Grant thornton budget 2012


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Grant thornton budget 2012

  1. 1. Overview of the Union Budget 2012-13Contents 1 Foreword 2 Key policy announcements 3 Fiscal and economic review 4 Snapshots of tax proposals 5 Direct tax proposals 6 Indirect tax proposals 7 Contact us© Grant Thornton India LLP. All rights reserved.
  2. 2. Overview of the Union Budget 2012-13 2 Foreword Foreword Despite the crisis in Euro zone, slow recovery in the United States, political “The Budget seemed more benign than it is. instability in the Middle East and subsequent rise in crude oil prices, the resilience While most of the amendments were of India’s domestic economy is once again evident with this year’s GDP anticipated such as tinkering of personal tax Key policy growth estimate of over 6.5%. However, this consumption-driven growth may not rates, small exemptions for the middle income announcements be sustainable in the long run unless it is accompanied with an investment-driven group and widening the net of service tax and growth. taking the rate up, the fine print has wider ramifications. Retrospective amendments to address Vodafone like situations, bringing Against this backdrop, growth and stability remained central to the Budget this year. domestic related party transactions under the Fiscal and By setting the fiscal deficit target of 5.1% for 2012-13 and expressing its intentions ambit of transfer pricing are a case in economic review to keep central subsidies under 2% of GDP in 2012-13, and further bring them point. Measures announced to boost down to 1.75% of GDP in the next 3 years, the government has steered clear of infrastructure, agriculture, aviation and power populist measures. industries is very heartening." Snapshot of tax Pallavi J Bakhru proposals The Budget endeavours to shore up investment in infrastructure with proposals Partner & Practice Leader to make more sectors eligible for Viability Gap Funding under PPP scheme and Tax & Regulatory Services other measures including tax free bonds of Rs 60,000 crore for financing Walker, Chandiok & Co infrastructure projects in 2012-13 alone. Direct tax proposals Nevertheless, the common man, hard-pressed by inflation, also has some reasons to cheer while the Budget proposes revisions in income tax exemption limit for the general category and brings forth the provision for allowing External Commercial Borrowing (ECB) to promote low cost housing. However, an upward revision in service tax and other indirect taxes is likely to affect purchasing Indirect tax power of aam admi, on the other hand. proposals Overall the Budget attempts to do a balancing act with a focus on structural reforms. We have developed this report in view of providing you a comprehensive overview of the Budget and we hope that you find it useful. Contact us Tax & Regulatory Services Team Grant Thornton India LLP
  3. 3. Overview of the Union Budget 2012-13 3 Subsidies Rationalisation of key policies Foreword • Attempt to keep subsidies below 2% of Gross Domestic • Amendment to the Fiscal Responsibility and Budget Product (GDP) during Financial Year (FY) 2012-13 Management (FRBM) Act – key features being concepts of: • Subsidies fully provided for effective administration of the - Effective revenue deficit – difference between revenue Key policy proposed Food Security Legislation announcements deficits and grants for creation of capital assets • Nation-wide roll out of mobile-based Fertilizer Management - Medium-term expenditure framework System to provide complete information on movement of statement – to set forth a 3-year rolling target for fertilisers and subsidies expenditure indicators Fiscal and • Goods and Service tax (GST) network to be set-up as economic review Budget Estimates National Information Utility and operational by August 2012 • Gross Tax Receipts estimated at Rs 1,077,612 crores for FY • 20 crore people enrolled under UID-Aadhaar mission. 2012-13 Adequate funds allocated for further enrolment of 40 crores Snapshot of tax • Total expenditures budgeted at Rs 1,490,925 crores for FY • White Paper on Black Money to be presented in Parliament proposals 2012-13 in the Budget session • National Food Security Bill, 2011 is presently before Disinvestments Parliamentary Standing Committee Direct tax • Bill regarding Public Procurement Legislation to be proposals • For FY 2012-13, while 51% ownership and management introduced in Parliament to combat corruption control to remain with the Government, disinvestments target have been set at Rs 30,000 crores Indirect tax proposals Contact us
  4. 4. Overview of the Union Budget 2012-13 4 Financial Sector Textile Sector Foreword • Introduction of Rajiv Gandhi Equity Saving Scheme which • Financial stimulus of Rs 3,884 crores for waiver of loans of allows income tax deduction of 50% to new retail investors handloom weavers investing upto Rs 50,000 in equities Key policy Power and Coal Sector • Rs 15,888 crores proposed for capitalisation of public sector announcements banks and financial institutions • ECB to part finance Rupee debt of existing power projects • Central KYC depository to be developed in FY 2012-13 Transport Sector Fiscal and Infrastructure Sector economic review • Road Transport and Highways Ministry allocation • Government to establish joint venture companies in PPP enhanced by 14% to Rs 25,360 crores mode by defence PSUs • ECB proposed for capital expenditures for road toll systems Snapshot of tax • Tax free bonds of Rs 60,000 crores for financing infrastructure projects in FY 2012-13 • Direct import of Aviation Turbine Fuel for Indian carriers proposals permitted • Introduction of National Manufacturing Policy to raise share of manufacturing in GDP to 25% creating 10 crore jobs • Equity participation of foreign airlines in an airport undertaking upto 49% is under consideration • External Commercial Borrowings (ECB) allowed for low Direct tax cost housing projects • ECB with a ceiling of US$1 billion to be permitted for 1 year proposals in respect of working capital requirements of airline industry • Rural Infrastructure Development Fund allocation enhanced to Rs 20,000 crores out of which Rs 5,000 crores has been assigned towards creating warehousing facilities Indirect tax proposals Contact us
  5. 5. Overview of the Union Budget 2012-13 5 Agriculture Employment Foreword • Target for agriculture credit flow to increase by • Allocation for National Rural Livelihood Mission Rs 1,00,000 crores to Rs 5,75,000 crores in FY 2012-13 increased by 34% to Rs 3,915 crores • Interest subvention scheme to continue in FY 2012-13 • Prime Ministers Employment Generation Programme Key policy • Additional subvention of 3% available for prompt payments allocation enhanced by 23% to Rs 1,276 crores in FY 2012-13 announcements • Allocation of Rs 1,000 crores for National Skill • Regional Rural Bank credit refinance fund set-up for disbursing short-term crop loans Development Fund in FY 2012-13 • Allocation for Accelerated Irrigation Benefit Program Fiscal and enhanced by 13% to Rs 14,242 crores Social Security economic review • Irrigation and Water Resource Finance Company to be operationalized to mobilise large resources to fund projects • Allocation under National Social Assistance Program enhanced by 37% to Rs 8,447 crores in FY 2012-13 Snapshot of tax Micro, Small and Medium Enterprises proposals Defence • India Opportunities Venture Fund of Rs 5,000 crores to be set up with Small Industries Development Bank of India • Provision of Rs 1,93,407 crores made for defence services of which Rs 79,579 crores is towards capital expenditure Direct tax Healthcare proposals Education • No case of polio reported in the last one year • Allocation for National Rural Health Mission to Rs 20,882 • Allocation for Sarva Shiksha Abhiyan enhanced by 21.7% Indirect tax crores in FY 2012-13 to Rs 25,555 crores in FY 2012-13 proposals • National Urban Health Mission to be launched in FY 2012-13 to meet the health needs of the urban poor Contact us
  6. 6. Overview of the Union Budget 2012-13 6 Indirect Tax Foreword • The exact date and rate of GST has not been announced and • This years Union Budget has proposed certain key the target date of 1 April 2012 for implementation has clearly amendments to the structure of Indirect Taxation in India been missed Key policy • The commitment to implement GST (Goods and Services • Central Sales Tax has not been abolished announcements Tax) has been reiterated. Though there is no appointed date, the Finance Minister has given all indications for its early implementation “The Budget 2012-13 is a painful pill with Service Fiscal and Tax being extended to all services (without the economic review • The Constitutional Amendment Bill required to implement credits of GST) and a sharp 2% hike in the GST had been introduced in the Parliament and referred to the Service Tax and Central Excise rates. This will Parliamentary Standing Committee in March 2011. The lead to price rises across the board. But the recommendations of the Committee are still awaited compass is set on Indirect Tax reforms and the Snapshot of tax various steps taken to lead to an early proposals implementation of GST are welcome.” • The Empowered Committee of State Finance Ministers has approved the basic structure of the proposed GST Amrita Mitra Partner – Indirect Tax Direct tax Grant Thornton India LLP proposals • The intention to merge the Service Tax and Central Excise legislation into one Common Tax Code has been announced. • The levy of Service Tax has been extended to all services with Indirect tax a short negative list proposals • The above developments are a clear precursor to GST Contact us
  7. 7. Overview of the Union Financial Budget 2012-13 7 Economic Growth GDP trends 10.00 Foreword 8.4 8.4 7.6 • GDP growth rate during FY 2011-12 is estimated to be 6.9% 8.00 6.9 as compared to 8.4% during previous two FYs. Global 6.00 %age economic slack and oil price rise triggered this fall in GDP Key policy growth 4.00 announcements • During FY 2011-12, the services sector is expected to grow at 2.00 9.4% as against 9.3% last year. Its contribution to GDP is 0.00 estimated at 59% 2009-10 2010-11 2011-12 2012-13AE Fiscal and • However, Manufacturing sectors growth has been Financial Years economic review lacklustre. It has seen a steep fall from 9% during April- December 2010 to 3.9% during April-December 2011 Sectoral Composition of GDP • Growth in exports reduced from 40.5% during FY 2010-11 to 23.5% during FY 2011-12 with insignificant change in the rate Financial Agriculture Industry Services Snapshot of tax Years of growth in imports proposals • Inflation remained a major concern during FY 2011-12 due to 2010 – 11 14.5 27.8 57.7 upsurge in global commodity prices and crude oil though Wholesale Price Index moderated from 9% during April- 2011 – 12AE 13.9 27.0 59.0 Direct tax November 2011 to 7% in February 2012 proposals • Foreign exchange reserves augmented by US$ 6.7 billion from US$ 304.8 billion at end of March 2011 to US$ 311.5 billion at end of September 2011 Headline Inflation 12.00 9.6 9.1 Indirect tax 10.00 8.1 proposals 8.00 %age 6.00 3.8 4.00 2.00 Contact us 0.00 2008-09 2009-10 2010-11 2011-12AE Financial Years
  8. 8. Overview of the Union Financial Budget 2012-13 8 Fiscal Deficit Foreword Gross Fiscal Deficit • Increase in fiscal deficit from 4.8% in FY 2010-11 to 7.00 6.5 estimated 5.9% of GDP during FY 2011-12. It is expected to 5.9 drop to 5.1% of GDP during FY 2012-13 6.00 Key policy 5.1 4.8 5.00 announcements Key Initiatives %age 4.00 • Pradhan Mantri Gram Sadak Yojana (Bharat Nirman) 3.00 Fiscal and proposes to connect 54,648 habitations involving construction economic review of 146,184 km of rural roads 2.00 • Draft National Policy on Electronics (released on 03 1.00 October 2011) envisions creating a globally competitive electronics system design and manufacturing industry 0.00 Snapshot of tax 2009-10 2010-11 2011-12AE 2012-13AE proposals • Draft National Policy on Information Technology 2011 Financial Years focuses on deployment of information communication technology in all sectors of the economy • Additional budgetary support of Rs 91,800 crores to enhance Direct tax productivity and resilience of agriculture proposals • Green India mission proposes additional afforestation of 10 million hectares of forest lands, wastelands and community lands with projected expenditure of Rs 46,000 crores Indirect tax proposals Contact us
  9. 9. Overview of the Union Budget 2012-13 9 Direct tax proposals Foreword • No change in Corporate tax rate, Minimum Alternate Tax, • Submission of Tax Residency Certificate made a necessary Surcharge and Education Cess (but not the sole) condition for availing tax treaty benefits • Minimum Alternate Tax to be applicable to Insurance, • Indirect transfer of capital asset proposed to be taxed in India. Key policy Banking and Companies engaged in the generation or Clause introduced to validate all actions of the tax officer announcements supply of electricity, etc notwithstanding anything contained in any judgement, decree • Scope for Alternate Minimum Tax extended to all tax or order. (Vodafone decision reversed) payers (other than companies) claiming specified deduction • General Anti Avoidance Rules provisions introduced Fiscal and • Concessional rate of taxation of dividends from foreign • Consideration for computer software (even off the shelf) economic review subsidiaries @ 15% extended by 1 year proposed to be treated as royalty • Cascading effect of Dividend Distribution Tax in multi-tier • Reduced withholding tax rate of 5% applicable on foreign structure removed borrowings by companies engaged in specified businesses Snapshot of tax • Weighted deduction introduced for expenditure on Notified • Personal income tax slabs widened proposals Agriculture Projects and Skill Development Projects in • Filing of income tax return made mandatory for residents manufacturing sector having any assets outside India or having signing authority in • Weighted deduction for in-house research extended by 5 any account outside India years • Tax Officer permitted to appeal against Dispute Direct tax • Investment linked deduction extended coupled with Resolution Panel order proposals weighted deduction for specified businesses • Power companies to get additional depreciation as well as extension in terminal date for availing tax holiday Indirect tax • Pass through status accorded for all investments by proposals Venture Capital Funds / Companies • Deeming provisions introduced to treat share premium received in excess of fair market value as income in the hands of closely held investee company Contact us • Share capital, share premium etc in the books of closely held company treated as explained only if source is proved
  10. 10. Overview of the Union Budget 2012-13 10 Transfer pricing Foreword • Advance pricing agreement introduced in transfer pricing “While the DTC has been deferred, the Union (prospective) Budget has brought in some key provisions of the DTC in the Bill like the anticipated general anti Key policy avoidance rules (GAAR) and the advance pricing • Definition of international transaction and intangible property agreements (APA). The most glaring thing that announcements clarified (retrospective) comes out of the amendments is the introduction of key provisions retrospectively to overrule recent • International transaction includes business restructuring or judgments in the area of international tax and Fiscal and reorganization, covered; whether or not it has bearing on the transfer pricing. This would surely not boost the confidence of the foreign investor. A welcome economic review profit, income, losses or assets of such enterprises at the time amendment is the APA regime introduced of the transaction or at any future date (retrospective) to provide a progressive mode of dispute resolution in the area of transfer pricing. Of course the APA Snapshot of tax • Transfer Pricing Regulations apply to specified domestic scheme should also practically turn out to be a transactions between domestic related parties (prospective) favorable and unbiased platform for the proposals multinationals and not be construed as another round of aggressive transfer pricing audit. On the • Tax authorities can appeal against the order incorporating the other hand by bringing domestic transactions in the Direct tax DRP directions (prospective) ambit of transfer pricing, the compliance burdens on the tax payer is going to increase multifold.” proposals • Currently, the arm’s length range is based on a uniform Karishma R. Phatarphekar tolerance band of 5% around the transfer price. The 5% band Partner - Transfer Pricing has been replaced with 3% (prospectively) Grant Thornton India LLP Indirect tax proposals • Amendments propose to eliminate viewing of this 5% range as a standard deduction and also clarifies that the new provision disabling the standard deduction will be applicable for all assessment proceedings pending before the Assessing Contact us Officer as on 1 October 2009. However, the proposed amendment limits the tax authorities ability to re-open or rectify assessments concluded before 1 October 2009
  11. 11. Overview of the Union Budget 2012-13 11 Indirect tax proposals Foreword Roadmap to GST laid out Rates increase for manufacture and services • There are clear indications that GST will be implemented • The rate of Service Tax has been increased from 10% to 12% Key policy within a short time span announcements • The standard rate of Central Excise Duty has been increased • The Constitutional Amendment Bill was introduced in the from 10% to 12% Parliament in March 2011 and is before the Parliamentary Fiscal and Standing Committee for recommendations • The merit rate of Central Excise duty has been increased from economic review 5% to 6% • The Empowered Committee of State Finance Ministers have approved the basic structure. The IT enabled GST Network • The lower merit rate of Central Excise Duty on specified 130 (GSTN) has been approved and will become operational by Snapshot of tax products has increased from 1% to 2% proposals August 2012. A common PAN-based registration, return and payment processing platform for all states will check tax evasion • The Basic Custom Duty (BCD) rate remains the same at 10% Direct tax Effective Dates • The drafting of legislation for Centre and State GST is under proposals progress • The Central Excise rates will be effective from midnight of 16 • The Government has extended the levy of Service Tax on all March 2012 Indirect tax services with a short negative list proposals • The Service Tax rate will be effective from 1 April 2012 • The provisions of Central Excise and Service Tax are proposed to be merged into a Common Tax Code Contact us • Common registration and return provisions have been proposed. The CENVAT Credit Rules are already common
  12. 12. Overview of the Union Budget 2012-13 12 Foreword Service Tax Excise • Proposal to tax all services except those in the negative list • Duty increased to more than 12% in few cases such as comprising of 17 heads automobile and cement Key policy announcements • Alignment made to harmonize Central Excise and Service Tax • Duty evasion of amount more than Rs 30 lakh is a cognizable into a Common Tax Code. offence where person can be arrested without warrant Fiscal and • A common simplified registration form and a common return • Benefit of reduced penalty, i.e. 25% of the penalty amount is economic review comprising of one page proposed in this direction available only if penalty along with duty and interest paid within 30 days • Place of Supply Rules for determining the location of service Snapshot of tax and consumption to be put in public domain for stakeholder’s • Interest is not payable on credit wrongly taken unless the same proposals comments is utilized • Point of Taxation Rules to be rationalized to be in line with the • The rate for CENVAT reversal for exempt services/ goods other proposed changes under Rule 6(3) of CENVAT Credit Rules is revised from 5% Direct tax to 6% proposals • CENVAT Credit permitted on number of services to reduce Customs cascading of taxes Indirect tax • The peak rate of customs duty on non-agricultural goods proposals • New Scheme announced for simplification of refunds remains at 10% • Revision Application Authority and Settlement Commission being introduced in Service Tax for dispute resolution Contact us
  13. 13. Overview of the Union Budget 2012-13 13 Foreword • Exemption given to the following sectors: • Transfer of unutilized credit of Additional duty (SAD) lying in • Agriculture balance at the end of each quarter to another factory of the • Fuel for power manufacturer is permitted • Machinery for mining Key policy • Protective warning systems for railways • The duty free allowance under Baggage Rules is increased from announcements Rs 25,000 to Rs 35,000 for person of Indian origin and Rs • Specific road construction 12,000 to Rs 15,000 for children upto 10 years of age • Aircraft machineries • New leases of aircrafts Fiscal and • Exemption from Countervailing Duty (CVD) is provided economic review • Iron ore plants retrospectively to foreign going vessels from 1 March 2011 to • Steel coating material 16 March 12 • Textile machinery Snapshot of tax • Specific medical devices like stents proposals • LED and LCD TV • Mobiles • Life saving drugs, etc Direct tax proposals • Export duty on chromium ore is enhanced from Rs 3,000 per tonne to 30% ad valorem Indirect tax • Method of computation of education cess and secondary & proposals higher education cess is simplified to avoid computation of such cesses twice Contact us
  14. 14. Overview of the Union Budget 2012-13 14 Rates of income - taxes Foreword Personal tax Corporate tax • Personal income-tax slabs proposed to be revised as under: • No change in corporate tax rate Key policy • No change in Minimum Alternate Tax (MAT) rate (18.5%) announcements Existing Slab Revised Slab (Rs) (Rs) Tax rate (%) • No change in surcharge for domestic companies (5%) • No change in surcharge on foreign companies (2%) Upto 180,000 Upto 200,000 NIL • Marginal relief provisions to continue Fiscal and 180,001 to 500,000 200,001 to 500,000 10 • Education Cess and Secondary and Higher Education Cess at economic review 500,001 to 800,000 500,001 to 1,000,000 20 2% and 1%, respectively to continue • No change with respect to excluding Education Cess and Above 800,000 Above 1,000,000 30 Secondary and Higher Cess on tax deducted or collected at Snapshot of tax source, in case of domestic companies and other resident proposals persons • Minimum exemption limit for women changed from Rs • Concessional rate of 15% for dividend received from foreign 190,000 to Rs 200,000 (the category of women below the age subsidiary has been extended by 1 more year of 60 years has been removed) Direct tax • Limits remain unchanged for senior citizens (age of 60 years Securities Transaction Tax (STT) proposals and above but less than 80 years) at Rs 250,000 • STT payable by purchaser and seller in respect of delivery • Limits remain unchanged for very senior citizen (age of 80 based transaction for equity shares in company / units of years and above) at Rs 500,000 equity oriented fund entered into through a recognised stock Indirect tax • Education Cess and Secondary and Higher Education Cess at exchange reduced from 0.125% to 0.1% proposals 2% and 1% respectively to continue Contact us
  15. 15. Overview of the Union Budget 2012-13 15 MAT Alternate Minimum Tax (AMT) to be levied on all Foreword persons, other than companies • It is proposed to widen the scope of MAT provision and levy MAT to companies which prepare their profit and loss • It is proposed to widen the scope of AMT and include all accounts in accordance with provisions of the Act governing class of assesses (other than companies) under the ambit of Key policy such companies such as Insurance companies, Banking AMT provisions who are claiming deductions vide chapter announcements companies or Companies engaged in the generation or supply VI-A under the heading C-deduction in respect of certain of electricity, etc incomes (i.e. Sections 80H to 80RRA, other than Section 80P) or under Section 10AA of the Income Tax Act, 1961 (IT Act) • It is also proposed that Book profit is to be increased by the Fiscal and amount standing in the revaluation reserve relating to the economic review revalued asset which has been retired or disposed, if the same • The proposed provisions shall not apply to an individual or a is not credited to the profit and loss account Hindu Undivided Family (HUF) or an association of persons (AOP) or a body of individuals (BOI) (whether incorporated or not) or an artificial juridical person if the Snapshot of tax • This amendment will take effect from Assessment Year (AY) adjusted total income (i.e. total income as increased by the proposals 2013-14 (FY 2012-13) deduction under chapter VI-A, as mentioned above and Section 10AA) of such person does not exceed Rs 2 million Direct tax • Tax credit in respect of AMT paid would continue to be proposals available for a period of subsequent 10 AYs • This amendment will take effect from AY 2013-14 (FY 2012- Indirect tax 13) proposals Contact us
  16. 16. Overview of the Union Budget 2012-13 16 Removal of cascading effect of Dividend Distribution Expenditure on skill development project Foreword Tax (DDT) • A new provision (Section 35CCD) is proposed to be • To remove the cascading effect of DDT in multi-tier introduced in the IT Act to allow weighted deduction of corporate structure, it is proposed that a company (holding 150% of the expenses (not being expenditure in the nature of company) receiving dividend from it Indian subsidiary where: cost of any land or building) incurred on skill development Key policy - such Indian subsidiary has paid DDT on the dividend projects in manufacturing sector announcements paid to the holding company; - can take credit of the DDT that the Indian • The eligible projects for this weighted deduction shall be subsidiary has paid while distributing dividend in the notified by the Board in accordance with the prescribed Fiscal and same year guidelines economic review - additional condition that the holding company should • This amendment will take effect from AY 2013-14 (FY 2012- not be a subsidiary of any other company has been 13) removed. • The proposed amendment will take effect from 1 July 2012 Snapshot of tax Weighted deduction to in- house scientific research proposals Expenditure on Notified Agricultural extension • Under Section 35(2AB), weighted deduction of 200% for projects expenditure (not being in the nature of cost of any land or • A new provision (Section 35CCC) is proposed to be building) incurred on in-house research and development Direct tax introduced in the IT Act to allow weighted deduction of facilities, have been extended for a further period of 5 years proposals 150% of the expenditure incurred on notified agricultural i.e. up to 31 March 2017 extension projects • This will take effect from AY 2013-14 (FY 2012-13) Indirect tax • The eligible projects for this weighted deduction shall be proposals notified by the Board in accordance with the prescribed guidelines • This amendment will take effect from AY 2013-14 (FY 2012- 13) Contact us
  17. 17. Overview of the Union Budget 2012-13 17 Investment linked incentives Exemption in respect of income received by certain Foreword foreign companies • Investment linked deductions proposed to be extended to the following businesses commencing operations on or after 1 • Exemption is provided to foreign companies in respect of any April 2012: income received by it in India in Indian currency on account Key policy - setting up and operating of an inland container depot of sale of crude oil to any person in India subject to specified announcements - a container freight station conditions - bee-keeping and production of honey and beeswax Extension of sunset clause - power companies - setting up and operating a warehousing facility for storage of sugar • The terminal date of availing deduction for the undertaking Fiscal and • Weighted deduction of 150% of the capital expenditures (as engaged in business of generation and distribution of power, economic review against current 100% deduction) proposed to be allowed to transmission and distribution of power by laying network of the following businesses commencing operations on or after 1 transmission and distribution lines, undertaking renovation or April 2012: modernization of existing distribution lines is extended from Snapshot of tax - setting up and operating a cold chain facility 31 March 2012 to 31 March 2013 proposals - setting up and operating a warehousing facility for storage of agricultural produce Additional depreciation to power companies - building and operating a hospital with at least one • It is proposed to extend the benefit of additional depreciation Direct tax hundred beds for patients to taxpayers engaged in the business of generation or proposals - developing and building a housing project under a generation and distribution of power scheme for affordable housing - production of fertilizers • This amendment will take effect from AY 2013-14 (FY 2012- • This amendment will take effect from AY 2013-14 (FY 2012- 13) Indirect tax 13) proposals • Investment linked deduction would continue to be available to hotel owners where it owns the hotel but the operation of such hotel is transferred to another person. This amendment will take effect retrospectively from AY 2011-12 (FY 2010-11) Contact us
  18. 18. Overview of the Union Budget 2012-13 18 Computation of tonnage income Thresholds for tax audit Foreword • The following amendment has been proposed for calculation • Threshold for tax audit is proposed to be revised as under, from of tonnage income of a qualifying ship and will take effect AY 2013-14 (FY 2012-13) from AY 2013-14 (FY 2012-13) Existing Revised Key policy Audit under threshold threshold announcements (Rs) (Rs) Qualifying Existing amount Proposed 44AB - Tax audit for persons 6 million 10 million ship having of daily tonnage amount of daily carrying on business net tonnage income tonnage income 44AB - Tax audit for persons Fiscal and 1.5 million 2.5 million carrying on profession economic review Rs 46 for each 100 Rs 70 for each 100 up to 1,000 tons tons exceeding 1,000 Rs 460 plus Rs 35 for Rs 700 plus Rs 53 for • The due date for furnishing the tax audit report is aligned with but not more than each 100 tons each 100 tons the due date for filing the tax return Snapshot of tax 10,000 exceeding 1,000 tons exceeding 1,000 tons proposals Rs 3,610 plus Rs 28 Rs 5,470 plus Rs 42 Thresholds for applicability of tax on presumptive basis exceeding 10,000 for each 100 tons for each 100 tons but not more than 25,000 exceeding 10,000 exceeding 10,000 • For the purpose of presumptive taxation under Section 44AD, tons tons threshold limit of total turnover or gross receipts is proposed to Direct tax Rs 7,810 plus Rs 19 Rs 11,770 plus Rs 29 be increased from Rs 6 million to Rs 10 million for each 100 tons for each 100 tons proposals exceeding 25,000 exceeding 25,000 exceeding 25,000 • This amendment will take effect from AY 2013-14 (FY 2012-13) tons tons. • Further, the following persons are proposed to be carved out of presumptive taxation : - professionals covered under Section 44AA Indirect tax proposals - persons earning income in the nature of commission or brokerage - persons carrying on agency business • This amendment will take effect retrospectively from AY 2011- Contact us 12 (FY 2010-11)
  19. 19. Overview of the Union Budget 2012-13 19 Clarification in relation to amalgamation and Share premium in excess of Fair Market Value (FMV) Foreword demerger involving subsidiary to be treated as income • Even where a subsidiary company amalgamates with its • It is proposed to insert a new provision (Section 56(2)(viib)) holding company, in order to obtain a tax neutral treatment of where any consideration received for issue of shares is in the amalgamation in the hands of such shareholder (i.e. excess of face value of shares, then the consideration Key policy holding company), there was a requirement to issues of shares exceeding FMV of the shares shall be chargeable to income announcements to shareholders of the amalgamating company (i.e. the tax under the head Income from other sources subsidiary), which was impossible to achieve as the holding • The FMV shall be higher of the following: company could not issue shares to itself. This requirement has – FMV, as per the prescribed guidelines; or Fiscal and been dispensed with. – FMV as may be substantiated by the issuing company economic review • Similarly, in case of a demerger, where demerged company is • This provision is proposed to be applicable only for a subsidiary company and the resulting company itself is the companies in which public are not substantially interested (i.e. holding company, the requirement relating to issues of shares closely held companies). Further, this provision is not by such resulting company (i.e. holding company) to the applicable to venture capital undertaking, with respect to Snapshot of tax demerged company (i.e. subsidiary company) has been shares issued to venture capital company / fund proposals dispensed with • This will take effect from AY 2013-14 (FY 2012-13) • This amendment will take effect from AY 2013-14 (FY 2012- 13) Exemption of any sum or property received by an HUF from its members Direct tax Provisions relating to Venture Capital Fund (VCF) or proposals Venture Capital Company (VCC) • It is proposed to exclude any sum or property received by an HUF from its members without consideration or inadequate • Sectoral restrictions on business of Venture Capital consideration, from taxation Undertaking (VCU) to claim exemption from income by • The proposed new provision will take effect retrospectively Indirect tax VCF or VCC have been done away with i.e. pass through from 1 October 2009 proposals status is accorded for all investments by VCF or VCC • It is also proposed that income accruing to VCF or VCC shall be taxable in the hands of investor or accrual basis with no deferral Contact us • This amendment will take effect from AY 2013-14 (FY 2012- 13)
  20. 20. Overview of the Union Budget 2012-13 20 Clarification in connection with cost to previous Relief from long term capital gains tax to an Foreword owner individual or an HUF on sale of a residential property • It is proposed that in the following transactions the cost of • A new provision (Section 54GB) is proposed to be capital assets in the hands of the recipient would be equal to introduced to allow relief from long term capital gains on sale the cost of such assets in the hands of the previous owner of residential property (house or a plot of land) whereby the Key policy (transferor): sale consideration is reinvested in the equity of a Small announcements Enterprise (as per the Micro, Small and Medium Enterprises - transfer of capital assets in course of demutualisation/ corporatisation of a recognised Act, 2006) and which is utilised by such company for the stock exchange as a result of which AOP/BOI purchase of new plant and machinery Fiscal and (previous owner) is converted into a company • The above relief is available subject to fulfillment of certain economic review (recipient) prescribed conditions such as lock in period for 5 years for - transfer of capital assets/ intangible assets on investment and assets purchased, minimum shareholding conversion of sole proprietary concern / firm requirement, time frame for utlisation of subscription amount (previous owner) into a company (recipient) by the company, etc Snapshot of tax • The said exemption applies to any transfer of a residential • This amendment will take effect retrospectively from AY property made before 31 March 2017 proposals 1999-00 (FY 1998-99) • This amendment will take effect from AY 2013-14 (FY 2012- 13) FMV to be considered as full value of consideration Direct tax proposals • A new provision is proposed to be inserted (Section 50D) Reference to Valuation Officer under which FMV of capital asset (on the date of transfer) is to be considered as full value of consideration for • The powers of Assessing officer has been widened with transactions where sales consideration is not ascertainable or respect to cases to be referred to a Valuation Officer. As per Indirect tax cannot be determined the amended provisions, the Assessing officer could now proposals • This amendment will take effect from AY 2013-14 (FY 2012- refer a case to Valuation Officer even when FMV is lower 13) than stated by the tax payer (as against earlier provisions where the reference could only be made if FMV was higher) • The proposed provision will take effect from 1 July 2012 Contact us
  21. 21. Overview of the Union Budget 2012-13 21 Transfer of capital assets not situated in India Transfer of capital assets not situated in India Foreword • It is proposed to tax indirect transfer of capital assets in India • A validation clause has been introduced whereby any notice by inserting the following deeming / clarificatory sent or purported to have been sent, taxes levied, demanded, amendments: assessed, etc with regard to such transfers is deemed to have – definition of capital asset to include controlling been valid notwithstanding anything contained in any Key policy interest in an Indian company. It states that any rights judgement, decree or order. announcements in or in relation to Indian company, including rights of management of control or any other rights Reassessment of income in relation to any asset whatsoever will deemed to be regarded as capital located outside India Fiscal and asset – definition of transfer to specifically include economic review • To reassess the income in relation to any asset located outside disposition or parting with any interest directly or India (including financial interest in any entity), which has indirectly irrespective of whether such transfer is escaped assessment, the following amendments are proposed: effected or dependent upon or flowing from transfer Snapshot of tax of shares of company registered or incorporated – time limit for issue of notice for reopening of an proposals outside India. assessment to be increased to 16 years – the term through under in Section 9(1)(i) to mean – income shall be deemed to have escaped assessment and include by means of, in consequence of or by where a person is found to have any asset (including reason of financial interest in any entity) located outside India Direct tax – any share or interest in a company or entity registered – the reassessment provisions are procedural in nature proposals or incorporated outside India is deemed to be and will take effect from 1 July 2012 for enabling situated in India if the share or interest derives, reopening of proceedings for an AY prior to this directly or indirectly its value substantially from the date. It is further proposed that the extended period Indirect tax assets located in India of 16 years for initiating reassessment will also apply proposals – withholding tax provisions under Section 195 applies to any AY beginning on or before 1 April 2012 /to be applicable to non-residents irrespective of whether non-resident has a residence or place of business or business connection in India or any other presence in India Contact us • This amendment will take effect retrospectively from AY 1962-63 (FY 1961-62)
  22. 22. Overview of the Union Budget 2012-13 22 General Anti-Avoidance Rules (GAAR) Foreword • GAAR (under Chapter X-A) is a broad set of provisions • Where GAAR is triggered, the consequences could be as which seek to tax an impermissible avoidance follows: arrangement(which may be a step, a part or whole of an – disregarding or combining any step of the arrangement and hereinafter referred to as Transaction) arrangement Key policy whose main purpose is to obtain a tax benefit and: – ignoring the arrangement for the purpose of taxation announcements – creates rights or obligation which wouldnt arise law between persons dealing at arms length; or – disregarding or combining any party to the – results in the misuse or abuse of the provisions of the arrangement Fiscal and Act in any way; or – reallocating expenses and income between the parties economic review – lacks commercial substance either wholly or in part; to the arrangement or – relocating place of residence of a party, or location of – is entered or carried out in a manner which would a transaction or situs of an asset to a place other than not be employed for bonafide purposes provided in the arrangement Snapshot of tax • Specific provisions are inserted which describes the – considering or looking through the arrangement by proposals circumstances under which transaction is deemed to lack disregarding any corporate structure commercial substance – re-characterizing equity into debt, capital into revenue • Onus lies with the tax payer to prove that the main purpose etc. of the arrangement was not to obtain tax benefit • It is also provided that a scheme for regulating the condition Direct tax and the manner of application of GAAR provisions would be proposals prescribed • This will take effect from AY 2013-14 (FY 2012-13) Indirect tax proposals Contact us
  23. 23. Overview of the Union Budget 2012-13 23 Tax treaty related amendments Expansion of definition of Royalties Foreword • The following amendments are proposed in relation to • The definition of royalty has now been amended to clarify applicability of provisions under Double Taxation Avoidance and include the transfer of any right for use or right to use a Agreement or an agreement with Government of foreign computer software (including granting of a licence), country or specified territory outside India (together referred irrespective of the medium through which such right is Key policy to as treaty) transferred announcements • submission of Tax Residency Certificate (TRC), containing • Further, royalty would also cover consideration in respect of prescribed particulars, made a necessary condition for availing any right, property or information whether or not: treaty benefits. – possession or control of such right, property or Fiscal and • Treaty benefits cannot be availed where provisions of information is with the payer; economic review Chapter-X –A i.e. GAAR are invoked – such right, property or information is used directly by • This amendment will take effect from AY 2013-14 (FY 2012- the payer; and 13) – the right, property or information is located in India. • Further any meaning assigned, through notification, to a term • The term process which has now been specifically defined to Snapshot of tax used in a treaty but not defined (in the IT Act or the said include transmission by satellite (including up-linking, proposals treaty ) is proposed to be effective from the date on which the amplification, conversion for down-linking of any signal), relevant treaty came into force cable, optic fibre or by any other similar technology, whether • This amendment will take effect retrospectively from 1 or not such process is secret. October 2009 (for Section 90) and 1 June 2006 (for Section Direct tax • The above clarifications have been introduced with 90A) proposals retrospective effect from 1 June 1976 Indirect tax proposals Contact us
  24. 24. Overview of the Union Budget 2012-13 24 Tax Deduction at Source (TDS) Foreword Section Proposed Amendment TDS shall not be required on any interest payable: a) to an individual or a HUF, who is resident in India Section 193 of the IT Act- TDS b) on any debenture issued by a company in which the public are substantially interested Key policy from payment of interest on c) where the aggregate amount of interest paid during a FY does not exceed Rs 5,000 and the interest is announcements debentures paid by account payee cheque. This amendment will take effect from 1 July 2012. Payments made to entertainer is subject to TDS. The rate of TDS for all payments covered under Section 194E Section 194E of the IT Act - Fiscal and of the IT Act is proposed to be increased to 20% TDS from payment to non- economic review resident entertainer This amendment will take effect from 1 July 2012. Any remuneration or fees or commission payable to a director of a company, other than those on which tax is Section 194J of the IT Act - deductible under Section 192, shall be liable for TDS under the provisions of Section 194J TDS from payment to director Snapshot of tax This amendment will take effect from 1 July 2012. proposals Section 194LA of the IT Act - Increase in exemption limit from Rs 100,000 to Rs 200,000 Exemption on enhanced compensation This amendment will take effect from 1 July 2012 Any person responsible for paying any sum to a resident transferor by way of consideration for transfer of any Direct tax immovable property (other than agricultural land), shall deduct an amount equal to 1% of such sum as income- proposals Section 194LAA – TDS from tax thereon. The requirement to deduct TDS applies only where the consideration exceeds the prescribed payment for immovable threshold. Also, withholding tax proof is made a pre-condition for the registering office to register the property. property in certain cases This amendment will take effect from 1 October 2012 Indirect tax Tax shall be charged at the rate of 5% on any income of a non-resident (not being a company) or a foreign proposals Section 194LC- TDS from company by way of interest on foreign current borrowings from sources outside India between 1 July 2012 and 1 July 2015 by specified companies. payment of interest to a non- resident by an Indian company This amendment will take effect from 1 July 2012 Contact us
  25. 25. Overview of the Union Budget 2012-13 25 Tax collection at source (TCS) Cases where tax is not deducted at source due to Foreword bonafide reasons • TCS proposed to be introduced on the following: • It is proposed to dilute the responsibility of the assessee in TCS on TCS Rate default by providing that a person, who fails to deduct tax on (%) the sum paid to a resident shall not be deemed to be an Key policy assessee in default in respect of such tax if such resident: Sale of certain minerals 1 announcements − has duly furnished his return of income Cash sale of bullion and jewellery - if sale consideration exceeds Rs 0.2 million 1 − has taken into account such sum for computing income in such return of income; and Fiscal and • The proposed new provision will take effect from 1 July 2012 − has paid the tax due on the income declared by him economic review in such return of income Liability to pay advance tax in case of non deduction • Further, the person is required to furnish a certificate to this of tax effect from a Chartered Accountant in the prescribed form • Similar changes are also introduced in relation to TCS Snapshot of tax • It is proposed that where a person receives any income • The proposed provision will take effect from 1 July 2012 proposals without TDS or TCS, he shall be liable to pay advance tax • It is also proposed that where the payer fails to deduct the with respect to such income. This amendment will take effect whole or any part of the tax on the payment made to a retrospectively from AY 2012-13 (FY 2011-12) resident and he is not deemed to be an assessee in default (where the payee has paid the tax on such payment – as Direct tax explained above), such payment will be allowed as a proposals deduction. This will take effect from AY 2013-14 (FY 2012- 13) Indirect tax proposals Contact us
  26. 26. Overview of the Union Budget 2012-13 26 Deductions under Chapter VIA for individual and HUF Deductions under Chapter VIA in relation to donation Foreword – Effective from AY 2013-14 (FY 2012-13) payment Deduction for life insurance premium • Deduction in respect donation (Section 80G and 80GGA) in excess of Rs 10,000 is proposed to be allowed only if such • Deduction in respect of premium paid on life insurance policy sum is paid by any mode other than cash Key policy issued on or after 1 April 2012 is proposed to be allowed announcements provided premium payable for any of the years does not exceed 10% (presently 20%) of actual capital sum assured Eligibility conditions for exempt life insurance policies (Section 80C). Corresponding amendment brought in Fiscal and Section 10D • Any sum received under life insurance policy issued on or economic review Deduction for preventive health check-up after 1 April 2012 will be exempt provided premium payable for any of the years during the term of the policy does not exceed 10% (presently 20%) of the actual capital sum assured • Under Section 80D, a deduction of Rs 5,000 is allowed for Snapshot of tax expenditure incurred during the year by a tax payer on proposals account of preventive health check-up of self, spouse, dependent children or parents • The above deduction to be within the overall limits of Rs Direct tax 15,000 / Rs 20,000 prescribed under the said Section of the proposals Act Deduction for interest on savings account Indirect tax proposals • Deduction upto Rs 10,000 proposed to be allowed in respect of interest on deposits (not being time deposit) in a savings account with a banking company, co-operative society engaged in banking business and post office (Section Contact us 80TTA)
  27. 27. Overview of the Union Budget 2012-13 27 Filing of income tax return in relation to assets Dispute Resolution Panel (DRP) Foreword located outside India • The Assessing Officer shall now have the right to appeal to • It is proposed to make it compulsorily for a resident taxpayer the Appellate Tribunal against the order passed in pursuance to file a return of income (even if his taxable income is below of directions of the DRP in respect of an objection filed on or the basic exemption limit) if any one of the following is after 1 July 2012 Key policy triggered: • It is further clarified that the power of the DRP to enhance announcements - the taxpayer has any asset located outside India, the variation shall include and shall always be deemed to have including any financial interest in any entity outside included the power to consider any matter arising out of the India; or assessment proceedings relating to the draft assessment order. Fiscal and - the taxpayer has signing authority in any account This power to consider any issue would be not withstanding economic review located outside India that such matter was raised by the eligible assessee or not. • This amendment will take effect retrospectively from AY This amendment will take effect retrospectively from AY 2009-10 (FY 2008-09) 2012-13 (FY 2011-12) Snapshot of tax proposals Direct tax proposals Indirect tax proposals Contact us
  28. 28. Overview of the Union Budget 2012-13 28 Extension of time for completion of assessments and reassessments Foreword Proceedings under Section Current time frame Proposed time frame 143 – Scrutiny Assessment 21 months from end of AY 24 months from end of AY 143 & 92CA – Scrutiny Assessment & Transfer 33 months from end of AY 36 months from end of AY Key policy Pricing Assessment announcements 148 – Income Escaping Assessment 9 months from end of FY in which notice issued 12 months from end of FY in which notice issued 148 & 92CA - Income Escaping Assessment & 21 months from the end of FY in which notice 24 months from end of FY in which notice issued Transfer Pricing Assessment issued Fiscal and 250 – Appellate Proceedings 9 months from end of FY in which notice issued 12 months from end of FY in which notice issued economic review 254 – Appellate Tribunal 263 – Revision of orders prejudicial to revenue 250 – Appellate Proceedings 21 months from end of FY in which notice issued 24 months from end of FY in which notice issued Snapshot of tax 254 – Appellate Tribunal proposals 263 – Revision of orders prejudicial to revenue 92CA – Transfer Pricing Direct tax proposals Indirect tax proposals Contact us