Wednesday, March 23, 2011
Monday, February 28, 2011
PART B TAX PROPOSALS
Exemption limit for the general category of individual taxpayers enhanced from Rs.1,60,000 to Rs.1,80,000 giving uniform tax relief of Rs. 2,000.
Exemption limit enhanced and qualifying age reduced for senior citizens. [Age limit brought down from 65 years to 60 years] [Exempt up to Rs.2,50,000]
Higher exemption limit for Very Senior Citizens, who are 80 years or above. [No tax up to Rs.5 lakhs]
Current surcharge of 7.5 per cent on domestic companies proposed to be reduced to 5 per cent.
Rate of Minimum Alternative Tax proposed to be increased from 18 per cent to 18.5 per cent of book profits.
Tax incentives extended to attract foreign funds for financing of infrastructure.
Additional deduction of Rs 20,000 for investment in long-term infrastructure bonds proposed to be extended for one more year.
Lower rate of 15 per cent tax on dividends received by an Indian company from its foreign subsidiary.
Benefit of investment linked deduction extended to businesses engaged in the production of fertilisers.
Investment linked deduction to businesses developing affordable housing.
Weighted deduction on payments made to National Laboratories, Universities and Institutes of Technology to be enhanced to 200 per cent. System of collection of information from foreign tax jurisdictions to be strengthened.
To stay on course for transition to GST.
Central Excise Duty to be maintained at standard rate of 10 per cent
Reduction in number of exemptions in Central Excise rate structure.
Nominal Central Excise Duty of 1 per cent imposed on 130 items entering in the tax net.
Lower rate of Central Excise Duty enhanced from 4 per cent to 5 per cent.
Optional levy on branded garments or made up proposed to be converted into a mandatory levy at unified rate of 10 per cent.
Peak rate of Custom Duty held at its current level.
Concessional basic Custom Duty of 5 per cent and CVD of 5 per cent available to newspaper establishments for high speed printing presses extended to mailroom equipment.
Standard rate of Service Tax retained at 10 per cent, while seeking a closer fit between present regime and its GST successor.
Hotel accommodation in excess of Rs1,000 per day and service provided by air conditioned restaurants that have license to serve liquor added as new services for levying Service Tax.
Tax on all services provided by hospitals with 25 or more beds with facility of central air conditioning.
Service Tax on air travel both domestic and international raised.
Services provided by life insurance companies in the area of investment and some more legal services proposed to be brought into tax net.
All individual and sole proprietor tax payers with a turn over upto Rs.60 lakh freed from the formalities of audit.
To encourage voluntary compliance the penal provision for Service Tax are being rationalised. Similar changes being carried out in Central Excise and Custom laws.
Friday, February 11, 2011
Definition of advancement of any other object of general public utility is amended with retrospective effect from AY 2009-10 to mean that it amounts to charitable purpose where the total receipts from such activity, etc, in the previous year do not exceed Rs.10 lakhs.
Sec 9(1) is amended to provide that in the case of non-resident, the cases covered under clause (v), (vi) and (vii) of Sec 9(1) shall be always taxable whether or not-
And by this amendment the SC’s ruling in Ishikawajma-Harima Heavy industries Ltd v. DIT is completely superseded.
Hitherto, Sec 10(21) covers only incomes of a scientific research associations notified U/S 35(1)(ii). Now, this section is extended in respect of research associations undertaking research in social science or statistical research which is notified U/S 35(1)(iii).
Hitherto, the word assessee is substituted with the word “UNDERTAKING” only for the AY 2010-11. Now a proviso is added that the same shall be applicable w.r.e.f AY 2006-07.
Now the CIT can cancel the registration of a trust which is accorded to it U/S 12AA as well as U/S 12A. Till now, CIT has power to cancel if the registration is granted U/S 12AA. Now they can cancel even if the registration is obtained U/S 12A.
The concept of proportionate depreciation is now extended to the cases of succession of unlisted / private companies into LLPs. Such apportionment will be done based on the number of days for which the asset is used.
From the assessment
35(2AB) – Expenditure incurred by a company(not being cost of land or building)on approved in-house research and development facility
35(1)(ii) – Contribution to an approved scientific research association that has the object of undertaking scientific research or to an approved university, college or other institutions to be used for scientific research
35(2AA) – Any sum paid to an approved National Laboratory, or a university or an IIT or specified person for the purpose of approved scientific research program
Now Sec 35AD is extended to new hotels (Minimum two star), new hospitals with minimum 100 patient beds, notified housing projects established any where in India. Deduction is available in respect of businesses which commenced their operations on or after 1st April 2010. Deduction is available only with regard to capital expenditure other than goodwill, land and financial instruments.
Further, the common carrier is clarified to mean as one third in the case of gas and one fourth in the case of petroleum.
Deduction in respect of VRS is extended to business reorganization cases. In the case where unlisted company or private limited company is converted into LLP, the same shall be allowed in the hands of LLP from the year in which business re-organization takes place provided the conditions of Sec 47(xiiib) are satisfied.
Earlier in respect of certain payments to residents, expenditure is allowable if the necessary TDS is deposited before the due date of return where TDS is done in the last month (i.e March) and deposited by 31st March of the previous year in respect of all other payments.
Now relaxation is provided with regard to payments by providing that they can be remitted before the due date of filing the return of income. [i.e as per the new provisions, TDS is to be deducted by 31st March of the previous year where as the remittance is to be effected before the due date of the return to claim the related expenditure]. Also, note that Sec 40a(ia) is applicable for sums covered U/S 193, 194A, 194C, 194H, 194I, 194J
Hitherto, the COA of a 35AD asset to an amalgamated company etc, is taken as Nil if in respect of the same, the amalgamating company has claimed deduction. Now, similar rule is extended even with regard to conversion of unlisted public company or private company to an LLP.
Amendment to section 44AB – Limit of turnover increased [New limits are Rs.60 lakhs for business and Rs.15 lakhs for profession]
Amendment to section 44AD – Threshold limit of turnover increased [From Rs. 40 lakhs to Rs.60 lakhs]
Income of a non-resident providing services or facilities in connection with prospecting for, or extraction or production of, mineral oil [Sec 44BB and 44DA]
There is a small overlap over Sec 44BB and Sec 44DA when a non-resident having PE provides services etc,. in relation to prospecting of mineral oil in India. Now, it is settled that first we need to check whether it is a case falling U/S 44DA. Once the NR is having PE in India, always income shall be computed as per the provisions of Sec 44DA. Else, it is covered as per the provisions Sec 44BB.
Capital gain exemption in the case of conversion of an unlisted company into a LLP [Sec 47(xiiib)] and amendment of Sec 47A
Clause 47(iiib) exempts conversion of an unlisted public company or a private company into LLP provided it satisfies the requirements of Sec 56 and 57 of the LLP Act and certain additional conditions under the IT Act. [All assets and lia of company shall become assets and lia of the LLP; Shareholders of old company shall not receive any other consideration other than the capital; the shareholders’ stake shall not be diluted for a period of 5 years from conversion and also they cannot withdraw the past profits for a period of 3 years from conversion, etc,.]; When these conditions are violated (i.e dilution in voting power at anytime in 5 years or withdrawal of profits in a period of 3 years), the shareholders as well as the company are liable for capital gains tax in the year in which violation takes place.
Also, certain other sections are amended viz, the unabsorbed depreciation and losses of the company shall be allowed in the hands of the LLP. The remaining depreciation loss only shall be allowed in the hands of the LLP. Further, the balance unabsorbed loss shall be carried forward for a fresh period of 8 years. Also,115JB credit shall be allowed only to the company and hence LLP is not allowed the same. The cost to the partners and the cost to the LLP of capital assets shall be the same which was in the hands of the old share holders and in the hands of the firm.
Cost of asset in the hands a LLP (new entity created now) = Cost in the hands of private company or unlisted company (old entities prior to conversion)
Similarly cost (i.e cost of rights in LLP) in the hands of share holder in the LLP = Cost of shares in private company or unlisted company
However, the period of holding in old entities shall not be considered to determine the nature of capital gains.
Where any gifted property U/S 56(2)(vii) is subsequently sold, capital gains will be taxed after taking into account the taxed amount U/S 56(2)(vii) as COA. This provision is now extended to Sec 56(2)(viia)
Immovable property received by an individual / HUF will be taxable U/S 56(2)(vii) only if it is received absolutely free of cost. [i.e received with nil consideration].
Receipt of bullion for nil consideration or for inadequate consideration shall be taxable w.e.f 1st June 2010.
Receipt of shares by a firm or by a closely held company w.e.f 1st June 2010 for nil consideration or for inadequate consideration considered separately. [i.e gift element of nil consideration and gift element in transactions of inadequate consideration are to be considered separately]
Where a private ltd company or unlisted public company is converted into LLP by satisfying the conditions laid down in Sec 47(xiiib), the losses shall be allowable for fresh 8 years, depreciation shall be allowable without any time limit and speculation losses shall not be eligible to be carried forwarded. And where the conditions of Sec 47(xiiib) are violated at a later year, then the previously allowed loss shall be treated as income of the LLP in the year in which conditions are violated.
Once an assessee claims deduction U/S 80HH to 80RRB in respect of a notified business notified U/S 35AD, he can never claim deduction U/S 35AD not only with regard to that year but also in respect of all future years. [W.E.F AY 2011-12]
Special deduction U/S 80CCF to individuals, HUF in respect of subscription to long term infrastructure bonds of additional amount of Rs.20,000 in addition to the limit of Rs.1 lakh available U/S 80-C, CCC, CCD. [Available only for the AY 2011-12]
Sec 80D deduction is extended in respect of an individual when he contributed to Central Government Health Scheme. However, he can contribute and claim this deduction only in respect of premium on his family (other than parents).
Now donors who donate sums to research associations recognized U/S 35(1)(iii) for carrying on research in social sciences and statistical research are also eligible for claiming deduction U/S 80GGA. Earlier this section is available to donors donating to recognized universities, colleges and institutions U/S 35(1)(iii)
Deduction U/S 80-IB(10) with respect to housing projects is amended to provide that the construction is to be completed within 5 years from the end of the year in which housing project is approved by the local authority if such approval is granted on or after 1st April 2005. Also, relaxation is given with regard to built up area for shops and commercial establishments by increasing the limit to 3% of total built up area of the housing project or 5000 sq ft whichever is higher. [Applicable w.e.f 1st April 2010]
Deduction U/S 80-ID is available in respect of hotels and convention centers in specified areas viz. [National Capital Territory of Delhi and districts of Faridabad, Gurgaon, Gautam Budh Nagar and Ghaziabad]. The time limit for completion of construction is extended from 31st March 2010 to 31st July 2010.
Return U/S 139(4C) is extended to research associations carrying on research in social science or statistical science also.
Provisions relating to reference to valuation officer U/S 142A for valuing the property referred in Sec 69, 69A, 69B is now extended to the gifts covered U/S 56(2).
Time limit for issuing notification to do centralized processing of returns is extended up to 31st March 2011 from the existing time limit of 31st March 2010. [Sec 143(1B)]
Threshold limits for payments mentioned in sections 194B,194BB,194C,194D,194H,194-I and 194J have been increased as given in the table below with effect from July 1, 2010 –
Nature of payment
Existing limit applicable up to June 30, 2010 Rs.
New limit applicable from July 1 , 2010 Rs.
Winning from lottery or crossword puzzle
Winning from horse race
Payment to contractors (consideration for single contract)
Payment to contractors (aggregate consideration for all contracts during the financial year)
Commission / Brokerage
Fees for professional services, or technical services
Changes in TDS rates – There is no change in TDS rates
Interest leviable for TDS defaults is amended. For the default in deduction of TDS, interest shall continue to be @ 1% p.m or part of the month. For the default in remittance of TDS, interest shall be charged @ 1.5% per month or part of the month.
Rate of interest (p.m or part of month)
Period for which interest is payable
From the date on which tax was deductible to the date on which tax is actually deducted
From the date on which tax was actually deducted to the date on which tax is actually paid