India Budget 2012 by Delliote
Transcript of India Budget 2012 by Delliote
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Getting to the core
Budget Highlights
March 2012
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New policy announcements
Direct Tax Code (DTC) and Goods and Service Tax (GST)
The Finance Minister reiterated -
the expeditious enactment o DTC.
the commitment on the introduction o GST, creating a structure o GST
network and towards the drating o model legislation or Centre and State GST.
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Individual
Slab Rate Current Proposed Maximum Savings
Nil `180,000 `200,0002,060
10% `180,001 to `500,000 `200,001 to `500,000
20%`500,001 to
`800,000
`500,001 to
`1,000,000 20,600
30% > `800,000 > `1,000,000
Education cess o 3% continues.
No dierentiation or basic exemption limit or women. Accordingly, the
additional benet to women is lower by `1,000.
Proposed slab rates in line with DTC Bill, 2010.
Corporate
Current ProposedCorporate
- Domestic 30% 30%
- Foreign 40% 40%
MAT 18.5% 18.5%
DDT 15% 15%
No change in base corporate tax rate or domestic and oreign companies and
DDT
No change in surcharge and cess.
Eective tax rates are as below:
For domestic companies, where income exceeds `1 crore - 32.445%, where
income is less than `1 crore 30.6%.
For oreign companies, where income exceeds `1 crore 42.024%, where
income is less than `1 crore 41.2%.
Tax rates
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Direct Taxes
Tax incentives and relies
Specifed Companies
Interest income paid by specied
companies (inrastructure companies
like construction o road, toll road or
bridge, power etc. and companies inthe business o operation o aircrat
and manuacture or production o
ertilisers) to a non-resident subject
to concessional withholding tax rate
o 5%:
in respect o monies borrowed
on or ater the 1 July 2012 but
beore the 1 July 2015 in oreign
currency, rom a source outside
India under a loan agreement
approved by the Central
Government; and
to the extent to which such
interest does not exceed the
amount o interest calculated at
the rate approved by the Central
Government in this behal, having
regard to the terms o the loan
and its repayment.
Venture Capital Undertakings
Venture capital benet is
available to all unds without
any restrictions. Existing sectoral
restrictions (sotware, inormation
technology, production o basicdrugs in the pharmaceutical sector,
biotechnology, etc.) have been
removed.
Exemption rom withholding tax
provisions on income paid or credited
by venture capital unds or venture
capital companies withdrawn.
Income o venture capital und and
companies taxable in the hands oinvestors on accrual basis with no
deerrals.
Dividend
Benecial tax rate o 15% on
dividend income rom oreign
subsidiaries extended by 1 year.
Presently, one o the conditions
or claiming credit or dividend
distribution tax is that the dividend
recipient should not be a subsidiary
o any other company. This condition
has now been dispensed with.
Tax Holiday Benefts
Sunset clause has been extended
till 31 March 2013 or undertaking
engaged in generation and / or
distribution / transmission o power.
New sectors to be added or the
purposes o investment linked
deduction.
Investment in Plant and Machinery
Benet o additional depreciation
in the initial year proposed to beextended to undertakings engaged
in generation or generation and
distribution o power.
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Research and development
Weighted deduction o 200% or
in-house research expenditure is
currently available till 31 March
2012. This has been extended or a
urther period o 5 years till31 March 2017.
Securities Transaction Tax (STT)
STT on actual delivery or transer
o shares reduced rom the existing
0.125% to 0.1%.
Others
Exemption or income o oreign
company received in India in Indian
currency on account o sale o crude
oil to any person in India subject to
certain conditions including approval
rom Central Government and
oreign company not being engaged
in any activity, other than receipt o
such income, in India.
Weighted deduction o 150% on
expenses incurred on ollowing
projects notied by the board
Skill development projects in
manuacturing sector
Agricultural extension projects.
Judicial precedents reversed by
retrospective amendments
Indirect transer o capital assets
Presently, deemed income includes
income rom transer o a capital
asset situated in India. Scope o deemed income expanded
to include income rom transer
o share or interest in a Company
/ entity registered / incorporated
outside India i the share or interest
derives, directly or indirectly, its value
substantially rom the assets located
in India.1
The term property as used in the
denition o capital asset to include
any rights o management or control
or any other rights whatsoever in
relation to an Indian Company.
Enabling provisions also included in
the denition o the term transer
includes disposing o or parting
with an assets or any interest
therein notwithstanding that the
same is fowing rom the transer o
shares o a company registered or
incorporated outside India.
In respect o such transactions,
it is claried that non-residents
1 Through this, the
recent Supreme
Court ruling in the
case o Vodaone
has been reversed.
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are required to withhold taxes at
source or any payments made
to any other non-resident i the
payment represents income o the
non-resident payee, chargeable to
tax in India.
Sotware
Defnition o royalty amended
retrospectively rom 01 June 1976 to
specifcally cover the use or right to use
computer sotware (including granting
o a licence). Medium o transer not
relevant or determining taxability.
Bandwidth / Satellite transmission
The term process used in the
denition o royalty has been
claried to include transmission by
satellite, cable, optic bre or by any
other similar technology, whether or
not such process is secret. Eective
retrospectively rom 01 June 1976.
Condition to avail benefts under
the tax treaty
Residency Certicate mandatory or
claiming benet under the tax treaty.
General Anti-Avoidance Rule
(GAAR)
GAAR introduced primarily to codiythe doctrine o substance over orm
and to deal with aggressive tax
planning.
GAAR provisions may override tax
treaties to prevent treaty abuse
and bring certain cross border
transactions under taxation.
An arrangement entered into by
an assessee may be declared tobe an impermissible avoidance
arrangement with attendant tax
consequences.
Impermissible avoidance
arrangement
An arrangement would be
declared as an impermissible
avoidance arrangement i the
main purpose or one o the
purposes is to obtain a tax
benet and satises certain other
conditions (lacks commercial
substance, etc.)
Lacking commercial substance - An
arrangement will be deemed to lack
commercial substance i:
The substance o the
arrangement is inconsistent with,
or diers signicantly rom, the
orm o its individual steps or
parts; or
It involves round tripping
nancing or elements that have
eect o osetting each other or
includes an accommodating party
or a transaction which disguisesthe value, location, source,
ownership or control o und; or
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It involves a location o an asset
/ transaction / place o residence
o any party which has been so
located only or the purpose o
obtaining tax benets.
Consequences o an impermissibleavoidance arrangement
Once the arrangement is held to
be an impermissible avoidance
agreement then the tax
authorities may:
disregard or ignore the
arrangement or part thereo,
recharacterise any step,
disregarding any corporate
structure,
denial o benets under tax
treaty, etc.
Framing o guidelines
GAAR provisions to be applied in
accordance with guidelines to be
prescribed by Board.
Onus
The onus to prove that the main
purpose o the arrangement is
not to obtain the tax benets
would be on the taxpayer.
Process The Assessing Ocer would be
required to make a reerence to
the Commissioner or invoking
the anti-avoidance provisions
who may reer the case to an
Approving Panel, consisting o 3
members
The Approving Panel would be
required to either declare an
arrangement to be impermissible
or otherwise within a period o
six months.
Taxpayer to le appeal beore the
Income Tax Appellate Tribunal.
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Alternate Minimum Tax (AMT)
Presently, AMT which is applicable
to LLP now extended to all
non-corporates who claim certain
deductions in computing their total
income. Threshold limit o `20 lakhs or
individuals, HUF, AOP, BOI and
articial juridical persons.
AMT Credit allowed to be carried
orward up to 10 years
Minimum Alternate Tax (MAT)
Insurance, Electricity Companies
and Banks incorporated under the
Companies Act, 1956, have been
brought under MAT regime.
Gains on disposal o revalued assets,
even i not credited to the prot and
loss account, to be considered or
MAT purposes.
Mergers and acquisitions Requirement to issue shares
dispensed with in case o
amalgamation o subsidiary
company into holding company.
Requirement to issue shares on
proportionate basis in case o
demerger is dispensed with where
the demerged company is subsidiary
o the resultant company.
Personal taxation
Basic exemption limit enhanced to
`200,000 rom `180,000.
No dierentiation or basic
exemption limit or women.
No change in basic exemption limitsor senior citizens.
Unexplained amounts/credits in
the books o accounts are deemed
to be income o the assessee and
are chargeable to income tax. Such
amounts would henceorth be
subject to tax @ 30% without any
deductions / exemptions.
Residents having assets (including
nancial interest in any entity)
located outside India are required
to urnish tax returns mandatorily
rom nancial year 2011-12
onwards. This would be irrespective
o whether they have income
chargeable to tax in India or
otherwise.
Senior citizens (individuals aged 60
years and above), not having income
rom business or proession are not
required to pay advance tax.
Any sum received under a lie
insurance policy is exempt rom tax,
provided the premium payable or
such policy or the year does not
exceed 10% o the sum assured, asagainst 20% presently.
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Deduction o `15,000 under
Section 80D has been broadened toinclude expenditure on preventive
health check-up. The quantum o
such benet has been restricted to
`5,000.
Exemption o `10,000 is available
or interest earned on deposits in
savings bank account, co-operative
banks and post oce.
Capital Gains
Exemption available or capital gains
on sale o residential property (house
or land) where the net consideration
is invested in a small and medium
enterprise (SME) subject to specied
conditions.
In cases where consideration or
transer o capital asset is not
determinable, air market value
o the asset to be treated as sale
consideration.
Income rom Other Sources
Consideration or issue o shares,received rom any resident by a
company in which public is not
substantially interested, in excess
o the air market value, shall be
liable to tax. However, this does not
apply to consideration received by a
venture capital undertaking rom a
Venture Capital Company / und.
Other amendments
Time limit or issue o notice or
reopening assessments is enhanced
to 16 years where income relating
to assets situated outside India has
escaped assessment.
Withholding tax (TDS)
TDS on transer or certain immovable
properties (other than agricultural
land)
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TDS @ 1% i the consideration
on transer exceeds
`50 lakhs in case such property
situated in specied urban
agglomeration; or
`20 lakhs in case such propertyis situated in any other area.
I consideration is less than value
adopted or assessed by stamp
duty authorities, such value be
deemed as consideration or
transer o such immovable
property.
TDS on remuneration (other than
salary) to a director @ 10%.
Threshold limit to withhold taxes on
interest on debentures is increased
rom `2,500 to 5,000.
Tax Collection at Source (TCS)
Seller o bullion or jewellery
shall collect tax @ 1% o sale
consideration rom every buyer i
sale consideration in cash exceeds
`2 lakhs.
Seller to collect 1% tax on sale o
minerals (coal, lignite and iron Ore),
subject to conditions.
Other amendments
Time limit or completion oassessment, re-assessments, revisions
and appellate proceedings extended.
Rates o daily tonnage income
revised.
Additional onus on closely held
companies to explain the nature and
source o any sums credited except
in the case o the shareholder being
a well regulated entity like Venture
capital unds etc., registered with
the SEBI.
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Advance Pricing Arrangement
(APA) introduced
The Finance Bill 2012 proposes to
introduce the APA which was initially
included as part o the Direct Tax Code
The Board is empowered toenter into an APA with any person
undertaking an international
transaction seeking to determine the
Arms Length Price or the manner o
determination o Arms Length Price
APA is only applicable or
international transactions and valid
or a period o 5 consecutive years or
years as specied in the agreement
The Arms Length Price under the
APA may be determined under any
method whether prescribed or not.
APA shall be legally binding on
the taxpayer and on the income
tax authorities in respect o the
international transaction or which
the APA is entered
APA shall not be binding i there is
a change in law having bearing on
such APA
The Board shall prescribe the
scheme speciying the manner, orm,
procedure and other matters in
respect o the APA
The provisions relating to the
ling o Return/ assessments/re-assessments consequent to the
conclusion o APA has also been
modied to the above eect
Introduction o Transer Pricing
provisions to Specifed Domestic
Transactions2
A new Section has been introduced by
which Specifed Domestic Transactions
have been brought under the purviewo Transer Pricing regulations
The computation o value o
Specied Domestic Transactions will
be as per Arms Length provisions
under Transer Pricing regulations
The provision would be applicable
i the value o Specied Domestic
transactions in aggregate exceeds
`5 Crore.
The Specic Domestic Transactions
or the purposes o application o
Transer Pricng provisions would be
as ollows:
Expenses/ payment transactions
between related persons as
covered under the provisions o
Section 40 A (2) (b);
Transer o goods/ services/
business rom one unit/
undertaking o the Assesse to
another unit/ undertaking o the
assesse, claiming benet under
Section 80 IA, under Chapter VI
A or 10 AA where the provisions
o 80IA are applicable;
Transfer Pricing
2 In line with Supreme
Court Ruling in
case o Glaxo
Smithkline Asia(P)
Ltd- Special Leave
to Appeal (Civil)
No(s).18121/2007
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The Assesse would be required to
maintain/ urnish documentation
and obtain certication o Specied
Domestic Transactions
The other Transer Pricing provisions
pertaining to internationaltransactions would also be
applicable or Specied Domestic
Transactions
Clarifcation on applicability o
allowable variation rom Arms
Length Price
It is claried that provision relating to
the allowable variation is applicable
to all assessment/ reassessment
proceedings pending beore the
assessing ocer as on 1st day o
October 2009
As a consequent change to the
above clarication, the assesse
cannot claim a standard deduction
o 5% or all the Financial Years
starting 2001-02, but may claim the
benet only i the variation between
Transer Price and Arms Length price
is within 5% o the Transer Price
From FY 2012-13, the variation
percentage would be limited to 3%
instead o 5%
International Transaction-
Defnition clarifed (eective
FY 2001-02)
Claried denition o tangible
property to include building,
transportation vehicle, machinery,urniture, equipment etc. or
commodity or any other article,
product or thing etc.
Claried denition o intangible
property to include use o rights
regarding land rights, customer
list, ranchise, marketing channel,
brand etc. or any other business or
commercial rights o similar nature
Denition now includes business
restructuring or re-organization
irrespective o bearing on prot,
income, losses current or uture
Dispute Resolution Panel (DRP)-
Signifcant Changes
The order o DRP is now appealable
by the Assessing Ocer to the ITAT
with eect rom 1st July 2012
DRP is empowered to pass directions
on any matter arising out o the
assessment proceedings irrespective
whether such matter was raised
by the eligible assessee or not.
Amendment eective FY 2008-09
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Reerence to TPO
TPO can determine Arms Length Price
o any international transaction entered
into by the assesse, not reerred to him
by the AO, provided that assessee has
not reported the same under section92E. Amendment retrospectively rom
1 June 2002
For cases concluded beore 1 July 2012,
the Assessing ocer will not have right
to re-open the case only on account o
such amendment
Other procedural
Due date or ling Form 3CEB or
non-corporate taxpayers
Extension o timeline till
30 November eective or
FY 2011-12 onwards
Extended Scope o Penalty
Penalty provision has been
amended to included ailure to
report transactions, maintaining
or urnishing incorrect
inormation
Penalty is leviable at rate o 2%
o value o transaction
These changes will be eective
rom 1July 2012
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Customs
Peak rate o Customs Duty
maintained at 10%
Customs duty exemption on
specied equipments extended to all
inrastructure projects Cess on Countervailing Duty
exempted or on imported goods
Rate o Basic Customs Duty (BCD)
on capital goods or setting up
/ expansion o Iron ore plants
reduced rom 7.5% to 2.5%
Exemption rom BCD or setting
up/expansion o ertilizer projects
extended till 31 March 2015
Full exemption rom BCD extended
to equipments or Coal mining
projects
Full exemption rom BCD on LCD/
LED TV panels
BCD ully exempted/ reduced on
inputs or power generation like
NG/LNG, steam coal, uranium
concentrates
Exemption rom BCD and CVD
provided in respect o aircrat tyres
and maintenance spares
Duty ree limit on articles
accompanying passengers increased
rom `25,000/- to `35,000/-
Reduction in import duty on parts
o hybrid vehicles, railway saetyequipments, CFL lamps, specied
liesaving drugs, tubes and pipes or
boilers
Electronic payment o Customs duty
being contemplated or specied
importers
Excise
Standard rate o Excise duty on non-petroleum goods increased rom 10
% to 12 %
Excise duty o 2% or spare parts
o mobile phones without CENVAT
credit
Merit rate or non petroleum goods
increased rom 5% to 6% and rate
o 1% on certain items imposed in
the last Budget increased to 2%
Cement/Cigarettes to be assessed
on Specic cum- advalorem basis
(Retail Sale Price (RSP)). Abatement
on RSP also notied.
Process o packing / re-packing /
labelling/ re-labelling or alteration
o RSP in case o cigarettes shall
be deemed to be manuacture or
purpose o levy o excise duty
Abatement o RSP on readymade
Garments and made up articles o
textiles increased rom 55% to 70%
o RSP
Duty on Eco-riendly products like
electric/hybrid vehicles and LED
lamps reduced to 6%
New methodology prescribed ordistribution o credit by an input
service distributor(ISD)
Facility to transer unutilized Cenvat
Indirect Tax
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Credit o Special Additional Duty
rom one actory to another o the
same manuacturer
Interest on credit wrongly taken
is not payable unless the same is
utilized
Service Tax
Service tax rate increased rom 10%
to 12%
Paradigm shit in the manner o
taxation o services. As against
the present system o dening the
taxable services, it is proposed to
dene the services that are not
taxable (Negative list approach
introduced)
List o services exempt rom tax have
been pruned to 10 rom 88
Exemption to specied inrastructure
projects have been retained
Excess service tax paid can be
adjusted without any monetary limit
Penalty is waived i Service tax or
the past period in respect o Renting
o Immovable Property service is paid
along with interest within 6 months
Time limit or issuing show cause
notice increased rom 12 month to
18 months
Provisions relating to Settlement
Commission extended to Service tax Point o Taxation Rules rationalised
In order to align with the proposed
GST, a Drat Place o Provision o
Services Rules, 2012 has been issued
Central Sales Tax
Central Sales Tax rate continues at2% with Form C
Goods and Service Tax
GST to be implemented in
consultation with the States at the
earliest
A model legislation or Centre and
State GST is under preparation
GST Network (GSTN) to be set up as
a National Inormation Utility and
will become operational by August
2012
GSTN will implement common
PAN-based registration, returns ling
and payments processing or all
States on a shared platorm
Source: Finance Bill,
2012. All amendments
are eective 01 April
2012 unless otherwise
stated.
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