Entries from March 2012 ↓

UNION BUDGET 2012- INTERNATIONAL TAXATION PROVISIONS

Tax Rates Remain Unchanged


  • The corporate tax rates remain unchanged at 40% for a foreign company.
  • The surcharge applicable on companies with total income exceeding INR 10 million also remains same at 2% for Foreign Companies.
  • Similarly Education Cess and Secondary Higher Education Cess continue to be levied at 2% & 1% respectively.

 

Withholding Taxes

  • On Interest

Section 115A (ii) which provides for withholding of tax on interest paid to non residents on External Commercial Borrowings (i.e borrowings in Foreign Currency) has been reduced from 20% to 5%(plus applicable surcharge and cess) for certain specific sectors1 for a period of 3 years2.

It is further proposed to insert a new section 194LC to provide that interest income paid by such specified company1 to a nonresident shall be subjected to tax deduction at source at the rate of 5% (plus applicable surcharge and cess).

This amendment will take effect from 1st July, 2012.

On Royalty

  • Royalty paid to non residents is subject to withholding to tax at the rate of 10% as per section 115A;
  • Section 9(1)(vi) that any income payable by way of royalty in respect of any right, property, or information shall be deemed to accrue or arise in India;
  • The definition of royalty is provided in explanation 2 to section 9 of The Income Tax Act. The definition of royalty has always been a matter of dispute, this year budget provides a clarification explanation to be included in section 9(1)(vi) by way of retrospective amendments from 1st June, 1976 will accordingly apply in relation to the assessment year 1977-78 and subsequent assessment years..
  • The explanation has been included to target payments towards shrink-wrap and embedded software, online databases and data clouds, which have been disputed before Indian tax courts in the past (except data clouds) and include them within the ambit of ‘royalty’.
  • The proposed explanation seeks to include that “consideration for use or right to use” of computer software is royalty, by clarifying that it includes and has always included transfer of all or any right for use or right to use a computer software (including granting of software) irrespective of the medium through which it is transferred.
  • Further explanation has been included that royalty includes “consideration in respect of any right, property or information whether or not”:

(a)  The possession or control of such right, property or information is with the payer;

(b) Such right, property or information is used directly by the payer;

(c)  The location of such right, property or information is in India.

  • The term “process” includes and shall be deemed to have always included transmission by satellite (including up-linking, amplification, conversion for down-linking of any signal), cable, optic fiber or by any other similar technology, whether or not such process is secret.  The impact of this is that non-resident broadcasters could be required to pay tax on royalty in India on account of providing services in India.

On Non Resident Sportsmen Or Sports association

Section 115BBA which provides for withholding of tax on payment made to non-resident and non citizen sportsmen or sports association has been raised from 10% to 20% of the gross receipts.

It is further proposed to amend section 115BBA to provide that income arising to a non-citizen, non-resident entertainer (such as theatre, radio or television artists and musicians) from performance in India shall be taxable at the rate of 20% of gross receipts.

On payment made By One Non Resident to Another( Reversal of Vodafone Case)

The recent Supreme Court judgement set out that a requirement of tax presence was necessary for imposing a withholding tax obligation. The decision has been nullified by retrospective amendment in the statute, the budget proposes to tax on indirect transfers of Indian entities by non residents.

The changes made to tax indirect transfers are:

Meaning of Property

As per section 2(14) “capital asset” means property of any kind held by the assessee whether or not connected with his business or profession except stock in trade, consumable stores or raw material held for the purposes of his business or profession.

 

“Both the Bombay High Court and the Supreme Court held in Vodafone that “controlling interest” is not a capital asset”.

The Finance Bill proposes to add the following Explanation and the following Explanation shall be inserted and shall be deemed to have been inserted with effect from the 1st day of April 1962, namely:

“Explanation– For the removal of doubts, it is hereby clarified that ‘property’ includes and shall be deemed to have always included any rights in or in relation to an Indian company, including rights of management or control or any other rights whatsoever.”

Meaning of Transfer

As per section 2(47) transfer means any sale, exchange, extinguishment or relinquishment of rights.

“Revenue’s primary case in Vodafone in the Supreme Court was that there was an “extinguishment” under this provision. It was inserted by Parliament to widen the scope of section 2(47) in order to cover transactions in which there is no sale in the ordinary sense. Although section 2(47) does not so provide, it is submitted that it is not open to the Revenue to invoke “extinguishment” in a transaction in which there is admittedly a sale, simply because that sale is not taxable. The Chief Justice’s implicit approval of this proposition is, it is submitted, to be welcomed.

The Finance Bill proposes to add the following Explanation and the following Explanation shall be inserted and shall be deemed to have been inserted with effect from the 1st day of April 1962, namely:

Explanation – For the removal of doubts, it is hereby clarified that “transfer” includes and shall be deemed always to have included disposing of or parting with an asset or any interest therein, or creating any interest in any asset in any manner whatsoever, directly or indirectly, absolutely or conditionally, voluntarily or involuntarily, by way of an agreement (whether entered into in India or outside India) or otherwise, notwithstanding that such transfer of rights has been characterized as being effected or dependent upon or flowing from the transfer of a share or shares of a company incorporated outside India.”

Scope of Income Deemed To accrue or arise in India

Section 9 contains provision for Income to accrue or arise in India. It is a legal fiction created to tax income which may or may not accrue or arise in India.

Sub clause (1)(i) provides for income accrue or arises in India directly or indirectly, through the transfer of a capital asset situate in India.

“The Supreme Court held in Vodafone that the words “directly or indirectly” do not qualify the transfer of the asset.”

The Finance Bill proposes to add the following Explanation and the following Explanation shall be inserted and shall be deemed to have been inserted with effect from the 1st day of April 1962, namely:

1. “Explanation – the expression ‘through’ shall mean and include and shall be deemed to have always meant and included “by means of”, “in consequence of” or “by reason of”.

2. “ Explanation–          to clarify that an asset or a capital asset being any share or interest in a company or entity registered or incorporated outside India shall be deemed to be and shall always be deemed to have been situated in India if the share or interest derives, directly or indirectly, its value substantially from the assets located in India.

 

  • Further Amended section 195(1) to clarify that obligation to comply with sub-section (1) and to make deduction there under applies and shall be deemed to have always applied and extends and shall be deemed to have always extended to all persons, resident or non-resident, whether or not the non-resident has:-

(a) a residence or place of business or business connection in India; or

(b) any other presence in any manner whatsoever in India.

  1. The specified company shall be an Indian company engaged in the business of –

i.      construction of dam,

ii.      operation of Aircraft,

iii.      manufacture or production of fertilizers,

iv.      construction of port including inland port,

v.      construction of road, toll road or bridge;

vi.      generation, distribution of transmission of power

vii.      construction of ships in a shipyard; or

viii.      developing and building an affordable housing project as is presently referred to in section 35AD(8)(c)(vii).

This amendment will take effect from 1st April, 2013 and will, accordingly, apply in relation to the Assessment Year 2013-14 and subsequent assessment years.

  1. It is proposed to amend Section 115A of the Income Tax Act to provide that any interest paid by a specified company to a non-resident in respect of borrowing made in foreign currency from sources outside India between 1st July, 2012 and 1st July, 2015, under an agreement, including rate of the interest payable, approved by the Central Government, shall be taxable at the rate of 5% (plus applicable surcharge and cess).

 

Union Budget 2012- Service Tax

Service Tax is the most preferred subject for the draftsman and legislators for Budget 2012. The Service Tax legislation has attained the age of eighteen years this year. On the eve of attaining age of eighteen, The Finance Ministry has tried to rationalize the complete Service Tax law. Following are the major amendments proposed by Budget, 2012.

RATE OF SERVICE TAX:

The Service Tax rate has been enhanced form 10 % to 12 %. This amendment shall be applicable from the 1st Day of April, 2012. The effective rate shall be 12.36% (inclusive of Education Cess at the rate of 2% and Secondary and Higher Education Cess at the rate of 1%). The net government earnings due to increase of service tax would be increased by Rs.18, 660/- Cores.

Consequent to the change of rate of service, following amendments also been proposed:

Works Contract Services: The composition rate for the works contract services has been increased in proportion to the increased in general rate. The composition rate under the works contract scheme is being proposed to increase from 4% to 4.8%.

Services in relation to purchase and sale of foreign currency including money changing: Raising the existing rates proportionately by 20%;

Services of promotion, marketing, organizing or in any manner assisting in organizing lottery: Raising the specified amounts proportionately to Rs 7,000 and 11,000.

Other Proposal to amend the Service Tax rate (Specific Services):

Life insurance service: Where the entire premium is not towards risk cover, the first year’s premium shall be taxed at the rate of three per cent. While subsequent premium shall attract tax at the rate of 1.5 per cent. Availment of full CENVAT Credit is being allowed.

 

Transport of passengers embarking in India for domestic and international journey by air: The dual rate structure of maximum service tax of INR 150/- and INR 750/- in case of economy class travel is being replaced by an ad valorem rate of twelve per cent, with abatement of sixty per cent. This abatement shall be available subject to the condition that no credit on inputs and capital goods is taken

Effective Date:

The enhanced rate of service tax i.e. 12.36% shall be applicable from the 1st day of April, 2012.

 

 

NEGATIVE LIST OF SERVICES:

The Union Budget proposes that all services will come under the ambit of Service Tax unless specified in the Negative List or which are otherwise exempted by a specific exemption notification. Negative List will comprise the list following services.

1. Services provided to the United Nations or a specified international organization;

2. Health care services by a clinical establishment, an authorized medical practitioner or    Para-medics;

3. Services by a veterinary clinic in relation to health care of animals or birds;

4. Services by an entity registered under section 12AA of the Income tax Act, 1961 by way of charitable activities;

5. Services by a person by way of-

(a) Renting of precincts of a religious place meant for general public; or

(b) Conduct of any religious ceremony;

6. Services provided to any person other than a business entity by –

(a) An individual as an advocate; or

(b) A person represented on and as arbitral tribunals;

7. Services by way of technical testing or analysis of newly developed drugs, including vaccines and herbal remedies, on human participants by a clinical research organization approved to conduct clinical trials by the Drug Controller General of India;

8.  Services by way of training or coaching in recreational activities relating to arts, culture or    sports;

9. Services provided-

(a) To an educational institution by way of catering under any centrally assisted mid – day meals scheme sponsored by Government;

(b) to or by an institution in relation to educational services, where the educational services  are exempt from the levy of service tax, by way of  transportation of students or staff;

(c) to or by an institution in relation to educational services, where the educational services are exempt from the levy of service tax, by way of  services in relation to admission to such education;

10. Services provided to a recognized sports body by-

(a) An individual as a player, referee, umpire, coach or manager for participation in a tournament or championship organized by a recognized sports body;

(b) Another recognized sports body;

11. Services by way of sponsorship of tournaments or championships organized,-

(a) By a national sports federation, or its affiliated federations, where the participating teams or individuals represent any district, state or zone;

(b) by Association of Indian Universities, Inter-University Sports Board, School Games Federation of India, All India Sports Council for the Deaf, Paralympic Committee of India, Special Olympics Bharat;

(c) By Central Civil Services Cultural and Sports Board;

(d) As part of national games, by Indian Olympic Association; or

(e) under Panchayat Yuva Kreeda Aur Khel Abhiyaan (PYKKA) Scheme;12. Services provided to  the  Government or local authority by way of erection, construction, maintenance, repair, alteration, renovation or restoration of –

(a) a civil structure or  any other  original works meant predominantly for a nonindustrial or non-commercial use;

(b) a historical monument, archaeological site or remains of  national importance, archaeological excavation, or antiquity specified under Ancient Monuments and Archaeological Sites and Remains Act, 1958 (24 of 1958);

(c) a structure meant predominantly for use  as (i) an educational, (ii) a clinical, or (iii) an art or cultural establishment;

(d) canal, dam or other irrigation works;

(e) pipeline, conduit or plant for (i) drinking water supply (ii) water treatment (iii) sewerage  treatment or disposal; or

(f) a residential complex predominantly meant for self-use or the use of their employees or other persons specified in the Explanation 1 to clause 44 of section 65 B of the said Finance Act;

13.       Services provided by way of erection, construction, maintenance, repair, alteration,  renovation or restoration of,-

(a) Road, bridge, tunnel, or terminal for road transportation for use by general public;

(b) Building owned by an entity registered under section 12 AA of the Income tax Act, and meant predominantly for religious use by general public;

(c) pollution control or effluent treatment plant, except located as a part of a factory;or

(d) electric crematorium;

14.       Services by way of erection or construction of original works pertaining to,-

(a) airport, port or railways;

(b) single residential unit otherwise as a part of a residential complex;

(c) low- cost houses up to a carpet area of 60 square meters per house in a housing project approved by competent authority empowered under the ‘Scheme of Affordable Housing in Partnership’ framed by the Ministry of Housing and Urban Poverty Alleviation, Government of India;

(d) post- harvest storage infrastructure for agricultural produce including a cold storages for such purposes; or

(e) mechanized food grain handling system, machinery or equipment for units  processing  agricultural produce as food stuff excluding alcoholic beverages;

15.       Temporary transfer or permitting the use or enjoyment of a copyright covered under clause (a) or (b) of sub-section (1) of section 13 of the Indian Copyright Act, 1957, relating to original literary, dramatic, musical, artistic works or cinematograph films;

16.       Services by a performing artist in folk or classical art forms of (i) music, or (ii) dance, or (iii) theatre, excluding services provided by such artist as a brand ambassador;

17.       Services by way of collecting or providing news by an independent journalist, Press Trust of India or United News of India;

18.       Services by way of renting of a hotel, inn, guest house, club, campsite or other commercial places meant for residential or lodging purposes, having declared tariff of a room below rupees one thousand per day or equivalent;

19.       Services provided in relation to serving of food or beverages by a restaurant, eating joint or a  mess, other than those having the facility of air-conditioning or central air heating in any part of the establishment, at any time during the year, and which has a license to serve alcoholic beverages;

20.       Services by way of transportation by rail or a vessel  from one port  in India to another  of the following goods –

(a) petroleum and petroleum products falling under Chapter heading 2710 and  2711 of the First Schedule to the Central Excise Tariff Act, 1985

(b) relief materials meant for victims of natural or man-made disasters, calamities, accidents or mishap;

(c) defense  or military equipment’s;

(d) postal mail, mail bags or household effects;

(e) newspaper or magazines registered with Registrar of Newspapers;

(f) railway equipment’s or materials;

(g) agricultural produce;

(h) foodstuff including flours, tea, coffee, jiggery, sugar, milk products, salt and

edible oil, excluding alcoholic beverages; or

(i) chemical fertilizer and oilcakes;

21.       Services provided by a goods transport agency by way of transportation of –

(a) fruits, vegetables, eggs, milk, food grains or pulses in a goods carriage;

(b) goods where gross amount charged on a consignment transported in a single goods carriage does not exceed one thousand five hundred rupees; or

(c) goods, where gross amount charged for transportation of all such goods for a single consignee in the goods carriage does not exceed rupees seven hundred fifty;

22.       Services by way of giving on hire –

(a) to a state transport undertaking, a motor vehicle meant to carry more than twelve passengers; or

(b) to a goods transport agency, a means of transportation of goods;

23.       Transport of passengers, with or without accompanied belongings, by –

(a) air, embarking or terminating in an airport located in the state of Arunachal Pradesh, Assam, Manipur, Meghalaya, Mizoram, Nagaland, Sikkim, or Tripura or at Baghdogra located in West Bengal; or

(b) a contract carriage for the transportation of passengers, excluding tourism, conducted tour, charter or hire;24. Services by way of motor vehicle parking to general public excluding leasing of space to an entity for providing such parking facility;

25.       Services provided to the Government or a local authority by way of –

(a) repair of a ship, boat or vessel;

(b) effluents and sewerage treatment;

(c) waste collection or disposal;

(d) storage, treatment or testing of water for drinking purposes; or

(e) transport of water by pipeline or conduit for drinking purposes;

26.       Services of general insurance business provided under following schemes –

(a) Hut Insurance Scheme;

(b) Cattle Insurance under Swarnajaynti Gram Swarozgar Yojna (earlier known as  Integrated Rural Development  Programme);

(c) Scheme for Insurance of Tribals;

(d) Janata Personal Accident Policy and Gramin Accident Policy;

(e) Group Personal Accident Policy for Self-Employed Women;

(f) Agricultural Pumpset and Failed Well Insurance;

(g) premia collected on export credit insurance;

(h) Weather Based Crop Insurance Scheme or the Modified National Agricultural  Insurance Scheme, approved by the Government of India and implemented by the Ministry of Agriculture;

(i) Jan Arogya Bima Policy;

(j) National Agricultural Insurance Scheme (Rashtriya Krishi Bima Yojana);

(k) Pilot Scheme on Seed Crop Insurance;

(l) Central Sector Scheme on Cattle Insurance;

(m) Universal Health Insurance Scheme;

(n) Rashtriya Swasthya Bima Yojana; or

(o) Coconut Palm Insurance Scheme; 27. Services provided by an incubatee up to a total business turnover of fifty lakh rupees in a financial year subject to the following conditions, namely:-

(a)        the total business turnover had not exceeded fifty lakh rupees during the preceding financial year; and

(b)        a period of three years has not lapsed  from the date of entering  into an agreement as an incubatee;

28.       Service by an unincorporated body or an entity registered as a society to own members by way of reimbursement of charges or share of contribution –

(a) as a trade union;

(b) for the provision of exempt services by the entity to third persons; or

(c) up to an amount of five thousand rupees per month per member for sourcing of goods or services from a third person for the common use of its members in a housing society or a residential complex;

29.       Services by the following persons in respective capacities –

(a) a sub-broker or an authorized person to a stock broker;

(b) an authorized person to a member of a commodity exchange;

(c) a mutual fund agent or distributor to mutual fund or asset management company

for distribution or marketing of mutual fund;

(d) a selling or marketing agent of lottery tickets to a distributer or a selling agent;

(e) a selling agent or a distributer of SIM cards or recharge coupon vouchers; or

(f) a business facilitator or a business correspondent to a banking company or an insurance company in a rural area;

30.       Carrying out an intermediate production process as job work in relation to –

(a) agriculture, printing or textile processing;

(b) cut and polished diamonds and gemstones; or plain and studded jewellery of gold and other precious metals, falling under Chapter 71 of the Central Excise Tariff Act ,1985 (5 of 1986);

(c) any goods on which appropriate duty is payable by the principal manufacturer; or(d) processes of  electroplating, zinc plating, anodizing, heat treatment, powder  coating, painting including spray painting or auto black, during the course of manufacture of parts of cycles or sewing machines up to an aggregate value of taxable service of the specified processes of  one hundred and fifty lakh rupees in a financial year subject to the condition that such  aggregate value had not exceeded  one hundred and fifty lakh rupees during the preceding financial year;

31.       Services by an organizer to any person in respect of a business exhibition held

outside India;

32.       Services by way of making telephone calls from –

(a) departmentally run public telephones;

(b) guaranteed public telephones operating only for local calls; or

(c) free telephone at airport and hospitals where no bills are being issued;

33.       Services by way of slaughtering of bovine animals;

34.       Services received from a service provider located in a non- taxable territory by –

(a) the  Government,  a  local authority or  an  individual in  relation to any purpose other than industry, business or commerce; or

(b) an entity registered under section 12AA of the Income tax Act, 1961 (43 of 1961) for the purposes of providing charitable activities.

 

EXPORT of SERVICE RULES:

Provision of service to be qualified as export if following requirements have to be fulfilled:

The Service Provider is located in Taxable Territory.

Service Recipient is located outside India

Service provided is a service other than in the negative list

The Place of provision of the service is outside India.

The payment is received in convertible foreign exchange.

 

CENVAT CREDIT RULES, 2004:

Removal of Capital Goods after being used:

A manufacturer or service provider need to pay an amount equal to the CENVAT Credit taken on capital good reduced by the percentage  points calculated  by straight line method  for each quarter of a year or part thereof from the date of taking the CENVAT Credit

Capital Goods other than computers and commuters peripherals: 2.5% for each quarter;

Computers and Computer Peripherals: First Year: 10% Second Year: 8% Third Year: 5% and Fourth and Fifth Year: 1% (on quarterly basis).

Refund of CENVAT Credit:

Refund provision is being rationalized further. The refund shall be based on the proportion of extort turnover of goods and services and total turnover.  The major change is the definition of the Export turnover.

Export Turnover means: Payment received during the relevant period for export services + Export services whose provision has been completed for which payment has been received in advance in any period prior to the relevant period Advance received for export services for which the provision of service has not been completed during the relevant period.

Transfer of CENVAT Credit: The unutilized CENVAT Credit of Special Additional Duty can be transferred from one registered unit to other registered unit of the manufacturer or service provider. 

Renting of Immovable Property (Penalty Waived): In view of Judicial precedent Retailers Association of India Vs. Union of India, it is proposed that penalty may be waived for tax payers who pay the eservice due on the renting of immovable property services within six months from the date of Bill come into force. (Section 80A).

Point of Taxation in case of Small Service Provider: Individuals and Partnership Firms who are having service receipts less than fifty lacs may pay service tax liability on receipt basis. Necessary amendments have been introduced in the Service Tax Rules.

OTHER IMPORTANT PROPOSED AMENDMENTS:

The statutory limit of days to raise invoice has been enhanced from 14 days to 30 days.

Special audit provision on the similar lines with Central Excise, Commission of Service Tax can now appoint chartered accountant or Cost accountant to provide audit report of the service provider.

New Service Tax Return i.e. EST – 1 shall be introduced for service provider and manufacturer.

 

Union Budget 2012- Direct Tax Budget Proposal part-2

Intimation after processing of TDS Statement:

Existing Provision: As per Section 200A, After processing of TDS statement, intimation is generated specifying the amount payable or refundable. The intimation generated after processing of TDS statement is not

(i) subject to rectification under section 154;

(ii) appealable under section 246A; and

(iii) deemed as notice of demand under section 156.

Proposed: In order to reduce the compliance burden of the deductor and also to rationalise the provisions of processing of TDS statement, it is proposed to provide that the intimation generated after processing of TDS statement shall be:

(i) subject to rectification under section 154;

(ii) appealable under section 246A; and

(iii) deemed as notice of demand under section 156.

Effective Date: These amendments will take effect from 1st July, 2012.

Extension of time for passing an order under section 201 in certain cases:

Existing Provision: Under the existing provisions section 201 of the Income-tax Act, a person can be deemed to be an assessee in default, by an order, in respect of non-deduction/short deduction of tax. Such order can be passed within a period of four years from end of financial year in a case where no statement as referred to in section 200 has been filed.

Proposed: It is proposed to amend provision of section 201, so as to extend the time limit from four years to six years.

Effective Date: This amendment will take effect retrospectively from 1st April, 2010.

Amendments in relation of prevention of Unaccounted Money
Cash Credits under Section 68:
Existing Provision: Section 68 of the Act provides that if any sum is found credited in the books of an assessee and such assessee either

(i) does not offer any explanation about nature and source of money; or

(ii) the explanation offered by the assessee is found to be not satisfactory by the Assessing Officer,
then, such amount can be taxed as income of the assessee.

Proposed: It is proposed to amend section 68 of the Act to provide that the nature and source of any sum credited, as share capital, share premium etc., in the books of a closely held company shall be treated as explained only if the source of funds is also explained by the assessee company in the hands of the resident shareholder.

However, even in the case of closely held companies, it is proposed that this additional onus of satisfactorily explaining the source in the hands of the shareholder, would not apply if the shareholder is a well regulated entity, i.e. a Venture Capital Fund, Venture Capital Company registered with the Securities Exchange Board of India (SEBI).

Effective Date: This amendment will take effect from 1st April, 2013 and will, accordingly, apply in relation to the assessment year 2013-14 and subsequent years.

Taxation of Cash Credits, Unexplained Money etc.

Existing Provision: Under the existing provisions of the Income-tax Act, certain unexplained amounts are deemed as income under section 68, section 69, section 69A, section 69B, and section 69C and section 69D of the Act and are subject to tax as per the tax rate applicable to the assessee.
In case of individuals, HUF, etc. no tax gets levied if such income is less than the Basic Exemption Limit.

Proposed: it is proposed to tax the unexplained credits, money, investment, expenditure, etc., which has been deemed as income under section 68, section 69, section 69A, section 69B, section 69C or section 69D, at the rate of 30% (plus surcharge and cess as applicable).
It is also proposed to provide that no deduction in respect of any expenditure or allowance shall be allowed to the assessee under any provision of the Act in computing deemed income under the said sections.

Effective Date: This amendment will take effect from 1st April, 2013 and will, accordingly, apply in relation to the assessment year 2013- 14 and subsequent assessment years.

Share Premium in excess of the fair market value to be treated as income:

Existing Provision: Section 56(2) provides for the specific category of incomes that shall be chargeable to income-tax under the head “Income from other sources”. There is no provision for Share Premium under the Section.

Proposed: It is proposed to insert a new clause in section 56(2). The new clause will apply where a company, not being a company in which the public are substantially interested, receives, in any previous year, from any person being a resident, any consideration for issue of shares. In such a case if the consideration received for issue of shares exceeds the face value of such shares, the aggregate consideration received for such shares as exceeds the fair market value of the shares shall be chargeable to income tax under the head “Income from other sources.

However, this provision shall not apply where the consideration for issue of shares is received by a venture capital undertaking from a venture capital company or a venture capital fund.

Further, it is also proposed to provide the company an opportunity to substantiate its claim regarding the fair market value.

Accordingly, it is proposed that the fair market value of the shares shall be the higher of the value:

(i) as may be determined in accordance with the method as may be prescribed; or

(ii) as may be substantiated by the company to the satisfaction of the Assessing Officer, based on the value of its assets,

including intangible assets, being goodwill, know-how, patents, copyrights, trademarks, licences, franchises or any other business or commercial rights of similar nature.

Effective Date: This amendment will take effect from 1st April, 2013 and will, accordingly, apply in relation to the assessment year 2013- 14 and subsequent assessment years.

Compulsory filing of income tax return in relation to assets located outside India
Existing Provision: Under the existing provisions of section 139, every person is required to furnish a return of income if his income during the previous year relevant to the assessment year exceeds the maximum amount which is not chargeable to tax.

Proposed: It is proposed to amend the provisions of section 139 so that furnishing of return of income under section 139 may be made mandatory for every resident having any asset (including financial interest in any entity) located outside India or signing authority in any account located outside India. Furnishing of return by such a resident would be mandatory irrespective of the fact whether the resident taxpayer has taxable income or not.

Effective Date: – This amendment will take effect retrospectively from the 1st day of April, 2012 and will accordingly apply to assessment year 2012-13 and subsequent assessment years.

Reassessment of income in relation to any assets located outside India

Existing Provision Under the provisions of section 149 of the Income-tax Act, the time limit for issue of notice for reopening an assessment on account of income escaping assessment is 6 years.

Proposed : It is proposed to amend the provisions of section 149 so as to increase the time limit for issue of notice for reopening an assessment to 16 years, where the income in relation to any asset (including financial interest in any entity) located outside India, chargeable to tax, has escaped assessment.

Amendments are also proposed to be made in section 147 of the Income-tax Act to provide that income shall be deemed to have escaped assessment where a person is found to have any asset (including financial interest in any entity) located outside India.

Effective Date: The provisions of sections 147 and 149 are procedural in nature and will take effect from 1st July, 2012 for enabling reopening of proceedings for and assessment year commencing prior to this date. This is proposed to be clarified through an Explanation stating that the provisions of these sections, as amended, by the Finance Act, 2012, shall also be applicable for any assessment year beginning on or before the 1st day of April, 2012.

Penalty on undisclosed income found during the course of search
Existing Provision Under the existing provisions of section 271AAA of the Income-tax Act, no penalty is levied if the assessee admits the undisclosed income in a statement under sub-section (4) of section 132 recorded in the course of search and specifies the manner in which such income has been derived and pays the tax together with interest, if any, in respect of such income.

Proposed: In order to strengthen the penal provisions, it is proposed to provide that the provisions of section 271AAA will not be applicable for searches conducted on or after 1st July, 2012. It is also proposed to insert a new provision in the Act (section 271AAB) for levy of penalty in a case where search has been initiated on or after 1st July, 2012. The new section provides that,-

(i) If undisclosed income is admitted during the course of search, the taxpayer will be liable for penalty at the rate of 10% of undisclosed income subject to the fulfillment of certain conditions.

(ii) If undisclosed income is not admitted during the course of search but disclosed in the return of income filed after the search, the taxpayer will be liable for penalty at the rate of 20% of undisclosed income subject to the fulfillment of certain conditions.

(iii) In a case not covered under (i) and (ii) above, the taxpayer will be liable for penalty at the rate ranging from 30% to 90% of undisclosed income.

Effective Date: – These amendments will take effect from the 1st day of July, 2012 and will, accordingly, apply to any search and seizure action taken after this date.

Amendments for Tax Incentives and Reliefs:
Removal of cascading effect of Dividend Distribution Tax:
Existing Provision: Section 115-O of the Act provides that dividend liable for DDT in case of a company is to be reduced by an amount of dividend received from its subsidiary after payment of DDT if the company is not a subsidiary of any other company. This removes the cascading effect of DDT only in a two-tier corporate structure.

Proposed: With a view to remove the cascading effect of DDT in multi-tier corporate structure, it is proposed to amend Section 115-O of the Act to provide that in case any company receives, during the year, any dividend from any subsidiary and such subsidiary has paid DDT as payable on such dividend, then, dividend distributed by the holding company in the same year, to that extent, shall not be subject to Dividend Distribution Tax under section 115-O of the Act.

Effective Date: This amendment will take effect from 1st July, 2012.
Extending benefit of initial depreciation to the power sector:
Existing provision: Section 32(1)(ilia) provides for allowance of initial depreciation (in addition to normal depreciation) at the rate of 20% of the actual cost on new machinery or plant (other than ships and aircraft) to the assessee engaged in the business of manufacture or production of any article or thing in the year of acquisition and instalment.

Proposed: In order to encourage new investment by the assessee engaged in the business of generation or generation and distribution of power, it is proposed to amend this section to provide that an assessee engaged in the business of generation or generation and distribution of power shall also be allowed initial depreciation at the rate of 20% of actual cost of new machinery or plant (other than ships and aircraft) acquired and installed in a previous year.

Effective Date: This amendment will take effect from 1st April, 2013 and will, accordingly, apply in relation to the assessment year 2013-14 and subsequent assessment years.

Weighted Deduction for Scientific Research and Development:

Existing Provision: Under the existing provisions of Section 35(2AB) of the Income-tax Act, a company is allowed weighted deduction at the rate of 200% of expenditure (not being in the nature of cost of any land or building) incurred on approved in-house research and development facilities. These provisions are applicable only in respect of any expenditure incurred by a company up to the financial year ending on 31st March, 2012.

Proposed: It is proposed to amend this section to extend the benefit of the weighted deduction for a further period of five years i.e. up to 31st March, 2017

Effective Date: This amendment will take effect from 1st April, 2013 and will, accordingly, apply in relation to the assessment year 2013-14 and subsequent assessment years up to assessment year 2017-18.

Weighted Deduction for expenditure incurred on Agricultural Extension project:

Existing Provision: No provision for deduction in respect of such expenditure.

Proposed: it is proposed to insert a new provision in the Income-tax Act to by way of Section 35CCC allow weighted deduction of 150% of the expenditure incurred on agricultural extension project. The agricultural extension project eligible for this weighted deduction shall be notified by the Board in accordance with the prescribed guidelines.

Effective Date: This amendment will take effect from 1st April, 2013 and will, accordingly, apply in relation to the assessment year 2013- 14 and subsequent assessment years.

Weighted Deduction for expenditure on skill Development:

Existing Provision: No provision for deduction in respect of such expenditure.

Proposed: it is proposed to insert a new Section 35CCD to provide weighted deduction of 150% of expenses (not being expenditure in the nature of cost of any land or building) incurred on skill development project. The skill development project eligible for this weighted deduction shall be notified by the Board in accordance with the prescribed guidelines.

Effective Date: The proposed amendment will take effect from 1st April, 2013 and will, accordingly, apply in relation to the assessment year 2013-14 and subsequent assessment years.

Turnover or Gross Receipts for Audit of Accounts and Presumptive Taxation:

Existing Provision: Under the existing provisions of section 44AB, every person carrying on business is required to get his accounts audited if the total sales, turnover or gross receipts in the previous year exceed Rs.60,00,000/- Similarly, a person carrying on a profession is required to get his accounts audited if the total sales, turnover or gross receipts in the previous year exceeds Rs.15,00,000/-.

Proposed: it is proposed to increase the threshold limit of total sales, turnover or gross receipts, specified under section 44AB for accounts audited, from Rs. Sixty Lacs to Rs. One Crore in the case of persons carrying on business and from Rs.15,00,000/- to Rs.25,00,000/- in the case of persons carrying on profession.

It is also proposed that for the purposes of presumptive taxation under section 44AD, the threshold limit of total turnover or gross receipts would be increased from Rs. Sixty Lacs to Rs. One Crore.

Effective Date: These amendments will take effect from 1st April, 2013 and will, accordingly, apply to the assessment year 2013-14 and subsequent assessment years.

Relief from long term capital gain tax on transfer of residential property if invested in a manufacturing SME:

Existing Provision: Under the existing provisions, there is no such relief.

Proposed: It is proposed to insert a new section 54GB so as to provide rollover relief from long term capital gains tax to an individual or an HUF on sale of a residential property (house or plot of land) in case of re-investment of sale consideration in the equity of a new start-up SME company in the manufacturing sector which is utilized by the company for the purchase of new plant and machinery.

The relief is subject to certain conditions prescribed under the section would be available in case of any transfer of residential property made on or before 31st March, 2017.

Effective Date: The proposed amendments in the provisions of the Income-tax Act shall be effective from 1st April, 2013 and would accordingly apply to assessment year 2013-14 and subsequent assessment years.

Deduction in respect of capital expenditure on specified business:

Existing Provision: Under the existing provisions of section 35AD of the Income-tax Act, investment-linked tax incentive is provided by way of allowing 100% deduction in respect of the whole of any expenditure of capital nature (other than on land, goodwill and financial instrument) incurred wholly and exclusively, for the purposes of the “specified business” during the previous year in which such expenditure is incurred.

Proposed: It is proposed to include three new businesses as “specified business” for the purposes of the investment-linked deduction under section 35AD, namely:-

(a) Setting up and operating an inland container depot or a container freight station notified or approved under the Customs
Act, 1962 (52 of 1962);

(b) bee-keeping and production of honey and beeswax; and

(c) Setting up and operating a warehousing facility for storage of sugar.

The dates of commencement of the “specified business” are detailed in section 35AD (5). It is proposed that the date of commencement of operations for availing investment linked deduction in respect of the three new specified businesses shall be on or after 1st April, 2012.

It is also proposed that the following specified businesses commencing operations on or after the 1st of April, 2012 shall be allowed a deduction of 150% of the capital expenditure under section 35AD of the Income-tax Act, namely:-

(i) Setting up and operating a cold chain facility;

(ii) Setting up and operating a warehousing facility for storage of agricultural produce;

(iii) Building and operating, anywhere in India, a hospital with at least one hundred beds for patients;

(iv) Developing and building a housing project under a scheme for affordable housing framed by the Central Government or a State Government, as the case may be, and notified by the Board in this behalf in accordance with the guidelines
as may be prescribed; and

(v) production of fertilizer in India.

Effective Date: These amendments will take effect from 1st April, 2013 and will, accordingly, apply in relation to the assessment year 2013-14 and subsequent assessment years.

Extension of sunset date for tax holiday for power sector:
Existing Provision: Under the existing provisions of section 80-IA (4) (iv) of the Income-tax Act, a deduction from profits and gains is allowed to an undertaking which is set up for the generation and distribution of power if it begins to generate power at any time during the period beginning on 1st April, 1993 and ending on 31st March, 2012.

Proposed: It is proposed to amend the above provision to extend the terminal date for a further period of one year, i.e., up to 31st March, 2013.

Effective Date: This amendment will take effect from 1st April, 2013 and will, accordingly, apply in relation to assessment year 2013-14.

Deduction for expenditure on preventive health check-up:
Existing Provision: Under the existing provisions contained in section 80D of the Income-tax Act, a deduction is allowed in respect of premium paid towards a health insurance policy for insurance of self, spouse and dependent children or any contribution made to the Central Government Health Scheme, up to a maximum of Rs.15,000 in aggregate. A further deduction of Rs.15, 000 is also allowed for buying a health insurance policy in respect of parents.

Proposed: It is proposed to amend this section to also include any payment made by an assessee on account of preventive health check-up of self, spouse, dependent children or parents(s) during the previous year as eligible for deduction within the overall limits prescribed in the section. However, the proposed deduction on account of expenditure on preventive health check-up (for self, spouse, dependent children and parents) shall not exceed in the aggregate Rs.5, 000.

It is further proposed to provide that for the purpose of the deduction under section 80D, payment can be made

(i) by any mode, including cash, in respect of any sum paid on account of preventive health check-up and

ii) By any mode other than cash, in all other cases.

Effective Date: These amendments will take effect from 1st April, 2013 and will, accordingly, apply in relation to the assessment year 2013-14 and subsequent assessment years.

Deduction in respect of interest on saving deposits:
Existing Provision: There is no such deduction under the existing provisions.
Proposed: Under the proposed new section 80TTA of the Income-tax Act, a deduction up to Rs.10,000/- shall be allowed to an assessee, being an individual or a Hindu undivided family, in respect of any income by way of interest on deposits (not being time deposits) in a savings account with a Bank, Co-operative Society or a post office.

However, where the aforesaid income is derived from any deposit in a savings account held by, or on behalf of, a firm, an association of persons or a body of individuals, no deduction shall be allowed in respect of such income in computing the total income of any partner of the firm or any member of the association or body.

Effective Date: This amendment will take effect from 1st April, 2013 and will, accordingly, apply in relation to the assessment year 2013-14 and subsequent assessment years.

Reduction in the rate of Securities Transaction Tax:

Existing Provision: The Securities Transaction Tax is payable at the Rate of 0.125% for Delivery based purchase or sale of equity shares in a company or units of equity oriented fund, through the recognized stock exchange in India.

Proposed: It is proposed to reduce the STT in Cash Delivery Segment by 20%. Thus, the proposed rate of STT would be 0.1% for all delivery based purchase or sale transactions.

Effective Date: The proposed amendments in the rates of Securities Transaction Tax (STT) will be effective from the 1st day of July, 2012 and will accordingly apply to any transaction made on or after that date.

AMENDMENTS FOR WEALTH TAX:

Exemption of Residential House allotted to employee etc. of a Company

Existing Provision: Under the existing provisions of section 2 of the Wealth-tax Act, the specified assets for the purpose of levy of wealth tax do not include a residential house allotted by a company to an employee or an officer or a whole time director if the gross annual salary of such employee or officer, etc. is less than Rs.5,00,000/-.

Proposed: it is proposed to increase the existing threshold of gross salary from Rs.5,00,000/- to Rs.10,00,000/- for the purpose of levying wealth-tax on residential house allotted by a company to an employee or an officer or a whole time director.

Effective Date: This amendment will take effect from 1st April, 2013 and will, accordingly, apply in relation to the assessment year 2013-14 and subsequent assessment years.

Reassessment in relation to any asset located outside India:
Exisiting Provision: Under Section 17 of the Wealth Tax Act, The time limit for issue of notice for reopening of assessements is 6 years, in case the net wealth in relation to any asset which has escaped assessment.
Proposed: It is proposed to amend the provisions of section17 so as to increase the time limit for issue of notice for reopening an assessment to 16 years, in the case the net wealth in relation to any asset (including financial interest in any entity) located outside India, chargeable to tax, has escaped assessment for any assessment
Year.”

This is proposed to be clarified through an Explanation stating that the provisions of these sections, as amended, by the Finance Act, 2012, shall also be applicable for any assessment year beginning on or before the 1st day of April, 2012.

Effective Date: These amendments will take effect from the 1st day of July, 2012.

Exemption from Wealth Tax- RBI

Existing Provision: Under the existing provisions of the Wealth-tax Act, wealth-tax is levied on individual, HUF and company.
The definition of “Company” under the Act includes a corporation established by or under the Central, State or Provincial Act. Therefore, the Reserve Bank of India (RBI), being a corporation established under the Central Act, would be deemed as company for the purpose of levy of wealth-tax and shall be liable to pay wealth-tax.

There is no provision for exempting RBI from the levy of wealth-tax either in the Wealth-tax Act or in Reserve Bank of India Act, 1934.

Union Budget 2012- Direct Tax Budget Proposal part-1

INDIVIDUAL TAXATION

1. Slab Rates

a) Individual, Hindu undivided family, association of persons, body of individuals, artificial juridical person
(i) The rates of income-tax in the case of every individual or Hindu undivided family or every association of persons or body of individuals, whether incorporated or not, or every artificial juridical person are as under :-

Income Slabs#                                        Proposed Tax Rates

Upto Rs. 2,00,000                                Nil.

Rs. 2,00,001 to Rs. 5,00,000             10 %
Rs. 5,00,001 to Rs. 10,00,000           20 %
Above Rs. 10,00,000                           30 %

** The Basic Exemption Limit of Rs.1,80,000/- has been increased to Rs.2,00,000/- which will give the benefit of Rs.2,060/- to the individual taxpayers. Further, the limit for the 30% slab rate has been increased from Rs.8,00,000/- to Rs.10,00,000/-, which will give benefit to the taxpayers falling in the high tax bracket.

** Earlier, the Basic Exemption Limit for women was Rs.1,90,000/-, which is now increased to Rs.2,00,000/- and brought in line with the general exemption limit.

(ii) In the case of every individual, being a resident in India, who is of the age of sixty years or more(Senior Citizens) but less than eighty years at any time during the previous year:

Income Slabs#                                                         Proposed Tax Rates

Upto Rs. 2,50,000                                                  Nil.

Rs. 2,50,001 to Rs. 5,00,000                              10 per cent.
Rs. 5,00,001 to Rs.10,00,000                             20 per cent.

Above Rs. 10,00,000                                            30 per cent.

(iii) In the case of every individual, being a resident in India, who is of the age of eighty years or more (Very Senior Citizens) at any time during the previous year, –

Income Slabs#                                                     Proposed Tax Rates

Upto Rs. 5,00,000                                              Nil.

Rs. 5,00,001 to Rs. 10,00,000                        20 per cent.

Above Rs. 10,00,000                                        30 per cent.

** For financial year 2012-13, additional surcharge called the “Education Cess on income-tax” and “Secondary and Higher Education Cess on income-tax” shall continue to be levied at the rate of 2% and 1% respectively, on the amount of tax computed, inclusive of surcharge (wherever applicable), in all cases. No marginal relief shall be available in respect of such Cess.

b) Co-operative Societies
In the case of co-operative societies, the rates of income-tax have been specified in Paragraph B of Part III of the First Schedule to the Bill. These rates will continue to be the same as those specified for assessment year 2012-13. No surcharge will be levied.

c ) Firms

In the case of firms, the rate of income-tax has been specified in Paragraph C of Part III of the First Schedule to the Bill. This rate will continue to be the same as that specified for assessment year 2012-13. No surcharge shall be levied.

d) Local authorities

The rate of income-tax in the case of every local authority is specified in Paragraph D of Part III of the First Schedule to the Bill. This rate will continue to be the same as that specified for the assessment year 2012-13 No surcharge will be levied.

2. Alternate Minimum Tax (AMT) on all persons other than companies

Existing Provisions: Under the existing provisions of the Income-tax Act, Minimum Alternate Tax (MAT) u/s 115 JB and Alternate Minimum Tax (AMT) u/s 115 JC are levied on companies and limited liability partnerships (LLPs) respectively. However, no such tax is levied on the other form of business organisations such as partnership firms, sole proprietorship, association of persons, etc.

Proposed: In order to widen the tax base, it is proposed to amend provisions regarding AMT contained in Section 115JC under Chapter XII-BA in the Income-tax Act to provide that a person other than a company, who has claimed deduction under any section (other than section 80P) included in Chapter VI-A or under section 10AA, shall be liable to pay AMT.

Under the proposed amendments, where the regular income-tax payable for a previous year by a person (other than a company) is less than the alternate minimum tax payable for such previous year, the adjusted total income shall be deemed to be the total income of such person and he shall be liable to pay income-tax on such total income at the rate of 18.5%.

For the purpose of the above:

(i) “adjusted total income” shall be the total income before giving effect to provisions of Chapter XII-BA as increased by the deductions claimed under any section (other than section 80P) included in Chapter VI-A and deduction claimed under section 10AA;

(ii) “alternate minimum tax:” shall be the amount of tax computed on adjusted total income at a rate of18.5% and

(iii) “Regular income-tax” shall be the income-tax payable for a previous year by a person other than a company on his total Income in accordance with the provisions of the Act other than the provisions of Chapter XII-BA.

It is further provided that the provisions of AMT under Chapter XII-BA shall not apply to an individual or a Hindu undivided family or an association of persons or a body of individuals (whether incorporated or not) or an artificial juridical person referred to in section 2(31)(vii) if the adjusted total income of such person does not exceed twenty lakh rupees.

It is also provided that the credit for tax (tax credit) paid by a person on account of AMT under Chapter XII-BA shall be allowed to the extent of the excess of the AMT paid over the regular income-tax. This tax credit shall be allowed to be carried forward up to the tenth assessment year immediately succeeding the assessment year for which such credit becomes allowable. It shall be allowed to be set off for an assessment year in which the regular income-tax exceeds the AMT to the extent of the excess of the regular income-tax over the AMT.

Effective Date: These amendments will take effect from 1st April, 2013 and will, accordingly, apply in relation to the assessment year 2013-14 and subsequent assessment years.

CORPORATE TAXATION

Corporate Tax structure left unchanged

The existing surcharge of 5% in case of a domestic company shall continue to be levied. In case of companies other than domestic companies, the existing surcharge of 2% shall continue to be levied.

However, the total amount payable as income-tax and surcharge on total income exceeding one crore rupees shall not exceed the total amount payable as income-tax on a total income of one crore rupees by more than the amount of income that exceeds one crore rupees.

The existing surcharge of 5% in all other cases (including sections 115JB, 115-O, 115R, etc.) shall continue to be levied.

For financial year 2012-13, additional surcharge called the “Education Cess on income-tax” and Secondary and Higher Education Cess on income-tax” shall continue to be levied at the rate of 2% and 1% respectively, on the amount of tax computed, inclusive of surcharge (wherever applicable), in all cases. No marginal relief shall be available in respect of such Cess.

OTHER IMPORTANT AMENDMENTS:
TDS and TCS:
Tax deduction at source (TDS) on transfer of certain immovable properties (other than Agricultural Land)
Existing Provision: Under the existing provisions of the Income-tax Act, tax Act, on transfer of immovable property by a non-resident, tax is required to be deducted at source by the transferee. However, there is no such requirement on transfer of immovable property by a resident except in the case of compulsory acquisition of certain immovable properties.

Proposed : In order to collect tax at the earliest point of time and also to have a reporting mechanism of transactions in the real estate sector, it is proposed to insert a new provision by Section 194LAA to provide that every transferee, at the time of making payment or crediting any sum by way of consideration for transfer of immovable property (other than agricultural land), shall deduct tax, at the rate of 1% of such sum, if the consideration paid or payable for the transfer of such property exceeds –

(a) Fifty lakh rupees in case such property is situated in a specified urban agglomeration; or

(b) Twenty lakh rupees in case such property is situated in any other area.

It is further proposed to provide that where the consideration paid or payable for the transfer of such property is less than the value adopted or assessed or assessable by any authority of a State Government for the purposes of payment of stamp duty, the value so adopted or assessed or assessable shall be deemed as consideration paid or payable for the transfer of such immovable property.

For better compliance, it is also proposed to provide that a registering officer appointed under the Indian Registration Act,1908 (Registrar) shall not register the transfer of any immovable property where taxes are required to be deducted under this provision unless the transferee furnishes proof of deduction and payment of TDS.

For reducing the compliance burden on the transferee, it is also proposed that a simple one page challan for payment of TDS would be prescribed containing details (including PAN) of transferor and transferee and also certain details of the property. The transferee would not be required to obtain any Tax Deduction and Collection Account Number (TAN) or to furnish any TDS statement as this would be mostly a onetime transaction. The transferor would get credit of TDS like any other pre-paid taxeson the basis of information furnished by the transferee in the challan of payment of TDS.

Effective Date: – This amendment will take effect from 1st October, 2012.

TDS on remuneration to a director
Existing Provision: Under the existing provisions of the Income-tax Act, a company, being an employer, is required to deduct tax at the time of payment of salary to its employees including managing director/whole time director. However, there is no specific provision for deduction of tax on the remuneration paid to a director which is not in the nature of salary.

Proposed: It is proposed to amend section 194J to provide that tax is required to be deducted on the remuneration paid to a director, which is not in the nature of salary, at the rate of 10% of such remuneration.

Effective Date: – This amendment will take effect from 1st July, 2012.

Tax Collection at Source (TCS) on cash sale of bullion and jewellery
Existing Provision: Under the existing provisions of the Income-tax Act, tax is required to be collected at source by the seller at the specified rate on certain goods like alcoholic liquor, tendu leaves, scrap etc. at the time of sale.

Proposed: To reduce the quantum of cash transaction in bullion and jewellery sector and for curbing the flow of unaccounted money in the trading system of bullion and jewellery, it is proposed to provide under section 206C that 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 two lakh rupees and the sale is in cash. This would be irrespective of the fact whether buyer is a manufacturer, trader or purchase is for personal use.

Effective Date: – This amendment will take effect from 1st July, 2012.

TCS on sale of certain minerals
Existing Provision: There is a no existing provision regarding the TCS on minerals.

Proposed : In order to collect tax at the earliest point of time and also to improve reporting mechanism of transactions in mining sector, it is proposed that tax at the rate of 1% (under Section 206C) shall be collected by the seller from the buyer of the following minerals:

(a) Coal;

(b) Lignite; and

(c) Iron ore.

However, the seller shall not collect tax on sale of the said minerals if the same are purchased by the buyer for personal consumption. Further, the seller of these minerals shall not collect tax if the buyer declares that these minerals are to be utilized for the purposes of manufacturing, processing or producing articles or things.

Effective Date: This amendment will take effect from 1st July, 2012.

Threshold for TDS on Compensation for Compulsory Acquisition:

Existing Provision: Under the existing provisions of the section 194LA of the Income-tax Act, a person responsible for paying any compensation or consideration for compulsory acquisition of immovable property (other than agricultural land) is required to deduct tax at the rate of 10% in case the consideration exceeds Rs.1,00,000/-.

Proposed: In order to reduce the compliance burden of small assessee, it is proposed to increase the aforesaid threshold limit from Rs.1,00,000/- to Rs. 2,00,000/- .

Effective Date: This amendment will take effect from 1st July, 2012.

Threshold for TDS on payment of Interest on Debentures:

Existing Provision: Under the existing provisions of section 193 of the Income-tax Act, a person responsible for paying interest to a resident individual on listed debentures of a company, in which the public are substantially interested, is not required to deduct tax on the amount of interest payable if the aggregate amount of interest paid during a financial year does not exceed Rs.2, 500/- and the interest is paid by account payee cheque. However, in the case of unlisted debentures of a company, no threshold limit is specified for deduction of tax on payment of interest.

Proposed: In order to reduce the compliance burden on small assessee and companies, it is proposed that no deduction of tax should be made from payment of interest on any debenture, (whether listed or not) issued by a company, in which the public are substantially interested, to a resident individual or Hindu undivided family, if the aggregate amount of interest on such debenture paid during the financial year does not exceed Rs.5, 000/- and the payment is made by account payee cheque.

Effective Date: This amendment will take effect from 1st July, 2012.

Rationalization of TDS and TCS Provisions:
Deemed Date of Payment of tax by the resident payee:
Existing Provision: Under the existing provisions of Chapter XVII-B of the Income-tax Act, a person is required to deduct tax on certain specified payments at the specified rates if the payment exceeds specified threshold. In case of non-deduction of tax in accordance with the provisions of this Chapter, he is deemed to be an assessee in default under section 201(1) in respect of the amount of such non-deduction.

However, section 191 of the Act provides that a person shall be deemed to be assessee in default in respect of non/short deduction of tax only in cases where the payee has also failed to pay the tax directly. Therefore, the deductor cannot be treated as assessee in default in respect of non/short deduction of tax if the payee has discharged his tax liability.

Proposed: In order to provide clarity regarding discharge of tax liability by the resident payee on payment of any sum received by him without deduction of tax, it proposed to amend section 201 to provide that the payer who fails to deduct the whole or any part of the tax on the payment made to a resident payee shall not be deemed to be an assessee in default in respect of such tax if such resident payee –

(i) Has furnished his return of income under section 139;

(ii) Has taken into account such sum for computing income in such return of income; and

(iii) Has paid the tax due on the income declared by him in such return of income, and the payer furnishes a certificate to this effect from an accountant in such form as may be prescribed.

The date of payment of taxes by the resident payee shall be deemed to be the date on which return has been furnished byte payer.

It is also proposed to provide that where the payer fails to deduct the whole or any part of the tax on the payment made to a resident and is not deemed to be an assessee in default under section 201(1) on account of payment of taxes by the such resident, the interest under section 201(1A) (i) shall be payable from the date on which such tax was deductible to the date of furnishing of return of income by such resident payee.

Amendments on similar lines are also proposed to be made in the provisions of section 206C relating to TCS for clarifying the deemed date of discharge of tax liability by the buyer or licensee or lessee.

Effective Date: These amendments will take effect from 1st July, 2012.

Disallowance of Business Expenditure on account of non-deduction of tax on payment to resident payee:

Existing Provision: Presently, disallowance is made under section 40(a)(ia) of certain business expenditure like interest, commission, brokerage, professional fee, etc. due to non-deduction of tax. It has been provided that in case the tax is deducted in subsequent previous year, the expenditure shall be allowed in that subsequent previous year of deduction.

Proposed: In order to rationalise the provisions of disallowance on account of non-deduction of tax from the payments made to a resident payee, it is proposed to amend section 40(a)(ia) to provide that where an assessee makes payment of the nature specified in the said section to a resident payee without deduction of tax and is not deemed to be an assessee in default under section 201(1) on account of payment of taxes by the payee, then, for the purpose of allowing deduction of such sum, it shall be deemed that the assessee has deducted and paid the tax on such sum on the date of furnishing of return of income by the resident payee.

These beneficial provisions are proposed to be applicable only in the case of resident payee.
Effective Date: These amendments will take effect from 1st April, 2013 and will, accordingly, apply in relation to the assessment year 2013- 14 and subsequent assessment years.

Fee and Penalty for delay in furnishing of TDS/ TCS Statement and penalty for incorrect information in TDS/ TCS Statement:

Existing Provision: Under the existing provisions of section 272A, penalty of Rs.100 per day is levied for delay in furnishing of TDS statement, however, no specific penalty is specified for furnishing of incorrect information in the TDS statement. The said provisions of penalty are not proved to be effective in reducing or eliminating defaults relating to late furnishing of TDS statement.

Proposed: In order to provide effective deterrence against delay in furnishing of TDS statement, it is proposed –

(i) To provide for levy of fee of Rs.200 per day for late furnishing of TDS statement from the due date of furnishing of TDS statement to the date of furnishing of TDS statement. However, the total amount of fee shall not exceed the total amount of tax deductible during the period for which the TDS statement is delayed, and

(ii) To provide that in addition to said fee, a penalty ranging from Rs.10,000 to Rs.1,00,000 shall also be levied for not furnishing TDS statement within the prescribed time.

In view of the levy of fee for late furnishing of TDS/ TCS statement, it is also proposed to provide that no penalty shall be levied
for delay in furnishing of TDS statement if the TDS/ TCS statement is furnished within one year of the prescribed due date after payment of tax deducted along with applicable interest and fee.

In order to discourage the deductors to furnish incorrect information in TDS/ TCS statement, it is proposed to provide that a penalty ranging from Rs.10,000 to Rs.1,00,000 shall be levied for furnishing incorrect information in the TDS/TCS statement.

Consequential amendment is proposed in section 273B so that no penalty shall be levied if the deductor proves that there was a reasonable cause for the failure.

Consequential amendment is also proposed in section 272A to provide that no penalty under this section shall be levied for late filing of TDS statement in respect of tax deducted on or after 1st July, 2012.

Effective Date: These amendments will take effect from 1st July, 2012 and will, accordingly, apply to the TDS or TCS statement to be furnished in respect of tax deducted or collected on or after 1st July, 2012.

 

Revised Validity Period – Payment of Cheques/Drafts/Pay Orders

As per the new RBI guideline effective 1st April 2012, CC/DDs /Cheques validity being reduced from 6 to 3 months. Pls note

– Cheques / Demand Drafts / Pay Orders dated April 01,2012 or after, if presented on or after April 01, 2012 will be valid only for three months from the date on the instrument.

– Cheques / Demand Drafts / Pay Orders issued and dated on or before March 31,2012 shall continue to be valid for six months from the date on the instrument.

Whether deduction u/s 80C is available on Principal Amount of Housing Loan repaid when House is under Construction

As stated in section 80C (2) “The sums referred to in sub section (1) shall be any sums paid or deposited in the previous year by the assessee –
———————
(xviii) For the purpose of purchase or construction of a residential house property the income from which is chargeable to tax under the head “Income from house property”
———————– ”

As per the provisions of section 80C, the deduction for principal repayment of housing loan is provided only in respect of a house property, whose income is chargeable to tax under the head lncome from house property.
As the house property is still under construction in previous year in which loan is paid, no income is chargeable to tax under the head income from house property.
Hence, no deduction shall be available under section 80C for principal repayment of the housing loan for property under construction.

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Leviability of service tax on toll fee

Circular No. 152/3 /2012-ST, Dated- 22 February, 2012

Subject: Toll in the nature of ‘user charge’ or ‘access fee’ paid by roads users – regarding.

A representation has been received by the Board, seeking clarification regarding leviability of service tax on toll fee (hereinafter referred as ‘toll’) paid by users, for using the roads. The representation has been examined.

2. Service tax is not leviable on toll paid by the users of roads, including those roads constructed by a Special Purpose Vehicle (SPV) created under an agreement between National Highway Authority of India (NHAI) or a State Authority and the concessionaire (Public Private Partnership Model, Build-Own/Operate-Transfer arrangement). ‘Tolls’ is a matter enumerated (serial number 59) in List-II (State List), in the Seventh Schedule of the Constitution of India and the same is not covered by any of the taxable services at present. Tolls collected under the PPP model by the SPV is collection on own account and not on behalf of the person who has made the land available for construction of the road.

3. However, if the SPV engages an independent entity to collect toll from users on its behalf and a part of toll collection is retained by that independent entity as commission or is compensated in any other manner, service tax liability arises on such commission or charges, under the Business Auxiliary Service [section 65(105) (zzb) read with section 65(19) of the Finance Act, 1994].

4. Further, an SPV formed as a result of agreement between NHAI or State Authority and the concessionaire under the BOT arrangement, cannot be considered as an agent of the NHAI. Renting, leasing or licensing of vacant land by the NHAI or State Authority to an SPV for construction of road and such construction do not attract service tax.

5. This Circular may be communicated to the field formations and service tax assessees, through Public Notice/ Trade Notice. Hindi version to follow.

(Samar Nanda)
Under Secretary, TRU

Update your IEC Record

In View of Public Notice No. 84/2009-2014 (RE-2010) Complete PAN details, Telephone Numbers, Email IDs, and Mobile Number (of the Signatory of the ANF2A)have been made mandatory fields; while Alternate Email ID, Website Address are optional. This is required to facilitate updating the IEC records. No payment of application fee is required till 31.3.2012 for such updating of IEC Records.

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