TA X

Union Budget 2010 Highlights

KPMG IN INDIA
Foreword
TheHonourableFinanceMinisterhaspresentedtheUnion
Budgetamidstapprehensionsthathemightincreasetaxes
tocountertheriseinthefiscaldeficit.Theriseinthefiscal
deficitwasofcourse,broughtaboutlargelybecauseofthe
needtogivealargefiscalstimulitorevivetheeconomy
whichhadsloweddownamidsttheglobalfinancialcrisis.
TheEconomicSurvey2009-10identifiedthefollowing
challenges:1
1.Fiscalconsolidationtoputthecountryonthepathof
fiscalrectitude
2.QuickreverttothehighGrossDomesticProduct(GDP)
growthrateof9percentandthenfindapathtocrossthe
‘doubledigitgrowthbarrier’
3.Makinggrowthmoreinclusiveandalleviatepoverty
4.Managinginflation,especiallythatoffoodprices
TheGrowthRateoftheIndianeconomymarginallyimproved
in2009-10to7.2percentfrom6.7percentin2008-09but
wasstilllowerthanitsaveragegrowthrateof8.8percent
overthelastfiveyears(2003-04to2007-08).The
1indiabudget.nic.in
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Governmenthoweverwassuccessfulinwardingoffa
sustainedeconomicslowdownbyincreasingdisposable
incomeinthehandsofthepeople,forinstancebyeffecting
reductionsinindirecttaxesandbyincreasingexpenditureon
programmeslikeNationalRuralEmploymentGuaranteeAct
(NREGA)andonruralinfrastructure.Theimplementationof
theSixthPayCommissionrecommendationsandthedebt
relieftofarmersalsocontributedtothisend.
Thenetresultoftheabovemeasureswasanincreasein
fiscaldeficitfrom2.6percentoftheGDPin2007-08to6.8
percentofGDP.TheGrossFiscalDeficit(includingthe
States’share)thereforetouched10percentofGDP.
Inshapingthefiscalpolicyfor2010-11andbeyond,the
recommendationsoftheThirteenthFinanceCommission
(FC-XIII)havebeentakenonboard.TheFC-XIIIhas
recommendedacalibratedexitfromtheexpansionaryfiscal
stanceof2008-09and2009-10,asthemainagendaofthe
CentralGovernment.Furtherithassuggestedthatthe
revenuedeficitoftheCentreneedstobeprogressively
reducedandeliminated,followedbyanemergenceofthe
revenuesurplusby2014-15.
Whatisreassuringisthedirectionalstanceinre-iteratingthe
Government’scommitmenttobringinginauniformGoods
andServicesTaxregimeandtheNewDirectTaxesCodeby1
April,2011.
Atfirstglance,theDirectTaxesProposalsarerelatively
benign,savetheincreaseinMinimumAlternateTaxto18
percentfrom15percent,andseekto:
• Lowertaxburdenonindividualtaxpayersbywidening
thetaxslabs
• Allowsmallcompaniestoconverttolimitedliability
partnershipswithoutattractingcapitalgainstaxliability
• Increaseturnoverlimitsforapplicabilityofcompulsory
taxaudit
• Promoteinvestmentinresearchanddevelopmentto
enhancecompetitiveness
• Encouragesavingstobechanneledintoinfrastructureby
providingataxdeductiononinvestmentinlong-term
infrastructurebonds
• Simplifyandrationaliseprovisionsrelatingtotax
deductionatsource
OntheIndirecttaxesfront,asexpected,thefiscalstimulus
waspartlywithdrawnbyacrosstheboardincreaseinexcise
dutyratefrom8to10percent.Theincreaseofexciseduty
onpetrolanddieselwassomewhatsurprising,giventhe
concernaroundinflation.
Servicetaxandcustomsdutyrateswereleftatthesame
levels.However,theambitofservicetaxisproposedtobe
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increasedsignificantlybycoveringaviation,realestate,rail
transportandspecifiedhealthservices.Thisappearstobea
steptowardstheimplementationofGST,whichrevolves
aroundaconceptofmoderatetaxratewithalargertax
base.Exportofservicesruleshavebeensimplifiedand
certainproceduralrelaxationshavebeenprovidedtoservice
exporters.
Overall,iftheimmediatepositivereactionfromthestock
marketsisanyindication,thecorporatesectorandinvesting
communityseemselatedathavingbeensparedanincrease
inheadlinedirecttaxrates;however,onewillneedcarefully
assesstheimpactoftheprovisionsbyanalysingthefine
printintheFinanceBill.TheBudgetseemstobewell
intendedtowardsreturningtothepathtofiscalrectitude.
Individualtaxpayersmayfindthatthemoneythattheyhave
savedduetothewidenedtaxslabsmayjustaboutmeet
increasedexpendituresduetohigherindirecttaxesbeing
leviedonalmostallgoodsandservices,Corporatesin
generaldonotseemtohavemuchtocheeraboutespecially
astheincreaseintheMinimumAlternateTaxislikelyto
resultinanimmediatecashoutflow.
Thesummarythatfollowshighlightsthesalientfeaturesof
theFinanceBill2010,intermsofdirectandindirecttaxes.
Unlessotherwiseindicated,theproposedamendments
relatingtodirecttaxesaretoapplyfromtheassessment
year2011-12andunlessotherwiseindicated,thechanges
relatingtoCentralExciseandCustomsDutiescomeinto
effectimmediately.ChangesinServicetaxaretocomeinto
effectfromadatetobenotified,aftertheenactmentofthe
FinanceBill,2010.
Table of Contents

Direct Tax 1

Corporate tax 1

Tax holidays 3

Non-resident related provisions 4

Withholding tax provisions 5

Personal taxation 6

Conversion of a company into an LLP 7

Other direct tax provision 9

Indirect Tax 11

Central excise 11

Service tax 15

Customs duty 20

Goods and services tax 22

Central sales tax 22

Glossary 23
 1

Direct Tax

Corporate tax
• TheDirectTaxesCodeislikelytobeeffectivefrom1April2011

• TheCorporatetaxrateremainsunchanged

• ThebasicrateofMATincreasedto18percentfrom15percent

• Thesurchargefordomesticcompaniesreducedto7.5percentfrom
10percent

• Incomputingthetaxableincomeofanon-lifeinsurancecompany,
adjustmentistobemadeforanygainorlossontherealisationof
investmentsonlyifitisnotcreditedordebitedtotheProfitand
LossAccount.Additionally,anyprovisionfordiminutioninthevalue
ofinvestmentsistobeaddedbackinthecomputationifitis
debitedtotheProfitandLossAccount

• Effective1June,2010,incomputingtheincomefromother
sources,transactionsoftransferofsharesofcloselyheldcompany
withoutorforinadequateconsiderationtoafirmortoacloselyheld
companytobetaxable.Thetaxableincomeforthetransfereeisthe
fairvalueifthetransferiswithoutconsiderationorthedifference
betweenthefairvalueandinadequateconsiderationoverthe
stipulatedthresholdofINR50,000

• Thethresholdlimitforgettingtheaccountsauditedincaseof
personscarryingonbusinessincreasedtoINR6,000,000fromINR
4,000,000andincaseofpersonscarryingonaprofessiontoINR
1,500,000fromINR1,000,000

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 2

• Thepenaltyleviableforfailuretogetaccountsauditedortofurnish
auditreportincreasedtoINR150,000fromINR100,000

• TheincomeofApprovedResearchAssociationsundertaking
researchinsocialscienceorstatisticalresearcharetobetax-
exempt

• Theweighteddeductionsforscientificresearchanddevelopment
increasedasunder:

- Forexpenditureincurredbyeligiblecompanyintherecognisedin-
houseresearchanddevelopmentfacility,theweighteddeduction
increasedto200percentfrom150percent

- ForpaymentstotheNationalLaboratoryoraUniversityoran
IndianInstituteofTechnologyoraResearchAssociationora
specifiedperson,theweighteddeductionhasbeenincreasedto
175percentfrom125percent

- ForpaymentstoApprovedResearchAssociations,undertaking
researchinsocialscienceorstatisticalresearch,theweighted
deductionistobeallowedat125percent

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 3

Tax holidays
• TheeligibledeductionforexportprofitsoftheSEZunitsistobe
computedwithreferencetothetotalturnoveroftheundertaking
insteadofthetotalturnoverofthecompany.Thisprovisionisnow
madeoperationalretrospectivelyfromthefinancialyear2005-06

• Effectivefromfinancialyear2009-10,inrespectofeligiblededuction
forhousingprojects:

- Forhousingprojectsapprovedonorafter1April2005,theperiod
forcompletionofsuchaprojectextendedfromfouryearstofive
yearspostapprovalbythelocalauthority

- Thepermissiblebuilt-upareaoftheshopsandothercommercial
establishments,enhancedto3percentoftheaggregatebuilt-up
areaofthehousingprojector5,000squarefeet,whicheveris
higher.Earlier,thepermissiblebuilt-upareaforsuchpurposeswas
5percentoftheaggregatebuilt-upareaofthehousingprojector
2000squarefeet,whicheverisless

• Inrespectofeligibledeductionforhotelandconventioncentrefor
theCommonwealthGames,thedateofstartingforhoteland
constructionforconventioncentreextendedfrom31March2010to
31July2010

• Thedeductioninrespectofspecifiedcapitalexpenditureextended
tothebusinessrelatingtobuildingandoperatinganewhoteloftwo
starorabovecategoryanywhereinIndiawhichstartsoperationson
orafter1April2010

• Withretrospectiveeffectfromfinancialyear2009-10,fordeduction
ofcapitalexpenditurewithrespecttobusinessoflayingand
operatingcrosscountrynaturalgasorcrudeorpetroleumoil
pipelinenetwork,theconditionofonethirdofthetotalpipeline
capacitytobemadeavailableforuseoncommoncarrierreplaced
bythecapacityasspecifiedbythePetroleum&NaturalGas
RegulatoryBoard.

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 4

Non-resident related provisions

• Theincomeofanon-residentfromrenderingservicesinthenature
of‘interest’,‘royalty’and‘feesfortechnicalservices’aredeemedto
accrueorariseinIndiairrespectiveofwhethertheservicesare
renderedinoroutsideIndia.Thisamendmenttoapply
retrospectivelyfromfinancialyear1976-77

• Theincomeofanon-residentinthenatureofafeefortechnical
servicesrelatingtoexplorationofmineraloilswouldbetaxedasper
generalprovisionsandnotonpresumptivebasis.

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 5

Withholding tax provisions

• Interest,commissionorbrokerage,rent,royalty,feesfor
professionalortechnicalservices,paymentstocontractorsorsub-
contractorsincurredandpayabletoresidentsduringthefinancial
yeartobedeductibleiftheunderlyingtaxwithheldatsourceduring
thefinancialyear,ispaidonorbeforetheduedateoffilingofthe
returnofincome

• Effective1July,2010,thethresholdsfordeductingtaxatsourceon
paymentstoresidentsistoberevisedasunder:

Nature of Payment Existing limit (INR) Proposed limit (INR)

Winningsfromlotteryor
crosswordpuzzleorcardgame 5,000 10,000
andothergameofanysort

Winningsfromhorseraces 2,500 5,000

• 20,000(forasingle
transaction)
Paymenttocontractors • 50,000(foraggregateof
transactionsduringthe
financialyear)
• 30,000(forasingle
transaction)
• 75,000(foraggregateof
transactionsduringthe
financialyear)

Insurancecommission 5,000 20,000

Commissionorbrokerage 2,500 5,000

Rent 120,000 180,000

Feesforprofessionalor
technicalservices,royaltyand 20,000 30,000
non-competefees

• Effective1July2010,theinterestratefordelayindeductionor
paymentofwithholdingtaxisrevisedfrom1percentto1.5percent
permonthfromthedateonwhichtaxisdeductedtillitspayment.
Fortheperiodfromthedateofobligationtodeducttothedateof
deductionoftaxatsource,theinterestratecontinuestobeat1
percentpermonth

• TheTaxDeductororTaxCollectorobligedtofurnishrelevant
certificatetothePayeefortaxesdeductedatsourceforfinancial
year2010-11andonwards.

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 6

Personal taxation
• Nochangesinthepersonaltaxrates

• Basicexemptionlimitsremainunchangedbutincometaxslabshave
beenaltered,asunder:

Current Slabs (INR) Proposed Slabs (INR) Basic rate of tax

Upto160,000 Upto160,000 Nil

160,001to300,000 160,001to500,000 10%

300,001to500,000 500,001to800,000 20%

Above500,000 Above800,000 30%

• AdditionaldeductionuptoINR20,000prescribedforinvestmentin
notifiedlongterminfrastructurebondsforindividualsorHindu
UndividedFamilies

• ThecontributiontoCentralGovernmentHealthSchemeforselfor
familytoqualifyfordeductionwithinoverallceilinglimits

• ThedonationstoApprovedResearchAssociationstoqualifyfor100
percentdeduction

• SimplifiedFormSARAL-IIforindividualsalariedtaxpayerstobe
notified.

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 7

Conversion of a company into aQ LLP

• Theconversionofaprivatecompanyorunlistedpubliccompany
(Company)intoLimitedLiabilityPartnershiptobeexemptfromtax,
subjecttothefollowing:

- Thetotalsalesorturnoverorgrossreceiptsofthecompanydonot
exceedINR6,000,000inanyoftheimmediatethreepreceding
previousyears

- Alltheassetsandliabilitiesofthecompanybeforeconversion
becomethoseoftheLLP

- AlltheshareholdersofthecompanybecomepartnersofLLPwith
theircapitalcontributionandprofit-sharingratioremainingsameas
theirshareholdinginthecompany

- Apartfromtheabove,theshareholdersofthecompanydonot
receiveanyotherconsiderationorbenefit,directlyorindirectly

- Theaggregateprofitsharingratiooftheshareholdersofthe
companyinLLPtobeminimum50percentinthesubsequentfive
years

- Thepartnersdonotdrawanyamountoutofaccumulatedprofiton
thedateofconversioninthesubsequentthreeyears

• ThecostofacquisitionofcapitalassetfortheLLPistobethecost
tothecompanyplusthecostofimprovement,ifany,bytheLLPor
thecompany

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 8

• TheactualcostofblockofassetsfortheLLPistobethewritten
downvalueforthecompanyonthedateofconversion.The
depreciationoncapitalassetstobeapportionedbetweenthe
companyandLLPaspernumberofdaysofuse

• Theaccumulatedlossandunabsorbeddepreciationofthecompany
tobethatoftheLLPasstipulated

• Theprofitsorgainsonconversionandbenefitoflossessetoffby
LLPtobetaxableforLLPifthestipulatedconditionsarenotmet

• ThecreditinrespectofMATpaidbythecompanyisnotavailableto
theLLP

• Thefiveyearamortizationforexpenditureonvoluntaryretirement
schemeeligibletothecompanytobeclaimedbytheLLPfor
unamortisedinstalments.

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 9

Other direct tax provisions

• Effective1July2011,acomputergeneratedDocument
IdentificationNumbertobeallottedbyTaxAuthoritiesforany
documentsorcorrespondences

• Post1July,2010,referencetotheValuationOfficerstipulatedfor
estimatingfairmarketvalueofimmovableproperty(beinglandand
building,sharesandsecurities,jewellery,archaeological
collections,drawings,paintings,sculpturesoranyworkofart)
whilecomputingincomefromothersourcesinrespectofreceipts
withoutconsiderationorforinadequateconsideration

• Thecarryingonanyactivityinthenatureoftrade,commerceor
businessfor‘advancementofanyotherobjectofgeneralpublic
utility’istobeconsideredasfor‘charitablepurpose’provided
aggregatereceiptsfromsuchactivitiesareINR1,000,000orless
intherelevantfinancialyear

• TheCommissionercanrevokeregistrationgrantedtoacharitable
trustorinstitutionundererstwhileprovisionwhichexistedtill1
April,1997iftheactivitiesofthetrust/institutionarenotgenuine
ornotcarriedoutinaccordancewithitsobject

• Incomputingtheincomefromothersourceswithrespectto
receiptof‘property’,etc.withoutorforinadequateconsideration
asstipulated,thedefinitionofpropertyexpandedtoinclude
‘bullion’anditsambitrestrictedto‘capitalasset’.Further,onlyif
theimmovablepropertyisreceivedbyanindividualorHUF
withoutconsideration,thenitsvalueasperstampdutylegislation
tobetaxableandtaxabilityinsituationofinadequateconsideration
hasbeendoneawaywith.

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 10

• TheHighCourtshavebeenempoweredretrospectivelytocondone
thedelayinfilingofappealprovidedthereexistssufficientcausefor
suchdelay

• Effective1June,2010,withrespecttotheSettlementCommission:

- Thethresholdofmakinganapplicationwithrespecttoadditional
taxpayableincreasedtoINR1,000,000fromINR300,000

- Thescopeofcasestobeadmittedexpandedtoinclude
proceedingsresultingfromsearchorfromrequisitionofbooksof
accountorotherdocumentsoranyassetswhereadditional
incometaxpayableontheincomedisclosedisinexcessofINR
5,000,000.ConsequentialamendmentalsomadeintheWealth
TaxAct

- Thetimelimitforpassingtheorderincreasedto18monthswhere
theapplicationisfiledonorafter1June,2010.Consequential
amendmentalsomadeintheWealthTaxAct.

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 11

Indirect Tax

Central excise
General

• Rateofexcisedutyincreasedfrom8percentto10percentfornon-petroleum
goods

Amendment (effective from date to be notified upon

enactment of Finance Bill 2010)
• Cleanenergycessproposedtobeimposedoncoal,ligniteandpeatproduced
inIndia

Amendments (effective from 27 February, 2010)

• BenefitofavailmentofCenvatcreditoninputsandinputservicesusedinthe
manufactureofgoodssuppliedunderexemptiontomegapowerprojects

• Removalofmoulds,dies,jigs,fixturestovendorspermittedwithoutreversal
ofCenvatcredit.Thisbenefitwasearlieravailableonlytojobworkers

• LowerpercentageofCenvatcreditreversalincasecomputers,computer
peripheralsclearedfromfactoryafteruseduetonewaccelerateddepreciation
rates

• Theconditionoftransferofrighttousepacakgedsoftwarefor‘commercial
exploitation’hasbeendeletedinthenotificationprovidingexemptionfrom
paymentofexciseduty

Amendments (effective from 1 April, 2010)

• SmallscaleindustryallowedbenefitofclaimingfullCenvatcreditoncapital
goodsinthefirstyearofitsreceiptandpayingexcisedutyliabilityona
quarterlybasisinsteadofamonthlybasis

• Proceduralrelaxationbyremovingtherequirementofpre-authenticationof
invoices

Amendments (effective from date of enactment of

Finance Bill 2010)
• ScopeofSettlementCommissionwidenedtoincludecaseswherenoproper
recordshavebeenmaintained.Restrictionofallowingasettlementonlyonce
inalifetimehasbeenrelaxed

• Nopenaltyifdutyandinterestpaidbeforeissueofshowcausenoticeincases
otherthanfraudulentevasion

• Enablingprovisionsintroducedtomakerulestoactasdeterrentincaseof
evasionofduties,bywayofwithdrawalofcertainfacilitiesandimpositionof
restrictionsonutilisationofCenvatcredits,etc
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 12

Increase in excise duty (effective from 27 February, 2010)

With effect from 27 Febru-

Sr. No. Product Upto 26 February, 2010
ary, 2010

1. Mini Cement Plant

- Cleared in packaged form

(i)RSPuptoINR190per50kgbagorINR3,800per
INR145pertonne INR185pertonne
tonne

(ii)RSPmorethanINR190per50kgbagorINR3,800
INR250pertonne INR315pertonne
pertonne

- Cleared in unpackaged form INR170pertonne INR215pertonne

2. Motor Spirit (petrol)

- Intended for sale without Brand Name INR13.35perlitre INR14.35perlitre

- Intended for sale with Brand Name INR14.50perlitre INR15.50perlitre

3. HSD (diesel)

- Intended for sale without Brand Name INR3.60perlitre INR4.60perlitre

- Intended for sale with Brand Name INR4.75perlitre INR5.75perlitre

Ceramictilesmanufacturedforfiringkilnwhetherornot
4. 8% 10%
usingelectricity

5. OpenTopSanitary(OTS)Cans 4% 10%

20% 22%
6. Largecars,SUVs,etc
20%+INR15,000perunit 22%+INR15,000perunit

• Excisedutyof4percentleviedonspecifiedITproductslikemicroprocessors
otherthanmotherboards,floppydiskdrives,harddiskdrives,CDROMdrives,
etc.meantforexternalusewithcomputer/laptopasaplug-indevice

• Excisedutyof4percentleviedonallelectricallyoperatedvehiclesandbattery
operatedcars(includingelectricmotorassistedcyclerickshawsdrivenby
rechargeablesolarbatteries)

• Excisedutyof10percentleviedonbabyandclinicaldiapers,sanitarynapkins

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 13

Followingspecifiedprocessesinrelationtocertaingoodsdeemedtobe
manufacturingprocess(effective from 27 February, 2010)

Sr. No. Specified Processes Goods

Cuttingorsawingorsizingor
Monumentalorbuildingstonesandarti-
polishingoranyotherprocessfor
1. clesofcement,concreteorartificial
convertingofstoneblocksintoslabs
stones
ortiles

2. Drawingorredrawing Aluminumtubesandpipes

Reduction in excise duty (effective from 27 February,

2010)

Upto 26 February, With effect from

Sr. No. Product
2010 27 February, 2010

Cartons,boxesandcasesof
corrugatedpaperor
1. 8% 4%
paperboardmanufacturedby
standalonemanufacturers

Exemptions (effective from 27 February, 2010)

• Exemptionextendedtogoodssuppliedtomegapowerprojectsinwhich
powersupplyistiedupthroughtariff-basedcompetitivebidding

• Exemptiontospecifieditemsintendedtobeusedfortheinstallationofcold
storages,coldroomorrefrigeratedvehiclesforpreservation,storage,
transportorprocessingofapiary,horticultural,dairy,poultry,aquatic,marine
produceandmeat

• Exemptiononpartsandcomponentsofbatterychargersandhands-freehead
phonesofmobilehandsets(includingcellularphones)

• Exemptiontomachineriesrequiredforinitialsettingupofsolarpower
generationprojectorfacilitiessubjecttospecifiedconditions

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 14

Other amendments
• Assessmentofdutybasedontheretailsalepriceextendedtovehicles
(chassisfittedwithengines).Exclusionprovidedforcarriagesfordisabled,
trailers,etc.

• RetrospectiveamendmenttoallowtheproportionatereversalofCenvatcredit
attributabletoinputsusedinmanufactureofexemptedgoods–applicableonly
topendingdisputes

M&TP Act
• UnitsoperatinginSEZexcludedfromthescopeofM&TPAct

• Rateofdutyreducedfrom16percentto10percent

• Rateofabatementrevisedfrom40percentto35percent

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 15

Service tax
General
• Servicetaxrateremainsunchangedat10percentasapre-cursortoGST

Introduction of eight new taxable services (effective from

a date to be notified upon enactment of Finance Bill
2010):

• Servicesforpromoting,marketing,organising/assistinginorganisinggames
ofchance,includinglottery,bingoorlotto
• Healthservicesprovidedbyhospitals,nursinghomesormulti-specialtyclinics
to:
- Employeesofbusinessentityinrelationtohealthcheck-uporpreventive
care
- Personscoveredbyhealthinsuranceschemesinrelationtohealthcheck-up
ortreatment,whenpaymentforsuchservicesaremadeby‘businessentity’
orinsurancecompany.‘Businessentity’definedtoincludeanassociationof
persons,bodyofindividuals,companyorfirm,specificallyexcluding
individuals
• Servicesinrelationtostoring,keepingormaintainingmedicalrecordsof
employeesofabusinessentity
• Servicesofpromotingormarketingof‘brand’ofgoods,services,eventsor
endorsementofaname,includingatradename,logoorhousemarkofa
businessentity
• Servicesofgrantingtherightorpermittingcommercialuse/exploitationof
anyeventincludingeventsrelatedtoart,entertainment,business,sportsor
marriage
• Servicesprovidedbyelectricityexchangesinrelationtotrading,processing,
clearingorsettlementofspotcontracts,termaheadcontracts,seasonal
contracts,derivativesoranyotherelectricityrelatedcontract
• Servicesinrelationtocopyrightofcinematographicfilmandsoundrecording
• Servicesofpreferentiallocationordevelopmentofcomplexprovidedbya
builder/hisauthorizedrepresentativetoprospectivebuyers,excluding
servicesinrelationtoparkingspace

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 16

Amendments (expansion / modification) in the scope of

existing services (effective from a date to be notified
upon enactment of Finance Bill 2010):

Service category Amendments / Clarifications

• Anyserviceprovidedwhollywithintheairport/port
Airportservice,portserviceand premisescoveredirrespectiveofcategory
otherportservice • Authorizationofservicenotrequiredfromairport/
portauthorities

• Theterm‘auctionbygovernment’clarifiedtomean
Auctioneer’sservice anauctionofgovernmentpropertybyanyperson
actingasauctioneer

• Valueoftaxableservicetoeitherbeactualamount
chargedbyinsurerfrompolicyholderormaximum
amountfixedbyIRDAasfundmanagementcharges,
Managementofinvestment
whicheverishigher.Priortothis,valueoftaxable
underULIPservice
servicewascomputedasdifferencebetweenthe
premiumpaidforULIPreducedbyriskpremiumand
amountforaggregatedinvestment

• Toincludedomesticaswellasinternationaljourneyin
Transportofpassengerbyair anyclass,forpassengerembarkinginIndia.Priorto
service this,onlytravelbybusinessclassforinternational
journeywascovered

• ToincludeITsoftwareservicewhetherornotforuse
ITsoftwareservice inthecourseof,orfurtheranceof,businessor
commerce

• Theexpression‘commercialtrainingorcoaching
centre’definedtoclarifytrainingserviceprovided
Commercialtrainingorcoaching
againstconsiderationaretaxablewhetherornot
service
thereisprofitmotive(Retrospectivelyamendedfrom
1July,2003)

• Toincludeserviceinrelationtosponsorshipofsports
Sponsorshipservice
event

• Tobeconsideredasserviceifthebuilderorhis
Commercialorindustrial authorisedrepresentativereceivesanyconsideration
constructionservice fromprospectivebuyerbeforeobtainingthe
completioncertificate

• Tobeconsideredasserviceifthebuilderorhis
authorisedrepresentativereceivesanyconsideration
ConstructionofComplexservice
fromprospectivebuyerbeforeobtainingthe
completioncertificate

• ‘Renting’activityitselfregardedastaxableservice
(Retrospectivelyamendedfrom1June,2007)
Rentingofimmovableproperty
• Rentingofvacantlandforconstructionofbuilding/
service
temporarystructureatlaterstageforfurtheranceof
businessorcommerce

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 17

Exemptions from service tax (effective from 27 February,

2010)

• ‘Erection,commissioningorinstallation’service:Toexempt‘erection,
commissioningorinstallation’of:
- Mechanisedfoodgrainhandlingsystems
- Equipmentforsettinguporsubstantialexpansionofcoldstorage
- Machinery/equipmentforinitialsettinguporsubstantialexpansionofunits
forprocessingofagricultural,apiary,horticultural,dairy,poultry,aquatic,
marineproductsandmeat
• ITsoftwareservice:Toexemptpackagedorcannedsoftwareintendedfor
singleusewhereexciseduty/customsdutyispaidsubjecttothefulfillment
ofcertainotherconditions
• ‘Onlineinformationanddatabaseaccessorretrievalservice’and‘Business
auxiliaryservice’:Toexemptservicesspecifiedinthesecategoriesprovidedby
anyIndiannewsagencysubjecttofulfillmentofspecifiedconditions
• ‘Technicaltestingandanalysisservice’and‘Technicalinspectionand
certificationservice’:Toexemptserviceprovidedbyspecifiedagenciesin
relationtoseeds
• Toexemptserviceoftransmissionofelectricity

Withdrawal or amendments to existing exemptions from

service tax (effective from 27 February, 2010)

• Commercialtrainingorcoachingservice:Definitionofvocationaltraining

instituterestrictedtomeanindustrialtraininginstitutes(ITIs)oranindustrial

trainingcentreaffiliatedtotheNationalCouncilofVocationalTraining,offering

coursesindesignatedtrades

• Transportofgoodsbyroad:Toexemptservicesprovidedbyagoodstransport

agencyinrelationtothetransportoffoodgrainsandpulses

• Generalinsuranceservice:Withdrawalofexemptiongrantedtothe

GovernmentofRajasthaninrelationtotheGroupPersonalAccidentScheme

providedtoitsemployees

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 18

Withdrawal or amendments to existing exemptions from

service tax (effective from 1 April, 2010)

• Transportofgoodsbyrail:WithdrawalofexemptiongrantedtoGovernment
railways

Amendments (effective from 27 February, 2010)

Export rules
• Mandapkeeper’sserviceshiftedfromthe‘performancecategory’to‘location
ofimmovablepropertycategory’toqualifyasexports
• Followingservicesshiftedfromthe‘performancecategory’to‘recipient
category’toqualifyasexports:
- Charteredaccountantservice
- Costaccountantservice
- Companysecretaryservice
• Exportrulessimplifiedbydeletingconditionof‘providedfromIndiaandused
outsideIndia’

Import rules
• Mandapkeeper’sserviceshiftedfromthe‘performancecategory’to‘location
ofimmovablepropertycategory’toqualifyasimports
• Followingservicesshiftedfromthe‘performancecategory’to‘recipient
category’toqualifyasimports:
- Charteredaccountantservice
- Costaccountantservice
- Companysecretaryservice

Others
• Thelevyofservicetaxearlierextendedtoinstallations,structuresandvessels
inthecontinentalshelfofIndiaandtheexclusiveeconomiczonesofIndiahas
nowbeenrestrictedforthepurposeofprospectingorextractionorproduction
ofmineraloilandnaturalgasandsupplythereof.Thedefinitionof‘India’
similarlyamendedinExportandImportrules
• Valueoftaxableserviceincaseof‘Airpassengertransportservice’toexclude
statutorytaxeschargedbyanygovernment(includingforeigngovernments
whereapassengerdisembarks)

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 19

Other amendments

• Nopenaltyifdutyandinterestpaidbeforetheissueofshowcausenoticein
casesotherthanfraudulentevasion

• Relaxationintheconditionsforclaimingrefundsbyserviceexporterswith
retrospectiveeffectmainlytogivealegalbackingtothecircularissuedinthis
regard,withretrospectivelyamendedprovisions

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 20

Customs duty
General

• Customsdutyratesremainunchanged.However,theeffectiverateshould
increaseduetochangeintheexcise(CVD)rates

Amendments (effective from 27 February, 2010)

• UpfrontexemptionfromADConimportedpre-packagedgoodsandother
specifiedgoodsintendedforresale.Existingnotificationprovidingexemption
throughrefundofsuchdutytocontinueforotherimportedgoods

• Projectimportbenefitextendedtothefollowingspecifiedprojects:

– MonoRailProjectforurbantransport

– Settingupofdigitalheadend

– Installationofmechanisedfoodgrainhandlingsystemandpalletracking
systeminmandisandwarehouse

– Coldstorage/coldroomorindustrialprojectsforpreservation,storageor
processingofagricultural,apiary,horticultural,dairy,poultry,aquatic,marine
produceandmeat

• Fullexemptionfromcustomdutysubjecttospecifiedconditions:Tunnelboring
machineforhydro-electricpowerprojects,specifiedcapitalgoodsandraw
materialsforthemanufactureofelectronichardware,etc

• ConcessionalBCDrateof5percentforspecifiedagriculturalmachinery,
machinery/instruments/appliancesrequiredfortheinitialsettingupofsolar
powergenerationprojectsorfacilities,subjecttospecifiedconditions

• Roadconstructionmachineryimportedunderexemptioncanbesoldon
paymentofcustomsdutyonthedepreciatedvaluesubjecttospecified
conditions

• Rationalisationofratestructureformedical,surgical,dentalandveterinary
equipment-BCD5percent,CVD4percent,ADCexempted(effectiverate9.6
percent)

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 21

• Partsrequiredformanufactureofaccessoriesformedicalequipmentwould
attractBCDof5percent

• Movies,musicandgamingsoftware(meantforusewithgamingconsoles),
otherthanpre-packagedform,recordedoncinematographicfilmordigital
mediumtoattractcustomsdutyonlyoncostoffilm/digitalmedium,freight
andinsurancesubjecttoconditions

• Theconditionoftransferofrighttousepackagedsoftwarefor‘commercial
exploitation’hasbeendeletedinthenotificationprovidingexemptionfrom
paymentofCVD

• IllustrativechangesinBCDrates:

With effect from

Items Upto 26 February, 2010
27 February, 2010

Crudepetroleum,Petroleumoilsandoils
Nil 5%
obtainedfrombituminousminerals

MotorSpirit(petrol)andHSD(diesel) 2.5% 7.5%

Petroleumproductsotherthannaphtha,
LPG,LNG,petroleumgasesandpetroleum 5% 10%
coke

Amendments (effective from the date of enactment of

Finance Bill, 2010)
Customs Act, 1962

• ScopeofSettlementCommissionwidenedandrestrictionallowingsettlement
onlyonceinthelifetimerelaxedinlinewiththeexciselaw

Customs Tariff Act, 1975

• CVDongoodscoveredbyM&TPActtobecomputedonMRPlessprescribed
abatement

Other amendments
• ElectricalenergysuppliedfromSEZtoDTA/non-processingareastoattract
customsdutyattherateof16.48percentretrospectivelyfrom26June,2009

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 22

Goods and services tax

• GSTproposedtoberolledoutfromApril2011

• Severalproposalsundertheexistingtaxregimeshouldfacilitateamove
towardsGST:

– FocusonbuildingrobustITinfrastructure

– FurtherrationalisationofratesunderExciseandCustoms

Central sales tax

• BesidessubmittingFormF,additionalresponsibilitycastuponthedealerto
provethattheinter-Statemovementofgoodswasnotbywayofsale

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 23

Glossary

ADC - Additional duty of Customs

BCD - Basic Customs Duty

CENVAT - Central Value Added Tax

CST  -  Central Sales Tax Act, 1956 

CVD - Countervailing Duty

DTA - Domestic Tariff Area

GST  - Goods and Services Tax  

HUF - Hindu Undivided Family

IRDA  - Insurance Regulatory and Development Authority 

IT - Information Technology 

LLP                  -            Limited Liability Partnership

M&TP Act  - Medicinal and Toilet Preparations (Excise Duties)

Act, 1955

MAT  - Minimum Alternate Tax  

MRP - Maximum Retail Price

RSP  - Retail Sale Price

SEZ - Special Economic Zone

ULIP  - Unit Linked Insurance Plan

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 in.kpmg.com

KPMG in India KPMG Contacts
Bangalore Kochi Uday Ved
Maruthi Info-Tech Centre 4/F, Palal Towers Executive Director and
11-12/1, Inner Ring Road M. G. Road, Ravipuram, Head - Tax
Koramangala, Bangalore – 560 071 Kochi 682 016 +91 22 3090 2130
Tel: +91 80 3980 6000 Tel: +91 484 302 7000 uved@kpmg.com
Fax: +91 80 3980 6999 Fax: +91 484 302 7001
Vikram Utamsingh
Chennai Kolkata Executive Director and
No.10, Mahatma Gandhi Road Infinity Benchmark, Plot No. G-1 Head - Markets
Nungambakkam 10th Floor, Block – EP & GP, Sector V +91 22 3090 2320
Chennai - 600034 Salt Lake City, Kolkata 700 091 vutamsingh@kpmg.com
Tel: +91 44 3914 5000 Tel: +91 33 44034000
Fax: +91 44 3914 5999 Fax: +91 33 44034199

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Gurgaon 122 002 Mahalaxmi, Mumbai 400 011
Tel: +91 124 307 4000 Tel: +91 22 3989 6000
Fax: +91 124 2549101 Fax: +91 22 3983 6000

Hyderabad Pune
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Hyderabad - 500 034 Tel: +91 20 3058 5764/65
Tel: +91 40 3046 5000 Fax: +91 20 3058 5775
Fax: +91 40 3046 5299

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