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.