Budget 2012

Table of Contents
Foreword .......................................................................................................................................... 3 Key Policy Announcements of the Union Budget 2012-13 .............................................................. 4 General ......................................................................................................................................... 4 Tax Structure ................................................................................................................................ 5 Social Sector reform schemes ...................................................................................................... 5 Agricultural Sector ....................................................................................................................... 6 Financial Sector ............................................................................................................................ 6 Direct Tax Proposals......................................................................................................................... 7 Tax Rates and Slabs ...................................................................................................................... 7 Business income ........................................................................................................................... 7 Capital Gains ................................................................................................................................ 9 Exemptions / Deductions ............................................................................................................. 9 Transfer Pricing .......................................................................................................................... 10 General Anti-Avoidance Rules (GAAR) ..................................................................................... 11 Withholding Tax Provisions........................................................................................................ 12 Tax Collection at Source ............................................................................................................. 13 International Tax and amendments........................................................................................... 13 Minimum Alternate Tax (MAT) and Alternate Minimum Tax (AMT) ......................................... 14 Dividend Distribution Tax........................................................................................................... 15 Venture Capital Funds ................................................................................................................ 15 Presumptive taxation under Tonnage Tax Scheme ................................................................... 15 Penalties ..................................................................................................................................... 16 Reassessment of income in relation to any asset located outside India ................................... 16 Extension of time for completion of assessments and reassessments ..................................... 16 Other Miscellaneous Provisions................................................................................................. 17 Indirect Tax Proposals .................................................................................................................... 19 Customs Duty ............................................................................................................................. 19 Excise .......................................................................................................................................... 20 Service Tax ................................................................................................................................. 22

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Budget 2012

Foreword
Retrospective Budget Finance Minister Pranab Mukherjee was saddled with a number of handicaps when he presented the Indian Union Budget 2012-13. For starters, the projections for the current year went seriously wrong. The GDP growth which was projected to be 9% ended up merely at 6.9%, the fiscal deficit for this year is higher by about 1.3% over the target, the tax collections & other non tax collections missed the targets by a mile and therefore the Budget watchers would tend to take his tax-and-spend estimates for next year with a generous pinch of salt. The FM made the right noises about the fiscal consolidation and also braved himself to put up a fiscal deficit target of 5.1% of the GDP. The chances are he will miss the target once again because the cut is being achieved through raising taxes and not by cutting expenditure. On the reforms front he merely reiterated the fact that there is a continuing attempt to arrive at a consensus on FDI in multibrand retail and an attempt to move towards 49 percent foreign holding in the aviation sector. He, however, was considerate on allowing ECBs in most needed areas especially for working capital purposes for the aviation sector this in a way is a blessing to the Indian banks who would be saved the horror of bailing the airline companies. The big money (at least, what is planned) is coming from an across-the-board two percent hike in excise and service taxes to 12 percent, and the extension of service tax to every nook and cranny of the economy only 17 services are exempt. On the other hand the concessions are fleabites: an increase in the tax-free exemption limit to Rs 2 lakh. A Budget which appeared to be harmless and realistic at the outset has actually ushered a new generation of direct tax reforms. It appears that the FM considers himself younger by 50 years when he puts up the date of 1962 in several amendments. The most drastic of them is the amendment to negate the Supreme Court ruling in Vodafone. The Govt has brought in indirect transfer of shares by non-resident within the tax bracket in India right from 1962 at a point in time when foreign investors were not even allowed to buy and sell shares in India!!! Similarly, the Govt has amended the definition of royalties to include payment for software and transmission by satellites this again right from 1962. Did software programs exist in 1962? Thankfully, the Govt did not amend the treaty definition of royalties the kind of amendments the Govt has brought in would make any one believe that it unilaterally has powers to do that! While the Govt does not have the will or powers to dictate its allies, it certainly wants all foreign Govts to issue the tax residency certificate in the format it prescribes.

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Budget 2012 Also, the Govt has handed over a nuclear weapon to the tax administrators in form of General Anti Avoidance Regulations (GAAR). The message again is whatever the tax payer wants to do it can do but the Govt would treat it the way it wants for collecting taxes and will ultimately collect the taxes. Transfer Pricing is going to be an area which witnesses maximum action with the introduction of APAs, enhanced powers of the TPO and stretching of TP provision to even domestic related party transactions. Intangible property is included in the scope of international transaction, maximum safe harbor is at 3% - forget the safe harbour provisions which were promised 2 years back - and TP penalties are made more dynamic. To mollify the poor, token soak-the-rich taxes have been imposed on large cars (excise up and also customs), gold and platinum. Sin taxes are up on cigarettes and bidis. But it is the budget arithmetic that will go up in smoke. The FM also promised strict action for black money and also promised to bring in white paper on black money. Amongst the provisions introduced to check this is a 16 year window to reopen assessments. The promises made earlier to introduce Direct Tax Code (DTC) and Goods and Service Tax (GST) were repeated again. To make them look realistic the FM promised GST Network and the IT infrastructure, to be set up and operationalized by August 2012. This IT infrastructure definitely must be state of art since the Govt by doing away import and export of service rules now expects the foreign companies to pay service tax on services rendered and Govt to catch them in case they dont. The FM ended his speech with the following words Whether or not todays announcements make tomorrow mornings headlines matters little, as long as they help in shaping the headlines that describe India a decade from now. While none of the announcement in the budget speech is worth the headlines, the fine print in the budget document is sure to make the headlines and is sure to create an image of an arm twisting and bullying Govt for the honest tax payers.

Key Policy Announcements of the Union Budget 2012-13 General

Budget identifies five objectives relating to growth recovery, private investment, supply bottlenecks, malnutrition and governance matters. GDP growth to be 7.6 per cent during 2012-13. Central subsidies to be kept under 2 per cent of GDP; to be further brought down to 1.75 per cent of GDP over the next 3 years. Efforts to reach broadbased consensus on FDI in multi-brand retail.

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Budget 2012 Proposed: Mobile based fertilizer management system; LPG transparency portal; scaling up and rolling out of Aadhar enabled payment for government schemes in at least 50 districts. Investment in 12th Plan in infrastructure to go upto Rs. 50,00,000 crore; half of this is expected from private sector. Rs. 30,000 crore to be raised through disinvestment. White Paper on Black Money to be laid in the current session of Parliament. All services to attract service tax except those in the negative list. Total expenditure budgeted at Rs. 14,90,925 crore; plan expenditure at Rs. 5,21,025 crore ? 18 per cent higher than 2011 -12 budget; non plan expenditure at Rs. 9,69,900 crore. Fiscal deficit targeted at 5.1 per cent of GDP, as against 5.9 per cent in revised estimates for 2011-12. Central Government debt at 45.5 per cent of GDP as compared to Thirteenth Finance Commission target of 50.5 per cent. Medium-term Expenditure Framework Statement to be introduced; will set forth 3-year rolling target for expenditure indicators. General Anti Avoidance Rule being introduced to counter aggressive tax avoidance.

Tax Structure
Net gain of Rs.41,440 crore due to taxation proposals. Tax proposals mark progress in the direction of movement towards DTC and GST. Investment linked deduction of capital expenditure enhanced for certain businesses; new sectors eligible for investment linked deduction. Central Excise and Service Tax being harmonized. Standard rate of excise duty raised from 10 per cent to 12 per cent; service tax rates raised from 10 per cent to 12 per cent; no change in peak customs duty of 10 per cent on nonagricultural goods. Proposes to raise tax on all services except those in the negative list comprising 17 items. Relief in indirect taxes to sectors under stress; agriculture, infrastructure, mining, railways, roads, civil aviation, manufacturing, health and nutrition, and environment get duty relief.

Social Sector reform schemes

Provisions under rural housing fund increased to Rs. 4,000 crore from Rs. 3,000 crore 4,000 residential quarters to be constructed for Central Armed Police Forces National Urban Health Mission is being launched 34 per cent increase in allocation to National Rural Livelihood Mission, to Rs. 3915 crore Bharat Livelihood Foundation to be established to support livelihood interventions particularly in tribal areas Grant on death of primary breadwinner of a BPL family in the age group 18-64 years doubled to Rs. 20,000
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Budget 2012 Defence services get Rs. 193,407 crore; any further requirement to be met Swabhimaan: remaining habitations to be covered; to be extended to more habitations; ultra small branches to be set up in Swabhimaan habitations. Financial package of Rs. 3,884 crore for waiver of loans to handloom weavers and their cooperative societies; mega handloom clusters in Andhra, Jharkhand; weaver service centres in Mizoram, Nagaland and Jharkhand; powerloom mega cluster in Maharashtra; Rs. 500 crore pilot schemes for geo-textiles in North-Eastern region. Rural drinking water and sanitation gets 27 per cent rise in allocation to Rs. 14,000 crore; PMGSY gets 20 per cent rise to Rs. 24,000 crore. Projects covering length of 8,800 km to be awarded under NHDP against 7,300 km during 2011-12. UID-Aadhar to get adequate funds for enrolment of 40 crore persons, in addition to the 20 crore persons already enrolled

Agricultural Sector
Target for agricultural credit raised to Rs. 5,75,000 crore. Interest subvention for short-term crop loans to farmers at 7 per cent interest continues; additional 3 per cent for prompt paying farmers. Rs. 200 crore for awards to incentivise agricultural research.

Financial Sector
Rajiv Gandhi Equity Saving Scheme: to allow income tax deduction to retail investors on investing in equities Rs. 15,888 crore to be provided for capitalization of public sector banks and financial institutions A central "Know Your Customer" depository to be developed Tax Free Bonds of Rs. 60,000 crore to be allowed for financial infrastructure projects Allocation of Road Transport and Highways Ministry enhanced by 14 per cent to Rs. 25,360 crore Rs. 5,000 crore India Opportunities Venture Fund to help small enterprises

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Budget 2012

Direct Tax Proposals Tax Rates and Slabs

Tax rates for Resident very senior citizens (>80 years) Nil Nil Nil 20% 30% Tax rates for Resident senior citizens (between 60 & 8o years) Nil Nil 10% 20% 30% Tax rates for Resident women assessees below 60 years Nil 10% 10% 20% 30%

Tax Rate for others

Income Slab Upto Rs. 200,000 Rs. 200,001 to Rs. 250,000 Rs. 250,001 to Rs. 500,000 Rs. 500,001 to Rs. 1,000,000 Above Rs.1,000,000

Nil 10% 10% 20% 30%

No surcharge is applicable. However, education cess of 3% on tax continues as in the preceding year. Firms, Local Authorities, and Co-operative Societies: No changes proposed in the rates. No surcharge is applicable. Domestic Companies: No changes in tax rates. For companies other than Domestic companies: No changes in tax rates. Minimum Alternative Tax: No change in tax rate. Dividend Distribution Tax: No changes in tax rate. Capital Gains Tax: No changes proposed in the rates.

Business income
The benefit of accelerated depreciation @ 20% of actual cost shall now also be available on the new machinery or plant installed by an assessee engaged in the business of generation or generation and distribution of power. This amendment would be introduced from AY 2013-14. Weighted average deduction at the rate of 200% of expenditure incurred on approved inhouse research and development facilities has been extended for a further period of five years i.e. up to 31st March, 2017. At present, section 35AD specifies certain businesses where 100% of the capital expenditure is allowed as a deduction. The following new businesses are being added to section 35AD: Setting up and operating a notified/approved inland container depot or a container freight station, Bee-keeping and production of honey and beeswax Setting up and operating a warehousing facility for storage of sugar This amendment is proposed to be introduced from AY 2013-14.
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Budget 2012 Weighted deduction of 150% is proposed to be allowed for the capital expenditure incurred for the following businesses: Business of setting up and operating Cold chain facility, Warehousing facility for storage of agricultural produce, Building and operating, anywhere in India, or a hospital with at least one hundred beds for patients, Developing and building a housing project under a scheme for affordable housing framed by the Central Government or a State Government Production of fertilizer in India This amendment is proposed to be introduced from AY 2013-14 An owner of hotel of two-star or above category continues to be eligible for the 100% deduction even if he, while continuing to own the hotel, transfers the operation of such hotel to another person. This amendment is proposed to be introduced with retrospective effect from 1st April 2011. It is proposed to allow weighted deduction of 150% of capital expenditure incurred by an assessee for any expenditure on agricultural extension project or on any skill development project to be notified by the CBDT. However, in case of skill development project, weighted deduction will not be allowed for cost of land and building. This amendment is proposed to be introduced from AY 2013-14. The coverage of related parties under section 40A(2) of the Act is proposed to be widened. Where any company has substantial interest in the assessee, at present, such a company is considered as a related party. It is proposed that where such a company (i.e. the company which has substantial interest in the assessee) has substantial interest in any other company carrying on business or profession, then such other company will also be considered as related party of the assessee company. This amendment is proposed to be introduced from AY 2013-14. The threshold limit of total sales, turnover or gross receipts for getting accounts audited, has increased from Rs. 60 lacs to Rs. 1 crore in the case of persons carrying on business and from Rs. 15 lacs to Rs. 25 lacs in the case of persons carrying on profession. This amendment is proposed to be introduced from AY 2013-14. The due date for furnishing tax audit report in case of all assesses to whom transfer pricing provisions are applicable is 30th November. This amendment is proposed to be introduced from AY 2012. The turnover limit for applicability of presumptive taxation has been increased from Rs. 60 lacs to Rs. 1 crore. This amendment is proposed to be introduced from AY 2013-14. The presumptive scheme of taxation is not applicable to the following persons: A person carrying on profession referred to in section 44AA(1), A person earning income in the nature of commission or brokerage A person carrying any agency business This amendment is proposed to be introduced with retrospective effect from 1st April 2011.

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Budget 2012

Capital Gains
Condition of issue of shares not to apply in case of amalgamation or demerger between holding and subsidiary company. Where an asset has been transferred to a company during conversion of a sole proprietorship or a partnership firm into a company it is not regarded as transfer subject to certain conditions. It is now clarified that in such case cost of the asset received by the company will be the cost of the sole proprietorship or partnership firm. This clause is retrospectively amended from 1st April, 1999. Where it is not possible to determine the sale consideration for the purpose of calculation of capital gains, fair market value of the said asset as on the date of transfer will be considered as Sale consideration. Benefit of exemption from the capital gains arising on account of transfer of an agricultural land if the sale proceeds are reinvested in another agricultural land in next two years, is now also extended where the land was used for agricultural purposes by an HUF. Long term capital gain arising on transfer of residential property being a house or a plot of land by individual or HUF is not liable to tax subject to the following conditions The net consideration on such transfer is utilized within the due date of filling the return, for subscription in the equity shares of a Small or Medium Size company (SMC) The assessee should hold more than 50% share capital or voting rights of the SMC. The shareholding of 50% will be calculated after the assessee has acquired shares in the SMC. The SMC in turn has utilized such consideration for purchase of new assets being plant and machinery (other than office appliances or other specified assets) within one year from the date of such subscription. The SMC must be incorporated during the period from the first day of the financial year in which transfer took place till the due date of filing the return of income for the transferor The SMC should be engaged in the business of manufacturing of an article or thing The equity shares of the SMC and the new plant and machinery acquired should not be sold up to 5 years. The relief would be available for any transfer of property that takes place on or before 31st March, 2017. Currently, the assessing officer can refer to the valuation officer only if he is of the opinion that the value declared by the assessee is the less than the fair market value. Now, the assessing officer will be able to refer to the valuation officer even if he is of the opinion that the value declared by the assessee as on 1st April 1981 is more than FMV.

Exemptions / Deductions
Deduction under section 80C for life insurance premium is proposed to be reduced from 20% to 10% of the actual capital sum assured. The scope of deduction under section 80D is proposed to be enlarged to include amount contributed for preventive health check-up of the assessee, his spouse, dependant children or dependent parents. The deduction will be restricted to actual amount of expenditure
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Budget 2012 incurred or Rs. 5,000/- whichever is lower. However the overall limit of deduction remains unchanged. Section 80-IA provides for 100% deduction for profits derived by power sector undertakings subject to certain conditions. The power sector undertakings were required to commence operations by 31st March 2012. It is now proposed to extend the time limit for commencement of operations by one more year upto 31st March 2013. The following undertakings will be covered by this extension of time limit: Undertakings set up for the generation and distribution of power, Undertakings set up for transmission or distribution by laying a network of new transmission or distribution lines, Undertakings carrying out substantial renovation and modernization of existing network of transmission or distribution lines, A new section 80TTA is proposed to be introduced to provide a deduction for interest earned by an individual or an HUF on saving deposits with a bank, co-operative society or Post Office upto Rs 10,000.

Transfer Pricing
Gamut of transfer pricing provisions proposed to be widened, now applicable to specified domestic transactions if aggregate amount of all such domestic transactions exceeds Rs. 5 crore in a year w.e.f 1st April 2012. Specified domestic transactions means: any expenditure in respect of which payment has been made or is to be made to persons specified under section 40A(2)(b); where goods or services of eligible business are transferred to any other business carried on by the assessee and vice-versa u/s. 80-IA; where it appears to the assessing officer that owing to the close connection between the assessee carrying on eligible business u/s. 80-IA and any other person and viceversa. Assessee claiming the benefit of tax deduction in respect of STP unit, EOU unit and SEZ unit where there can be instances of the pricing in case of domestic transaction being influenced due to the enterprises / concerns being associated with each other. Definition of international transaction property, business restructuring etc. widened to include transaction of intangible

Variation in arms length price (ALP) within 5% is not a standard deduction. This is made applicable w.e.f 1st October 2009. Further, the above 5% variation is now proposed to be capped at 3% w.e.f 1st April 2012. Power of Transfer Pricing Officers (TPOs) enhanced to look into any other international transactions which are not reported in Form 3CEB. (Retrospective w.e.f 1st June 2002). Assessing Officer can file appeal against the order passed by Dispute Resolution Panel (DRP) w.e.f 1st July 2012. It is clarified that DRP has power to enhance the transfer pricing adjustment. This amendment is made effective retrospectively w.e.f 1st April 2009 and will accordingly apply to AY 2009-10 and subsequent assessment years.

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Budget 2012 Failure to report any international transaction which is required to be reported or to maintain prescribed documents or information or maintaining or furnishing of any incorrect information or documents may lead to penalty of 2% of the value of international transaction w.e.f 1st July 2012. Non reporting of an international transaction or non-filing of report or otherwise by not including such transaction in Form 3CEB would attract reopening u/s. 147 of the Act. Time limit for filing return of income extended to 30th November even for non-corporate assessee where transfer pricing provisions are applicable. This would have a retrospective effect from AY 2012-13. Time limit for completion of assessment in case of transfer pricing assessment enhanced from 21 months to 24 months. Advance Pricing Agreements introduced in Budget 2012-13 New sections 92CC & 92CD are proposed to be inserted in the Act (effective from July 1, 2012). Advance Pricing Agreement (APAs) is an agreement between taxpayer and the tax authorities. Tax authorities may enter in to an APA with the taxpayer to determine ALP or specify the manner in which it is to be determined. Methods used may be those referred u/s 92CA (1) or any other method with suitable adjustments. Agreement shall be valid for five consecutive years. Modified return may be filed within a period of 3 months to give effect to the APAs in case the return u/s 139 has already been filed. Additional time of 12 months has been provided to complete the assessments involving APAs.

General Anti-Avoidance Rules (GAAR)

Any arrangement may be declared as an Impermissible Avoidance Arrangement (IAA) which means an arrangement, the main purpose or one of the main purposes of which is to obtain tax benefit and it creates rights/ obligations, which are not ordinarily created between unrelated persons; results in misuse or abuse of provisions of ITA; lacks commercial substance in whole or in part; or is entered into in a manner which is not ordinarily employed for bona fide purposes; An arrangement may be IAA even if the main purpose of a step or part of it is to obtain tax benefit Onus on the tax payer to prove that an arrangement is not an IAA Consequences would be denial of tax benefit and would include: Disregarding, combining, recharacterising steps or parts of the IAA Treating the IAA as not been entered into

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Budget 2012 Disregarding any accommodating party Deeming connected persons to be one & the same Reallocating/ recharacterising any accrual, receipt, expenditure or relief among the parties Treating any other place/ location as place of residence or situs of the asset Disregarding the corporate structure Recharacterising debt financing as equity or vice versa Recharacterising a capital accrual/ receipt as revenue or vice versa Invoking of GAAR to be done at 2 levels of authority viz. CIT & Approving Panel GAAR provisions to override Tax Treaty Certificate to be obtained, in the prescribed form, from the overseas Government for claiming Treaty relief This provision shall be applicable with effect from 1st April, 2012

Withholding Tax Provisions

Threshold limit for applicability of withholding tax on interest on debentures, including unlisted debentures, issued by a company in which public are substantially interested is proposed to be increased from Rs. 2,500/- to Rs. 5,000/-. This provision shall be applicable with effect from 1st July, 2012. The withholding tax rate in respect of payments to a non-resident sportsman who is not a citizen of India and non-resident sports association or institution is increased from 10% to 20%. It is also proposed to extend the scope of this section to the non-resident entertainers. This provision shall be applicable with effect from 1st July, 2012. Payments to the independent directors, whether by way of remuneration or fees or commission is proposed to be brought within the purview of Section 194J and liable for withholding tax at 10%. This provision shall be applicable with effect from 1st July, 2012. The threshold limit for withholding tax in respect of payment of compensation or enhanced compensation on compulsory acquisition of the immovable property is proposed to be increased from Rs. 1 lac to Rs. 2 lacs. This provision shall be applicable with effect from 1st July, 2012. A new Section 194LAA is proposed to be inserted to provide for TDS on consideration paid for purchase of immovable property, (i.e. land or building) other than agricultural land. The buyer will have to make TDS at 1% of the consideration paid to seller. The requirement of TDS would apply if the consideration paid exceeds: Rs. 50 lacs if the property is situated in the urban agglomeration of Greater Mumbai, Delhi, Kolkata, Chennai, Hyderabad, Bengaluru, Ahmedabad, Faridabad, Gurgaon, Gautum Budh Nagar, Ghaziabad, Gandhinagar and Secunderabad Rs. 20 lacs in other places This provision is applicable with effect from 1st October, 2012. The following aspects should be noted:

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Budget 2012 Where the consideration paid is less than the Stamp Duty value, the TDS shall be made by considering the Stamp Duty Value as the amount of consideration At the time of registration of documents of title to the property, the buyer will be required to furnish to the Registering Officer a proof of deduction and payment of TDS. If such a proof is not furnished, the Registering Officer will not register the property. The requirement of TDS will not apply for purchase of agricultural land situated beyond the local limits of any municipality, municipal corporation etc. or beyond 8 km of the local limits. The buyer will not be required to obtain a Tax Deduction Account Number (TAN). Certain persons or classes of persons as notified by CBDT, before making any payment to a non-resident are required to make an application to the Assessing Officer to determine the income chargeable to tax in India out of the payment made to the nonresident and the amount of TDS thereon. Failure to deduct TDS makes the deductor liable for interest on the amount of TDS. The Finance Bill now provides that where the deductor is not considered as assessee in default as per the above provision, the interest for non deduction of tax will be payable by the deductor from the date on which the tax was deductible till the date of filing of Return of Income by the deductee. The time limit for treating an assessee in default is extended from 4 years to 6 years. Delay in filing TDS and TCS statements will now attract a fee of Rs. 200/- per day of delay, up to the amount of TDS or TCS concerned. This fee will be in addition to penalties for delay in filing the statement and should be paid before filing the TDS / TCS statement . This provision is applicable from 1st July 2012. Both residents & non-resident to comply with withholding tax provisions on payment to non-resident, irrespective of presence in India Intimation generated after processing of TDS statement would be rectifiable and also an appealable order.

Tax Collection at Source

Purchase of coal, lignite and iron ore to attract TCS at 1% with effect from 1st July 2012. TCS will not be attracted if these minerals are purchased for personal consumption from a retailer or the buyer declares that these minerals are to be utilized for the purposes of manufacturing, processing or producing articles or things. The seller of bullion and jewellery shall collect tax at the rate of 1% of sale consideration from every buyer of bullion and jewellery if sale consideration exceeds Rs. 2 lacs and the sale consideration is received in cash. This provision is applicable with effect from 1st July, 2012.

International Tax and amendments

Deeming provision for income accrual in India proposed to be amended by retrospective explanations added with effect 1st April 1962 for taxation of: Indirect transfer of Indian company shares by deeming situs of foreign share in India if value of such share is derived substantially from the Indian assets
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Budget 2012 Payments for software and payments for satellite transmission by treating as Royalty. Retrospective amendment to definitions Capital asset to include any rights including rights of management or control, in or in relation to, an Indian company. Transfer to cover international transfers of shares which results into disposing of or parting with any asset or interest in asset, situated in India directly or indirectly . Special exemption provided to income of foreign company from sale of crude oil to any person in India, provided Agreement is approved by Central Government Agreement notified by Central Government Foreign company not engaged in any other activity in India This provision shall be applicable with effect from 1st April, 2012 Dividends declared, distributed or paid by a subsidiary foreign company to the Indian parent company shall be continued to be taxed @15% of such gross dividend income instead of the normal corporate tax rates for one more year i.e. till 31st March 2013. The objective of continuing this section is to incentivize the repatriation of funds in India in the form of dividends. Interest received on foreign currency loan by a non-resident from specified businesses shall be subject to a lower withholding tax of 5%. Power generation/transmission/distribution, Operation of aircraft, production of fertilizers, construction of roads, port, dam, etc. covered under specified businesses. This provision shall be applicable with effect from 1st July, 2012. Validation clause inserted for validation of demands raised under the ITA in respect of income from indirect transfer of a capital asset situate in India. The clause would be valid notwithstanding judgment, decree, order of any court

Minimum Alternate Tax (MAT) and Alternate Minimum Tax (AMT)

It is proposed to apply the provisions of MAT to Banking, Insurance and Electricity companies. These companies are now required to compute MAT as per the Profit and Loss Account prepared by them under the laws applicable to them. This provision shall be applicable with effect from AY 2013-14. The computation mechanism of MAT is proposed to be modified. The amount standing to the credit of revaluation reserve is required to be added to net profit if the asset in respect of which the revaluation reserve was created is retired or disposed off. The scheme of alternative taxation based on book profit is extended to all non-corporate assessees. All assessees, other than companies, will now have to calculate Alternate Minimum Tax (AMT) calculated at 18.5% of adjusted total income. AMT is applicable to the assessees claiming deduction under section 10AA or Chapter VI-A. The adjusted total income is the total income as per the provisions of the Act as increased by deductions under Chapter VI-A and section 10AA. The tax calculated at 18.5% of adjusted total income will be compared to the normal income-tax and higher of the two amounts will have to be paid.
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Budget 2012 AMT will not apply if the adjusted total income of an individual, HUF, AOP or BOI does not exceed Rs. 20 lacs. The AMT paid over and above the tax liability as per the normal provision of the Act will be allowed as a credit against tax under normal provisions and will be allowed to be carried forward for 10 years. Every person to whom the AMT applies will have to obtain a report from a Chartered Accountant that the AMT is correctly computed. This provision shall be applicable with effect from AY 2013-14.

Dividend Distribution Tax

Relief from the cascading effect of Dividend Distribution Tax (DDT) is now proposed to be extended to all domestic companies, whether or not they are the ultimate holding companies. This provision will have effect from 1st July 2012.

Venture Capital Funds

It is proposed to tax the income from VCF in the hands of the assessee on accrual basis as against receipt basis. It is also proposed to include VCFs within the purview of DDT and TDS. This provision shall be applicable with effect from AY 2013-14. At present, a Venture Capital Undertaking for tax purpose is an unlisted domestic company engaged in 9 specified businesses. It is now proposed to remove the list of specified business. Under the proposed amendment, a Venture Capital Undertaking would be defined as referred to in SEBI (Venture Capital Funds) Regulations, 1996. This amendment is proposed to be introduced from AY 2013-14.

Presumptive taxation under Tonnage Tax Scheme

The presumptive income per ton under the Tonnage Tax scheme in respect of shipping companies has been increased as under:

At present Rs. 46 for each 100 tons 460 plus Rs. 35 for each 100 tons exceeding1,000 tons 3,610 plus Rs. 28 for each 100 tons exceeding 10,000 tons 7,890 plus Rs. 19 for each 100 tons exceeding 25,000 tons.

After the amendment Rs. 70 for each 100 tons 700 plus Rs. 53 for each 100 tons exceeding 1,000 tons 5,470 plus Rs. 42 for each 100 tons exceeding 10,000 tons 11,770 plus Rs. 29 for each 100 tons exceeding 25,000 tons.

This provision shall be applicable with effect from AY 2013-14.

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Penalties
At present, under search proceedings, if the assessee accepts any income as undisclosed income in the course of the search, explains the source of such income and pays tax thereon with applicable interest, no penalty is levied on the assessee. In all other cases, the penalty was 10% of the undisclosed income. It is now proposed to levy penalty on additions to income where search is initiated after 1st July 2012 as under: If the assessee admits the undisclosed income during search proceedings, specifies the manner in which such income has been derived and pays tax thereon with applicable interest, the penalty would be 10% of undisclosed income If the assessee does not admit the undisclosed income during search proceedings, but discloses the same in the return of income filed after the search and pays tax thereon with applicable interest, the penalty would be 20% of undisclosed income. In all other cases, the penalty would be 30% to 90% of undisclosed income A new section 271H is proposed to be inserted to provide for penalty where a person fails to file the TDS / TCS returns or furnishes incorrect information in the TDS / TCS returns. The penalty levied could be Rs. 10,000/- to Rs. 100,000/-. Penalty will not be levied if the person deposits the TDS / TCS with applicable interest and fee (as provided by the newly inserted section 234E) and files the TDS / TCS returns within 1 year from their due dates. However, this provision covers only the cases of non-filing of TDS / TCS returns. It does not cover cases of furnishing incorrect information in the TDS returns. These provisions would apply for the TDS / TCS returns which are to be filed after 1st July 2012. However, penalty shall not be levied if the deductor proves that there is a reasonable cause for default.

Reassessment of income in relation to any asset located outside India

The time limit for reassessment has been increased from 6 years to 16 years if a person is found to have any asset (including financial interest in any entity) located outside India Corresponding amendments also made in Wealth-tax Act. Further, in all cases where it is found that an international transaction has not been reported either by non-filing of report or otherwise by not including such transaction in the report mentioned in section 92E then such non-reporting would be considered as a case of deemed escapement of income and such a case can be reopened.

Extension of time for completion of assessments and reassessments

The time limits for completion of assessments and reassessments will be increased by 3 months as given in the table below.

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Proceedings under section 143 143 and 92CA 148 148 and 92CA 250 or 254 or 263 or 264 250 or 254 or 263, and 92CA or 264

Current time allowed

Proposed Period 24 months 36 months 12 months 24 months 12 months 24 months

21 months from the end of the A.Y. 33 months from the end of the A.Y 9 months from the end of the F.Y. in which notice issued 21 months from the end of the F.Y. in which notice issued 9 months from the end of the F.Y. in which order received 21 months from the end of the F.Y. in which order received

Consequential amendments have been made in the provisions of section 17A of the Wealth-tax Act for increasing the time limit by three months for completion of assessment/reassessment proceedings. These amendments will take effect from the 1st day of July, 2012.

Other Miscellaneous Provisions

Age Limit of senior citizens proposed to be reduced from 65 years to 60 years.

Cash Donations exceeding Rs. 10,000/- will not be eligible for deduction under section 80G. Similarly, contributions paid in cash exceeding Rs. 10,000/- for scientific research or rural development will not be eligible for deduction under section 80GGA. Under the existing law, where a person fails to deduct tax at source, he could be regarded as assessee in default. The Finance Bill proposes to provide that failure to make TDS will not make the deductor an assessee in default if the following conditions are met: The deductee has filed his return of income The income paid by the deductor is included in computation of total income of the deductee The deductee has duly paid the taxes on such income. The deductor is required to furnish a certificate certifying the above facts from a Chartered Accountant. Resident assessees above 60 years of age are not required to pay advance tax if they do not have any income from business or profession. Person receiving any income without deduction or collection of tax shall be liable to pay advance tax. Unexplained cash credit, money, investment, expenditure etc, will be taxed at a flat rate of tax of 30%, irrespective of the slab limits. The assessee will not be allowed deduction of any expenditure or allowance against the above income. This provision shall be applicable with effect from AY 2013-14.

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Budget 2012 Irrespective of whether a resident has taxable income or not, furnishing return of income has been made mandatory for residents, having any asset (including financial interest in any entity) located outside India or signing authority in any account located outside India. This amendment will be effective from 01st April 2012 and thus apply for FY 2012-13 onwards. Processing of return of income under section 143(1) will not be necessary in a case where notice for scrutiny assessment has already been issued to the tax payer. This amendment will take effect from the 1st day of July, 2012. A trust or institution would not be eligible for exemption if its receipts from commercial activities exceed the specified threshold. This amendment will take effect retrospectively from 1st April, 2009 and thus apply for FY 2008-09 onwards. Gift received by a HUF from its member will be treated as a gift received from the relatives and will not be liable for tax. This clause is amended with retrospective effect from 1st October, 2009. Where a company in which public are not substantially interested, receives any consideration as share premium and aggregate of face value and share premium exceeds the fair market value of the shares, then such excess amount received will be treated as taxable income in the hands of the company as income from other sources. The CBDT would prescribe the manner in which the Fair Market Value shall be computed. The above will not be applicable in case where venture capital undertaking receives any amount from the venture capital fund and venture capital company. If a company not being a company in which public are substantially interested receives any amount in the form of share application money or share capital or share premium or by any other name then such amount can be taxed as income of the company unless The company provide the identity of such person in whose name such credit is recorded and, Such person offers the explanation for the nature and source of such amount so credited. The above will not be applicable in case where the money is received from `venture capital fund and venture capital company.

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Budget 2012

Indirect Tax Proposals Customs Duty

Policy level announcements Peak Rate of BCD unchanged at 10% Exemption provided for Education Cess & Secondary & Higher Secondary Education Cess on CVD. Effective rate of Custom Duty increased from 26.85% to 28.85%. Key Changes in Rate of Duty

Sr. No.

Tariff Description

Existing Rate (BCD)

1% 10%

New Rate

Impact ( / )

1 2

Gold ores and concentrates for use in the manufacture of gold Steam Coal Liquefied Natural Gas (LNG) and Natural Gas (NG), when imported for generation of electrical energy by a power generating company Waste paper Gold in any form other than above, including tola bars and ornaments, but excluding ornaments studded with stones or pearls Cut and polished coloured gemstones Pipes and tubes for use in manufacture of boilers Bicycles in fully built condition as well as in form of CKD/SKD kits Bicycle, parts and components Motor vehicles with FOB value more than US $ 40000 and with engine capacity more than 3000cc for petrol-run vehicles and more than 2500 cc for diesel-run vehicles is increased Boric Acid Blood Pressure Monitors and Blood Glucose Monitors Specified Life Saving Drugs

2% NIL

10%

NIL

10%

NIL

5%

10%

6 7 8 9

10% 10% 10% 10%

2% 7.5% 30% 20%

10

60%

75%

11 12 13

5% 5% 10%

7.5% 2.5% 5%

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Budget 2012 Procedural Changes The following changes shall be effective on enactment of the Finance Bill: Specified importers shall be eligible to pay Customs Duty electronically. Limit for Duty-free imports under the Baggage Rules increased from Rs.25,000 to Rs.35,000 for adult passengers of Indian origin and for children upto the age of 10 years the limit increased from Rs.12,000 to Rs. 15,000. Serving of notice / order issued by Department through courier shall be considered as valid intimation. The following change shall be effective from 1st April, 2012: Unutilized SAD credit lying in balance at the end of each quarter can be transferred to other registered premises of the same manufacturer. The following change shall be effective from 1st May, 2012: Full exemption from SAD on specified products available if importer declares: The State of destination of sale Value Added Tax registration number in that State

Excise
Policy level announcements Rate of Central Excise duty increased from 10% to 12%. Effective rate to be 12.36%. 1% / 5% excise duty applicable on 131 items which were introduced for excise levy in Finance Bill 2011, increased to 2% / 6% respectively with few exceptions. Full exemption from excise duty is provided on articles of goldsmith and silversmith wares of precious metals or of metals coated with precious metals, not bearing a brand name. Gold coins of purity 99.5% and above and silver coins of purity 99.9% and above exempt from excise duty. For the purpose of charging excise duty on ready-made garments bearing a brand name or sold under a brand name, the rate of abatement from the retail sale price (RSP) is increased from 55% to 70%.

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Budget 2012 Key Changes in Rate of Duty

Sr. No. 1 2 3 4

Tariff Description

Existing Rate 10% 1.50% 5% 22%

New Rate

Impact

Specified life saving drugs Gold bars, other than tola bars (refined gold) Plain gold jewellery manufactured by EOU ( DTA Clearance ) (i) Petrol driven motor vehicles length exceeding 4000mm and engine capacity under 1200 cc (ii) Petrol driven motor length exceeding 4000mm and engine capacity exceeding 1500 cc (i) Diesel driven motor vehicles length exceeding 4000mm and engine capacity not exceeding 1500 cc (ii) Diesel driven motor length exceeding 4000mm and engine capacity exceeding 1500 cc Parts and components required for manufacture, repair and overhauling of aircraft falling under chapter heading 8802

Nil 3% 10% 24%

22% +15000 22%

27%

24%

22% +15000 10%

27%

Nil

Parts and components required for 10% manufacture of blood pressure monitors and blood glucose monitoring

6%

Procedural Changes The term Interconnected undertakings is defined in detail as part of the Act. An assessee shall be punishable for an offences relating to any excisable goods, if the duty leviable thereon exceeds rupees thirty lakhs (previously one lakh rupees), with an imprisonment for a term which may extent to seven years and with fine. Assessee has to provide additional information related to CENVAT credit taken from interunit transfer of credit into Excise Return (ER-1) to be submitted to Government. The manufacturer who intends to avail of the benefit of a notification issued by Central Government shall submit a quarterly return (previously monthly return) in Return at Annexure-II to the said Assistant Commissioner or Deputy Commissioner by the tenth day of the following month.

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Budget 2012

Service Tax
Change in rate of tax with effect from 1st April, 2012 Description Service Tax Works Contract Service Life Insurance Companies Existing Rate 10.3% 4% 1.5% New Rate 12.36% 4.8% 3% - First Year 1.5% Subsequent years Proportionate increase by 20% 6% Impact

Money Changing Reversal of Cenvat Credit of exempted services

10.3% 5%

Negative List of Services (Will be notified after the enactment of Finance Bill) Negative list is introduced to include 17 specified services on which no service tax shall be leviable. The list of these services is reproduced below: Services by Government or a local authority excluding certain specified services. Services by the Reserve Bank of India Services by a foreign diplomatic mission located in India Specified services relating to agriculture Trading of goods Any process amounting to manufacture or production of goods Selling of space or time slots for advertisements other than advertisements broadcast by radio or television Service by way of access to a road or a bridge on payment of toll charges Betting, gambling or lottery Admission to entertainment events or access to amusement facilities Transmission or distribution of electricity by an electricity transmission or distribution utility. Specified services in the field of education. Services by way of renting of residential dwelling for use as residence; Services by way of (i) extending deposits, loans or advances where consideration is received by way of interest or discount;

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Budget 2012 (ii) inter-se sale or purchase of foreign currency amongst banks or authorized dealers of foreign exchange or amongst banks and such dealers; Service of transportation of passengers, with or without accompanied belongings, by (i) (ii) a stage carriage; railways in a class other than (A) (B) (iii) (iv) (v) (vi) first class; or an air conditioned coach;

metro, monorail or tramway; inland waterways; public transport in a vessel of less than fifteen tonne net, other than predominantly for tourism purpose; and metered cabs, radio taxis or auto rickshaws;

Services by way of transportation of goods (i) by road except the services of (A) a goods transportation agency; or (B) a courier agency; (ii) by an aircraft or a vessel from a place outside India to the first customs station of landing in India; or (iii) by inland waterways; Funeral, burial, crematorium or mortuary services including transportation of the deceased. 88 service tax exemption is proposed to be reduced to 10 specified exemptions, which will be a part of Mega exemption notifications Amendments in Service Tax Rules, 1994
Proposed Changes

Introduction of common form of registration (EST 1) under Excise and Service tax. Periodicity of filing of returns and payment of service tax has been proposed as follows:

Periodicity Condition Assessee who paid tax of Rs 25 lakh or more in previous year and Monthly new assessee other than individuals and firms Others Quarterly

The following change shall be effective from 1st April, 2012: Time limit for issuing invoice by the service provider has been increased from 14 days to 30 days. In case of banking and financial institutions, invoice to be raised within 45 days. Removal of limit of Rs. 2,00,000 towards self-adjustment of excess service tax paid.

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Budget 2012 Amendments in Cenvat Credit Rules, 2004 Proposed Changes Simplified procedure for claiming refund of unutilized input credit in case of exporters. For the banking and financial sector, it is proposed to change the calculation of reversal of credit on actual basis from existing reversal upto 50%. The following change shall be effective from 1st April, 2012: Cenvat Credit shall be available on Motor Vehicles, car insurance, hiring of cars and motor car repairs subject to specified conditions Credit of insurance and service station is allowed to insurance companies in respect of motor vehicles and manufacturers of motor vehicles Credit on goods can now be taken for goods, without bringing them into the premises subject to due documentation regarding their delivery and location by the service provider. Calculation of credit in case of Input service distributor has been changed to pro-rata basis of the turnover of the concerned unit to the sum total of the turnover of all the units to which the service relates. Interest on loans to be considered as exempted services. This will require reversal of credits used for earning such income. Amendments in Point of Taxation Rules, 2011(Effective from 1st April, 2012) In case of Export of Services, the point of taxation shall be date of payment. The time limit for collection of export proceeds has been brought in line with RBI guidelines. In case of a new levy, no tax is chargeable on services where payment has been received and invoice issued within a period of 14 days of the date of levy. Place of Provision of Service Rules, 2012 Place of Provision of Service Rules 2012 has been released for comments and feedbacks. The same shall come into effect after the enactment of Finance Bill 2012. Introduction of Place of Provision of Service Rules, 2012 shall replace the existing Export of Service Rules and Import of Service Rules. The above mention changes have been proposed in the light of introduction of GST. Under the aforesaid rules, exemption from service tax shall be available in case of export of service under the below specified conditions:Service Provider is located in taxable territory Service Recipient is located outside India Service provided is a service other than in negative list Place of provision of service is outside India Payment is received in convertible foreign exchange

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Budget 2012 Other Major Amendments Definition of service has been introduced in Finance Act, 1994. Provisions relating to Settlement Commission is brought under service tax Various provisions under service tax like time limit for filing of appeal, provisional relating to special audit, etc. have been brought in line with excise law. Time limit for issuance of notice in case of short-levy, short paid or erroneously refunded has been increased from one year to eighteen months (effective from enactment of Finance Bill) In case of service being provided from outside India, the onus of payment of service tax under reverse charge basis shall be partly in the hands of service provider and partly in the hands of service receiver. This shall be applicable on three specified services viz. hiring of means of transport, construction and man power supply. (Effective from the date to be notified) Proposed Amendments relating to Abatements: Sr. No. Service Existing taxable portion Propose d taxable portion 70% Cenvat credits

Convention center or 60% mandap with catering Pandal or Shamiana with 70% catering. Coastal shipping 75%

70%

3 4 5 6 7

50% 60% 30% 30 % 60%

All credits, except on inputs, chapter 1 to 22, will now available. All credits, except on inputs, chapter 1 to 22, will now available. No credits as at present. Credits on input services allowed All credits will be allowed All credits will be allowed

of be of be

Accommodation in hotel 50% etc. Railways: goods Railways: passengers 30% New levy

Transport of passengers New levy by air service

Duty on inputs or capital goods used for providing such taxable service will not be allowed

For queries please contact dorothy.crasto@skpgroup.com

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