Standard rate of Service Taxretained at 10%, while seeking acloser fit between present regimeand its GST successor.Central Excise Duty to bemaintained at the standard rateof 10%. Nominal Central ExciseDuty of 1% imposed on 130items entering in the tax netCUS TOM DUTYPeak rate of Customs Duty heldat its current level. Self-Assessment scheme would beintroduced for customs duty.
1 By keeping the excise duty and service tax rate at the current level of 10% which is in line with GST single rate structure, The Finance Minister has sent out a strong message that GST will have to be implemented‖. Although fiscal stimulus given earlier in the form of excise duty and service tax cut has not been taken back but Gross Domestic Product center has expanded the services tax net to include air- (GDP) estimated to have conditioned hospitals with more than 25 beds and air- conditioned restaurants…….. grown at 8.6% in 2010-11 in real terms. Economy has shown remarkable NEW TAXABLE SERVICES resilience. Two new taxable services have been introduced by Finance Bill 2011. These services are: Sr. Description of Service Industry Exemption/Ab Effective Exports have grown by No. atement Tax Cost available 29.4%, while imports have 1. Services provided by the air conditioned Restaurants 70% 3.09% recorded a growth of 17.6 restaurants having license to serve liquor 2. Hotels, inns, clubs, guest houses providing Hotel Industry 50% 5.15% % during April to January short term accommodationyyy 2010-11 over the corresponding period last (i) Services by air-conditioned restaurants having license to serve liquor: year. Restaurants are engaged in provision of services normally in combination with the meal and/or beverage for a consolidated charge. Air-conditioned restaurants having a license to serve alcoholic beverages in relation to serving of food/ beverages would be covered under the purview of service tax. The new levy is Indian Economy expected directed at services provided by high-end restaurants: to grow at 9% in 2011-12 Restaurant should have air condition. It is not necessary that the facility of air-conditioning is available round the year. If the facility is available at any time during the financial year the conditions for the levy Average inflation expected shall be met.; and lower next year and Have license to serve liquor current deficit smaller. It is important to note that restaurants engaged in mere sale of food are not covered under the proposed levy. An abatement of 70% shall be allowed for such taxable services. Proposal relating to The levy is intended to be confined to the value of services contained in the composite contract and shall not Service Tax estimated to cover either the meal portion in the composite contract or mere sale of food by way of pick-up or home delivery, as also goods sold at MRP. result in net revenue gain of Rs. 4,000/- crore. Finance Minister has announced in his budget speech 70% abatement on this service, which is, inter-alia, meant to separate such portion of the bill as relates to the deemed sale of meals and beverages. The relevant notification will be issued when the levy is operationalized after the enactment of the Finance Bill.
2 (ii) Short-term accommodation in hotels/inns/clubs/guest houses: The services in relation to short term accommodation provided by hotels, inns, guest houses, clubs and others and at camp-sites are proposed to be covered under the scape of taxable service. This service is proposed to be taxed where the continuous period of stay is less than 3 months. Actual levy will be restricted to accommodation with declared tariff of Rs 1,000 per day or higher by an exemption notification. EXPENSION OF SCOPE OF TAXABLE SERVICES: Authorized Service Station’s Services [section 65 (105) (zo)]: Standard rate of Service Tax The present definition of taxable service has been amended to include the following services in tax net: retained at 10% , while seeking a closer fit between (a) Services provided by any person i.e. whether authorized service station or otherwise; present regime and its GST (b) All motor vehicles, other than vehicles used for goods transport and three-wheeler auto-rickshaws; and successor (c) Repair, re-conditioning or restoration - which are already taxable – and services of Decoration and any other related services. Tax on all service provided Life Insurance business [section 65 (105) (zx)] by hospitals with 25 or more It is proposed to include the services in relation to management of investment for the policy holders under the scope of bed with facility of central air taxable service. conditioning. Commercial Training or Coaching Service [section 65 (105) (zzc)]:yyy The scope of the service is proposed to be expanded to include all coaching and training that is not recognized by law All individual and sole irrespective of whether the institute is providing any other course(s) recognized by law. proprietor tax payers with a Club or Association [section 65 (105) (zzze)] turnover up to Rs. 60 lacs freed from the formalities of Services provided by a club or association to its members are already subjected to tax since 2005. When a member avails the facilities for his guest, he is already covered by the existing definition as the service tax is paid for by the member and audit. not by the guest. Service tax on air travel both The scope of the service is proposed to be expanded to include service provided to non-members as well. domestic and international Business Support Service [section 65 (105) (zzzq)]: raised. The scope of the service is being expanded to include operational or administrative assistance of any kind. The scope will cover all support activities for others on a contract or fee, that are ongoing business support functions that To encourage voluntary businesses and organizations commonly do for themselves but sometimes find it economical or otherwise worthwhile to outsource. compliance the penal provision for Service Tax are The words ―operational and administrative assistance‖ have wide connotation and can include certain services already taxed under any other head of more specific description. The correct classification will continue to be governed by being rationalized. Section 65A. Point of Taxation Rules, 2011 have been framed vide notification 18/2011-ST and would be made effective from 01.04.2011.
3 Health services [section 65 (105) (zzzzo)] The existing taxable category of service has been emended and would cover the following services: (a) Services provided by a clinical establishment having the facility of central air conditioning in whole or any part of the establishment and more than 25 beds for in-patient treatment at any time of the year; and (b) Services provided by a clinical establishment in relation to diagnostic tests of any kind or investigative services with the help of a laboratory or medical equipment. (c) Service provided by doctors, who are not employees, from the premises of a clinical establishment. Service provided by life insurance companies in An exemption of 50% shall be allowed on such services. Services provided by government hospital would not be covered under the purview of taxable services. the area of investment and Service by Legal Professionals [Section 65 (105) (zzzzm)]: some more legal services proposed to be brought The scope of the existing service is being expanded to include: into tax net. (a) Services of advice, consultancy or assistance provided by a business entity to individuals as well; (b) Representational services provided by any person to a business entity; and Proposals relating to service tax estimated to (c) Services provided by arbitrators to business entities. result in net revenue gain Services provided by individuals to other individual will remain outside the levy.yyy of Rs. 4,000/- crore. AMENDMENTS REGARDING PENALTIES: The definition of input Now the Service Tax has attained maturity in Indian taxation. Through the Finance Bill, government has proposed to lift service has been the liberal provision regarding the non-compliance. Following amendments has been proposed by the Finance Bill 2011: amended. Penalty for Non Filing of Service Tax Return: The maximum penalty for delay in filing of service tax return is proposed to be increased from Rs.2,000/- to . Rs.20,000/-. However, the existing rate of penalty is being retained under rule 7C of the Service Tax Rules, 1994. The maximum penalty is presently reached after a delay of 40 days. The new limit will impact only those who delay filing of return for longer durations. Interest Rate for Non Payment of Service Tax Liability: Interest rate for delayed payment of service tax is being increased to 18% per annum, effective 01.04.2011. A concession of 3% has been proposed in the Bill for tax-payers whose turnover during any of the years covered in the notice or the preceding financial year is below Rs 60 lakh. Penalty for Non Compliance of General Provision: The maximum penalty under section 77 for contravention of various provisions is proposed to be increased from Rs.5000/- to Rs.10000/-. However, the daily rate of penalty, wherever applicable, is being retained. Penalty under Section 78 is being altered from up to twice the amount of tax to an amount equal to the tax. Moreover, in situations where the taxpayer has captured the true and complete information in the specified records, penalty shall be 50% of the tax amount. The latter penalty (only) shall be further reduced to 25% if the tax dues are paid within a period of one month together with interest and reduced penalty. For assesses with turnover up to Rs.60 lakh the period of one month shall be increased to ninety days.
4 OTHER MAJOR AMENDMENTS: Point of Levy of Service Tax: The point of taxation for services was the contentious issue since the date of introduction of levy. Point of Taxation Rules, 2011 have been framed vide notification 18/2011-ST and would be made effective from 01.04.2011. These rules determine the point in time when the services shall be deemed to be provided. The general rule will be that the time of provision of service will be the earliest of the following dates: Date on which service is provided or to be provided Date of invoice Date of payment Section 66A has been added Section 66A for availment of Input Tax Credit: for availment of CENVAT Retrospective amendment is proposed in the Finance Bill to Rule 3 of the CENVAT Credit Rules 2004 to allow credit. the input tax credit of Service Tax paid under Section 66A of the Finance Act, 1994 (Service Tax Paid on the importation of services) in the duties specified for the taking credit. The scope of legal services However, the amendment is proposed only with effect from 18.4.2006, Position on Service Tax paid before 18.4.2006 is still not clear. has been expanded. Amendment in the definition of Input Service: The definition of Input Service has been amended in the budget, 2011 by specifically excluding few services from the purview of input service. Even the services used for setting up of factory/office are now excluded. This amendment will come into force from 1.04.2011.yyy
5 Central Excise Duty to be maintained at the standard rate of 10%. Lower rate of central excise duty enhanced from 4% to 5%. Nominal central excise duty of 1% imposed on the 130 items entering in the tax net. Following Tariff changes relating to Union Excise Duties has been introduced by the Finance Bill 2011 1. Cement The rate structure applicable to Portland cement has been revised. Although the price slabs are being retained, the rates of duty are being converted to mixed rates i.e. ad valorem + specific rates along with some reduction. For the purpose of the ad valorem component, the value would no longer be the retail sale price but the transaction value determined underyyy section 4 of the Central Excise Act, 1944. Similarly, rates of duty applicable to cement manufactured by mini-cement plants have been revised from specific rates to either ad valorem or ad valorem+ specific rates with some reduction. The rate of duty on bulk cement (i.e. other than packaged form), whether manufactured in a mini-cement plant or not, is being unified at 10% ad valorem. (a) Packaged cement manufactured in a mini-cement plant – Earlier Rate Revised Rate (i) Of retail sale price not exceeding Rs.190 per 50 kg bag or of per ton Rs.185 PMT 10% ad valorem RSP not exceeding Rs.3800. (ii) Of retail sale price not exceeding Rs.190 per 50 kg bag or of per ton Rs.315 PMT 10% ad valorem + RSP not exceeding Rs.3800. Rs.30 PMT (b) Packaged cement manufactured in a plant other than a mini- Earlier Rate Revised Rate cement plant – (i) Of retail sale price not exceeding Rs.190 per 50 kg bag or of per ton Rs.290 PMT 10% ad valorem + RSP not exceeding Rs.3800. Rs.80 PMT (ii) Of retail sale price not exceeding Rs.190 per 50 kg bag or of per ton 10% of retail 10% ad valorem + RSP not exceeding Rs.3800. sale Rs.160 PMT Price (c.)Cement Clinker Earlier Rate Revised Rate Rs.375 PMT 10% ad valorem +
6 (c.)Cement Clinker Earlier Rate Revised Rate Rs.375 PMT 10% ad valorem + Cement Clinker Rs.200 PMT Ready-made garments and made-up articles Excise duty at the rate of 10% shall now apply to ready-made garments and made-up articles of textiles bearing a brand name or sold under a brand name. Tariff at the rate of 60% of the retail sale price is extended to goods of chapter 63 and SSI exemption is also available for such goods. When the brand owners may or may not possess manufacturing facility and they take help of job workers, the liability to pay duty and comply with Central Excise procedure shall be on the person on whose behalf the goods are manufactured by job-workers. The job-worker is exempt from payment of duty if the merchant manufacturer pays the duty. Ready-made garments and made-up articles Earlier Revised Rate Rate Ready-made garments and made-up articles of textiles bearing a brand NIL 10% name or sold under a brand name Automobiles Earlier Revised Rate Rate Ambulance - 10% Taxis (capacity increased from 7 to 13 persons) 10% 8% Hydrogen vehicles based on fuel cell technology - 10% Parts of hybrid vehicles and plug-in kits for conversion of normal fuel - 5% vehicles into hybrid vehiclesyyy Precious Metals Excise duty on serially numbered gold bars has been reduced and the concessional rate has been extended when bars are manufactured from the stage of ‗gold dore bars‘. Serially numbered gold bars manufactured from the ore/concentric Rs. 280 per Rs. 200 per 10 stage 10 grams grams Gold arising in the course of manufacture of copper from the copper - Rs 300 per 10 ore or concentrate through the smelting process grams Silver arising in the course of manufacture of copper from the copper - Rs 1500 per kg ore or concentrate through the smelting process Goods for mega power Projects Full exemption from central excise duty has been extended to many goods Goods supplied to ultra-mega power projects - Fully Exempt Power cables used within the generation facility - Fully Exempt Specified goods supplied to expansion projects of existing mega - Fully Exempt power projects
7 Amendments in CENVAT Credit Rules, 2004 Several amendments have been carried out in the provisions of the CENVAT Credit Rules (CCR), 2004. The salient features of these changes are as under: A. Definition of Input: The definition of input contained in rule 2(k) has been revised. The requirement that goods should be used in or in relation to the manufacture of final products whether directly or indirectly and whether contained in the final product or not has been removed. Henceforth, all goods used in the factory by the manufacturer of the final product, except those specified in the negative list and goods having no relationship whatsoever with the manufacture of final product, would qualify for treatment as inputs. In addition, any goods including accessories cleared along with the final product and goods used for providing free warranty have also been included in the definition of inputs. Similarly, goods used for generation of electricity or steam for captive use also constitute inputs. Goods used for the construction of a building or a civil structure or laying of foundation or making of structure for support of capital goods have been excluded. Goods used primarily for personal use or consumption of any employee including food articles etc. has been excluded. B. Definition of Input Service: The definition of input service has also been updated so that the services related to any goods excluded from the definition of inputs are also excluded from the definition of input services. C. Duty paid on Capital Goods: Credit of duty paid on capital goods used outside the factory for generation of electricity for captiveyyy use within the factory has been permitted. D. Cenvat credit on ships, boats imported for Breaking: Rule 3 of the CCR has been amended to prescribe that Cenvat credit shall not be allowed in excess of 85% of the additional duty of customs paid on ships, boats etc. imported for breaking. E. Miscellaneous Amendments: Rule 5B is being amended to oblige a manufacturer or service provider to pay an amount equivalent to the CENVAT credit taken in respect of inputs or capital goods even where the value of such inputs or capital goods is written off partially before being put to use.
8 Peak rate of Customs Duty held at its current level. To Boost up the manufacturing sector, basic customs duty reduced for various items to encourage domestic value addition vis a vis imports, to remove duty inversion and anomalies and to provide a level playing field to Peak rate of Customs Duty the domestic industry. held at its current level. Cash Dispensers fully exempt from basic customs duty. Customs Duty Rate: Basic Customs Duty on There is no change in the peak rate of basic customs duty of 10%. The existing rates of 2%, 2.5% and 3% are being two critical raw materials fused into a single rate of 2.5%. Consequently, all items that hitherto attracted basic customs duty of 2% or 3% would now be chargeable to 2.5%. of cement industry viz. petcoke and gypsum is Self-Assessment Scheme: proposed to be reduced to The Finance Bill, 2011 has introduced the self-assessment scheme in the Customs Act, 1962 both for imported goods 2.5%. and export goods. The self-assessment scheme shall replace the existing legal requirement of assessment of every bill of entry or shipping Proposal to direct taxes bill by the Customs Officer. For this purpose, the important amendments proposed in the provisions of the Customsyyy estimates to result in a Act are as under: revenue loss of Rs. The definition of assessment in section 2 is being amended to include ―self-assessment‖. 11,500/- crore and those Section 17 which deals with assessment of duty have been recast to provide legal backing for self- relating to Indirect Taxes assessment by the importer or exporter. It has also been provided that the customs officer may verify the assessment and have the goods tested or examined for this purpose. estimated to result in net revenue gain of Rs. An obligation is also being cast on the importer or exporter to furnish any documents or information that may be required for such verification. Where it is found that the self-assessment is not in order, 11,300 crore. the customs officer is required to reassess the bill of entry and to issue a speaking order for the same unless the importer agrees with the reassessment. Barring cases where a speaking order is issued on reassessment, powers have also been assigned to customs officers to conduct audit either in their own office or at the premises of importer or exporter. Consequential amendments are being proposed in section 18 relating to provisional assessment. It is being provided that the importer may make a request for assessment of goods by the officer when he is not in a position to self-assess. The provisions of section 19 are also being amended to prescribe that the finalization of provisional assessment may be carried out by the proper officer. Other consequential amendments include amendments in section 46 and 50 to make the electronic filing of bills of entry/shipping bills the norm. Power is also being conferred on the Commissioner of Customs to permit filing in any other manner when electronic filing is infeasible.
9 Exemption limit for the general category of individual taxpayers enhanced from Rs. 1,60,000/- to 1,80,000/- giving uniform tax relief of Rs. 2000/-. Proposals relating to the Direct Taxes estimated to result in a revenue loss of Rs. Exemption limit enhanced 11,500/- crore. and qualifying age reduced for senior citizens. Rate of Minimum Alternate Tax proposed to increase from 18% to 18.5% of book Profit. Rates of Income-Tax The rates of income-tax in the case of every individual (other than those specified below) or Hindu undivided family are as under:- Lower rate of 15% on dividends received by an Monetary Limits Tax Rates Indian company from its Upto Rs. 1,80,000 Nil foreign subsidiary. Rs. 1,80,001 to Rs. 5,00,000 10 per cent Rs. 5,00,001 to Rs. 8,00,000 20 per cent.yyy Current surcharge of 7.5% Above Rs. 8,00,000 30 per cent of domestic companies proposed to be reduced to In the case of every individual, being a woman resident in India, and below the age of sixty years at any time during 5% the previous year,— Monetary Limits Tax Rates Upto Rs. 1,90,000 Nil Additional deduction of Rs. Rs. 1,90,001 to Rs. 5,00,000 10 per cent 20,000/- for investment in Rs. 5,00,001 to Rs. 8,00,000 20 per cent. long term infrastructure Above Rs. 8,00,000 30 per cent bonds proposed to be In the case of every individual, being a resident in India, who is of the age of sixty years or more but less than eighty extended for one more years at any time during the previous year,— year. Monetary Limits Tax Rates Upto Rs. 2,50,000 Nil Rs. 2,50,001 to Rs. 5,00,000 10 per cent Rs. 5,00,001 to Rs. 8,00,000 20 per cent. Above Rs. 8,00,000 30 per cent
10 In the case of every individual, being a resident in India, who is of the age of eighty years or more at any time during the previous year: Monetary Limits Tax Rates Upto Rs. 500000 Nil Rs. 50,00,001 to Rs. 8,00,000 20 per cent Above Rs. 8,00,000 30 per cent Companies: The rates of income-tax in the case of companies are specified in Paragraph E of Part III of the First Schedule to the Bill. These rates are the same as those specified for the assessment year 2011-12. The existing surcharge of 7.5 % on a domestic company is proposed to be reduced to 5%. In case of companies other than domestic companies, the Direct Tax Code (DTC) to existing surcharge of 2.5% is proposed to be reduced to 2%. be finalized for enactment during 2011-12. DTC proposed to be effective from April 2012. Other Major Amendments: Definition of “charitable purpose” Weighted deduction on PAYMENTS MADE TO Existing Provision: ―Charitable Purpose‖ has been defined in section 2(15) which, among others, includes ―the National Laboratories, advancement of any other object of general public utility‖. However, ―the advancement of any other object of universities and Institute of general public utility‖ is not a charitable purpose, if it involves the carrying on of any activity in the nature of trade, Technology to be commerce or business, or any activity of rendering any service in relation to any trade, commerce or business, for a enhanced to 200 per cent. cess or fee or any other consideration, irrespective of the nature of use or application, or retention, of the income from such activity and receipts from such activities is ten lakh rupees or more in the previous year.yyy System of collection of Proposed provision: - It is proposed to amend section 2(15) to enhance the current monetary limit in respect of information from foreign receipts from such activities from INR 10 lakhs to INR 20 Lakhs. tax jurisdictions to be strengthen Effective Date: - 1st April, 2012 Infrastructure Debt Fund: New Provision: - It is proposed to insert clause (47) to section 10 in order to augment long-term, low cost funds from abroad for the infrastructure sector to facilitate setting up of dedicated debt funds. Section 10 of the Income-tax Act excludes certain incomes from the ambit of total income. It provides for power to the Central Government to notify any infrastructure debt fund which is set up in accordance with the prescribed guidelines. Once notified, the income of such debt fund would be exempt from tax. It will, however, be required to file a return of income. Any interest received by a non-resident from such notified infrastructure debt fund shall be taxable at the rate of 5% on the gross amount of such interest income. It is further proposed to insert a new section 194LB to provide that tax shall be deducted at the rate of five per cent. by such notified infrastructure debt fund on any interest paid by it to a non-resident. Effective Date: - These amendments are proposed to take effect from 1st June 2011.
12 . Provisions relating to Minimum Alternate Tax (MAT) and Dividend Distribution Tax (DDT) in case of Special Economic Zones Existing Provisions: - A deduction of hundred per cent. is allowed in respect of profits and gains derived by a unit located in a Special Economic Zone (SEZ) from the export of articles or things or services for the first five consecutive assessment years of 50% for further five assessment years; and thereafter, of 50% of the ploughed back export profit for the next five years under Section 10AA of the Income-tax Act. A deduction of hundred per cent. is allowed in respect of profits and gains derived by an undertaking from the business of development of an SEZ notified on or after 1st April, 2005 from the total income for any ten consecutive assessment years out of fifteen years beginning from the year in which the SEZ is notified by the Central Government [Section 80-IAB of the Income-tax Act. Under the existing provisions of section 115JB (6), an exemption is also allowed from payment of minimum alternate tax (MAT) on book profit in respect of the income accrued or arising on or after 1st April, 2005 from any business carried on, or services rendered, by an entrepreneur or a Developer, in a Unit or Special Economic Zone (SEZ), as the case may be. Further, under the existing provisions of section 115-O(6), an exemption is allowed from payment of tax on distributed profits [Dividend Distribution Tax (DDT)] in respect of the total income of an undertaking or enterprise engaged in developing or developing and operating or developing, operating and maintaining a Special Economic Zone for any assessment year on any amount declared, distributed or paid by such Developer or enterprise, by way of dividends (whether interim or otherwise) on or after 1st April, 2005 out of its current income. Such distributed income is also exempt from tax under section 10(34) of the Act. Proposed Provision: - W.e.f. 1 April 2011 SEZ developers and units are brought within the ambit of MAT and SEZ developers are now liable to dividend distribution tax of 15% effective from 1 June 2011.yyy Weighted deduction for contribution made for approved scientific research programme Existing Provision:- Weighted deduction to the extent of 175% is allowed for any sum paid to a National Laboratory or a university or an Indian Institute of Technology (IIT) or a specified person for the purpose of an approved scientific research programme under section 35(2AA) of the Income-tax Act. Proposed Provision: - It is proposed to increase this weighted deduction from 175 per cent to 200 per cent for the purpose of promoting more contributions to such approved scientific research programmes. Effective Date: - 1st April, 2012 Investment linked deduction Existing provision :- Under the existing provisions of section 35AD of the Income-tax Act, investment-linked tax incentive is provided by way of allowing hundred per cent. deduction in respect of any expenditure of capital nature (other than on land, goodwill and financial instrument) incurred wholly and exclusively, for the purposes of the ―specified business‖. Currently, the following specified businesses are eligible for availing investment-linked deduction under section 35AD(8)(c): (i) setting up and operating a cold chain facility; (ii) setting up and operating a warehousing facility for storage of agricultural produce; (iii) laying and operating a cross-country natural gas or crude or petroleum oil pipeline network for distribution, including storage facilities being an integral part of such network; (iv) building and operating, anywhere in India, a new hotel of two-star or above category as classified by the Central Government: (v) building and operating, anywhere in India, a new hospital with at least one hundred beds for patients; (vi) developing and building a housing project under a scheme for slum redevelopment or rehabilitation framed by the Central Government or a State Government, as the case may be, and notified by the Board in this behalf in accordance with the guidelines as may be prescribed.
13 Proposed Provision : It is proposed to include two new businesses as ―specified business‖, i.e.,- (a) developing and building a housing project under a scheme for affordable housing framed by the Central Government or a State Government, as the case may be, and notified by the Board in this behalf in accordance with the guidelines as may be prescribed; and (b) production of fertiliser in India. Effective date :- These amendments will take effect from 1st April, 2012 and will, accordingly, apply in relation to the assessment year 2012-13 and subsequent years. Tax benefits for New Pension System (NPS) Existing Provision :- Section 80CCD of the Income-tax Act provides, inter alia, a deduction in respect of contributions made by an employee as well as an employer to the New Pension System (NPS) account on behalf of the employee. In view of the provisions of section 80CCE, the aggregate deduction under sections 80C, 80CCC and 80CCD cannot exceed one lakh rupees. The allowable deduction under section 80CCD includes both the employee‘s as well the employer‘s contribution to the NPS. Proposed Provision :- It is proposed that the contribution made by the employer to the NPS be excluded for computing the INR 1,00,000 Limit under Section 80CCE. Also it is proposed that the employer be allowed a deduction under Section 36 in respect of his contribution to the NPS of an amount to the extent that it does not exceed ten per cent of the salary of the employee in the previous year. Effective date :- These amendments are proposed to take effect from 1st April, 2012 and will, accordingly, apply in relation to the assessment year 2012-13 and subsequent years.yyy Deduction for investment in long-term infrastructure bonds Existing Provision: - A sum of Rs. 20,000 (over and above the existing limit of Rs. 1 lakh available under section 80CCE for tax savings) is allowed as deduction in computing the total income of an individual or a Hindu undivided family if that sum is paid or deposited during the previous year relevant to the assessment year 2011-12 in long-term infrastructure bonds as notified by the Central Government under Section 80CCF of the Income-tax Act,. Proposed Provision: -It is proposed to amend section 80CCF to allow deduction on account of investment in notified long-term infrastructure bonds for the year 2011-12 Effective Date :- This amendment will take effect from 1st April, 2012 and will, accordingly, apply in relation to the assessment year 2012-13. Extension of sunset clause for tax holiday for Power Sector Existing provision: - Under the existing provisions of section 80-IA(4)(iv) of the Income-tax Act, a deduction of profits and gains is allowed to an undertaking which,— (a) is set up for the generation and distribution of power if it begins to generate power at any time during the period beginning on 1st April, 1993 and ending on 31st March, 2011; (b) starts transmission or distribution by laying a network of new transmission or distribution lines at any time during the period beginning on 1st April, 1999 and ending on 31st March, 2011; (c) undertakes substantial renovation and modernization of existing network of transmission or distribution lines at any time during the period beginning on 1st April, 2004 and ending on 31st March, 2011. Proposed Provision :- It is proposed to amend section 80-IA(4)(iv) to extend the terminal date for a further period of one year, i.e., up to 31st March, 2012. Effective date :- This amendment will take effect from 1st April, 2012 and will, accordingly, apply in relation to assessment year 2012-13 and subsequent years.
14 . Rationalization of provisions relating to Transfer Pricing Existing Provision :- Section 92C of the Income-tax Act provides the procedure for computation of the Arm‘s Length Price (ALP). The section provides the methods of computing the ALP and mandates that the most appropriate method should be chosen to compute ALP. It is also provided that if more than one price is determined by the chosen method, the ALP shall be taken to be the arithmetical mean of such prices. The second proviso to section 92C(2) provides that if the variation between the actual price of the transaction and the ALP, as determined above, does not exceed 5% of the actual price, then, no adjustment will be made and the actual price shall be treated as the ALP. A fixed margin of 5% across all segments of business activity and range of international transactions has out-lived its utility. Proposed Provision :- It is therefore, proposed to amend section 92C of the Act to provide that instead of a variation of 5%, the allowable variation will be such percentage as may be notified by Central Government in this behalf. Effective Date :- This amendment is proposed to take effect from 1st April, 2012 and it shall accordingly apply in relation to the Assessment Year 2012-13 and subsequent years. Existing Provision :- Section 92CA of the Act provides that the Transfer Pricing Officer (TPO) can determine the ALP in relation to an international transaction, which has been referred to the TPO by the Assessing Officer. Proposed Provision :- It is proposed to amend section 92CA so as to specifically provide that the jurisdiction of theyyy Transfer Pricing Officer shall extend to the determination of the ALP in respect of other international transactions, which are noticed by him subsequently, in the course of proceedings before him. These international transactions would be in addition to the international transactions referred to the TPO by the Assessing Officer. Existing Provision: - Section 92CA(7) provides that for the purpose of determining the ALP, the TPO can exercise powers available to an assessing officer under section 131(1) and section 133(6). Proposed Provision : These are powers of summoning or calling for details for the purpose of inquiry or investigation into the matter. In order to enable the TPO to conduct on-the-spot enquiry and verification, it is proposed to amend section 92CA(7) so as to enable the TPO to also exercise the power of survey conferred upon an income-tax authority under section 133A of the Act. These amendments are proposed to take effect from 1st June 2011. It is proposed to section 139 to extend the due date for filing of return of income by such corporate assesses who have undertaken international transactions to 30th November of the assessment year. This amendment is proposed to take effect from 1st April 2011. Toolbox of counter measures in respect of transactions with persons located in a notified jurisdictional area In order to discourage transactions by a resident assesse 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. It is proposed to insert a new section 94A in the Act to specifically deal with transactions undertaken with persons located in such country or area. The proposed section provides: 1) an enabling power to the Central Government to notify any country or territory outside India, having regard to the lack of effective exchange of information by it with India, as a notified jurisdictional area; 2) that if an assesse enters into a transaction, where one of the parties to the transaction is a person located in a notified jurisdictional area, then all the parties to the transaction shall be deemed to be associated enterprises and the transaction shall be deemed to be an international transaction and accordingly, transfer pricing regulations shall apply to such transactions; 3) that no deduction in respect of any payment made to any financial institution shall be allowed unless the assesse furnishes an authorization, in the prescribed form, authorizing the Board or any other income-tax authority acting on its behalf, to seek relevant information from the said financial institution;
15 4) that no deduction in respect of any other expenditure or allowance (including depreciation) arising from the transaction with a person located in a notified jurisdictional area shall be allowed under any provision of the Act unless the assesse maintains such other documents and furnishes the information as may be prescribed; 5) that if any sum is received from a person located in the notified jurisdictional area, then, the onus is on the assesse to satisfactorily explain the source of such money in the hands of such person or in the hands of the beneficial owner, and in case of his failure to do so, the amount shall be deemed to be the income of the assesse; 6) that any payment made to a person located in the notified jurisdictional area shall be liable to deduction of tax at the higher of the rates specified in the relevant provision of the Act or rate or rates in force or a rate of 30 per cent. This amendment is proposed to take effect from 1st June, 2011. Taxation of certain foreign dividends at a reduced rate Existing Provision :- Under the existing provisions of the Income-tax Act, dividend received from foreign companies is taxable in the hands of the resident shareholder at his applicable marginal rate of tax. Therefore, in case of Indian companies which receive foreign dividend, such dividend is taxable at the rate of thirty per cent. plus applicable surcharge and cess. Proposed Provision :- It is proposed to insert a new section 115BBD to provide that for an Indian company anyyyy income by way of dividends received from a foreign subsidiary company shall be taxable at the rate of fifteen% (plus applicable surcharge and cess) on the gross amount of dividends. No expenditure in respect of such dividends shall be allowed under the Act. Effective date: - 1st April, 2012. Minimum Alternate Tax It is proposed to increase the rate of MAT to eighteen and one-half per cent. from the existing rate of eighteen per cent of book profit. This amendment will take effect from 1st April, 2012 and will, accordingly, apply in relation to the assessment year 2012-13 and subsequent years. Alternate Minimum Tax for Limited Liability Partnership (LLP) The Limited Liability Partnership Act, 2008 (LLP) has come into effect in 2009. The LLP has features of both a body corporate as well as a traditional partnership. The Income-tax Act provides for the same taxation regime for a limited liability partnership as is applicable to a partnership firm. It also provides tax neutrality (subject to fulfillment of certain conditions) to conversion of a private limited company or an unlisted public company into an LLP. An LLP being treated as a firm for taxation has the following tax advantages over a company under the Income-tax Act:- (i) it is not subject to Minimum Alternate Tax; (ii) it is not subject to Dividend Distribution Tax (DDT); and (iii) it is not subject to surcharge. In order to preserve the tax base vis-à-vis profit-linked deductions, it is proposed to insert a new Chapter XII-BA in the Income-tax Act containing special provisions relating to certain limited liability partnerships. Under the proposed amendment, where the regular income-tax payable for a previous year by a limited liability partnership is less than the alternate minimum tax payable for such previous year, the adjusted total income shall be deemed to be the total income of such limited liability partnership and it shall be liable to pay income-tax on such total income at the rate of eighteen and one-half per cent.
16 Rationalization of Tax on Income distributed to unit holders Existing Provision: - Under the existing provisions contained in section 115R(2) of the Income-tax Act, a Mutual Fund is liable to pay additional income-tax on the amount of income distributed to its unit holders. It is proposed to levy additional income-tax at a higher rate of 30 per cent. on income distributed by debt funds to a person other than an individual or HUF. Proposed Provision: - It is therefore proposed to amend section 115R(2) to provide that the Mutual Fund shall be liable to pay additional income-tax on such distributed income at the rate of – (a) 25% - if the recipient is an individual or HUF in case of distribution by a money market mutual fund or a liquid fund; (b) 30% - if the recipient is any other person in case of distribution by a money market mutual fund or a liquid fund; (c) 12.5% - if the recipient is an individual or HUF in case of distribution by a debt fund other than a money market mutual fund or a liquid fund; andyyy (d) 30% - if the recipient is any other person in case of distribution by debt fund other than a money market mutual fund or a liquid fund. Effective date: - This amendment is proposed to take effect from 1st June, 2011. Collection of information on requests received from tax authorities outside India Existing Provision:- Certain income-tax authorities have been conferred the same powers as are available to a Civil Court while trying a suit [section 131(1) of the Income-tax Act]. It is proposed to facilitate prompt collection of information on requests received from tax authorities outside India in relation to an agreement for exchange of information under section 90 or section 90A of the Income-tax Act. Proposed Provision: - It is proposed to insert sub-section (2) in section 131. The new sub-section provides that for the purpose of making an enquiry or investigation in respect of any person or class of persons in relation to an agreement referred to in section 90 or section 90A, it shall be competent for any income-tax authority, not below the rank of Assistant Commissioner of Income-tax, as notified by the Board in this behalf, to exercise the powers currently conferred on income-tax authorities referred to in section 131(1). The authority so notified by the Board shall be able to exercise the powers under section 131(1) notwithstanding that no proceedings with respect to such person or class of persons are pending before it or any other income-tax authority. Proposed Provision: - It is further proposed to amend section 131(3) so as to empower the aforesaid authority, as notified by the Board, to impound and retain any books of account and other documents produced before it in any proceeding under the Act. Similar amendments have also been proposed in section 133 of the Income-tax Act. Effective Date: - 1st June, 2011. Exemption to a class or classes of persons from furnishing a return of income Existing Provision: - Section 139(1) of the Income-tax Act, every person, if his total income during the previous year exceeds the maximum amount which is not chargeable to income-tax, is required to furnish a return of his income. Proposed provision: - It is proposed to notify a category of small tax payers who will be exempt from tax filing requirements as in the case of salaried tax payer, entire tax liability is discharged by the employer through deduction of tax at source. Complete details of such tax payers are also reported by the employer through Tax Deduction at Source (TDS) statements. Consequential amendments are also proposed to be made to the provisions of section 296 to provide that any notification issued under section 139(1C) shall be laid before Parliament. Effective Date: - 1st June, 2011.
17 Extension of time limit for assessments in case of exchange of information Existing Provision: - Section 153 of the Income-tax Act provides for the time limits for completion of assessments and reassessments. In Explanation 1 to section 153 of the Income-tax Act, certain periods specified therein are to be excluded while computing the period of limitation for completion of assessments and reassessments. Proposed Provision: - Section 153 is proposed to be amended to exclude the lower of the following while determining the period of limitation for completion of assessment: 1. Time taken in obtaining information from the tax authorities in jurisdictions situated outside India, under an agreement referred to in section 90 or section 90A, from the statutory time limit prescribed for completion of assessment or reassessment. 2. The period of 6 months Similar amendments are proposed to be made to section 153B of the Income-tax Act. Effective date :- 1st June, 2011. Application before the Settlement Commission Existing Provisions: - The existing provisions contained in the proviso to section 245C(1) allow an application to be made before the Settlement Commission if,—yyy (i) the proceedings have been initiated against the applicant under section 153A or under section 153C as a result of search or a requisition of books of account, as the case may be, and the additional amount of income-tax payable on the income disclosed in the application exceeds fifty lakh rupees; (ii) in other cases, if the additional amount of income-tax payable on the income disclosed in the application exceeds ten lakh rupees. Proposed Provision: - A new clause (ia) in the proviso to section 245C(1) is proposed to be inserted. This stipulates that an application can also be made, where the applicant— (a) is related to the person [referred to in (i) above] in whose case proceedings have been initiated as a result of search and who has filed an application; and (b) is a person in whose case proceedings have also been initiated as a result of search, The above is applicable only when the addition amount of Income tax payable on the income disclosed exceeds INR 10 Lakh Effective Date: - 1st June, 2011. Power of the Settlement Commission to rectify its orders: Existing provisions Section 245D(4) of the Income-tax Act provide that the Settlement Commission may pass an order, as it thinks fit, on the matters covered by the applications received by it, after giving an opportunity of being heard to the applicant and to the Commissioner. Further, under section 245F(1), the Settlement Commission has been conferred all the powers which are vested in an income-tax authority under the Act. An income-tax authority has the power (under section 154) to amend any order passed by it for the purpose of rectifying any mistake apparent from the record. Proposed Provisions :- It is proposed to insert a new sub-section (6B) in section 245D so as to specifically provide that the Settlement Commission may, at any time within a period of six months from the date of its order, with a view to rectifying any mistake apparent from the record, amend any order passed by it under section 245D(4). It is further provided that a rectification which has the effect of modifying the liability of the applicant shall not be made unless the Settlement Commission has given notice to the applicant and the Commissioner of its intention to do so and has allowed the applicant and the Commissioner an opportunity of being heard. Consequential amendments on similar lines are proposed to be made to section 22D of the Wealth Tax Act. Effective Date: - 1st June, 2011.
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