Finance Minister Mr. Parnab Mukerjee presented the Union budget 2011-12 of UPA government with the renewed sense of optimism over the country’s growth; fiscal consolidation and reforms being the key themes in the speech.
The three challenges and the medium term perspective that had been outlined in the last Budget Speech remain relevant, even today. These would continue to engage the Indian policy-planners for the next few years.
1. To quickly revert to the high GDP growth path of 9 per cent and then find the means to cross the ‘double digit growth barrier’.
2. To harness economic growth to consolidate the recent gains in making development more inclusive.
3. To address the weaknesses in government systems, structures and institutions at different levels of governance.
Overview of the Economy:
1. Gross Domestic Product (GDP) estimated to have grown at 8.6 per cent in 2010-11 in real terms.
2. Continued high food prices have been principal concern this year.
3. Consumers denied the benefit of seasonal fall in prices despite improved availability of food items, revealing shortcomings in distribution and marketing systems.
4. Monetary policy measures taken expected to further moderate inflation in coming months.
5. Exports have grown by 29.4 per cent, while imports have recorded a growth of 17.6 per cent during April to January 2010-11 over the corresponding period last year.
6. Indian economy expected to grow at 9 per cent with an outside band of +/- 0.25 per cent in 2011-12.
7. Gross Fiscal Deficit stands at 4.8% of GDP down from 6.3% last year.
8. Average inflation expected lower next year and current account deficit smaller.
Major Tax Reforms:
• The introduction of the Direct Taxes Code (DTC) and the proposed Goods and Services Tax (GST) will mark a watershed. These reforms will result in moderation of rates, simplification of laws and better compliance. The DTC is proposed to be effective from April 1, 2012.
• The National Securities Depository Limited (NSDL) has been selected as technology partner for incubating the National Information Utility that will establish and operate the IT backbone for GST.
• Areas of divergence with States on proposed Goods and Services Tax (GST) have been narrowed. As a step towards roll out of GST, Constitution Amendment Bill proposed to be introduced in this session of Parliament.
• Significant progress in establishing GST Network (GSTN), which will serve as IT infrastructure for introduction of GST.
Improving Governance:
Boards of Direct Taxes (CBDT) and Excise and Customs (CBEC) have put in place the following measures:
• The on-line preparation and e-filing of income tax returns,
e-payment of taxes through 32 agency banks, ECS facility for electronic clearing of refunds directly in taxpayers’ bank accounts and electronic filing of TDS returns are now available throughout the country. These measures have empowered taxpayers to meet their tax obligations without visiting an income tax office.
• The Centralized Processing Centre (CPC) at Bengaluru has increased its daily processing capacity from 20,000 to 1.5 lakh returns in 2010-11. This project has won a Gold Award for
e-Governance in 2011. Two more CPCs will become operational in Manesar and Pune by May 2011 and a fourth CPC will come up in Kolkata in 2011-12.
• With the completion of its IT Consolidation Project, CBEC can now centrally host its key applications in Customs, Central Excise and Service Tax. The Customs EDI system now covers 92 locations across the country. CBEC's e-Commerce portal ICEGATE, has also been conferred a Gold Award for e-Governance.
• The electronic filing of Tax Deduction at Source (TDS) statements has stabilized. The Board shall soon notify a category of salaried taxpayers who will not be required to file a return of income as their tax liability has been discharged by their employer through deduction at source.
Extension in the slab on personal Income
The Amended Slab rates for AY 2012-13 are as follows:
Slab Rate Individual other than
resident women and
resident senior citizen Resident Women
Below the age of
60 years Resident Senior Citizen (60 years or above) Resident Very Senior Citizen (80 years or above)
Income up to Rs. 1.80 Lakhs Nil Nil Nil Nil
Income above Rs. 1.80 Lakhs and
up to Rs. 1.90 Lakhs 10% Nil Nil Nil
Income above Rs. 1.90 Lakhs and
up to Rs. 2.50 Lakhs 10% 10% Nil Nil
Income above Rs. 2.50 Lakhs and
up to Rs. 5.0 Lakhs 10% 10% 10% Nil
Income above Rs. 5.0 Lakhs and
up to Rs. 8.0 Lakhs 20% 20% 20% 20%
Income above than Rs. 8.0 Lakhs 30% 30% 30% 30%
The rate of income tax in the case of every local authority, firms, co-operative societies and companies are the same as those specified for the assessment year
2011-12.
Deduction in respect of long-term infrastructure bonds
A new section 80CCF was inserted in 2010-11 to promote investment in the infrastructure sector. Deduction of Rs. 20,000 for investment in long-term infrastructure bonds is proposed to be extended to the Assessment Year 2012-13 also. This deduction will be over and above the existing overall limit of tax deduction on savings of upto Rs.1 lakh under section 80C, 80CCC and 80CCD of the Act.
This amendment is proposed to take effect from 1st April, 2012 and will, accordingly, apply in relation to the assessment year 2012-13.
Tax Benefits for New Pension System (NPS)
It is proposed to amend section 80CCE to provide that the contribution made by the Central Government or any other employer to a pension scheme under section 80CCD(2) shall be excluded from the limit of Rs. 1 lakh provided under section 80CCE.
Further it is proposed to amend section 36 so as to allow the contribution paid by an employer towards the NPS to the extent of 10% of the salary of the employee during the previous year, as deduction under business income.
This amendment is proposed to take effect from 1st April, 2012 and will, accordingly, apply in relation to the assessment year 2012-13.
Infrastructure Debt Fund
• It is proposed to amend section 10 of the Act to provide enabling power to the Central Government to notify any infrastructure debt fund. Once notified, the income of such debt would be exempt from tax. It will, however, be required to file a return of income.
• It is also proposed to amend section 115A of the Act to provide that any interest received by a non- resident from such notified infrastructure debt fund shall be taxable at the rate of 5% on the gross amount of such interest income.
• Further, it is proposed to insert a new section 194LB to provide that TDS shall be deducted at the rate of 5% by such notified infrastructure debt fund on any interest paid by it to a non- resident.
These amendments are proposed to take effect from 1st June, 2011.
Reduction in Surcharge
The existing surcharge of 7.5% on a domestic company is proposed to be reduced to 5%. In case of companies other than domestic companies, the existing surcharge of 2.5% has been proposed to be reduced to 2%.
The existing surcharge of 7.5% in all other cases (including sections 115JB, 115-O, 115R, etc.) is proposed to be reduced to 5%.
Increase in Minimum Alternate Tax
Rate of Minimum Alternate Tax (MAT) increased from the current rate of 18 percent to 18.5 per cent of book profits.
This amendment is proposed to take effect from 1st April, 2012 and will, accordingly, apply in relation to the assessment year 2012-13 and subsequent years.
Minimum Alternate Tax and Dividend Distribution Tax in case of Special Economic Zones.
• As a measure to ensure equal sharing of the corporate tax liability, section 115JB is proposed to be amended to provide that MAT shall be levied on developers of Special Economic Zones as well as units operating in SEZs.
• It is further proposed to amend section 115-O to provide that exemption from payment of tax on distributed profits (DDT) in case of SEZ Developers is to be discontinued for dividends declared, distributed or paid on or after 1st June, 2011.
Alternate Minimum Tax in case of Limited Liability Partnership
It is proposed to insert a new Chapter XII-BA in the Act containing special provisions relating to certain limited liability partnerships. Where the regular income tax payable for a previous year by a LLP is less than the Alternate Minimum Tax (AMT) payable for such previous year, the adjusted total income shall be deemed to be the total income of such LLP and it shall be liable to pay income tax on such total income at the rate of 18.5%.
This amendment is proposed to take effect from 1st April, 2012 and will, accordingly, apply in relation to the assessment year 2012-13 and subsequent years.
Increase in Weighted Average Deductions
Weighted deduction on payments made to National Laboratories, Universities and Institutes of Technology, for scientific research enhanced from 175 per cent to 200 percent [35(2AA)].
This amendment is proposed to take effect from 1st April, 2012 and will, accordingly, apply in relation to the assessment year 2012-13.
Investment Linked deduction in respect of specified businesses
• Benefit of investment linked deduction under the Act is extended to business engaged in the production of fertilizers.
• Investment linked deduction is also extended to business of developing and building a housing project under a scheme for affordable housing.
The date of commencement of operations in the above two cases shall be on or after 1st April, 2011. This amendment will take effect from 1st April, 2012 and will, accordingly, apply in relation to the Assessment Year 2012-13 and subsequently.
Decrease in Rate of Tax on Foreign Dividends received by Indian Companies
A new section 115BBD is proposed to be inserted to provide that dividends received by an Indian company from its foreign subsidiary shall be taxable at the rate of 15% (plus EC & SHEC) on the gross amount of dividends. No expenditure in respect of such dividends shall be allowed under the Act.
This amendment will take effect from 1st April, 2012 and will, accordingly, apply in relation to the Assessment Year 2012-13.
Extension of time limit for assessments in case of exchange of information
Section 153 of the Act provides for the time limits for completion of assessments and reassessments. It is proposed to exclude the time taken in obtaining information from the tax authorities in jurisdictions situated outside India, under an agreement referred to in section 90 or 90A, from the statutory time limit prescribed for assessment or reassessment.
Similar amendments are proposed to be made to section 153B of the Act.
These amendments are proposed to take effect from 1st June, 2011.
Amendment in definition of Charitable Purposes [Section-2(15)]:
For the purposes of the Income-tax Act, “charitable purpose” has been defined in section 2(15) which, among others, include “the advancement of any other object of general public utility”. However, “the advancement of any other object of general public utility” is not a charitable purpose, if it involves the carrying on of any activity in the nature of trade, commerce or business, or any activity of rendering any service in relation to any trade, commerce or business, for a cess or fee or any other consideration, irrespective of the nature of use or application, or retention, of the income from such activity and receipts from such activities is ten lakhs or more in the previous year.
It is proposed to amend Section 2(15) to enhance the current monetary limit in respect of receipts from such activities from 10 lakhs to 25 lakhs rupees.
This amendment is proposed to take effect from 1st April, 2012 and will, accordingly, apply in relation to the assessment year 2012-13 and subsequent years.
Exemption of certain perquisites of Chairmen and Members of Union Public Service Commission
Under the existing provisions of the Income- tax Act provide for the taxation of any perquisites or allowances received by an employee under the head “Salaries”, specified perquisites of the Chief Election Commissioner or Election Commissioner and the judges of Supreme Court are exempt from taxation consequent to the enabling provisions in the respective Acts governing their service conditions.
It is proposed to amend section 10 to extend similar benefit of exemption in respect of specific perquisites and allowances, which will be notified by the Central Government, received by both serving as well as retired Chairmen and Members of the Union Public Service Commission.
This amendment is proposed to take effect retrospectively from 1st April, 2008 and will, accordingly, apply in relation to the assessment year 2008-09 and subsequent years.
Rationalisation of provisions relating to Transfer Pricing
• The second proviso to section 92C(2) provides that if the variation between the actual price of the transaction and the computed Arm’s Length Price (ALP) does not exceed 5% of the actual price, then no adjustment will be made and the actual price shall be treated as the ALP.
It is proposed to amend section 92C of the Act to provide that instead of a variation of 5%, the allowable variation will be such percentage as may be notified by Central Government in this behalf.
This amendment is proposed to take effect from 1st April, 2012 and will, accordingly, apply in relation to the assessment year 2012-13 and subsequent years.
• It is further proposed to amend section 92CA to provide specifically that the jurisdiction of the Transfer Pricing Officer (TPO) shall extend to the determination of ALP in respect of other international transactions, which are noticed by him subsequently, in the course of proceedings before him. These international transactions would be in addition to the international transactions referred to the TPO by the Assessing Officer.
• Further, Section 92CA(7) is proposed to be amended so as to enable the TPO to also exercise the power of survey for the purpose of determining the ALP. Earlier he was only provided the power of summoning or calling.
These amendments are proposed to take effect from 1st June, 2011.
• It is also proposed to amend section 139 to extend the due date for filing of return of income by corporate assessees who are required to prepare and file a transfer pricing report in Form 3CEB before the due date for filing of return of income, to 30th November of the Assessment year.
This amendment is proposed to take effect from 1st April, 2011.
Toolbox of counter measures in respect of transactions with persons located in a notified jurisdictional area
It is proposed to insert a new section 94A in the Act to specifically deal with transactions undertaken with persons located in any country or jurisdiction which does not effectively exchange information with India. This section provides-
That if an assessee enters into a transaction, where one of the parties to the transaction is a person located in such country or area, then all the parties to the transaction shall be deemed to be associated enterprises and the transaction shall be deemed to be an international transaction and accordingly, transfer pricing regulations shall apply to such transactions.
That no deduction in respect of any expenditure or allowance (including depreciation) arising from such transaction shall be allowed under any provision of the Act unless the assessee maintains such documents and furnishes the information as may be prescribed.
That if any sum is received from a person located in such country or area, then the onus is on the assessee to satisfactorily explain the source of such money in the hands of the beneficial owner, and in case of failure to do so, the amount shall be deemed to be the income of the assessee.
That any payment made to a person located in such country or area shall be liable to deduction of tax at the higher of the rates in the relevant provision of the Act or rate or rates in force or a rate of 30%.
This amendment is proposed to take effect from 1st June, 2011.
Exemption to a class of persons from furnishing a return of income
In case of salaried tax payer, entire tax liability is discharged by the employer through deduction of tax at source. Complete details of such tax payers are also reported by the employer through TDS statements.Therefore, in cases where there is no source of income, filing of return is a duplication of existing information
It is proposed to insert section 139(1C) which empowers the Central Government to exempt, by notification, any class or classes of persons from the requirement of furnishing a return of income.
This amendment will take effect from 1st June, 2011.
Omission of requirement of quoting Document Identification Number
Under the existing provisions contained in section 282B, every income tax authority shall on or after the 1st July, 2011, allot a computer generated DIN in respect of every notice, order or correspondence issued by him.
It is proposed to omit the aforesaid section. This amendment will take effect retrospectively from 1st April, 2011.
Reporting of activities of liaison offices
To seek regular information from non- residents regarding the activities of their liaison offices in India, a new section 285 is proposed to be inserted to mandate the filing of annual information, within 60 days from the end of Financial Year, in the prescribed form and providing prescribed details by the non- residents as regards their liaison offices.
This amendment is proposed to take effect from 1st June, 2011.
INDIRECT TAXES
Service Tax
• Standard rate of Service Tax retained at 10 %. No Change in Education and higher education cess.
• Service provided by air conditioned restaurants that have license to serve liquor added as new services for levying Service Tax
• Short term accommodation provided by hotels/ inns/ clubs/ guest houses or any other similar establishment for a continuous period of less than three months, etc would be levied to service tax
• Tax on all services provided by hospitals with 25 or more beds with facility of central air conditioning with an abatement of 50%. Services provided by Government hospitals, ESIC hospitals would still be out of service tax net.
• Service Tax on air travel both domestic and international raised.
(a) Domestic Travel (economy class): from Rs. 100 to Rs. 150
(b) International Travel (economy class): from Rs. 500 to Rs. 750
(c) Domestic Travel (other than economy class): 10%(standard rate)
The above changes will come into effect from 1st April, 2011.
• Services provided by life insurance companies in the area of investment and some more legal services proposed to be brought into tax net.
• Scope of Legal Consultancy services is being expanded by bringing within its ambit the service provided by a business entity to individuals in relation to advice, consultancy or assistance, representational service provided by any person to any business entity and service of ‘arbitration’ provided by an arbitral tribunal to any business entity.
• Scope of ‘Authorised service station service’ is being expanded to include services provided by any person and to cover all motor vehicles other than those meant for goods carriage and three-wheeler scooter auto-rickshaws and to also cover the services of decoration and similar services in respect of vehicles along with the services already covered.
• The monetary limit of Rs.1,00,000/- for adjustment under Rule 6(4B) (iii) of the Service Tax Rules,1994 is being raised to Rs.2,00,000/-.
• The definition of Business Support Services is being amended to include the services provided by way operational or administrative assistance in any manner.
• In the Commercial Training or Coaching service, the definition of “Commercial Training or coaching centre” is being amended to bring all unrecognized courses within the tax net, irrespective of the fact that such courses are conducted by an institute which also conducts courses which may lead to grant of a recognized degree or diploma.
• Exemptions:
Exemption is being provided to services provided by an organizer of business exhibitions in relation to business exhibitions held outside India.
An abatement of 25% from the taxable value is being provided for the purpose of levy of service tax under “Transport of goods through coastal and inland shipping”.
Exemption is being provided to ‘Works Contract’ service provided for construction or finishing of new residential complex under ‘Jawaharlal Nehru National Urban Renewal Mission’ and ‘Rajiv Awaas Yojna’.
Exemption is being provided to services within a port or other port or an airport under the ‘Work contract service’ for specified purpose.
Exemption is also being provided to ‘Rashtriya Swasthya Bima Yojna’ under the ‘General Insurance Service’.
• To encourage voluntary compliance, the minimum penalty for delay in filing of return u/s 70 has been increased form Rs. 2,000 to Rs. 20,000. However, the existing rate of penalty for the first 15 days and for the subsequent 15 days as well as the daily penalty of Rs.100 per day thereafter under rule 7C are being retained without any change.
• Penalty for delayed payment u/s 76 has been reduced from 2% to 1% per month or Rs. 100 per day, whichever is higher. Maximum penalty is reduced to 50% of the tax amount.
• Penalty for contravention of any provision for which no penalty is provided is increased from Rs. 5,000 to Rs. 10,000 u/s 77.
• Section 78 is being amended to revise the maximum penalty. Penalty will be hereafter mandatory and equal to tax evaded. Further, the penalty is being reduced to 25% if the tax dues are paid within 1 month together with interest and reduced penalty.
• Interest rate is being reduced by 3% for assessees with a turnover of upto Rs. 60 lakh, both u/s 73B and 75.
Central Sales Tax
• There is no change in Central Sales Tax Act.
Central Excise
• Central Excise Duty to be maintained at standard rate of 10 per cent.
• Reduction in number of exemptions in Central Excise rate structure by withdrawing exemption on 130 items that are mainly consumer goods.
• Nominal Central Excise Duty of 1% imposed on 130 items entering in the tax net. No CENVAT credit available for the manufacture of these items.
• Basic food and fuel continue to be exempt. This levy would also not apply to precious metals and stones. In case of jewellery and articles of gold, silver and precious metals, the levy would apply only to goods sold under a brand name.
• Lower rate of Central Excise Duty enhanced from existing 4% to 5%. Items such as prepared foodstuff like sugar confectionary, pastry and cakes; medical equipments, etc. would be now subject to the enhanced rate of duty of 5%.
• Optional levy on readymade garments or textiles made up bearing brand name are proposed to be converted into a mandatory levy at unified rate of 10%. The duty will be levied at the rate of 60% of retail sales price.
• Waiver of show cause notice and conclusion of proceedings would be available if the duty along with the interest and specified penalty is paid before the issue of show cause notice in such cases. Now the aforesaid limit of Rs. 10 lakh has been increased to Rs. 25 lakh.
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