Glimpses of the Budget 2010

by Anand Lakhotia 27. February 2010 13:02

GENERAL OVERVIEW:

  • Economic crisis: "We have withered the global slowdown well," says FM.
  • 18.9% growth rate in manufacturing sector in third quarter of 2009 (highest in last 2 decades).
  • Fiscal deficit pegged at 5.5%
  • Hope to breach 10% mark in GDP in near future, says FM.
  • Growth to exceed 7.2% in this fiscal, says FM.
  • General Sales Tax and Direct Tax Code can be introduced in April 2011
  • Gradual phasing out of stimulus packages, says FM.
  • Rs 25,000 Crores disinvestment target this year
  • Government to set up apex level Financial Stability and Development Council
  • RBI to release additional licenses to Private sector banks and non-banking financial institutions
  • Repayment tenure for farmer loans extended by 6 months to June 30th 2011
  • Delhi-Mumbai industrial corridor taken up for development
  • Government to raise Rs 25000 Crores through Disinvestment
  • Technology advisory group to be set up under Nandan Nilekani. UID authority given Rs 1900 Crores
  • Allocation to Defence over Rs 147,000 Crores
  • Petrol prices to go up
  • Rs 16,500 Crores capital support for PSU banks
  • NREGA allocation to Rs 40,100 Crores
  • Rs 400 Crores corpus for micro-finance scheme
  • Interest subvention for exports to extended for one year
  • Interest subvention of 2% to be extended for Exporters of handicrafts and SMEs
  • Bank for every village with population of 2,000
  • No extension of STPI
  • Subsidy delivery in cash to oil & fertilizer companies
  • Slum Free India at the earliest
  • Easy access for funds to marine and cold storage facility
  • Repayment Extension For Farmer to June 2010
  • Aims to make FDI policy user-friendly

  

DIRECT TAX:

·         Direct tax code will be implemented from April 1, 2011

·         I-T dept to notify simple two-page Saral 2 (Only 2 Pages) form for individuals for current year

  • Direct Tax proposals to give loss of Rs 26,000 Crores; Indirect Tax to yield gain of Rs 45,000 Crores
  • No capital gains tax on conversion of a business entity into Limited Liability Partnership
  • R&D allocation increased 200%
  • Businesses up to Rs 60 Lacs and professionals up to Rs 15 Lacs to be exempted from auditing obligations
  • Interest on delay deposit of TDS increased to 18% pa
  • SOPS on Real estate housing project has extended
  • Two star hotels anywhere in India are provided Investments based incentives

PERSONAL TAXATION:

 

            -Income up to Rs 1.60 Lacs:                    NIL tax

-Income between Rs 1.60-5 Lacs:             Tax at 10%

-Income between 5-8 Lacs:                     Tax at 20%

-Income above Rs 8 Lacs:                       Tax at 30%

 

  • Minimum Tax Exemption limit for Senior Citizens and Women remains unchanged; i.e. Rs. 2,40,000 and Rs. 1,90,000 respectively.
  • Additional Rs 20,000 deduction made available for investment in Infrastructure Bonds. This is above Rs. 1,00,000 80C exemption

 

Change in Corporate Tax

 

  • Minimum Alternate Tax up from 15% to 18% on book profits
  • Reduced Surcharge of 10% on domestic companies to 7.5%
  • Professionals with Gross receipts exceeding Rs 15 Lacs need accounts audit

INDIRECT TAX:

·         Service Tax rates unchanged at 10%, to bring more services under service tax

  • Duties on smoking and non-smoking tobacco products up
  • Peak excise duty hiked from 8% to 10%
  • Peak customs duty remains unchanged at 10%
  • Rs 1 per liter excise on petrol, diesel
  • Full excise cut on electric cars
  • Partial rollback of excise duty on cement
  • Agricultural seeds exempt from Service Tax
  • News agencies exempt from Service Tax
  • Service tax to GDP ratio is 1%
  • Customs duty on gold, platinum imports raised to Rs 300 from Rs 200
  • Import duty on silver raised to Rs 1500 per kg
  • 5% import duty on crude petroleum restored
  • Duty free import of samples now allowed upto Rs 3 Lacs
  • No penalty on excise dues paid voluntarily before SCN issued
  • Excise duty on cement & cement clinker & precious metals increased
  • Service tax refund simplified
  • Setting up of cold storages exempted from service tax

 

 

Budget which speaks in figures:

 

  • National Social Security Fund created for workers in unorganized sector with allocation of Rs.1,000 crores
  • Rs.4,500 crores allocated for ministry of social justice and empowerment, a hike of 80 percent
  • Rs.2,600 crores allocated for ministry of minorities affairs
  • Rs.1,900 crores for Unique Identification Authority of India
  • Rs.147,344 crores allocated for Defence
  • 2,000 youth to be recruited in central paramilitary forces
  • Allocation on primary education raised from Rs.26,800 crores to Rs.31,300 crores
  • Rs.66,100 crores allocated for rural development in 2010-11; Rs.40,100 crore for National Rural Employment Scheme; RS.48,000 crores for Bharat Nirman
  • Rs.1,270 crores allocated for Rajiv Awas Yojana for slum dwellers, up from Rs.150 crores, an increase of 700 percent with the aim of creating a slum free India.
  • Forty-six percent of plan allocations in 2010-11 will be for infrastructure development
  • Allocation for new and renewable energy sector increased 61 percent from Rs.620 crores to Rs.1,000 crores in 2010-11
  • Rs.200 crores to be provided in 2010-11 for climate-resilient agricultural initiative
  • Rs 500 Crores for Clean Ganga Mission
  • Rs 66, 100 Crores for rural development in FY10-11
  • Allocation for school education up from Rs 26, 800 crores to Rs 31, 036 Crores
  • Rs 22, 300 Crores allocated for Health Ministry
  • Coal regulatory authority proposed
  • Rs 300 Crores for Rashtriya Krishi Vikas Yojana
  • Bank farm loan target: Rs 3.75 Lacs crores

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Major Changes Proposed in Direct Taxes Code Bill

by Anand Lakhotia 31. August 2009 08:56

                                       Income Tax Act, 1961                                                 Direct Tax Code Bill, 2009 (w.e.f 1.4.2011)        

1

At present there are two legislation i.e. Income Tax Act, 1961 and Wealth Tax Act, 1957.

Single code for Income Tax Act and Wealth Tax Act. The code consists of 285 sections.

2

There are three kind of Residential status i.e ‘Resident’, ‘Non Resident’ and ‘Resident but not Ordinarily Resident’.

Residential status of “Resident but not ordinarily resident” has been done away with.

3

There are ‘previous year’ and ‘assessment year’.

To eliminate confusion only ‘Financial Year’ will prevail.

4

Date of filing of tax return 31st July for non-business non-corporate assessee and 30th Sept for others.

Date of filing of tax return preponed to 30th June for non-business non-corporate assessee and 31st Aug for others

5

Individual tax rates in Income Tax Law (ITL) are as follows

Individual tax rates proposed in Direct tax code (DTC).

 

10%

from Rs.160000 to Rs.300000

from Rs.160000 to Rs.1000000

 

20%

from Rs.300001 to Rs.500000

from Rs.1000001 to Rs.2500000

 

30%

from Rs.500001 and above

from Rs.2500001 and above

6

The corporate tax rate of domestic company is 30% and for foreign company, it is 40%. Business losses can be carry forward for 8 yrs. Dividend distribution is at 15%.

The corporate tax rate of all companies reduced to 25%. Business losses can be carry forward for unlimited period. Dividend distribution tax remains at 15%.

7

Wealth tax rate is 1% above Rs.30 lacs. Definition of wealth includes some specific assets excluding investments in shares. It was applicable to all assessee.

Wealth tax rate reduced to 0.25% above Rs.50 crore except for private discretionary trust, for which no threshold limit will be available. Definition of wealth has been expanded to include all assets, including investments. Further corporate assesses have been relieved from wealth tax.

8

MAT @ 15% is levied on ‘Book Profit’. Further MAT tax credit is allowed to be carried forward up to ten assessment year.

Basis for levy of MAT is 2% on gross assets. Carry forward of such MAT tax credit has been denied.

                              

9

There is no such provision for to declare an arrangement as impermissible.

General Anti-Avoidance Rule to introduce to empower the Commissioner of Income Tax (CIT) to declare an arrangement i.e round-tripping, transaction through an intermediaries, self-canceling transaction etc as impermissible if the same has been entered into with the objective of obtaining tax benefit and which lacks commercial substance. Such arrangement can be invoked by CIT.

10

Tax incentives were based on location or on export turnover upto a specified period. Further capital investment were not allowed to amortized.

Export and Area/profit based exemption to be discontinued without affecting currently enjoying such incentive. Under the DTC, all capital investment and revenue expenditure (except land, goodwill and financial instruments) allowed to be amortized indefinitely and the period of such amortization will be called as ‘Tax Holiday’.

11

Income from Salary includes all perquisites such as house rent, leave travel assistance, children education allowances, encashment of unavailed earned leave on retirement, medical reimbursement and free/concessional medical treatment paid/provided etc is exempt up to a certain limit.

All such exemption withdrawn.

12

As per section 80C certain investment/savings upto Rs. 1 lac were deductible from taxable income.

Exempt-Exempt-Taxation (EET) method of taxation of savings/investment, will be applied on new contribution after commencement of the code. Limit for investment raised to Rs.300000 p.a. However deduction on investment in tax-saving mutual funds and fixed deposits have been abolished.

13

Self-occupied house property whose gross rent is taken as NIL, used to get deduction of interest on loan. Deduction for repair based on annual value in case of rented house property is 30%.

Self-occupied house property whose gross rent is taken as NIL, will not get deduction of interest on loan. Deduction for repair on annual value in case of rented house property is proposed to reduce to 20%.

14

Short term capital gain which attracts STT is taxed at 15%, Short Term Capital Gain which does not attract STT attract normal rate of tax. Long Term Capital Gain, which attracts STT, is exempt from Tax. Long Term Capital Gain which does not attract STT is subject to a tax rate @ 10% without indexation or 20% with indexation. Unabsorbed capital loss allowed to be carried forward up to 8 assessment years.

Since STT proposed to abolish, short term and Long term capital gain will form part of income, therefore all capital gain on transaction of equity shares/unit will attract normal tax. However indexation benefit of long-term capital gain will remain. Unabsorbed capital loss will be allowed to be carried forward indefinitely.

15

As per Income Tax Act, 1961 the assessing officer is never required to forward a draft order of assessment. Maximum amount of penalty is 300% of the amount of tax, but the same AO can waive the penalty. Appeal can be filed before ITAT against an order passed by the CIT directing revision of assessment. The appeal against ITAT order is eligible to be filed in the High Court.

The assessing officer is required to forward a draft of the proposed order of assessment in case the variation to the returned income is in excess of prescribed limit. Maximum penalty for willful under-reporting of tax can be 200% of tax but no income tax authority shall have the power to waive penalties. No appeal shall lie to the ITAT against an order passed by the CIT directing revision of assessment. The appeal against ITAT order lies with National Tax Tribunal and not High Court.

16

There is no such provision for upfront determination of the arm’s length pricing or pricing methodology.

Transfer Pricing matter will be well settled under proposed Advance Pricing Agreement (APA), under which an agreement between the taxpayer and the tax authorities for the upfront determination of the arm’s length pricing/pricing methodology of an international transaction will be made but shall not be effective for more than five consecutive years.

17

As per Income Tax Act, 1961 there is no such provision.

Every business will constitute a separate source and will be computed separately.

18

As per Income Tax Act, 1961 loss on Sale of business capital assets will be treated as Short term capital loss and will be allowed to be carried forward up to 8 eight assessment year.

As a disincentive to asset stripping and loss manipulation, the loss on sale of business capital assets will be treated as intangible asset and depreciation will be allowed at the same rates applicable to the relevant block of assets, therefore allowing a fraction of the loss every year.

19

There is Provision of choice between Income Tax Act and Double Taxation Avoidance Agreement; whichever is beneficial to the assessee. 

The code states that neither a Double Taxation Avoidance Agreement (DTAA) nor the code shall have a preferential status by reason of its being a DTAA or law. However in case of a conflict between the code and DTAA, the one that is later in point of time shall prevail.

20

Presumptive tax system wherein assuming 8% of turnover as taxable profit were available to retail business having turnover upto Rs.40 lakhs.

The limit of turnover for such presumptive tax system for retail business is raised to turnover upto Rs.100 lakhs.

21

Carry forward and set-off of losses of unlisted companies in the hands of amalgamated company will lapse with change in shareholding of 50% or more.

Such carry forward and set-off of losses will not lapse even with change in shareholding of 50% or more.

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