Budget 2012-13

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On 16 March 2012, the Honorable Finance Minister of India presented in the Parliament the country's Finance Bill for 2012-13, containing proposals on direct and indirect taxes, and key policy initiatives.

In this regard, with pleasure we are presenting our annual India Budget publication. The publication summarizes the key changes announced by the Finance Minister in his speech.

Most direct tax proposals in the Finance Bill 2012 are proposed to be effective from the financial year commencing on 1 April 2012 unless specified otherwise and indirect tax proposals are effective immediately, unless specified otherwise

We hope you find it an interesting and informative read.






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Budget 2012-13

  1. 1. Budget 2012-13 at a glance S.P. Nagrath & Co. 1
  2. 2. ContentsS.No Particulars Page No.1 Approach to the budget 3 Direct Tax2 Slab Rates 53 Amendment relating to Income Exempt from Tax 64 Amendment relating to Income from Business & Profession 75 Amendments relating to Capital Gain 86 Amendment relating to Income from Other Sources 117 Amendment relating to Deductions 128 Amendments relating to Assessment and Reassessment including 14 assessment in Search cases, to TDS/TCS, Advance tax, MAT, Transfer Pricing Indirect Tax9 Custom 2910 Service Tax 3211 Excise 37 S.P. Nagrath & Co. 2
  3. 3. APPROACH TO THE BUDGETIn the words of Finance Minister“The year 2011-12 has been tough with the Indian economy reporting a growth of 6.9%. This is a significantdecline as compared to past few years. Despite the slow down, driven largely by the uncertain globaleconomic scenario, India remains among the front runners, globally, in any cross-country comparison.Numerous indicators suggest that the economy is turning around as core sectors as well as manufacturingshow signs of recovery. India’s GDP growth in 2012-13 is expected to be 7.6 % approximately.”• For Indian economy, recovery was interrupted this year due to intensification of debt crisis in Euro zone,political turmoil in Middle East, rise in crude oil price and earthquake in Japan.• India however remains front runner in economic growth in any cross-country comparison.• Monetary and fiscal policy response for better part of past 2 years aimed at taming domestic inflationarypressure.• Growth moderated and fiscal balance deteriorated due to tight monetary policy and expanded outlays.• Indicators suggest that economy is turning around as core sectors and manufacturing show signs ofrecovery.• At this juncture, it is necessary to take hard decision to improve macro economic environment andstrengthen domestic growth drivers. S.P. Nagrath & Co. 3
  4. 4. APPROACH TO THE BUDGET CONTD.. • Headline inflation expected to moderate further in next few months and remain stable thereafter. • Steps taken to bridge gaps in distribution, storage and marketing systems have helped in more effective management of inflation. • Developments in India’s external trade in the first half of current year have been encouraging. Diversification in export and import market achieved. • Current account deficit at 3.6 per cent of GDP for 2011-12 and reduced net capital inflow in the 2nd and 3rd quarters put pressure on exchange rate. • India’s GDP growth in 2012-13 expected to be 7.6 per cent +/- 0.25 per cent. • Deterioration in fiscal balance in 2011-12 due to slippages in direct tax revenue and increased subsidies. • Twelfth Five Year Plan to be launched with the aim of “faster, sustainable and more inclusive growth”. Five objectives identified to be addressed effectively in ensuing fiscal year. • If India can build on its economic strength, it can be a source of stability for world economy and a safe destination for restless global capital. S.P. Nagrath & Co. 4
  5. 5. DIRECT TAX Income Tax Slab RatesIndividual (Other than senior citizens) Including Individual being a resident in India who is of theWoman & HUF, AOP, BOI (other than a co-operative age of 60 years or more but less than 80 yearssociety) during the previous year NIL NIL UPTO 200000 UPTO 2,50,000 ABOVE 2000000 TO 500000 10% ABOVE 250000 TO 500000 10% ABOVE 500000 TO 1000000 20% ABOVE 500000 TO 1000000 20% ABOVE 1000000 30% ABOVE 1000000 30% Individual being a resident in India who is of the age 80 years or more any time during the previous year NIL UPTO 500000 ABOVE 500000 TO 1000000 20% ABOVE 1000000 30% S.P. Nagrath & Co. 5
  6. 6. Amendments relating to Income exempt from TaxSec10(10D)-Eligibility condition for exempt life insurance policies • Section 10(10D) has been amended to provide that the benefit of exemption under life insurance policies will be available under following conditions:- • Amount of premium should not exceed 10%(as against existing 20%) of the actual capital sum assured. • The capital sum assured would be minimum of the capital sum assured in any of the years of the policy ,the amount of sum assured will not include the amount of bonus or any premium returned.(w.e.f. 01.04.2012)Section 35(2AB) Weighted deduction for scientific research and development The benefit of weighted deduction has been extended for further period of 5 years i.e upto 31st March 2017 S.P. Nagrath & Co. 6
  7. 7. Amendments relating to Income from Business and Professional Section 40(a)(ia) Disallowance of business expenditure on account of non-deduction of tax on payment to resident payee In order to rationalize the provisions of disallowance on account of non-deduction of tax from the payments made to a resident payee, it is proposed to amend section 40(a)(ia) to provide that where an Assessee makes payment of the nature specified in the said section to a resident payee without deduction of tax and is not deemed to be an Assessee in default under section 201(1) on account of payment of taxes by the payee, then, for the purpose of allowing deduction of such sum, it shall be deemed that the Assessee has deducted and paid the tax on such sum on the date of furnishing of return of income by the resident payee. These beneficial provisions are proposed to be applicable only in the case of resident payee. (These amendments will take effect from 1st April, 2013 and will, accordingly, apply in relation to the assessment year 2013-14 and subsequent assessment years.) Tax Audit Limit -44AB & 44AD Section 44AB- Limits enhanced from 60 lacs to 1 crore in the case of business and from 15 to 25 lacs in the case of profession For 44AD – limit enhanced from 60 lacs to 1 crore w.e.f 01.04.2013  It is proposed to amend section 44AD to clarify that this presumptive scheme is not applicable to (i) a person carrying on profession as referred to in sub-section (1) of section 44AA; (ii) persons earning income in the nature of commission or brokerage income; or (iii) a or a person carrying on any agency business.  (This amendment will take effect retrospectively from 1st April, 2011 and will, accordingly, apply in relation to the assessment year 2011-12 and subsequent assessment years) S.P. Nagrath & Co. 7
  8. 8. Amendments relating to Capital GainsSec 47(vii) and 2(19AA)(iv)-Capital gain in the case of amalgamation and demerger Where there is an amalgamation or demerger between holding and subsidiary company. Then to claim the benefit of section 47(vii), 2(19AA)(iv). The requirement of issue of shares to the amalgamated company in the case of holding company or to the resultant company in case of demerger is dispensed with. W.e.f. 01.04.2013Sec-49- Cost of acquisition in certain cases Sec 49 is amended to provide that in case of conversion of sole proprietorship of firm into a company which is not regarded as a transfer, the cost of acquisition of assets in the hands of the company would be same as that in the hands of the sole proprietary concern or the firm as the case may be. W.e.f. 01.04.1999 for A.Y. 1999- 2000 Sec 50D-FMV to be full value of consideration in certain cases Sec 50D introduced to provide that the FMV shall be deemed to be full value of consideration if actual consideration is not attributable or determinable. W.e.f.01.04.2013 S.P. Nagrath & Co. 8
  9. 9. Amendments relating to Capital Gains Contd..54 B-Capital gains tax from sale of agricultural land by a Hindu undivided family (HUF) Capital gains on transfer of land which, in the two years preceding the year in which it has been sold, has been used for agricultural purposes by assessee or his parent, is exempt if the whole of capital gains has been reinvested in the purchase of agricultural land in the next two years. It is now proposed that this benefit be also granted to a HUF. Accordingly, it is proposed to amend the provisions of section 54B of the IT Act to provide that the rollover relief is available if the land is used for agricultural purposes by an individual or his parent, or by a HUF.(This amendment will take effect from 1st day of April, 2013 and will accordingly apply to assessment year 2013-14 and subsequent assessment years.) Sec 55A- Reference to valuation officer It is proposed to amend the provisions of section 55A of the Income-tax Act to enable the Assessing Officer to make a reference to the Valuation Officer where in his opinion the value declared by the assessee is at variance from the fair market value. Therefore, in case where the Assessing Officer is of the opinion that the value taken by the assessee as on 1.4.1981 is higher than the fair market value of the asset as on that date, the Assessing Officer would be enabled to make a reference to the Valuation Officer for determining the fair market value of the property. This amendment will take effect from 1st day of July, 2012. Section 111A-Rate of tax for short term capital gain This is a correction step so as to reconcile the section with its proviso to bring the tax rate at 15% which was wrongly provided in proviso as 10% W.e.f.01.04.2009 S.P. Nagrath & Co. 9
  10. 10. Amendments relating to Capital Gains Contd..54GB-Relief from long-term capital gains tax on transfer of residential property if invested in amanufacturing small or medium enterprise It is proposed to insert a new section 546B so as to provide rollover relief from long term capital gains tax to an individual or an HUF on sale of a residential property (house or plot of land) in case of re-investment of sale consideration in the equity of a new start-up SME company in the manufacturing sector which is utilized by the company for the purchase of new plant and machinery. This relief would be subject to the conditions that- (i) the amount of net consideration is used by the individual or HUF before the due date of furnishing of return of income under sub-section (1) of section 139, for subscription in equity shares in the SME company in which he holds more than 50% share capital or more than 50% voting rights. (ii) The amount of subscription as share capital is to be utilized by the SME company for the purchase of new plant and machinery within a period of one year from the date of subscription in the equity shares. (iii) If the amount of net consideration subscribed as equity shares in the SME company is not utilized by the SME company for the purchase of plant and machinery before the due date of filing of return by the individual or HUF, the unutilised amount shall be deposited under a deposit scheme to be prescribed in this behalf. (iv) Suitable safeguards so as to restrict the transfer of the shares of the company, and of the plant and machinery for a period of 5 years are proposed to be provided to prevent diversion of these funds. Further, capital gains would be subject to taxation in case any of the conditions are violated. (v) The relief would be available in case of any transfer of residential property made on or before 31st March, 2017.The proposed amendments in the provisions of the Income-tax Act shall be effective from 1st April, 2013 and would accordingly apply to assessment year 2013-14 and subsequent assessment years. S.P. Nagrath & Co. 10
  11. 11. Amendments relating to Income from Other SourcesSection 56(2)-Share premium in excess of FMV to be treated as income  Where a closely held company (company not being a company in which public is substantially interested) receives in any previous year from a person being resident any consideration for issue of shares; In such a case, if the consideration received for issue of shares exceeds the FMV of the shares, such excess shall be chargeable to income tax under the head income from other sources.  The method of calculation of FMV shall be as prescribed or as may be substantiated by company to the satisfaction of AO based on value of its tangible or intangible assets. W.e.f. 01.04.2012 for A.Y.2013-14Section 56(2)(vii) - Exemption of any sum or property received by an HUF from its members The definition of relative as given in this sub-clause is only in relation to an individual and not in relation to a HUF. It is therefore proposed to amend the provisions of section 56 so as to provide that any sum or property received without consideration or inadequate consideration by an HUF from its members would also be excluded from taxation. (This amendment will take effect retrospectively from the 1st day of October, 2009.) S.P. Nagrath & Co. 11
  12. 12. Amendments relating to Deductions from Gross Total IncomeSection 80C- deduction of life insurance premium • The amount of premium to be allowed will be 10% of the actual capital sum insured. • The capital sum assured would be minimum of the capital sum assured in any of the years of the policy. The amount of sum assured will not include the amount of bonus or any premium returned. w.e.f.01.04.2013 that is any policy issued after 01.04.2012Section 8O D & 80DDB Reduction of eligible age for senior citizens for certain tax reliefs• The benefit of reduced age( from 65 to 60 years) is available to senior citizen for tax slabs and rate of tax and now it has been extended for the benefit of section 80D (Medi claim), 80DDB ( for medical treatment of specified diseases) and 197A(1C) for filling of form 15H for lower deduction of tax at source.• Limit under 80D is also enhanced for senior citizen to 20,000.00 and under 80DDB to 60,000.00 Sec80G, 80GGA-Probhition on cash donation It is provided in both the section 80G and 80GGA that if the donation exceeding 10000 is made by cash, then deduction will not be allowed. W.e.f.01.04.2013 S.P. Nagrath & Co. 12
  13. 13. Amendments relating to Deductions from Gross Total Income Contd. Section 80IA-Extension of sunset date for tax holiday for power sector It is proposed to amend Section 80-IA(4)(iv) to extend the terminal date for a further period of one year, i.e., upto 31st March 2013. Section 80TTA Deduction in respect of interest on deposits in savings accounts Under the proposed new section 80TTA of the Income-tax Act, a deduction up to an extent of ten thousand rupees in aggregate shall be allowed to an assessee, being an individual or a Hindu undivided family, in respect of any income by way of interest on deposits (not being time deposits) in arelating to Deductions Amendments savings account with— from Gross Total Income (i) a banking company to which the Banking Regulation Act, 1949 (10 of 1949), applies (including any bank or banking institution referred to in section 51 of that Act); (ii) a co-operative society engaged in carrying on the business of banking (including a co-operative land mortgage bank or a co-operative land development bank); or (iii) a post office, as defined in clause (k) of section 2 of the Indian Post Office Act, 1898 (6 of 1898). However, where the aforesaid income is derived from any deposit in a savings account held by, or on behalf of, a firm, an association of persons or a body of individuals, no deduction shall be allowed in respect of such income in computing the total income of any partner of the firm or any member of the association or body. (This amendment will take effect from 1st April, 2013 and will, accordingly, apply in relation to the assessment year 2013-14 and subsequent assessment years) S.P. Nagrath & Co. 13
  14. 14. Amendments relating to Assessment and Reassessment includingassessment in Search casesSec292CC- Authorization or requisition and subsequent assessment in search cases Section 292C has been introduced in the income – tax act, provide that- • It shall not be necessary to issue an authorization under section 132 or make a requisition under section 132A separately in the name of each person. • Where an authorization under section 132 has been issued or a requisition under section 132A has been made mentioning therein the name more than one person, the mention of such names of more than one person on such authorization or requisition shall not be deemed to construe that it was issued in the name of an association of persons or body of individuals consisting of such persons; • Notwithstanding that an authorization under section 132 has been issued or requisition under section 132A has been made mentioning therein the name of more than one person, the assessment or reassessment shall be made separately in the persons mentioned in such authorization or requisition. • These amendments will take effect retrospectively from the 1st day , 1976 and will accordingly apply to assessment year 1976-77 and subsequent assessment years.Sec 153A-Compulsorily reopening of past 6 years not required in case of search Sec 153A has been proposed to be amended to empower the central govt to notify cases or classes of cases where the AO shall not issue notice for initiation of proceedings for past 6 years in case of search.W.e.f.01.07.2012 S.P. Nagrath & Co. 14
  15. 15. Amendments relating to Assessment and Reassessment includingassessment in Search cases Section 139- Due date of furnishing audit report in case of international transactions As per the existing provisions of the Income-tax Act, the report of audit under section 44AB is required to be furnished by 30th September of the assessment year. Section 139 was amended vide Finance Act 2011 to extend the due date of furnishing of return by the corporate assesses, who have undertaken international transactions, from 30th September to 30th November of the assessment year. In order to align the due date for furnishing tax audit report under section 44AB of the Act and due date specified for furnishing of return under section 139 of the Act, it is proposed to provide that the due date for furnishing tax audit report under section 44AB would be the same as due date specified for furnishing of return under section 139.(This amendment will take effect retrospectively from 1st April, 2012 and will, accordingly, apply in relation to the assessment year 2012-13 and subsequent assessment years.) Section 143(1)- Processing of return of income where scrutiny notice issued It is proposed to amend the provisions of the Income-tax Act to provide that processing of return will not be necessary in a case where notice under sub–section (2) of section 143 has already been issued for scrutiny of the return. This amendment will take effect from the 1st day of July, 2012. S.P. Nagrath & Co. 15
  16. 16. Amendments relating to Assessment and Reassessment includingassessment in Search cases Contd153/153B- Extension of time for completion of assessments and reassessments by three months w.e.f.01.07.2012 Proceedings under section Current time allowed Proposed Period 143 21 months from the end of FY 24 months 143 & 92CA 33 months from the end of FY 36 months 148 9 months from the end of FY in which notice 12 months issued 148 & 92CA 21 months from the end of FY in which notice 24 months issued 250 or 254 or 263 9 months from the end of FY in which order 12 months issued 250,254,263,and 92CA 21 months from the end of FY in which order 24 months issued S.P. Nagrath & Co. 16
  17. 17. Amendments relating to TDSTCS Section 201(1A) Rationalization of TDS and TCS provision  Section 191 provides that deductor not assessee in default if tax directly paid by payee  Section 201(1A) provides for levying of interest for non/short deduction of TDS from the date tds deductible to the date the amount is paid.  Lack of one to one clarity as when the tds deducted by deductor and when the tax paid by payee. There was no cut off date.272A-Fee & penalty for delay in furnishing of TDS/ TCS statement and penalty for incorrect information  In case of late furnishing of TDS statement, A fee shall be levied at the rate of Rs. 200 per day.  In case of not furnishing of TDS statement within the prescribed time. Further penalty shall be levied from ranging from Rs. 10,000 to 1,00,000  However, no penalty if filed within one year of due date of return.  In case of incorrect information, penalty shall also be levied ranging from Rs. 10,000 to 1,00,000.  Sec 273B amended to provide for no penalty if there is a reasonable cause.  Similar amendments in TCS Provision also.  Applicable for TDS/TCS return filed from 01.07.2012 onwards S.P. Nagrath & Co. 17
  18. 18. Amendments relating to TDSTCS Contd..Sec-200A Intimation after processing of TDS Statement • The intimation of TDS Statement processed will be subject to Rectification under section 154 • Appealable under section 246A • Deemed as notice of demand under section 156 (W.e.f 01.07.2012)194LA-Threshold for TDS on compensation or consideration for compulsory acquisition • The threshold limit has been increased from one lakh rupee to two lakh rupees for deduction of TDS in case of compulsory acquisition.(W.e.f 01.07.2012)Sec-193 Threshold for TDS on payment of interest on debentures In order to reduce the compliance burden on small assesses and companies, it is proposed that no deduction of tax should be made from payment of interest on any debenture, (whether listed or not) issued by a company, in which the public are substantially interested, to a resident individual or Hindu undivided family, if the aggregate amount of interest on such debenture paid during the financial year does not exceed Rs.5,000 and the payment is made by account payee cheque. (This amendment will take effect from 1st July, 2012.) S.P. Nagrath & Co. 18
  19. 19. Amendments relating to TDSTCS Contd..Section 194LAA-Tds ON Transfer of certain immovable properties • Any transferee, at the time of making payment or crediting any sum by way of consideration for transfer of immovable property(other than agriculture land)shall deduct tax @ 1% of such sum if • consideration exceeds Rs. 50.00 lacs in case of property in specified urban agglomeration OR Twenty lacs in case property in any other area. • If consideration paid is less than the value adopted or assessed or assessable by any authority of state govt. for stamp duty purpose, then such value shall be deemed as consideration for transfer of such property • The transfer of property shall not be registered by the registration authority unless the transferee furnishes proof of deduction and payment of TDS. • One page challan for payment of TDS would be prescribed containing details (including PAN) of transferor and transferee and also certain details of property. • No need to obtain TAN or to file TDS return • The transferor will get credit of prepaid taxes.W.e.f.01.10.2012 Section 201 - Extension of time for passing an order under section 201 in certain cases Under the existing provisions section 201 of the Income-tax Act, a person can be deemed to be an assessee in default, by an order, in respect of non-deduction/short deduction of tax. Such order can be passed within a period of four years from end of financial year in a case where no statement as referred to in section 200 has been filed. It is proposed to amend provision of section 201, so as to extend the time limit from four years to six years. This amendment will take effect retrospectively from 1st April, 2010. S.P. Nagrath & Co. 19
  20. 20. Amendments relating to TDSTCS Contd.. 194J-TDS on payment to director other than remuneration  Section 194J Amended to provide for deduction of TDS on payment to director which is not in the nature of salary.  W.e.f.01.07.2012 Section 206C(ID)-TCS on cash sale of bullion or jewellery  Currently, TCS is required to be collected on the sale of alcoholic liquor, tendu leaves, scrap etc at the time of sale.  Now it is provided that TCS shall be collected at the rate of 1% of sale consideration if the sale consideration exceeds Rs. 2.00 lacs and the sale is in cash.  Jeweler will have to take TAN.  Applicable whether the buyer is a manufacturer, trader or purchase is for personal use .w.e.f 1st July 2012 TCS on sale of certain minerals  TCS at the rate of 1% of sale of coal, lignite and iron ore  Not applicable - if purchased for personal consumption - IF declaration is filed that it is to be utilized for the purpose of manufacturing, processing or producing article or things (w.e.f. 01.07.2012) 2 S.P. Nagrath & Co. 0
  21. 21. Amendments relating to TDSTCS Contd.. Section 201 - Deemed date of payment of tax by the resident payee In order to provide clarity regarding discharge of tax liability by the resident payee on payment of any sum received by him without deduction of tax, it proposed to amend section 201 to provide that the payer who fails to deduct the whole or any part of the tax on the payment made to a resident payee shall not be deemed to be an assessee in default in respect of such tax if such resident payee – (i) has furnished his return of income under section 139; (ii) has taken into account such sum for computing income in such return of income; and (iii) has paid the tax due on the income declared by him in such return of income, and the payer furnishes a certificate to this effect from an accountant in such form as may be prescribed. The date of payment of taxes by the resident payee shall be deemed to be the date on which return has been furnished by the payer. It is also proposed to provide that where the payer fails to deduct the whole or any part of the tax on the payment made to a resident and is not deemed to be an assessee in default under section 201(1) on account of payment of taxes by the such resident, the interest under section 201(1A)(i) shall be payable from the date on which such tax was deductible to the date of furnishing of return of income by such resident payee. Amendments on similar lines are also proposed to be made in the provisions of section 206C relating to TCS for clarifying the deemed date of discharge of tax liability by the buyer or licensee or lessee. These amendments will take effect from 1st July, 2012. S.P. Nagrath & Co. 21
  22. 22. Amendments relating to Payment of Advance Tax And Interest Section 207- Exemption for Senior citizen from the payment of advance tax Exemption from payment of advance tax to senior citizen from financial year 2012-13 if there is no business income but only passive income like rent or interest etc. Section 209- Liability to pay advance tax in case of non-deduction of tax In order to make an assessee liable for payment of advance tax in respect of income which has been received or paid without deduction or collection of tax, it is proposed to amend the aforesaid section to provide that where a person has received any income without deduction or collection of tax, he shall be liable to pay advance tax in respect of such income. This amendment will take effect from the 1st April, 2012 and would, accordingly, apply in relation to advance tax payable for the financial year 2012-13 and subsequent financial years. Section 234D- Charging of interest on recovery of refund granted earlier It is, proposed to clarify that the provisions of section 234D would be applicable to any proceeding which is completed on or after 1st June, 2003, irrespective of the assessment year to which it pertains. This amendment will take effect retrospectively from the 1st day of June, 2003. S.P. Nagrath & Co. 22
  23. 23. Amendments relating to MAT/Alternate Minimum Tax (AMT) Chapter XII-BA Alternate Minimum Tax on all persons other than company  The tax base of Alternate Minimum Tax (AMT) widened under section 115JC to include other form of organization, like partnership firm, sole proprietorship, AOP etc. if they claimed deduction under any section ( other than section 80P) under chapter VIA under the heading C-deduction in respect of certain incomes or U/s 10AA. They shall be liable to pay AMT.  However, This is not applicable to individual, HUF, AOP, BOI, Artificial Judicial If adjusted total income does not exceed Rs. 20.00 lacs.  Consequential amendments in section 140A, 234A, 234B and 234C.This is w.e.f. 01.04.2013 115JB-MAT  The book profit, in the case of company not required to prepare the account as per schedule VI but as per their regulatory act such as insurance, banking or electricity company, will be computed by taking the profit appearing in their profit and loss account prepared in accordance with their acts.  The books profit shall be increased by the amount of revaluation assets at the time the assets is sold whether it is credited to profit or loss account or not.  No reference to part III of schedule VI to alien with new schedule VI W.e.f 01.04.2013 for A.Y.2013-14 S.P. Nagrath & Co. 23
  24. 24. TRANSFER PRICING• Provisions introduced to bring Specific Domestic Transactions under the purview of TP Regulations.• New provisions relating to APAs introduced to provide certainty to taxpayers.• Revenue authorities now have the right to file an appeal before the ITAT against an order passed in pursuance of direction of the DRP.• Provisions introduced with retrospective effect for empowering the TPOs to examine transactions not specifically referred by the AO, which were not reported by the taxpayer.• Due date for filing transfer pricing certificate/ return of income has been extended from 30 September to 30 November of the assessment year, for non corporate taxpayers to whom transfer pricing provisions apply.• Upper ceiling of 3% prescribed for allowable variation between ALP and transfer price, effective financial year 2012-13. Actual allowable percentage to be notified.• Previously allowed variation of 5% not to be considered as a standard deduction. S.P. Nagrath & Co. 24
  25. 25. Rationalization of International Tax ProvisionsSection 9 and 195 - Income deemed to accrue or arise in India Certain judicial pronouncements have created doubts about the scope and purpose of sections 9 and 195. Further, there are certain issues in respect of income deemed to accrue or arise where there are conflicting decisions of various judicial authorities. Therefore, there is a need to provide clarificatory retrospective amendment to restate the legislative intent in respect of scope and applicability of section 9 and 195 and also to make other clarificatory amendments for providing certainty in law. I. It is, therefore, proposed to amend the Income Tax Act in the following manner:- (i) Amend section 9(1)(i) to clarify that the expression ‘through’ shall mean and include and shall be deemed to have always meant and included “by means of”, “in consequence of” or “by reason of”. (ii) Amend section 9(1)(i) to clarify that an asset or a capital asset being any share or interest in a company or entity registered or incorporated outside India shall be deemed to be and shall always be deemed to have been situated in India if the share or interest derives, directly or indirectly, its value substantially from the assets located in India. (iii) Amend section 2(14) to clarify that ‘property’ includes and shall be deemed to have always included any rights in or in relation to an Indian company, including rights of management or control or any other rights whatsoever. S.P. Nagrath & Co. 25
  26. 26. Rationalization of International Tax ProvisionsSection 9 and 195 - Income deemed to accrue or arise in India Contd.. (iv) Amend section 2(47) to clarify that ‘transfer’ includes and shall be deemed to have always included disposing of or parting with an asset or any interest therein, or creating any interest in any asset in any manner whatsoever, directly or indirectly, absolutely or conditionally, voluntarily or involuntarily by way of an agreement (whether entered into in India or outside India) or otherwise, notwithstanding that such transfer of rights has been characterized as being effected or dependent upon or flowing from the transfer of a share or shares of a company registered or incorporated outside India. (v) Amend section 195(1) to clarify that obligation to comply with sub-section (1) and to make deduction thereunder applies and shall be deemed to have always applied and extends and shall be deemed to have always extended to all persons, resident or non-resident, whether or not the non- resident has:- (a) a residence or place of business or business connection in India; or (b) any other presence in any manner whatsoever in India . These amendments will take effect retrospectively from 1st April, 1962 and will accordingly apply in relation to the assessment year 1962- 63 and subsequent assessment years. S.P. Nagrath & Co. 26
  27. 27. Rationalization of International Tax Provisions Contd..Section 9(1)(vi) Clarification regarding royalty Considering the conflicting decisions of various courts in respect of income in nature of royalty and to restate the legislative intent, it is further proposed to amend the Income Tax Act in following manner:- (i) To amend section 9(1)(vi) to clarify that the consideration for use or right to use of computer software is royalty by clarifying that transfer of all or any rights in respect of any right, property or information as mentioned in Explanation 2, includes and has always included transfer of all or any right for use or right to use a computer software (including granting of a licence) irrespective of the medium through which such right is transferred. (ii) To amend section 9(1)(vi) to clarify that royalty includes and has always included consideration in respect of any right, property or information, whether or not (a) the possession or control of such right, property or information is with the payer; (b) such right, property or information is used directly by the payer; (c) the location of such right, property or information is in India. (iii) To amend section 9(1)(vi) to clarify that the term “process” includes and shall be deemed to have always included transmission by satellite (including up-linking, amplification, conversion for down-linking of any signal), cable, optic fibre or by any other similar technology, whether or not such process is secret. These amendments will take effect retrospectively from 1st June, 1976 and will accordingly apply in relation to the assessment year 1977-78 and subsequent assessment years. S.P. Nagrath & Co. 27
  28. 28. Other AmendmentsTaxation of Cash Credits, Unexplained money, Investments• Share capital, share premium or share application money can be considered as income of the recipient, being a closely held company, unless satisfactory explanation is provided to the Indian Revenue Authority. However, receipt of such amounts from SEBI registered VCF/ VCC will be excluded.• Presently, any income in the nature of unexplained cash credits, investments, money, expenditure, undisclosed investments or amount borrowed or repaid on hundi otherwise than through an account payee cheque is taxable at applicable slab of tax rate in the hands of the individual, HUF, etc.Reassessment of income in relation to any asset located outside IndiaIncome chargeable to tax will be deemed to have escaped assessment where a person is found to have any asset(Including financial interest in any entity) located outside India. The time limit for reopening cases where incomechargeable to tax in respect of such assets has escaped assessment has been increased to 16 years.Now such income will be taxable at a flat rate of 30% on gross basis in case of all the taxpayers.• Revenue authorities now have the right to file an appeal before the ITAT against an order passed in pursuance of direction of the DRP.• Provisions introduced with retrospective effect for empowering the TPOs to examine transactions not specifically referred by the AO, which were not reported by the taxpayer.• Due date for filing transfer pricing certificate/ return of income has been extended from 30 September to 30 November of the assessment year, for non corporate taxpayers to whom transfer pricing provisions apply.• Upper ceiling of 3% prescribed for allowable variation between ALP and transfer price, effective financial year 2012-13. Actual allowable percentage to be notified.• Previously allowed variation of 5% not to be considered as a standard deduction. S.P. Nagrath & Co. 28
  29. 29. INDIRECT TAXES CUSTOMS ACTS 1962 – PROPOSALS MAJOR AMENDMENTS• Basic customs duty reduced for certain agricultural equipment and their parts.• Basic customs duty and excise duty reduced on Soya products to address protein deficiency among women and children.• Basic customs duty and excise duty reduced on Iodine.• Baggage allowance raises from Rs 25,000 to Rs 35,000 for the people of Indian origin and from Rs 12,000 to Rs 15,000 for the children• Full exemption from basic customs duty for import of equipment for expansion or setting up of fertilizer projects upto 31st March, 2015.• Full exemption from basic customs duty and a concessional CVD of 1 per cent to steam coal till 31st March, 2014.• Full exemption from basic duty provided to certain fuels for power generation.• Full exemption from basic customs duty to coal mining project imports.• Basic custom duty to be reduced for machinery and instruments needed for surveying and prospecting for minerals.• Basic custom duty to be reduced for equipments required for installation of train protection and warning system and up gradation of track structure for high speed trains.• Full exemption from import duty on certain categories of specified equipment needed for road construction, tunnel boring machines and parts of their assembly. S.P. Nagrath & Co. 29
  30. 30. • Tax concessions for parts of aircraft and testing equipment for third party maintenance, repair and overhaul of civilian aircraft.• Relief to be extended to sectors such as steel, textiles, branded ready made garments, low-cost medical devices, labour-intensive sectors producing items of mass consumption and matches produced by semi- mechanised units.• Concessional basic customs duty of 5 per cent with full exemption from excise duty/CVD to 6 specified life saving drugs/vaccines.• Basic customs duty reduced on Probiotics.• Concessions and exemptions proposed for encouraging the consumption of Energy-saving devices, plant and equipment needed for solar thermal projects.• Concession from basic customs duty and special CVD on certain items imported for manufacture for hybrid or electric vehicle and battery packs for such vehicles.• Customs duty raised from 2% to 4% on standard gold• Basic customs duty proposed to be enhanced for certain categories of completely built units of large cars/MUVs/SUVs.• Import of foreign-going vessels to be exempted from CVD of 5 per cent retrospectively.• Indirect taxes estimated to result in net revenue gain of Rs. 45,940 crore. S.P. Nagrath & Co. 30
  31. 31. Project import benefit:• Project import status extended to following projects:-- Greenhouses set up for protected cultivation of horticulture and floriculture produce-- Installation of mechanized handling system and pallet-racking systems for horticulture produce.• BCD exempted on initial set up and substantial expansion of fertilizer projects and coal mining projects.• BCD of 2.5% to be levied on iron ore pellet plants and iron ore beneficiation plants The following goods have been exempted from levy of SAD: • Super-absorbent polymer (SAP), hydrophilic non-woven and hydrophobic non-woven for manufacture of adult diapers • Aramid thread, yarn and fabric for manufacture of bullet-proof helmets for defence and police personnel • LEDs used for manufacture of LED lamps • Lithium-ion automotive battery for manufacture of lithium-ion battery packs for manufacture of hybrid and electric vehicles • Specific parts of hybrid vehicles • Dredgers • Blood-pressure monitors and glocumeters S.P. Nagrath & Co. 31
  32. 32. SERVICE TAXA. GeneralImportant changes in the composition/ alternate rate of service tax are as follows: Description of Service Existing Rate /Amount New Rate/ Amount Life Insurance (where 1.5% of the premium 3% of first year premium entire premium is not for and 1.5% subsequent pure risk) year premium Transport of passenger 150 INR or 750 INR 12% with abatement of by air (economy class 60% travel) Work contract services 4% 4.8% S.P. Nagrath & Co. 32
  33. 33. Service Tax Contd.. Changes in deemed value of taxable services/abatement rates, subject to specified conditions: Service Existing taxable portion Proposed taxable portion Service portion in supply of 30% 40% food drinks at a restaurant Service portion in supply of 50% 60% food on drink from elsewhere outdoor catering Convention centre or 60% 70% mandap with catering Coastal Shipping 75% 50% Accommodation in hotel 50% 60% Railways: travel of New Levy 30% passenger ij first class or air conditioned coach S.P. Nagrath & Co. 33
  34. 34. Service Tax Contd.. B. Negative list The negative list based taxation system is to be implemented from a date to be notified after the Finance Bill, 2012 is enacted. Pursuant to it, service tax will be levied on all services provided or agreed to be provided in a taxable territory, except the following: • Services specified in the negative list • Services specifically exempted by notification C. Amendments in the Finance Act • Proviso to section 68 (2) has been introduced to shift service tax liability partly on service recipient and partly on service provider for three specified services, if - The service recipient is a body corporate; and - The service provider is either an individual or a firm or LLP S.P. Nagrath & Co. 34
  35. 35. Service Tax Contd..C. Amendments in the Finance Act Contd….• Section 65B has been inserted to define several expressions. In particular, the expression ‘India’ has been defined to mean:-- The territory of the union as referred to in the Indian constitution-- Its territorial waters, continental shelf, exclusive economic zone or any other maritime zones as defined in the relevant Act-- The seabed and the subsoil underlying the territorial waters-- The air space above its territory and territorial waters, and-- The installations, structures and vessels located in the continental shelf of India and the exclusive economic zone of India, for prospecting, extraction or production of mineral oil and natural gas and supply thereof• The period of limitation under section 73 (1) of the Finance Act increased from one year to18 months.• Section 80 has been amended to provide relief from penalty if service tax, due on renting of immovableproperty service (as on 6 March 2012), is paid in full along with the interest within six months of date ofenactment of the Finance Bill, 2012. S.P. Nagrath & Co. 35
  36. 36. Service Tax Contd..C. Amendments in the Finance Act Contd….• Section 83 has been amended to include settlement commission provisions and revision mechanism for the assesse aggrieved by the order of the Commissioner (Appeals), as applicable in central excise. • Section 85 and Section 86 have been amended to reduce the time limit to file appeal before the commissioner (Appeals) and revenue appeal before the Tribunal to 60 days to harmonise with the central Excise provisions.• Prosecution provision under section 89 has been liberalised by specifying that prosecution for non- issuance of invoice will be done when the assesse ‘knowingly evades payment of service tax’.D. Amendments in Service Tax Rules• The time period for issuance of invoice has been increased to 30 days from 14 days from the date of completion of service.• LLPs has been treated as partnership firms for service tax purposes.• Erstwhile limit of 2 lakh INR for self adjustment of service tax has been dispensed off permitting unlimited adjustment under Rule 6(4A).• Benefit of depositing service tax on receipt of consideration by individuals and firms (including LLP) has been extended to all services, provided the turnover did not exceed 50 lakh INR in the previous financial year.• Benefit of non-payment of service tax on export of services will continue, subject to the condition that payment against service is received in regular or extended period as specified by the RBI. S.P. Nagrath & Co. 36
  37. 37. Excise - CENVATTariff Duty structure on cement manufactured and cleared in packaged form has been rationalised. Duty rate has been increased and brought under the maximum retail price (MRP) based assessment with abatement of 30%. • Unbranded jewellery of precious metals is subject to 1% duty on 30% of the transaction value declared in the invoice price. • Duty has been reduced from 10 to 6% on environment-friendly goods such as battery packs and specific parts of hybrid vehicles on end-use condition. • Duty rates have been reduced from 10 to 2% on parts, components and specified accessories of mobile phones, such as battery charges, PC connectivity cables, memory cards and hands-free headphones, when sold as spares in the domestic market provided no CENVAT credit has been availed. • Duty has been reduced from 10 to 6% on LED lamps, iodine, parts of BP monitoring and blood glucose monitoring system. • 10% ad valorem duty has been imposed in addition to the existing specific duty on all slabs of cigarettes other than the filter and non-filter cigarette of length not exceeding 65 mm. • Duty rate has been increased on other tobacco products such as cigars, cheroots and cigarillos. • Duty rate on specified parts of hybrid vehicle has been reduced from 10 to 6%. S.P. Nagrath & Co. 37
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