognizes the challenges that Responsibility and Budget this task entails, particularly at a Management Act (FRBM) targets time when the world is still with a fiscal deficit of 6.8% of the struggling with an unprecedented GDP with no clear indication on financial crisis and an economic the time-lines for coming back to slowdown that has also affected fiscal consolidation. India. While we are determined to convert our words into deeds, On the tax proposals, while the Members would appreciate that a FM has not rolled back any of the earlier stimulus single Budget Speech cannot solve all our packages, he has indicated that no further stimulus problems, nor is the Union Budget the only packages are envisaged. His key thrust has been to instrument to do so. Yet, it is an important means move towards improving the efficiency and equity to share the vision of the Government, particularly of our tax system as we begin a new term. I propose to do just that for the next hour or so, as I dwell on the In this Communique, we take a look at the key challenges and outline the approach of the proposals signaling the Government’s thrust on government in the short term and medium term tax reforms. perspectives.” Page | 2 of 52
  3. 3. Budget 2009 CONTENTS: Budget – At a glance: ____________________ 4 Direct Taxes: _________________________ 4 Indirect Taxes: ________________________ 6 Signaling the Tax Reforms ________________ 8 Direct Tax Proposals ____________________15 Corporate Tax ________________________15 Limited Liability Partnership _____________32 Personal Tax__________________________33 Wealth tax ___________________________36 Commodity Transaction Tax _____________36 Indirect Tax Proposals ___________________37 Goods and Services Tax _________________37 Service Tax___________________________38 Central Excise ________________________43 CENVAT____________________________47 Customs _____________________________48 Effective Dates _________________________51 Page | 3 of 52
  4. 4. Budget 2009 BUDGET – AT A GLANCE: Exemptions / Deductions / Relief DIRECT TAXES: Tax holiday to STPs and EOUs extended for Tax Rates for FY 2009-10 one more year (FY 2010-11). No changes in corporate tax rates. Weighted average deduction of 150% of Surcharge on tax is removed for individuals, expenditure on in-house scientific research HUF , AOP, BOI and partnership firms. extended to all manufacturers. MAT payable by the companies increased to Advance tax applicable only if the total tax 15% from 10% of book profits with an payable for the year is in excess of Rs. 10,000. additional period for carry forward and set off Ceiling on remuneration paid to partners of MAT Credit. The period for set off allowable as deduction increased. increased to 10 years from 7 years. Presumptive taxation introduced for businesses Basic exemption limit for personal tax with turnover / gross receipts up to Rs. 40 lacs increased. Limit of Rs. 20,000 increased to Rs. 35,000 for Fringe Benefit Tax abolished and specified transport contracts for disallowance of fringe benefits are taxed as perquisite. expenditure if payment is not made by account Sweat equity or ESOPs and contribution to payee cheque or bank draft. super annuation funds to be taxable as Donations made to electrol trusts to be allowed perquisites in the hands of the employees. as deduction. The basic exemption limit under wealth tax Deduction under section 80DD hiked. increased to Rs. 30 lacs from Rs. 15 lacs. Relief under Section 80E (Interest on loan for Commodity transaction tax abolished. higher education) extended to vocational studies. Page | 4 of 52
  5. 5. Budget 2009 Tax Deduction at Source Others Rate of TDS on rent of land and building New Direct Tax code to be introduced in next reduced to 10% and rent of machinery reduced 45 days for public comments and to be placed to 2%. before the Parliament in the winter session. Rate of TDS on contract payments CBDT empowered to make rules for safe rationalized. harbour provisions under TP regulations. Higher rate of TDS at 20% applicable if the Dispute Resolution Panel to be established to deductee fails to furnish PAN w.e.f. improve tax administration and avoid 01.04.2010. prolonged uncertainty in tax matters involving No TDS on payments to transport contractors foreign companies and transfer pricing. on furnishing PAN details. Provisions introduced to mandate quoting of Surcharge and Cess not applicable on TDS for Document Identification Number in all non-salary payments. correspondence by the income tax authorities. Time limit for completion of TDS assessments Provisions introduced to enable serving of introduced. documents or orders to the assesses through electronic mode. Provisions relating to taxation LLP introduced – provisions applicable to partnership firms to mutatis mutandis apply to LLPs. Page | 5 of 52
  6. 6. Budget 2009 Services provided to installations, structures INDIRECT TAXES: and vessels in the continental shelf and exclusive economic zone of India exempt. GST to be implemented in April 2010 Commission agency services and GTA services Rates of tax / duty received by exporters of goods from exempt. No change in basic rates of customs, central Stock broking services provided by sub-brokers excise or service tax. excluded. No change in the rate of CST. New simplified scheme introduced for refund of service tax to exporters of goods. Service Tax Powers of the Commissioner to revise the Legal services brought into service tax net. orders dispensed with. Alternatively, the appeal However, no service tax applicable in case of provisions made applicable subject to certain individuals. modifications. Medical services involving cosmetic and plastic Service providers opting for composite scheme surgery brought into service tax net. for works contracts to pay composite tax on Services involving transport of goods through the value of goods involved therein whether or national water way subjected to service tax. not any consideration is received. The rate of service tax payable by service Production or processing of goods excluded from the category of business auxiliary services providers opting not to maintain separate records reduced to 6% on exempt services. only if they are excisable goods. Page | 6 of 52
  7. 7. Budget 2009 Central Excise Others The rate of excise duty payable by The Advance Ruling Authority established manufacturers opting not to maintain separate under the provisions of Income Tax Act to records reduced to 5% on exempt goods. administer the advance ruling procedures under Duty payable by EOUs manufacturing goods the Customs, Central Excise and Service Tax wholly out of indigenous raw materials matters. increased to 4% in case of goods wholly made Provisions introduced to restrict compounding of cotton and 8% if made of any other textile of offences in certain circumstances / materials. situations under Central Excise and Customs Transfer or right to use software for matters. commercial exploitation exempted from duty provided that the manufacturer is registered under Service tax. Customs Provisions introduced to facilitate claim of refund in respect of imported goods found to be defective / non-compliant subject to conditions. Page | 7 of 52
  8. 8. Budget 2009 2007-08. It should be noted that India has been SIGNALING THE TAX REFORMS more resilient to the global crisis when compared A LOOK BEYOND… to many other economies. In this section, we have outlined the government’s The key economic growth trends indicate that while there is a steep slowdown in growth in tax policy, macro economic indicators on tax, and industry, the growth slowdown in services sector a perspective on the Indian tax trends and was moderate. Component wise analysis of the proposals. services sector indicates that the decline in growth in “trade, hotels, transport and communication, A Macro Economic Backdrop financing, insurance, real estate and business services” was cushioned by the significant increase The year 2008-09 saw a moderate growth of the in growth in “community, social and personal Indian economy as compared to the previous services.” This increased growth is attributed to years. The steep increases in prices of international increase in government expenditure in line with crude oil and commodity prices in the beginning the fiscal policy to mitigate the impact of the of the year followed by the global recession global recession on economy. stemming from the global financial crisis, in the latter part of the year, resulted in the fall in the In the above backdrop, the focus in the second growth rate of the Gross Domestic Product. The half of the financial year shifted to providing impact of the global crisis was felt through the growth stimulus. The Government introduced channels of capital flows, financial markets and three stimulus packages during this half year. The trade. This resulted in growth of real Gross tax revenue receipts as per provisional accounts Domestic Product (at factor cost) falling to 6.7 per for 2008-09 was short by 12.80% of the budgeted cent in 2008-09 as against a growth rate averaging estimates. 9.4 per cent per annum over the period 2005-06 to Page | 8 of 52
  9. 9. Budget 2009 Tax Policy of the Government The key policy directions are: In recent years, tax policy has been guided by the need to increase the tax-GDP ratio and achieve while continuing on the path of simplifying and fiscal consolidation. In these years, the tax-GDP rationalizing the tax structure and improving ratio improved significantly from 9.2 per cent in the tax-GDP ratio, it has been considered 2003-04 to 12.6 per cent in 2007-08. This has been necessary to continue (and also enhance in achieved through rationalisation of the tax some cases) fiscal support to certain labour structure (moderate levels and a fewer rates), intensive and employment oriented sectors, widening of the tax base, and reduction in which continue to be beleaguered owing to compliance costs through improvement in tax falling demand in domestic and export markets. administration. It is also proposed to integrate the tax on Owing to the policy interventions for inflation goods and the tax on services, and finally move management and subsequently for providing a stimulus to growth, Government had to forego to a common Goods and Service Tax (GST). substantial revenues from excise and customs In as much as the policy so far has sought to duties. Consequently, despite the buoyancy of achieve convergence of rates, this would direct tax revenues and service tax collections, the facilitate the introduction of GST by 1st April, fiscal consolidation process received a setback. It 2010, as already announced by the is expected that a recovery in growth of tax Government. This shift to GST is expected to receipts would happen in the later part of 2009-10 significantly improve buoyancy from indirect and enable a return to the path of fiscal taxes, owing to the opportunity it provides for consolidation by moving closer to Fiscal further convergence and moderation of rates Responsibility and Budget Management Act, 2003 and a substantial expansion in the tax base (FRBM) targets. Page | 9 of 52
  10. 10. Budget 2009 which would extend beyond manufacturing all Tax Revenue Summary the way to retail. Rs. Crores Revenue 2009-10 (BE) 2008-09 (RE) During the FRBM period there has been a Corporate Tax 256,725 222,000 structural change in the composition of Income Tax - Centre’s tax revenue. The share of direct taxes others 112,850 122,600 in Centre’s tax revenues has also increased to Customs 98,000 108,000 55.5 per cent in 2008-09 from 41.4 per cent in Central Excise 106,477 108,359 2003-04. The medium term strategy for direct Service Tax 65,000 65,000 taxes is to consolidate the achievements of the Other Taxes 2,027 1,990 past and accelerate this process of change. Total 641,079 627,949 Tax Performance & Targets The revenue foregone remains high in terms of With an exception to Central Excise, the RE overall revenue collection. The stimulus for the year 2008-09 have shown a positive packages announced by the Central growth in the collection of taxes by 8.97% over Government to mitigate the global financial the actuals for the year 2007-08. This growth crisis has reflected in the lower gross tax appears to be curtailed for the year 2009-10 revenue receipts for the FY 2008-09. The gross (BE). While the corporate income tax shows a tax receipts per provisional accounts for 2008- growth by 15.64%, the overall growth in tax 09 are lower by Rs. 78,010 crores when revenues is envisaged at a meager 2.09%. compared to the BE for 2008-09. Page | 10 of 52
  11. 11. Budget 2009 A Look Beyond: Our Perspectives Tax Administration Reforms New generation industries A good step forward Government’s small steps approach The Government has proposed several While there is something to cheer about for the encouraging steps for further improving the tax new-age industries, the lack of any reforms on the administration. much awaited matters appears to have put them one step back. Introduction of the Dispute Resolution Panel The positives to be reckoned would be: for fast-track resolutions of disputes faced by foreign companies and companies with transfer Transfer of right to use packaged software for pricing disputes. further exploitation exempted from central Initiative to bring about increased transparency excise duty and countervailing duties is in funding of political parties through indicative of an attempt to remove the establishment of electoral trusts. anomalies over possible multiple taxes on Simplification of compliances for small software. businessmen by introduction of presumptive Weighted average deduction of 150% of the taxation. actual amount incurred for inhouse scientific Increased efficiencies in tax administration by research for all manufacturers signals the focus re-engineering of key processes coupled with on innovation. automation e.g. introduction of document Proposal to introduce safe harbour provision in identification numbers and recognition of transfer pricing thereby reducing taxpayer electronic correspondences. hardships on litigation would improve the tax administration Page | 11 of 52
  12. 12. Budget 2009 The other positives include removal of FBT Much against the expectation, the corporate and reduction in the withholding tax rates rates have not been reduced. To add to this, the increase in MAT by 50 percentage points is However, the impetus extended by the seen as a spoil sport by the exporting Government appears inadequate vis-à-vis the community. sector expectations. With the increase in outbound operations of The extension of tax holiday for STPs and Indian companies, there was an anticipation EOUs by one year is much against the that the FM would provide for a foreign tax expectation of the industry. It is understood credit regime. Clarity on the foreign tax credit that the industry expected an extension by not positions and recognition of underlying tax less than 3 years. credits for dividends earned would not only improve the competitiveness of the Indian Provisions have been made to enable STPs to companies in the global market but would also claim refund of unutilized service tax credits. encourage companies to plough back into While the Central Government has introduced India, the profits earned from overseas provisions and issued various notes and operations. circulars to facilitate speedy processing of such claims, the on-field reality is contrary. Despite Given India's inherent strengths in information repeated representations, the Central technology, there was anticipation that India Government has chosen not to address the would clarify its position on certain tax issues concerns of the trade and industry on these surrounding business models in e-commerce matters. and information technology. Page | 12 of 52
  13. 13. Budget 2009 Missing the Big Bang Tax Reforms – the road ahead Tax reforms to stimulate investments Key Structural Changes in Direct and Indirect Tax from 01.04.2010 While, the FM articulated his belief in introducing investment linked incentives, not As aptly stated by the Finance Minister: “Tax much was proposed to encourage circulation of reform, like all reforms, is a process and not an private wealth. event.” The FM has emphatically stated that a new Direct tax code and the GST would be In current economic conditions there appears introduced. In the words of the FM: “we need a very little for the housing sector. The tax system which generates revenues on a Government could have considered increased sustained basis without use of coercive tax tax reliefs for individuals for payment of collection methods at the end of each year to meet housing interest and timely repayment of loans. targets”. Both these legislations are expected to provide some key structural changes to levy and Given the lack of a tax pass-through status for administration of the taxes. LLPs; this vehicle may not function to its potential as a strong investment vehicle for New Direct Tax Code Expected Soon high net worth individuals. The FM has committed to releasing the new Direct Taxes Code within the next 45 days. The The anomaly of classifying information Direct Taxes Code, along with a Discussion Paper, technology software as goods or services has will be released to the public for debate. Based on not been laid to rest. Despite various the inputs received, the Government will finalise representations, the Government has the Direct Taxes Code Bill for introduction in this apparently not made any mention or issued any House during the Winter Session. It is envisaged clarifications in this regard. that the same would be promulgated by 01.04.2010. Page | 13 of 52
  14. 14. Budget 2009 Goods and Services Tax to be introduced from 01.04.2010 In indirect taxes the FM purports to accelerate the The FM has himself stated that it is his intention process for the smooth introduction of the Goods to make a modest start in this direction in the and Services Tax (GST) with effect from 1st April, current year and ensure that the process is 2010. As per the FM’s budget speech the completed in the next four years. The FM speaks - Empowered Committee of State Finance “At the end of this process, I hope the Ministers has made considerable progress in Finance Minister can credibly say that our tax preparing the roadmap and the design of the GST. collectors are like honey bees collecting nectar Officials from the Central Government have also from the flowers without disturbing them, but been associated in this exercise and through their spreading their pollen so that all flowers can collaborative efforts, they have reached an thrive and bear fruit.” agreement on the basic structure, in keeping with the principles of fiscal federalism enshrined in the Constitution. The broad contour of the GST Model is that it will be a dual GST comprising of a Central GST and a State GST. The Centre and the States will each legislate, levy and administer the Central GST and State GST, respectively. Page | 14 of 52
  15. 15. Budget 2009 Minimum alternate tax rate increased DIRECT TAX PROPOSALS MAT payable by the companies under Section CORPORATE TAX 115JB is increased from 10% to 15% of book profits. However, as a relief to the taxpayer the Tax Rates For FY 2009-10 time period for carry forward and set-off of the tax credits is extended from 7 years to 10 years. Business Profits MAT Rate There are no changes in the normal tax rates, Taxable Income Domestic Foreign Company Company surcharge or cess for the corporate sector. - Upto 10,000,000 15.45% 15.45% - Above 10,000,000 16.995% 15.84% Taxable Income (Rs.) Domestic Foreign Company Company Upto 10,000,000 30.90% 41.20% Further amendments have been made to provide Above 10,000,000 33.99% 42.23% that any amount set as provision for the diminution in the value of assets is to be added back if the same is debited to profit and loss - Marginal relief shall be available in certain cases account. This amendment is made retrospectively - The above rates are inclusive of surcharge and from the financial year 2000-01. Similar cess, as applicable amendment made in Section 115JA (erstwhile - It excludes cases liable to special rates of tax MAT provisions) retrospectively from financial (such as, non-residents earning interest income, royalty year 1997-98. income or fee for technical services). Page | 15 of 52
  16. 16. Budget 2009 Fringe Benefit Tax Rationalization of Withholding Taxes The provisions of fringe benefit tax have been Surcharge and Cess not applicable on TDS in abolished with effect from FY 2009-10. respect of non-salary payments: “The Finance Act, 2005 introduced the Fringe The surcharge at the rate of 10% of tax and Benefit Tax on the value of certain fringe education cess at 3% of the tax shall not be benefits provided by employers to their applicable on non salary payments to domestic employees. This tax has been perceived as tax payers / deductees. imposing considerable compliance burden. Empathising with these sentiments, I propose to However, in respect of payments to companies abolish the Fringe Benefit Tax” other than domestic companies, surcharge of 2.5% would continue to be applicable where FM, Mr. Pranab Mukherjee such income exceeds one crore rupees in the relevant year. Further, the education cess at 3% continues to be applicable for payments to non residents. Advance Tax Currently the liability for payment of advance tax during a financial year arises when the total amount of tax payable during that year is Rs. 5,000 or more. It is proposed to raise this threshold limit to Rs. 10,000. The proposed amendment would be effective financial year 2009-10. Page | 16 of 52
  17. 17. Budget 2009 The withholding tax rates in relation to rent In relation to contract payments on or after payments have been rationalized and the 01.10.2009. the law has clarified that “work” proposed rates are as follows: shall not include manufacturing or supplying a product according to the requirement or Nature of Payment Existing Proposed base rate (01.10.2009) specification of a customer by using raw Rent of plant, 10% 2% material purchased from a person other than machinery or equipment such customer as such a contract is a contract Rent of land, building 15% 10% for ‘sale’. This will however not apply to a or furniture to an contract which does not entail manufacture or individual and HUF supply of an article or thing (e.g. a construction Rent of land, building 20% 10% contract). Further, if the raw material is or furniture to a person purchased from such customer then the other than individual contract would qualify as for work. It is further and HUF proposed to provide that in such a case TDS shall be deducted on the invoice value excluding the value of material purchased from The withholding tax provisions in relation to such customer if such value is mentioned contract payments have been rationalized and separately in the invoice. Where the material effective 01.10.2009 the rates are as follows: component has not been separately mentioned 1% if the payee is Individual or HUF. in the invoice, TDS shall be deducted on the In the case of other entities, the rate whole of the invoice value. prescribed is 2%. In the case of transport contracts, no TDS is required if the transporter quotes his PAN. Otherwise, TDS rates as prescribed above are applicable. Page | 17 of 52
  18. 18. Budget 2009 No TDS in respect of payments to Transport vouchers and other documents sent to each Contractors: No TDS shall be applicable or other. This amendment is applicable with effect deducted in respect of payments to transport from FY 2010-11. contractors if they furnish the PAN to the deductor. However, the deductor would be The cap on the time limit for passing order for required to intimate the PAN details to the failure to deduct tax at source introduced: In Income Tax Department in the prescribed case of default or failure to deduct tax at format. source, the time limit for passing the order to holding a person to be an assessee in default is Higher rate of TDS where the details of PAN capped at 2 years from the end of the financial is not furnished to the deductor: The deductees year in which the statement of TDS is filed and / payees are required to furnish the details of where no statement is filed, such order can be PAN to the deductors. In the event, the details passed within 4 years from the end of the are not furnished, the rate of TDS applicable financial year in which the payment is made or on such payments would be at higher of the credit is given. following irrespective of the nature of payment: This cap of 2 years and 4 years would not be applicable in respect of the following: 20% of the amount paid / payable Tax is deducted but not deposited. Rates as per the other provisions of the Act Employer has failed to pay tax on non Rate/s in force for the relevant payment monetary perquisite under section 192(1A). The deductee is non resident. The above would be equally applicable for In the above case, the order can be passed payments made / to be made to non-residents. even after the four years. Both the deductor and deductee are required to These provisions are applicable for the orders quote the PAN in the correspondences, bills, passed on or after 01.04.2010. Page | 18 of 52
  19. 19. Budget 2009 Filing of quarterly statements dispensed with: Tax Reliefs Currently, the withholding tax compliance and administrative provisions require filing of The sun-set clauses for deduction in respect of quarterly statements in respect of the tax export profits under sections 10A and 10B of deducted / collected at source. These the Income-tax Act for units operating under provisions are amended to provide that such software technology parks and export statements of tax deducted / collected at oriented parks scheme respectively, is source to be prepared for such period as may extended by one more year i.e. upto be prescribed. This provision is applicable from 31.03.2011. 01.10.2009. “Deduction in respect of export profits is available under sections 10A and 10B of the Income-tax Act. The deduction under these sections would not be available beyond the financial year 2009-2010. In order to tide over the slowdown in exports, I propose to extend the sun-set clauses for these tax holidays by one more year i.e. for the financial year 2010-11.” FM, Mr. Pranab Mukherjee Page | 19 of 52
  20. 20. Budget 2009 In relation to units operating from special Section 35(2AB) provides for a weighted economic zones, the existing provisions average deduction of 150% of the provided that the relief be computed with expenditure incurred on in-house scientific reference to the total turnover of the taxpayer. research and development for select This would be discriminatory in so far as those businesses if approved by the prescribed taxpayers who have multiple units in both the authority. The scope of businesses entitled to SEZ and the domestic tariff area (DTA) vis-a- avail of this relief is widened to include all vis those taxpayers who are having units in only businesses engaged in the manufacture of or the SEZ. With a view to remove the anomaly, production of article or thing except those it is proposed to amend the provisions so as to specified in the Eleventh Schedule (firms provide that the deduction shall be computed producing alcohol, tobacco, cosmetics, with reference to the total turnover of the toiletries, dental care products and aerated undertaking. This amendment will take effect drinks). Hitherto, the benefit was available only financial year 2009-10. to companies engaged in biotechnology or in manufacture of drugs, pharmaceuticals, electronic equipments, computers, telecommunication equipments, chemicals or any other article or thing notified by the Board. Page | 20 of 52
  21. 21. Budget 2009 Investment linked tax incentives introduced In case a taxpayer derives income partly in the for the following businesses. nature of agricultural income and partly business income, the depreciation is computed Setting up and operating of ‘cold chain as if the entire income is derived from the facility’ business. Hence, the depreciation to the extent Warehousing facilities for storing it relates to agricultural income is deemed to be agricultural produce allowed even though agricultural income is Laying and operating cross country natural exempt. gas or crude or petroleum oil pipeline network for distribution on common carrier Tax holiday under section 80-IB(9) of the principle. Income Tax Act, which was hitherto available in respect of profits arising from the Under this method, all capital expenditure, commercial production or refining of mineral other than expenditure on land, goodwill and oil, to be extended to commercial production financial instruments would be fully allowable or refining of natural gas. This tax benefit as deduction subject to certain conditions. would be available if the production or refining Further any consideration received when such is undertaken from oil and gas blocks which are assets are discarded or transfered would be awarded under the NELP-VIII round of liable to tax as business income. bidding. Further, a retrospective amendment is made with effect from FY 1999-00, to expand Further, the losses in relation to this business the meaning of the term “undertaking” for the can be carried forward indefinitely to be set off purposes of relief under section 80-IB(9). It against the profits and gains from such will mean all blocks awarded in any single business in future. contract. Page | 21 of 52
  22. 22. Budget 2009 Extension of terminal dates for relief claim Distribution of Profits to Partners under Section 80IA The present ceiling of remuneration allowable The terminal dates for units engaged in the as deduction for the computation of income of generation or distribution or transmission of a Firm as per the provision of section 40(b)(v) power has been extended to 31.03.2011 is increased. Further, the distinction between a from 31.03.2008. Consequently, the units firm carrying on a profession or any other may commence generation or transmission business is done away with. or distribution at any time prior to 31.03.2011 to be eligible to claim this relief. The limits of remuneration are as follows: This amendment would be applicable retrospectively from 01.04.2008. Income (Rs.) Proposed Rates (Book Profit) The terminal date for units availing Less than Rs. 150,000 or @ 90% of the deduction in respect of profits and gains 300,000 or Loss book profit derived from commercial production or refining of mineral oil has been extended by On the Balance 60% of the book profit three years. Consequently, these units may begin refining of mineral oil before 31.03.2012 to avail of the tax benefit. The new terminal date will be the same for both the public and the private sector. Page | 22 of 52
  23. 23. Budget 2009 Presumptive taxation The presumptive taxation scheme was The presumptive rate of income is erstwhile restricted to select small businesses prescribed at 8% of gross turnover /gross such as retail, civil construction or supply of receipts. labour for civil construction. It is proposed to An assessee opting for the above scheme expand the scope of presumptive taxation to all shall be exempted from payment of advance businesses with effect from FY 2010-11. The tax related to such business. salient features of the proposed presumptive An assessee opting for the above scheme taxation scheme for small business (other than shall be exempted from maintenance of goods carriages business) are as under: books of accounts and tax audit. The scheme shall be applicable to In relation to the business of transport individuals, HUFs and partnership firms operators (i.e. plying, hiring or leasing of goods excluding Limited liability Partnership Firms carriages), the presumptive income limits have and companies. It shall also not be been increased. In the case of the heavy goods applicable to an assessee who is availing any vehicle, the presumptive income is increased to tax reliefs (such as deduction under Sections Rs. 5000 per month from Rs. 3500 and in the 10A, 10AA, 10B, 10BA or deduction under other cases to Rs. 4500 per month from Rs. any provisions of Chapter VIA) 3,150 per month. This amendment is applicable The scheme is applicable for any business from the FY 2010-11. (excluding a goods carriages business) which has a maximum gross turnover /gross receipts of Rs. 40 lakhs. Page | 23 of 52
  24. 24. Budget 2009 Transfer pricing Existing provisions in relation to the arm’s With a view to resolving this controversy, it is length price range state that at the option of the proposed to amend the proviso to Section 92C taxpayer, the arm’s length price may be to provide if the arithmetical mean, so determined as a price which may vary from the determined, is within five per cent of the arithmetical mean by an amount not exceeding transfer price, then the transfer price shall be five per cent of such arithmetical mean. This treated as the arm's length price and no provision has been subject to conflicting adjustment is required to be made. This interpretation by the assessee and the Income amendment will take effect from 1st October, Tax Department. The assessee’s view is that 2009 and shall accordingly apply in relation to the arithmetical mean should be adjusted by 5 all cases in which proceedings are pending per cent to arrive at the arm's length price. before the Transfer Pricing Officer (TPO) on However, the department’s contention is that if or after such date. the variation between the transfer price and the arithmetical mean is more than 5 per cent of A new Section inserted to enable CBDT to the arithmetical mean, no allowance in the make Rules with respect to safe harbour arithmetical mean is required to be made. provisions. These rules would provide the circumstances in which the income tax authorities shall accept the transfer price declared by the assessee as an arm’s length transfer price. Page | 24 of 52
  25. 25. Budget 2009 Dispute Resolution Panel Key aspects to note are: In order to improve tax administration and The DRP has to provide a conclusive view avoid prolonged uncertainty in tax related i.e. it may confirm, reduce or enhance the matters for foreign companies or transfer variations proposed in the draft order. The pricing matters, it is proposed to introduce an DRP is not authorized to merely set aside alternate dispute resolution mechanism which any proposed variation or issue any will facilitate expeditious resolution of disputes direction for further enquiry and passing of in a fast track basis with effect from the assessment order by the AO. 01.10.2009. Every direction issued by the DRP shall be binding on the Assessing Officer and the Prior to finalization of an adverse order, the same is appellable only with the Appellate assessing officer shall need to forward a draft Tribunal. of the proposed order of assessment (draft No direction shall be issued unless an order) to the above mentioned assessee, who opportunity of being heard is given to the may file his objections to the draft order with assessee and the AO on such directions the DRP. The DRP shall after due which are prejudicial to the interest of the consideration issue such directions, as it thinks assessee or the revenue, respectively. fit, for the guidance of the Assessing Officer to The DRP proceeding to be completed enable him to complete the assessment. The within 9 months from the end of the month law provides for the process, powers and time in which the draft order is forwarded to the frames for the dispute resolution, besides eligible assessee. enabling the CBDT to prescribe further rules The DRP shall have the same powers as are for its efficient functioning. vested in a Court under the Code of Civil Procedure, 1908 (5 of 1908); Page | 25 of 52
  26. 26. Budget 2009 Curbing Revenue Leakage Further from FY 2009-10, where deduction is The profit linked deductions under various claimed under the aforesaid section or chapter provisions and Chapter VIA overlap, and the and where there is transfer of goods and taxpayers, at times, claim multiple deductions services between the undertaking and any other for the same profits. With a view to preventing business of the assessee or vice versa, the such misuse, it is proposed that: deduction under the aforesaid section is computed as if the transfer had taken place at where any deduction is claimed under market value of such goods and services. section 10A or 10B or 10AA or 10BA or under the Chapter VIA in respect of certain Section 90 of the Income-tax Act empowers income, no deduction is allowed in respect the Central Government to enter into Double of such profits in any other provision of the Taxation Avoidance Agreement (‘DTAA’) with Act and in no case deduction shall exceed the Government of any other country outside such profits and gains from such India for granting double-taxation relief and undertaking or unit or enterprises or eligible facilitate exchange of information concerning business as the case may be. avoidance or evasion of tax. The government no deduction is allowed under section 10A now wishes to expand the scope of this or 10AA or 10B or 10BA or under chapter cooperation by entering into a DTAA or TIEA VIA-C in respect of such profits if the (Tax Information Exchange Agreement) with assessee fails to make such claim in the specified territories within foreign countries. return of income. The proposed amendment will be effective from 01.10.2009. The above amendments are applicable retrospectively from FY 2002-03. Page | 26 of 52
  27. 27. Budget 2009 In respect of profits earned from developing Other Tax Administration Measures and building housing projects, Section 80- IB(10) provides for 100 per cent deduction of It is proposed to introduce a computer based the profits. It is now clarified that the objective system of allotment and quoting of Document of this tax concession is to provide tax benefit Identification Number (DIN) in each to the person undertaking the investment risk correspondence sent or received by the i.e. the actual developer. Accordingly, the department so as to enable tracking of provisions are amended with effect from FY documents. Consequently, if a notice, order, 2000-01 to provide that nothing contained in letter or any correspondence issued by any this sub-section shall apply to any undertaking income-tax authority does not bear a DIN, the which executes the housing project as a works same shall be treated as invalid and shall be contract. Further, given that the objective of deemed never to have been issued. This the tax benefit for housing projects is to build amendment will take effect from 01.10.2010. housing stock for low and middle income households, from FY 2009-10, conditions have been introduced to ensure that the developer does not sell multiple adjacent units to a single buyer. Page | 27 of 52
  28. 28. Budget 2009 Under the existing provisions a notice or Under the existing provisions of Income-tax requisition under the Act may be served on the Act, an approval is required to be granted by person named therein either by post or as if it income-tax authority for availing of various were a summons issued by a court. It is incentives by the assessee. While some proposed to amend the said provisions to provisions of Income-tax Act specifically provide that the service of notice or summon contain provisions for withdrawal of or requisition or order or any other approval, in many cases there are no such communication may be made by delivering or specific provisions containing power of transmitting a copy thereof by post or courier withdrawal. In order to provide explicit service or in such manner as provided in the provisions for power to withdraw of approval, Code of Civil Procedure, 1908 (5 of 1908) for it is proposed to insert a new Section 293C to the purposes of service of summons; or in the provide that an approval granting authority form of any electronic record; or by any other shall also have the powers to withdraw the means of transmissions as may be provided by approval at any time. However, such rules made by the Board in this behalf. This withdrawal can be made only after giving a amendment will take effect from 01.10.2009. reasonable opportunity of showing cause against the proposed withdrawal to the concerned assessee. This amendment will take effect from 01.10.2009. Page | 28 of 52
  29. 29. Budget 2009 Others An expenditure in respect of which payment is A number of tax concessions under the made for a sum exceeding Rs 20,000 gets Income-tax Act are provided for encouraging disallowed if the payment is made otherwise manufacture of articles or things. However, the than by way of account payee cheque or term “manufacture” has not been defined in account payee bank draft. This limit for the statute. To remove disputes and resultant payments to transport operators (i.e. engaged in judicial review in a number of cases, it is the business of plying, hiring, or leasing goods clarified with effect from FY 2008-09 that carriages) is increased to Rs. 35,000. This ‘manufacture’, with all its grammatical amendment is effective from 01.10.2009. variations, shall mean a change in a non-living physical object or article or thing,— As per the existing provisions of Section (a) resulting in transformation of the object or 115BBC anonymous donation received is article or thing into a new and distinct object or taxable in the hands of any institution or article or thing having a different name, charitable trust other than the institution or character and use; or trust wholly for the religious purpose. It is (b) bringing into existence of a new object or proposed that such anonymous donations article or thing with a different chemical received by institutions / trusts not being composition or integral structure. established wholly for religious purposes would be exempt upto 5% of the total income of such trusts / institutions or a sum of Rs.1 lakh, whichever is higher. Page | 29 of 52
  30. 30. Budget 2009 With a view to reforming the system of funding followed by the assessee. Further, it is of political parties it is proposed to provide that proposed that the income shall be assessed as donations to electoral trusts shall be allowed “income from other sources” in the year in as a 100 percent deduction in the computation which it is received and a deduction for 50% of of the income of the donor. Consequentially it such income would be provided. is proposed to provide that donations to such electoral trusts shall be treated as income of the New Pension System (NPS) : With a view to trusts which will be specifically exempt subject ensure that tax treatment of savings under this to satisfaction of prescribed conditions. system is synchronised with the “exempt- exempt-taxed” (EET) method and that there is The existing provisions of Income-tax Act no incidence of taxation at the accumulation provide that income shall be computed in stage, it is proposed to make the NPS Trust a accordance with either cash or mercantile complete pass-through in so far as taxation is system of accounting regularly employed concerned. by the assessee. Further, the Hon’ble Supreme Court, has held that arrears of interest Income of the NPS Trust to be exempted from computed on delayed or enhanced income tax and any dividend paid to this Trust compensation shall be taxable on accrual basis. from Dividend Distribution Tax. All purchase With a view to mitigating the hardship caused and sale of equity shares and derivatives by the to the taxpayer, from the FY 2009-10 it is NPS Trust also to be exempt from the proposed that the interest received by an Securities Transaction Tax. assessee on compensation or enhanced compensation shall be deemed to be his Self employed persons to be enabled to income for the year in which it is received, participate in the NPS and to avail of the tax irrespective of the method of accounting benefits available thereto. Page | 30 of 52
  31. 31. Budget 2009 The definition of ‘Charitable Purpose’ defined in section 2(15) shall separately list the preservation of environment (including watersheds, forests and wildlife) and preservation of monuments or places or objects of artistic or historic interest so that they would be excluded from the applicability of the prescribed conditions which are applicable to the “advancement of any other object of general public utility”. This space is left blank intentionally Zero Coupon Bond scheme / provisions extended to scheduled banks Page | 31 of 52
  32. 32. Budget 2009 LIMITED LIABILITY PARTNERSHIP The taxation of the LLP in the Income Tax Act The conversion from a general partnership to is on the same line of taxation of partnership. an LLP will have no implication if the rights The income of LLP will be taxed in the hands and obligations of the partners remain the same of the LLP and will be exempt in the hands of after conversion and if there is no transfer of its partners. any asset or liability after conversion. If there is a violation of these conditions, the provisions The LLP Act provides for nomination of of capital gains under Section 45 will apply. “designated partners” who have been given greater responsibility. It is proposed that the In case of liquidation of the LLP, every partner designated partner shall sign the income tax will be jointly and severally liable for payment return of an LLP, or, where, for any of tax unless he proves that non recovery unavoidable reason such designated partner is cannot be attributed to any gross neglect, not able to sign the return or where there is no misfeasance or breach of duty on his part. designated partner as such, any partner shall sign the return. Page | 32 of 52
  33. 33. Budget 2009 PERSONAL TAX Tax Rates Tax Reliefs All (except resident women and senior citizens) Scope of relief (under section Income (Rs.) Proposed Existing Rates 80E) for interest payments on Rates education loans extended to 0 – 150,000 Nil Nil cover all fields of studies (including vocational 150,001 to 160,000 Nil 10% studies) pursued after passing the Senior 160,001 to 300,000 10% 10% Secondary Examination or its equivalent from 300,001 to 500,000 20% 20% a recognized school, board or university. Under 500,001 and above 30% 30% the existing provisions, the deduction is available only for pursuing full time studies for Notes: specified courses in engineering, medicine, 1. In case of resident women below the age of 65 management, applied sciences or pure sciences years, the basic exemption limit has been including mathematics and statistics. increased to Rs 190,000 from Rs 180,000 2. In case of all resident senior citizens (i.e. age of Present deduction limit under section 80DD 65 years or more) the basic exemption limit has for severe disability has been increased from been increased to Rs 240,000 from Rs 225,000. Rs.75,000 to Rs. 100,000. The limit for ordinary 3. Surcharge hitherto applicable at 10% is no disability remains unchanged at Rs. 50,000. longer applicable 4. Cess of 3% is leviable on the above rates 5. Marginal relief shall be available in certain cases Page | 33 of 52
  34. 34. Budget 2009 Others Consequent to the removal of fringe benefit Where any capital gain arises from the transfer tax, there is a change in definition of perquisite. of specified securities or sweat equity shares as Perquisites would now include: specified in Section 17(2)(vi), the cost of value of any specified security or sweat acquisition of such securities shall be fair equity shares allotted or transferred, directly market value which has been taken into or indirectly, by the employer, or former account for the purpose of valuation of employer, free of cost or at concessional perquisite. This amendment is applicable from rate to the assessee. For this purpose, the FY 2009-10. value of any specified security or sweat equity shares shall be the fair market value Compensation received on voluntary of the specified security or sweat equity retirement or termination of service under a shares, as the case may be, on the date on scheme of voluntary separation: Hitherto, which the option is exercised by the assessee select taxpayers have claimed relief for the as reduced by the amount actually paid by, compensation received under both, Section or recovered from, the assessee in respect of 10(10C) and Section 89. Section 10(10C) such security or shares. The “fair market provides for exemption of a lump sum amount value” will mean the value determined in of Rs. 500,000 from the sum received, while accordance with the method as may be Section 89 provides for spreading of the salary prescribed by the Board. for the period of unserved service to arrive at The amount of contributions to super the relief from the tax amount. The new annuation funds in excess of Rs 100,000 provision sets out that the taxpayer can choose Any other fringe benefit or amenity as may to claim relief only under one of the provisions. be prescribed. Page | 34 of 52
  35. 35. Budget 2009 Consequent to the change in the definition of Hitherto, an individual or Hindu Undivided ‘charitable purpose’, donations made to certain Family (HUF) was liable to tax only on money organization would not qualify for deduction received in excess of Rs 50,000, barring certain under Section 80G. In this regard, it is circumstances. Effective 01.10.2009, it is provided that donations made to organizations proposed to tax even transactions involving which received such donations and applied the transfer of other specified properties without same funding relief work for floods in Bihar or any consideration or for an inadequate other public purposes would enjoy the consideration (i.e. transactions in kind or for exemption for the FY 2008-09 provided the money’s worth) with an exception to gifts organizations/trusts were approved for FY- received from relatives or under a will or under 2007-08. prescribed situations. The term property has been defined for this purpose to include Further, the approval granted by the immovable properties being land or building or Commissioner for Institutions under both, shares and securities, jewellery, 80G(5)(iv) is applicable for five assessment archaeological collections, drawings, paintings, years under the existing provisions. This time sculptures or any work of art. The provisions period of five years is now removed. also prescribe the basis and method of valuation of such ‘in kind’ transactions. The This amendment is applicable from 01.10.2009. valuation principles are based on the stamp duty valuations for immovable property and the fair market values in other cases. Page | 35 of 52
  36. 36. Budget 2009 The existing provisions for valuing WEALTH TAX consideration while computing capital gains in case of transfer of land or building or both, is The existing threshold limit for applicability of based on the value adopted or assessed by the wealth tax has been increased to Rs.30 lakhs prescribed stamp valuation authority and does from the previous limit of Rs.15 lakhs. This not include transactions which are not amendment will apply for the valuation of net registered with the authority and executed wealth as on 31.03.2010. through an agreement to sell or power of attorney. With a view to preventing the leakage of revenue, it is proposed to include that the valuation could also be based on the value COMMODITY TRANSACTION TAX assessable (i.e. would have adopted) by the prescribed authority. This amendment shall The Commodity transaction tax has been apply in relation to transactions undertaken on abolished with effect from FY 2009-10. or after 01.10.2009. In concealment penalty proceedings income pertaining to the period prior to search for which the return of income has been filed by the taxpayer but where such income has not been disclosed in the said return, then such income shall be deemed to be concealed income. The amendment is effective retrospectively from 01.06.2007. Page | 36 of 52
  37. 37. Budget 2009 INDIRECT TAX PROPOSALS GOODS AND SERVICES TAX The Finance Minister reiterated the proclaimed objective of the Central Government to implement GST by April 2010. The dual structure of GST formally announced. “In the course of preparation of this budget, I have had the opportunity to interact with large number of stakeholders and receive valuable This space is left blank intentionally inputs. Most suggestions were for structural changes in the tax system. Tax reform, like all reforms, is a process and not an event. Therefore, I propose to pursue structural changes …… in indirect taxes by accelerating the process for the smooth introduction of the Goods and Services Tax (GST) with effect from 1st April, 2010.” FM, Mr. Pranab Mukherjee Page | 37 of 52
  38. 38. Budget 2009 SERVICE TAX Tax Rate New Services Service tax rate remains unchanged at 10% The following services are proposed to be brought (effective rate at 10.30%) under the service tax net: In respect of service providers engaged in Services in relation to advice, consultancy or providing taxable and exempt services and assistance in any branch of law provided by opting not to maintain separate records with one business entity to another business entity. respect of CENVAT credits, the rate of service However, services provided ‘by’ or ‘to’ tax payable on exempt services is reduced to individuals shall not be taxable. 6% from 8%. Services provided in relation to cosmetic surgery and plastic surgery. Reconstructive surgery undertaken to restore anatomy or body functions affected due to Legal services in the nature of congenital defects, developmental appearance before any Court, abnormalities, degenerative diseases, injury and Tribunal or Authority shall not trauma are not taxable. be taxable. Services in relation to transport of costal goods or goods through national water way or inland water. Page | 38 of 52
  39. 39. Budget 2009 Scope Expansions Exemptions The scope of certain existing taxable services has The following would be exempt from service tax: been enlarged to levy service tax on additional services. Specified services provided to a goods transport agency were exempt with effect from Services provided in relation to transport of 05.01.2009. This exemption is now made goods by rail in any manner. Hitherto, the applicable with retrospective effect from taxability was limited to transportation 01.01.2005. The validation provisions to give undertaken by non-Government railways in retrospective effect have been inserted. containers by rail. Any taxable services provided to all Services in relation to production or processing installations, structures and vessels in the of goods for or on behalf of a client is taxable continental shelf and exclusive economic zone under the category of business auxiliary of India is wholly exempt from service tax. services with a specific exclusion to activities Hitherto, this exemption was limited to amounting to manufacture under Central designated areas therein as declared by the Excise laws. This exclusion is now restricted Ministry of External Affairs. only to such activities which amount to manufacture of excisable goods under the Services provided by a tour operator having a Central Excise Act, 1944. contract carriage permit for inter-state or Consequently, such activities which result in intrastate transportation of passengers, manufacture of non-excisable goods under the Central excluding tourism, conducted tours, charter or Excise Act, 1944 would be liable to service tax. For hire service exempt from service tax. instance, manufacture of liquor. Page | 39 of 52
  40. 40. Budget 2009 Services involving purchase and sale of foreign Club or association currency provided by one scheduled bank to services provided by another scheduled bank is wholly exempt from export promotion service tax. councils are exempt from service tax. This The following services provided to exporters of exemption would be goods are exempt from payment of service tax applicable upto subject to certain conditions. This exemption is 31.03.2010. applicable to the exporters liable to discharge service tax under reverse charge mechanism: Exclusions Services relating to transportation of goods Stock broking services have been amended to by road from the CFS or the ICD to the exclude the services provided by a sub-broker. port of export Consequently no service tax would be Services provided by a commission agent applicable. location outside India. The present cap of 10% on the commission agency charges continues to be applicable. Consequently, service tax shall be payable on the amount of commission in excess of 10%. Only exporters having IEC and registered with any EPCs and Service Tax provisions as recipients are eligible for this exemption Page | 40 of 52
  41. 41. Budget 2009 Refunds Procedural The procedure and the documentation The provisions empowering the Commissioner requirements in respect of refund claims by to revise the orders passed by any subordinate exporters of goods has been simplified. authorities is done away with. The time limit for making the application However, the Commissioner may now examine for refund is increased to 1 year from 6 the orders passed by the subordinate months authorities and if necessary, direct such The condition requiring filing of one authorities to make an application to the application for every quarter is dispensed Commissioner of Central Excise (Appeals). with The application so made shall be deemed to be In cases where the refund amount is less an appeal preferred before the Commissioner than 0.25% of the FOB value of exports, of Central Excise (Appeals). refunds to be processed based on self certification of documents and a self- The timelimit within which the Commissioner declaration stating the specified conditions shall issue the direction is capped at 3 months are fulfilled. from the date of communication of the order In other cases, refunds to be processed by the subordinate authorities. Further, the based on certificates issued by the auditors subordinate authorities shall make the of the exporter. application to the Commissioner of Central Refunds to be sanctioned within 1 month Excise (Appeals) within 1 month from the date Refunds to be processed without any pre- of such direction. audit The timelimit within which an assessee may prefer an appeal before the Commissioner of Central Excise (Appeals) is 3 months. However, the timelimit for the Service Tax officer to prefer an equivalent appeal is at 4 months. Page | 41 of 52
  42. 42. Budget 2009 Others In respect of composite scheme for payment of service tax on works contracts, the gross amount shall include: Value of goods used, whether or not any consideration is charged, and Value of services required to be provided The above would not be applicable in respect This space is left blank intentionally of works contracts where the execution has begun or where any amounts have been received prior to 07.07.2009. Enabling provisions have been inserted to empower the Central Government to make Rules to identify the date for determination of rate of tax and the place of provision of taxable services. Page | 42 of 52
  43. 43. Budget 2009 CENTRAL EXCISE Description WEF Upto Rate of Duty 07.07.2009 06.07.2009 Manmade fibre/yarn 8% 4% Ceramic tiles 8% 4% The mean CENVAT rate of 8% has remained Branded jewellery 0% 2% unchanged (effective rate at 8.24%). LPG gas stove 8% 4% Milk fat tester 8% 4% Description WEF Upto 07.07.2009 06.07.2009 MP3 or MP4 or MPE4 players 8% 4% Ink for writing instruments 8% 4% Branded motor spirit (petrol) Rs. 6.50 6% + Rs. 5 Heat resistant latex rubber and 8% 4% (per litre) rubber tension Branded high speed diesel Rs. 2.75 6% + Rs1.25 Plywood, veneered panels and 8% 4% (HSD) (per litre) similar laminated Boiling point spirits (per litre) 14% 14% + Flush doors 8% 4% Rs.15.00 Books other than note books 8% 4% Motor vehicles with engine 20%+ 20%+ and exercise books capacity over 1999 CC (per Rs.15,000 Rs.20,000 Paper and paperboard labels 8% 4% vehicle) Textiles goods of cotton, not 4% 0% Motor vehicles for transport of 8% 20% containing any other textiles goods materials (*) Chassis of petrol driven 8%+ Rs. 20%+ Rs. Textiles goods of materials 8% 4% vehicles (per chassis) 10,000 10,000 other than cotton (*) Contact lens 8% 4% Drawing and Mathematical 8% 4% * Provided that where the manufacturer does not instruments and parts thereof avail CENVAT Credit, the same would be Playing cards 8% 4% exempt. Paints and shaving brushes 8% 4% Page | 43 of 52
  44. 44. Budget 2009 In respect of goods covered under the MRP based valuation, consequential changes in the rate of abatements have been made. In respect of manufacturers engaged in manufacture of dutiable and exempt goods and opting not to maintain separate records with respect of CENVAT credits, the rate of duty payable on exempt goods is reduced to 5% from 10%. This space is left blank intentionally Duty on goods of cotton not containing any other textile materials manufactured by an EOU wholly out of indigenous raw materials increased to 4% from Nil. In case of goods other than cotton, the duty increased from 4% to 8%. Page | 44 of 52
  45. 45. Budget 2009 Exemptions SSI Transfer of right to use packaged software or The benefit of SSI exemption is extended to canned software exempt from payment of manufacturers of printed laminated rolls central excise duty. This exemption would be bearing brand name of another person. For the subject to the condition that: financial year 2009-10, this exemption would be available for the value of clearances not The manufacturer produces a declaration to exceeding Rs. 150 lacs during the remaining the effect that such transfer of right to use is part of the financial year. for commercial exploitation, and The manufacturer is registered under the provisions of Service Tax Similar amendment has been made under the Customs Act, 1962 Page | 45 of 52
  46. 46. Budget 2009 Others Where any books of account or other In respect of the following offences or in documents are seized by or produced to the following circumstances, the accused will be Central Excise Officer and which are not relied restricted from opting for compounding of upon for issue of show cause notice, it is offence: provided that the same shall be returned within 30 days from the date of issue of show cause If the accused has already been allowed to notice or within 30 days from the date of compound once in respect of specified expiry of the period for issue of show cause offences notice. If the offence is also an offence under the Narcotic Drugs and Psychotropic The timelimit for filing an appeal before the Substances Act, 1985 High Court is 180 days from the date on which If the accused has already compounded the order is received. It is now provided that once in respect of an offence for the value the High Court may admit appeals even after of goods exceeding Rs. 1 Crore the lapse of 180 days if there was sufficient If the accused is convicted by any Court on cause for not filing the appeal within the said / after 30.12.2005 period. Similar amendment has been made under the Customs Act, 1962 Page | 46 of 52
  47. 47. Budget 2009 CENVAT Inputs Removal of Goods Scope of the term ‘inputs’ reduced in respect of Where any inputs or capital goods in respect of goods purchased for manufacture of capital which the CENVAT credit is availed by goods which are further used in the factory of manufacturers is fully written off in the books the manufacturer. Consequently, no input of account, it is provided that the manufacturer credit of central excise paid will be allowed on shall pay the amount of credit taken at the time cement, angles, channels, centrally twisted of write-off. This provision is now extended to deform bars, thermo mechanically treated bars include service providers. Consequently, where and such other items used for construction of any services providers have availed CENVAT factory shed, building or laying of foundation credit on input or capital goods which are or making of structures for support of capital subsequently fully written off in the books of goods. account without having put such inputs to use, an amount equal to the credit availed shall be paid at the time of write-off. However, it is also provided that where the service provider subsequently uses such goods in provision of taxable services, the amount of credit paid may be re-availed. Page | 47 of 52
  48. 48. Budget 2009 CUSTOMS Rate of Duty The mean rate of basic customs duty rates Countervailing duty equivalent of sales tax is remain unchanged. exempted on import of parts, components and accessories of mobile handsets including However, certain changes in effective basic cellular phones. customs duty rates have been made. The following is an illustrative list. In respect of anti dumping duty, it is now provided that the margin of dumping shall be Description WEF Upto determined based on the records concerning 07.07.2009 06.07.2009 Gold bars (per 10 gms) Rs.200 Rs.100 normal value and export price maintained by Gold in any other form Rs.500 Rs.250 the exporter or producer. However, in the (other than bars) (per 10 gms) absence of such records, the margin shall be Silver in any form (per kg) Rs.1000 Rs. 500 determined on the basis of the facts available. PM synchronous generator 5% 7.5% above 500 KW Set top Boxes 5% 0% LCD monitors 5% 10% Specified bulk drugs 5% 10% Cotton and wool waste 10% 15% Bio-diesel 2.5% 7.5% Artificial heart (left 5% 7.5% ventricular assist device) Page | 48 of 52
  49. 49. Budget 2009 Valuation Refund In respect of goods which are liable to central The importer may claim refund of import duty excise duty on a tariff value basis, for the purposes paid on imported goods if the goods are found to of levy of CVD on like goods imported into India, be defective or otherwise not in conformity with the value of the imported article shall be deemed the specifications agreed upon and if such goods to be the tariff value. are re-exported or the importer relinquishes his title to such goods or if such goods are destroyed Classification in the presence of the customs officers. In respect of goods falling in Chapters 50 to 55 or While the law provides for a period of 180 days CTH 5809 or 5902, if the goods are mixture of for making the application for refund, it is two or more articles, the same shall be classified as necessary that the re-export or relinquishment of if consisting wholly of that textile article which is title or destruction of goods is done within 30 days predominant by weight. Further, if no single from the date of clearance of goods by the material is predominant in weight, it shall be customs officer. classified as if consisting wholly of that textile article which is covered by the heading which occurs last in the numerical order in the Customs Tariff Act, 1975. Page | 49 of 52
  50. 50. Budget 2009 Advance Rulings Others It is provided that the Central Government may In respect of the following offences or in authorize the Authority of Advance Rulings set up following circumstances, the accused will be under the provisions of the Income Tax Act, 1961 restricted from opting for compounding of to function as the Authority of Advance Rulings offence: under the Customs Act, 1962. If the accused has already been allowed to It is further provided that upon the Central compound once in respect of specified Government notifying the above, the Authority of offences Advance Rulings set up under the Customs Act, If the offence is also an offence under 1962 would cease to function. certain other specified Acts If the offence is in respect of goods which The above would be equally applicable to Central Excise are specified as prohibited items and Service Tax matters. If the offence or documents involved therein are likely to affect friendly relations with the foreign state If the accused has already compounded once in respect of an offence for the value of goods exceeding INR 10 Mil If the accused if convicted by any Court on / after 30.12.2005 Page | 50 of 52
  51. 51. Budget 2009 EFFECTIVE DATES The Direct Tax proposals are effective for the Service Tax financial year 2009-10 unless alternatively Particulars Effective Date provided therein. New services introduced To be notified Expansion of scope in existing To be notified The effective dates for the Indirect Tax services proposals are as follows: Exemptions to certain services 07.07.2009 Customs & Central Excise Retrospective exemption to To be notified specified taxable services provided Particulars Effective Date to GTA effective 01.01.2005 Changes in duty rates & 07.07.2009 Amendments in Works Contract 07.07.2009 exemptions (including exemption (Composition Scheme for to packaged software) payment of Service Tax Rules, CENVAT procedures 07.07.2009 2009) Changes in Customs and Central To be notified Refund of Service tax for 07.07.2009 exporters Excise provisions Reduced rates on exempted goods 07.07.2009 Refund of import duties on To be notified / services (CENVAT Rules) damaged / defectives Other procedural changes To be notified Other s To be notified Page | 51 of 52