BUDGET AT GLANCE (` In Crore )

Transcription

1 Sr. No. Particulars BUDGET AT GLANCE (` In Crore ) Budget Estimates Revised Estimates Budget Estimates 1 Revenue Receipts [2+3] Tax Revenue (net to centre) Non Tax Revenue Capital Receipts [5+6+7]$ Recoveries of Loans Other Receipts Borrowings and other liabilities * Total Receipts [1+4]$ Non Plan Expenditure [10+12] On Revenue Account, of which Interest Payments On Capital Account Plan Expenditure [14+15] On Revenue Account On Capital Account Total Expenditure [9+13] Revenue Expenditure [10+14] Of which, Grants for creation of capital assets Capital Expenditure [12+15] Revenue Deficit [17 1] % in respect of GDP Effective Revenue Deficit [20 18] % in respect of GDP Fiscal Deficit [16 [1+5+6]] % in respect of GDP Primary Deficit [22 11] % in respect of GDP GDP for BE has been projected at ` crore assuming 14% growth over the Advance Estimates of (` crore) released by Actuals For are provisional $ Excluding receipt under market stabilization scheme * Included Draw Down of Cash Balance B 3 Mukesh M. Shah & Co.

2 THE UNION BUDGET : AN OVERVIEW Direct Taxes Income Tax : Positive Proposals : Threshold limit of exemption enhanced from present ` 180,000 to ` 200,000. Revision in slab of income : - upper limit of slab for 10% tax rate revised from ` 300,000 to ` 500,000 - Slab for 20% tax rate changed to ` 500,000 ` 1,000,000 from ` 300,000 ` 800,000 - Lower limit of slab for 30% tax rate revised from ` 800,000 to ` 1,000,000 Age limit of 60 years for senior citizen announced in the last budget for the purpose of basic exemption limit now applied to other beneficial provisions too. New deduction up to ` 10,000 introduced for interest income from saving deposit with banks and post offices. Deduction introduced in respect of amount incurred upto ` 5,000 on health check up within the overall limit of section 80D. Deduction of 50% introduced for Investment made up to ` 50,000 in Rajiv Gandhi Equity saving scheme. This benefit shall be available to retail investors having annual income less than ` 1,000,000. Withholding tax rate reduced from 20% to 5% on interest payment on ECB for specified purposes. Weighted deduction on R & D expenditure in inhouse facility extended for 5 years. Resident senior citizens spared from payment of advance tax who do not have any income from business or profession. Extension of sunset clause for tax holiday for power sector to 31 st March, Limit for turnover for the purpose of tax audit enhanced to ` 1 Crore for business and ` 25 Lacs for profession. Limit for turnover for the purpose of presumptive taxation of small business enhanced to ` 1 Crore. Exemption provided to Long term capital gain on transfer of residential property in case invested in equity capital of SME company to be utilized for acquisition of new plant and machinery. Negative Proposals : Additional deduction for investment in infrastructure bonds upto ` 20,000 discontinued. Alternate Minimum Tax extended to all the assessees other than companies claiming deductions under section 10AA and/ or under Chapter VI A. B 4 Mukesh M. Shah & Co.

3 Transfer pricing provisions enhanced and tightened. Framework for Advance Pricing Ageement proposed. Domestic transactions also covered under transfer pricing regulations. Retrospective amendments proposed in section 9 and 195 reversing the Vodafone judgement. Other Proposals : Introduction of TCS on sale of bullion and jewellery in cash in excess of ` 200,000. Introduction of TCS on sale of minerals. Introduction of TDS on sale of immovable properties for more that specified amount. Income tax officers can now re open assessments pertaining to foreign assets for upto 16 years instead of the current limit of 6 years. Time limit for completion of regular assessment increased by 3 months. General Anti Avoidance Rules [GAAR] introduced in line with the DTC proposals. The Direct tax proposals are estimated to result in net revenue loss of ` 4,500 Crore. Service Tax : Tax rate hiked from 10% to 12%. Negative list introduced with 17 services remaining outside service tax net. Only 34 services exempt from service tax. Refund mechanism simplified for exporters of services. Revision application authority and settlement commission introduced in Service Tax. Input Tax Credit for service tax expanded. Excise Duty : Base rate of Excise duty hiked from 10% to 12%. Custom Duty : No change in the peak rate of duty. Number of duty reductions/ exemptions provided to certain sectors like agriculture, infrastructure, mining, railways, roads, civil aviation, manufacturing, health and nutrition, environment etc. The Indirect tax proposals are estimated to result in net revenue gain of ` 45,940 Crore. Securities Transaction Tax : STT rate cut by 20% on cash delivery transactions. B 5 Mukesh M. Shah & Co.

4 DIRECT TAX PROPOSALS: INCOME TAX PREAMBLE : While beginning the Tax Proposals in the Budget speech, the Finance Minister quoted As Hemlet, the prince of Denmark, has said in Shakespeare s immortal words, I may be cruel only to be kind. It was pronounced by the Finance Minister in the Union Budget, 2011 for the enactment of Direct Tax Code (DTC) during the year Though the DTC could not be enacted during the year , the tax proposals for the fiscal year also encompasses the progress towards the direction of the same. Applicability : All the provisions of the Finance Bill, 2012 will be applicable from 1 st April, 2013 and apply to the Asst. Year and subsequent assessment years, unless otherwise stated. Rates of Income Tax : Individuals, Hindu Undivided Family (HUF), AOP, BOI and Artificial Juridical person : The basic exemption limit for Income Tax is proposed as stated below : Type of Assessee Proposed Limit (`) Existing Limit (`) Remarks Individuals below 60 years, HUF, AOP, BOI and Artificial Judicial person 200, ,000 Increased by ` 20,000 Resident women below 60 years 200, ,000 Increased by ` 10,000 Resident Individuals of 60 years or more but less than 80 years 250, ,000 No change Resident individuals of 80 years or more 500, ,000 No change Proposed tax slabs would be as follows : Income Individuals below 60 Years/ HUF/ AOP/ Artificial Juridical Person Individuals above 60 years or more but less than 80 years Individuals above 80 years or more ` 200,001 to ` 250,000 10% Nil Nil ` 250,001 to ` 500,000 10% 10% Nil ` 500,001 to ` 1,000,000 20% 20% 20% Above ` 1,000,000 30% 30% 30% B 6 Mukesh M. Shah & Co.

5 No surcharge will be leviable to individual, HUF. However, Education Cess and Secondary and Higher Education Cess are continued as per the last year i.e. at the rate of 2% and 1% on Income Tax respectively. The following table depicts the tax liability (inclusive of applicable Education Cess and Secondary and Higher Education Cess) on various income levels in case of individuals who are below 60 years of age and HUF : Total Income (`) Tax Liability (`) Proposed Existing Savings 200, ,000 30,900 32,960 2,060 1,000, , ,560 22,660 1,500, , ,060 22,660 Firms and Limited Liability Partnership (LLP), Co operative Societies and Local Authorities : No change is proposed in the tax rate. No surcharge is proposed. Education Cess and Secondary and Higher Education Cess are continued to be levied at the rate of 2% and 1% on Income Tax respectively. Companies : Tax rate and Surcharge are proposed to be the same as per last year. Surcharge shall continued to be leviable on dividend Distribution Tax (115 O), Tax on distributed profits to Unit Holders (115 R) and Minimum Alternative Tax (115 JB). Education Cess and Secondary and Higher Education Cess shall continue to be levied at the rate 2% and 1% respectively on Income tax and Surcharge. Provisions relating to Business Income : Income deemed to accrue or arise in India widening of scope and applicability of section 9 and 195 : At present Section 9 of the Income Tax Act provides cases of income, which are deemed to accrue or arise in India. This is a legal fiction created to tax income, which may or may not arise in India and would not have been taxable but for the deeming provision created by this section it is taxable. The Hon ble Supreme Court in the recent landmark judgment in the case of Vodafone International Hodlings B.V. v/s Union of India [2012] 341 ITR 1 (SC) by interpreting section 5 and 9 of the I.T. Act held that the Indian Authorities did not have powers to tax Cayman Islands transaction. Consequential to the same, it is proposed to widen the application of Section 9 of the Income Tax Act by inserting explanation to cover incomes which are accruing or arising directly or indirectly. The section codifies source rule of taxation wherein the State where the actual B 7 Mukesh M. Shah & Co.

6 economic nexus of income is situated has a right to tax the income irrespective of the place of residence of the entity deriving the income. Internationally this principle is recognized by several countries, which provide that the source country has taxation right on the gains derived of offshore transactions where the value is attributable to the underlying assets. Correspondingly definitions of word property and transfer also expanded. Section 195 of the Income tax Act requires any person to deduct tax at source before making payments to a non resident if the income of such non resident is chargeable to tax in India. It is also proposed to expand the scope of section 195 and therefore, a non resident person is also required to deduct tax at source before making payments to another non resident, if the payment represents income of the payee non resident, chargeable to tax in India. Tax has to be deducted at source, whether the payment is made by a resident or a non resident. These amendments will retrospectively apply from 1 st April, 1962, i.e. A.Y At present section 9(1)(vi) provides that any income payable by way of royalty in respect of any right, property or information is deemed to be accruing or arising in India. The term royalty has been defined in Explanation 2 which means consideration received or receivable for transfer of all or any right in respect of certain rights, property or information. Some judicial decisions have interpreted definition of the term royalty in a manner which has raised doubts as to whether consideration for use of computer software is royalty or not; whether the right, property or information has to be used directly by the payer or is to be located in India or control or possession of it has to be with the payer. It is proposed to amend section 9(1)(vi) by inserting explanation to clarify that the consideration for use or right to use of computer software (including granting of license) irrespective of the medium through which such right is transferred treated as is royalty. It is also proposed to expand scope of royalty by inserting explanation to clarify that royalty includes and has always included consideration in respect of any right, property or information, whether or not i) the possession or control of such right, property or information is with the payer; ii) such right, property or information is used directly by the payer; iii) the location of such right, property or information is in India. Similarly, doubts have been raised regarding the meaning of the term process : It is proposed to amend section 9(1)(vi) by inserting explanation to clarify that 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 fibre or by any other similar technology, whether or not such process is secret. These amendments will retrospectively apply from 1st June, 1976, i.e. A.Y B 8 Mukesh M. Shah & Co.

7 Applicability of Transfer Pricing Regulations to domestic transactions exceeding ` 5 crore in aggregate during the year : As per the existing provisions, the assessing officer is empowered To disallow unreasonable expenditure incurred between related parties. To re compute the income based on fair market value of the undertaking to which profit linked deduction is provided if there are transactions with the related parties or other undertakings of the same entity. However, no specific method to determine reasonableness of expenditure or fair market value to recompute the income in such related transactions is provided under these sections. After examining the complications which may arise in cases where fair market value is to be assigned to such transaction, in order to reduce litigation occurring in complicated matters, the Supreme Court in the case of CIT Delhi vs. Glaxo Smithkline Asia (P) Ltd. [2010] 2011 TPI 324 (SC) suggested to consider appropriate provisions in to make transfer pricing regulations applicable to such related party domestic transactions. Court has also suggested to expand the definition of related parties to cover cases of companies which have the same parent company. It is therefore proposed to amend the act to provide the following : Application of transfer pricing regulations to specified domestic transaction between related resident parties for the purpose of computation of income. Specified domestic transaction in case of an assessee means any of the following transactions where the aggregate of such transactions entered in to by the assessee in the previous year exceeds ` 5 crore viz.: any expenditure in respect of which payment has been made or is to be made to a person referred to in section 40A(2)(b); any goods or services sold, supplied or acquired by the undertaking or unit or enterprise or eligible business referred to in section 80A; any goods or services transferred by between the industrial undertaking or enterprises engaged in infrastructure development etc. to any other business carried on by it and vice versa referred to in section 80 IA(8); any business transacted between the industrial undertaking or enterprises engaged in infrastructure development etc. referred to in section 80 IA(10); any transaction referred to in any other section under Chapter VI A or section 10AA, to which section 80 IA(8) or 80IA(10) are applicable; or any other transaction as may be prescribed. Related persons defined u/s 40A to include companies having the same holding company. B 9 Mukesh M. Shah & Co.

8 Determination of Arms length price, maintenance and keeping of information and documents and obtaining of auditor s report as per transfer pricing regulations. Penalty u/s 271AA at the rate of 2% of value of each specified domestic transaction entered into shall be levied if assessee fails to keep and maintain information and documents, fails to report such transaction or maintains or furnishes an incorrect information or document. Penalty u/s 271G at the rate of 2% of value of each specified domestic transaction shall be levied for non furnishing of any information or documents called for by assessing officer or Commissioner (Appeals). Alternate Minimum Tax on all persons other than Companies : At present, Minimum Alternate Tax (MAT) is levied on the companies. Further from Assessment Year (AY) , Alternate Minimum Tax (AMT) is levied on Limited Liability Partnerships (LLPs). However, other assessees namely individuals/sole proprietor, partnership firm, association of persons etc. are not liable to pay either MAT or AMT. It is proposed to amend Section 115JC and other relevant Sections to provide that a person other than a Company, who has claimed deductions under any section included in Chapter VI A under the Heading C Deductions in respect of certain Incomes (Except Section 80P) or under Section 10AA (i.e. applicable to new units established in Special Economic Zones), shall be liable to pay AMT. Under the proposed amendment, where the regular income tax payable by a person is less than the AMT payable for the previous year, the adjusted total income shall be deemed to be the total income of such person and it shall be liable to pay income tax on such total income. The rate of AMT is proposed to be fixed at 18.5 % plus cess. The following adjustments are proposed to be made in the total income for arriving at the adjusted total income for the purposes of AMT. The total income shall be increased by the amount of any deductions claimed under any section included in Chapter VI A (Except Section 80P) in respect of certain incomes. The total income shall also be increased by any deduction claimed under section 10AA. It is provided that the credit for AMT paid by the person shall be allowed to the extent of the excess of the AMT paid over the regular income tax. It is further provided that such tax credit shall be allowed to be carried forward upto the 10 th assessment year immediately succeeding the assessment year in which such credit becomes allowable. Every person, to whom this section applies, shall have to obtain a report from a Chartered Accountant in prescribed format. Such report will have to be furnished on or before the due date of filing of return. However, the proposed Section shall not apply to an individual or a HUF or AOP etc. if adjusted total income does not exceed ` 20 Lacs. B 10 Mukesh M. Shah & Co.

9 Clarification of the meaning of international transaction and term intangible property : Existing definition of international transaction by its concise nature does not mention all the nature and details of transactions resulting in to non reporting of large number of transactions in audit report by tax payer. As per views of certain judicial authorities in cases of business restructuring etc. where even if there is an international transactions transfer pricing provisions would not be applicable if it does not have bearing on profits or loss of current year or impact on profit and loss account is not determinable under normal computation provisions other than transfer pricing regulations. An explanation has been inserted to clarify the scope of meaning of international transaction. Now the expression international transaction shall include: the purchase, sale, transfer, lease or use of tangible property including building, transportation vehicle, machinery, equipment, tools, plant, furniture, commodity or any other article, product or thing; the purchase, sale, transfer, lease or use of intangible property, including the transfer of ownership or the provision of use of rights regarding land use, copyrights, patents, trademarks, licences, franchises, customer list, marketing channel, brand, commercial secret, know how, industrial property right, exterior design or practical and new design or any other business or commercial rights of similar nature; capital financing, including any type of long term or short term borrowing, lending or guarantee, purchase or sale of marketable securities or any type of advance, payments or deferred payment or receivable or any other debt arising during the course of business; provision of services, including provision of market research, market development, marketing management, administration, technical service, repairs, design, consultation, agency, scientific research, legal or accounting service; a transaction of business restructuring or reorganisation, entered into by an enterprise with an associated enterprise, irrespective of the fact that it has bearing on the profit, income, losses or assets of such enterprises at the time of the transaction or at any future date; Now the expression intangible property shall include marketing related intangible assets, such as, trademarks, trade names, brand names, logos; technology related intangible assets, such as, process patents, patent applications, technical documentation such as laboratory notebooks, technical know how; artistic related intangible assets, such as, literary works and copyrights, musical compositions, copyrights, maps, engravings; data processing related intangible assets, such as, proprietary computer software, software copyrights, automated databases, and integrated circuit masks and masters; engineering related intangible assets, such as, industrial design, product patents, trade secrets, engineering drawing and schematics, blueprints, proprietary documentation; B 11 Mukesh M. Shah & Co.

10 customer related intangible assets, such as, customer lists, customer contracts, customer relationship, open purchase orders; contract related intangible assets, such as, favourable supplier, contracts, licence agreements, franchise agreements, non compete agreements; human capital related intangible assets, such as, trained and organised work force, employment agreements, union contracts; location related intangible assets, such as, leasehold interest, mineral exploitation rights, easements, air rights, water rights; goodwill related intangible assets, such as, institutional goodwill, professional practice goodwill, personal goodwill of professional, celebrity goodwill, general business going concern value; methods, programmes, systems, procedures, campaigns, surveys, studies, forecasts, estimates, customer lists, or technical data; any other similar item that derives its value from its intellectual content rather than its physical attributes. This amendment will retrospectively apply from 1 st April, 2002, i.e. A.Y Determination of Arm s Length Price (ALP) : Section 92C provides for computation of ALP by adopting most appropriate method for its determination and the arithmetic mean to be taken where more than one price is determined. Due to varying judicial decisions, to bring certainty to the issue, it proposed to reintroduce the proviso to section 92C(2) inserted by Finance Act, 2002 by inserting new section 92C(2A) that in case variation of transaction price from the arithmetic mean is within the tolerance range of 5%, no adjustment is required to be made to transaction value. These amendments will retrospectively apply from 1st April, 2002, i.e. A.Y with a rider, not to reopen already completed assessment only on this ground. Determination of Arm s Length Price Upper ceiling of tolerance range notified as 3% : As per existing provisions of section 92C(2), Central Government may notify a percentage of allowable variation and if the variation between the actual price of the transaction and the Arm s Length Price (ALP) determined by the chosen method is within notified percentage of transaction price, no adjustment to be made and actual price shall be treated as ALP. It is therefore proposed to provide and upper ceiling of 3% in respect of as power of Central Government to notify the tolerance range for determination of arms length price. Non furnishing of report of international transaction to be considered as income escaped assessment for the purpose of reassessment : B 12 Mukesh M. Shah & Co.

11 If an international transaction is not reported by the assessee, such transaction never gets benchmarked against arm s length principle and leads to a presumption of escaped income. It is therefore proposed to amend section 147 of the Act, to provide that where the assessee has failed to furnish report of international transaction mentioned in section 92E then such non reporting would be considered as deemed escapement of income and such a case can be reopened u/s 147 of the Act. Framework for Advance Pricing Agreement (APA) : It is proposed to insert new sections 92CC and 92DD to provide a framework for APA under the Act. Advance Pricing Agreement is an agreement between a taxpayer and a taxing authority on an appropriate transfer pricing methodology for a set of transactions over a fixed period of time in future. The APAs offer better assurance on transfer pricing methods and are conducive in providing certainty and unanimity of approach. The proposed section empowers CBDT to enter into an advance pricing agreement with any person undertaking an international transaction. Such APAs shall include manner of determination of the arm s length price by any method provided in section 92C(1), with necessary adjustment or variations in accordance with APA. The APA shall be valid for period as specified in the agreement not exceeding five consecutive previous years. CBDT is empowered to prescribe a Scheme providing for the manner, form, procedure etc. in respect of APA. On application made for entering into such APA, proceedings shall be deemed to be pending in the case of the persons like for making inquiries u/s 133(6) of the Act. The person entering in to such APA shall necessarily have to furnish a modified return within a period of three months from the end of the month in which the said APA was entered in respect of the return of income already filed for a previous year to which the APA applies. The modified return has to reflect modification to the income only in respect of the issues arising from the APA and in accordance with it. The assessment or reassessment proceedings shall be in accordance with the modified return within extended period of 1 year. If the assessment or reassessment proceedings for an assessment year relevant to a previous year to which the agreement applies has been completed before the expiry of period allowed for furnishing of modified return, the AO shall, in a case where modified return is filed, proceed to assess or reassess or recomputed within 1 year from the end of the financial year in which the modified return is furnished. All the other provisions of this Act shall apply accordingly as if the modified return is a return furnished under section 139. This provision shall be effective from 1 st July, Specific Power of examination by Transfer Pricing Officer (TPO) of international transaction not reported by the Assessee : B 13 Mukesh M. Shah & Co.

12 At present, TPO is competent to exercise all powers that are available to the assessing officer for determination of ALP and consequent adjustment. During the course of proceedings, TPO may notice an international transaction not reported by assessee and of which assessing officer also would not be aware of. In the absence of specific power, TPO cannot determine ALP of such international transaction noticed by him. Recently Mumbai Tribunal in the case of 3i Infotech Ltd. v. DCIT [2011] 51 DTR 385 held that Jurisdiction of TPO is restricted to the transactions referred by the Assessing Officer under section 92CA(1) and therefore, TPO cannot determine the ALP in relation to an international transaction not referred to him by the Assessing Officer. It is proposed to empower TPO to determine ALP of an international transaction noticed by him in the course of assessment proceedings before him even if said transaction is referred to him neither by the assessing officer nor by the taxpayer by way of report. This provision shall be effective from 1 st July, Extension of due date of filing of return of income by all assessee having international transaction: As per existing provisions of section 139, non corporate assessees who have undertaken international transactions are required to file return of income along with transfer pricing report in Form 3CEB, on or before 30 th September of the assessment year. It is proposed to extend the due date for filing of return of income along with tax audit report and transfer pricing report by all assessees to 30 th November of the assessment year to overcome practical difficulties in assessing contemporary comparable data before 30 th September in respect of their international transactions. This amendment will retrospectively apply from 1 st April, 2012, i.e. A.Y Scope of penalty enhanced to enforce compliance with Transfer Pricing regulations : At present section 271BA provides penalty for failure to furnish audit report, section 271AA provides penalty for failure to keep and maintain information and documents and section 271G provides penalty to furnish information or documents u/s 92D. To enforce better compliance with Transfer Pricing regulations, it is proposed to levy penalty at the rate of 2% of the value of the international transaction, if the taxpayer fails to keep and maintain any such information and document as required by sub section (1) or sub section (2) of section 92D; fails to report any international transaction which is required to be reported; or maintains or furnishes any incorrect information or documents. This penalty would be in addition to penalties in section 271BA and 271G. Income tax return in relation to assets located outside India : B 14 Mukesh M. Shah & Co.

13 Every resident having any asset including any financial interest in any entity outside India or signing authority in any account located outside India shall have to furnish return of income u/s 139 of the Act. Furnishing of such return would be mandatory irrespective of taxable income. This amendment will retrospectively apply from 1 st April, 2012, i.e. A.Y It is proposed that, as provision of section 147, the income shall be deemed to have escaped assessment where a person is found to have any asset including any financial interest in any entity outside India. It is further proposed to increase time limit for issue of notice for reopening of assessment on account of income escaping assessment to 16 years from existing 6 years where the income is in relation to any asset including any financial interest in any entity located outside India. Similarly, in case of wealth tax, notice for reopening of assessment on account of such wealth escaping assessment can be issued if 4 years, but not more than 16 years, have elapsed from the end of the relevant assessment year. These amendments will be applicable for any assessment year beginning on or before 1st April, Meaning assigned to a term used in Double Taxation Avoidance Agreement (DTAA): Existing provisions of sub section (3) of section 90 and 90A empowered the Central Government to assign a meaning through notification to clarify the intent of any term used in the DTAA, which was neither defined in the Act nor in the DTAA. Such clarification should normally apply form the date when the DTAA which has used such a term came in to force. It is proposed to provide that such meaning assigned through notification to a term used in an agreement shall be effective from the date of coming in to force of the DTAA. This amendment will retrospectively apply in case of agreement entered with the Government of any country from 1st October, 2009 and in case of agreement adopted between specified associations in the specified territory outside India from 1 st June, Extension of time limit for completion of assessment or reassessment where the information is sought under a DTAA : As present, during the course of assessment proceedings, for the prevention of evasion or avoidance of income tax chargeable under domestic law or corresponding law in other country or territory, the information are exchanged between the countries. Time taken in obtaining such information from foreign tax authorities (which is currently 6 months) has been excluded from the time prescribed for completion of assessment or reassessment. B 15 Mukesh M. Shah & Co.

14 Foreign enquiries generally be nature take longer time for obtaining information. So that, It is proposed to extend such period of exclusion from 6 months to 1 year. This provision shall be effective from 1 st July, Requirement of submission of Tax Residency Certificate (TRC) for claiming relief under DTAA : As present, as per provisions of section 90 and section 90A of the Act, tax payer, who is resident of one of the contracting country to the treaty is entitled to claim applicability of beneficial provisions either treaty or of the domestic law. To curtail claims of unintended treaty benefits by third party residents, it is proposed to make submission of TRC containing prescribed particulars, as a necessary but not sufficient condition for availing treaty benefits. Weighted deduction for scientific research and development(r & D), to continue : Section 35(2AB) allows weighted deduction on approved in house R & D 200% of expenditure incurred (not being on the cost of land or building).however this provisions are not applicable in respect of any expenditure incurred after 31 st March, To encourage to continue in house R & D facilities, it is now proposed to extend the benefit of said weighted deduction for 5 more years i.e. upto 31 st March, This amendment will therefore be applicable till AY Deduction in respect of capital expenditure on specified business : Under the current provisions of Section 35AD, 100% deduction is allowed in respect of expenditure of capital nature (other than land, goodwill and financial instruments) incurred for the specified business. Some of the major such businesses are as under: Setting up and operating cold chain facility; Setting up and operating a warehousing facility for storage of agricultural produce; Building and operating anywhere in India, a new hospital with at least one hundred beds for patients; Production of fertilizer in India. It is proposed to include following three new businesses as specified business Setting up and operating an inland container depot or container freight station notified or approved under the Customs Act, 1962 Bee keeping and production of honey and beeswax; and Setting up and operating a warehousing facility for storage of sugar. Date of commencement of operations is proposed on or after 1 st April, B 16 Mukesh M. Shah & Co.

15 Further it is also proposed to allow weighted 150% for the following specified business if operations are commenced on or after 1 st April, Setting up and operating cold chain facility; Setting up and operating a warehousing facility for storage of agricultural produce; Building and operating anywhere in India, a new hospital with at least one hundred beds for patients; Developing and building a housing project under a scheme for affordable housing framed by Central Government or a State Government Production of fertilizers in India. At present deduction is allowed to assessee engaged in the business of building and operating a hotel whereby the deduction can only be granted to the owner of a hotel, now it is proposed that if owner continues to own a hotel and transfers the operations to another person, even in such situation assessee is deemed to be carrying on such business and get benefit of the deduction. This amendment will take effect retrospectively from AY Dividends distribution tax (DDT) : Section 115 O 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. In a liberalized economy it is felt to remove cascading effect of DDT in multi tier corporate structure. Hence it is proposed to provide that in case domestic company receives during the year any dividend from any of its subsidiary and subsidiary has paid DDT then the said amount, if it is distributed as dividend by the holding company (a domestic company) in the same year, shall not be liable for DDT. This amendment will take effect from 1 st July, Taxation of Cash Credits, unexplained money etc at maximum rate : Income tax Act, 1961, contains Section Particulars 68 Unexplained sum found credited in books 69 Investments not recorded in books 69A Assessee found to be owner of money, bullion, jewellery etc. not recorded in books 69B Assessee made investment/ found to be owner of bullion, jewellery etc. and amount expended exceeds amount recorded in books 69C Assessee incurs expenditure but does not offer explanation for source of such expenditure B 17 Mukesh M. Shah & Co.

16 69D Amount borrowed on hundi or repaid to any person otherwise than through account payee cheque Presently, unexplained amounts under above Sections are deemed as income and chargeable to tax at the applicable rate, from time to time. Individuals and HUFs enjoys basic exemption limit, and hence any income which is below such basic exemption limit is not chargeable to tax. Such a generous provision is misused for laundering of unaccounted money. Proposed Section 115BBE provides that if total income of an assessee includes income referred in above stated Sections then tax will be levied at the rate of 30% plus surcharge and cess. It is further proposed that no deduction in respect of any expenditure or allowance shall be allowed to the assessee under any provisions of the Act, while computing deemed income under above stated Sections. Taxation of dividends from foreign subsidiary : New section 115BBD was inserted in AY This section provides Where the total income of an Indian Company includes dividends declared, distributed or paid by a foreign subsidiary company then it will be charged at the special rate of 15% plus applicable surcharge and cess. Foreign subsidiary company means A foreign company in which Indian company holds more than 26% of the equity share capital. The reduced rate of tax of 15 % provides an incentive to bring money to India by way of dividends. It is proposed to continue this incentive for one more year. It is proposed to extend the applicability of this Section in respect of income by way of certain foreign dividends received in financial year subject to the same conditions. Hike in the limit of turnover for tax audit : As per the current provision of the section 44AB, an assessee carrying on any business has to get his accounts audited in case total sales, turnover, or gross receipt in the business for the previous year exceeds ` 60 Lacs. The limit is ` 15 Lacs in case of the assessee carrying on profession. This provision was introduced in1984 by Mr. Pranav Mukharjee himself, when he presented budget as the Finance Minister. In 28 years, the cost inflation index has increased by manifold and hence the amendment proposes to hike the limit of turnover for the purpose of tax audit. The amendment will reduce compliance burden of small businesses/professionals. The above limit of turnover/ receipt is proposed to be hiked as under: Particulars Existing Limit (`) Proposed Limit (`) Business 60 Lacs 1 Crore B 18 Mukesh M. Shah & Co.

17 Profession 15 Lacs 25 Lacs Rationalization of provisions of disallowance on account of non deduction of tax : At present, disallowance made u/s 40(a)(ia) of certain business expenditure like interest, commission, brokerage, professional fee etc. due to non deduction of tax. It is proposed that where the payer fails to deduct the whole or any part of the tax on the payment made to a resident and he is not deemed to be an assessee in default (Where the payee has paid the tax on such payment) such payment will be allowed as a deduction. It is also proposed to dilute the responsibility of the assessee in default by providing that a person, who fails to deduct tax on the sum paid to a resident shall not be deemed to be an assessee in default in respect of such tax if such resident : has duly furnished his return of income ; has taken into account such sum for computing income in such return of income ; and has paid the tax due on the income declared by him in such return of income. Further, the person is required to furnish a certificate to this effect from a Chartered Accountant in the prescribed form. Similar changes are also introduced in relation to TCS. The proposed provision will take effect from 1 st July, Tax Incentive for funding of certain infrastructure sectors : In order to augment long term funds from foreign sources at lower costs for infrastructure sector, it is proposed to provide certain tax incentives. Accordingly an amendment is proposed in the section 115A of the Act. The major provisions of this proposal are as under: Tax incentive is proposed in respect of the interest paid by specified company to a non resident in respect of borrowing made in foreign currency from sources outside India. The incentive is proposed in respect of interest paid on the funds borrowed between 1 st July, 2012 and 1 st July, The funds have to be borrowed under an agreement, approved by the Central Government, including the rate of interest. The tax rate applicable on such interest will be 5% plus applicable surcharge and cess. The specified company shall be an Indian company engaged in the business of construction of dam; operation of aircraft; manufacture or production of fertilizers; construction of port including inland port; construction of road, toll road or bridge; B 19 Mukesh M. Shah & Co.

18 generation, distribution or transmission of power; construction of ships in a shipyard; or developing and building affordable housing project, as specified Under the provisions of section 194LC, the interest paid by such specified company to a nonresident shall be subject to 5% plus applicable surcharge and cess, effective from 1 st July, Issue of authorisation or requisition and subsequent assessment in search cases : Under the existing provisions of section 132 and section 132A, an authorisation can be issued or a requisition can be made for search proceedings. Allahabad High Court in the case of CIT v. Vandana Verma [2009] 31 DTR 214 held that in search cases u/s 132 warrant of authorisation must be issued individually and if not, assessment cannot be made in an individual capacity. It was also held that if it is issued jointly, the assessment will have to be made collectively in the status of association of persons/body of individuals. Considering this decision not in accordance with the legislative intent, it is proposed to insert a new section 292CC to provide that it shall not be necessary to issue an authorisation or a requisition separately in the name of each person and it should not be deemed to construe that it was issued in the name of AOP/BOI and accordingly assessment shall be made separately. This amendment will retrospectively apply from 1 st April, 1976, i.e. A.Y Extension of sunset date for tax holiday for power sector : Currently, the provisions of section 80IA(4)(iv) of the Act provides deduction from profits of an undertaking engaged in generation, transmission and distribution of power subject to the conditions specified therein. Originally, the benefit of this deduction was available to the units which commence specified activity during the period ending on 31 st March, It is proposed to extend the eligibility period for one year, i.e. up to 31 st March, This provision shall be effective from 1 st April, Liability to pay advance tax in case of non deduction of tax : In many cases, the Courts have taken the view that the assessee can consider the amount of tax deductible/ collectible from estimated income and he can pay the balance amount only as advance tax. He is not liable to pay advance tax to the extent the tax is deductible or collectible from any amount received by him. In order to make the assessee liable, it is proposed to amend section 209 of the Act to provide that where a person has received income without TDS/ TCS, he shall be liable to pay advance tax in respect of such income. This provision shall be effective from 1 st April, Department may file an appeal against the directions of the Dispute Resolution Penal (DRP) : B 20 Mukesh M. Shah & Co.

19 As per the existing provisions, DRP has the power to confirm, reduce or enhance the variations proposed in the draft order and are binding on the assessing officer. Unlike the taxpayer, the Income tax department does not have the right to appeal against the directions given by the DRP. It is now proposed to amend provisions of section 253 to provide that the assessing officer may also file an appeal before the ITAT against the order passed in pursuance of directions of the DRP in respect of an objection filed on or after 1 st July, Expediting prosecution proceedings under the Act and proposal to increase threshold : It is proposed to strengthen the prosecution mechanism by inserting new sections 280A, 280B, 280C and 280D under the Income tax Act by providing for constitution of Special Courts for trial of offences, by application of summons trial as the procedures in a summons trial are simpler and less time consuming and providing for appointment of public prosecutors. It is proposed to be amended section 276C, 276CC, 277, 277A and 278 so as to revise the existing threshold of ` 1 lac introduced in 1976 to ` 25 lacs. This provision shall be effective from 1 st July, Penalty on undisclosed income found during the course of search : As per the existing provision, no penalty is leviable on admitted undisclosed income during the course of search (related to year of search or the previous year which has ended before the search and for which return is not yet due) if normal income tax together with interest has been paid in respect of such provision. In order to strengthen the penal provisions, it is proposed to levy following penalty u/s 271AAB in a case where search has been initiated on or after 1 st July 2012 : Situation Penalty (% of undisclosed income) If undisclosed income is admitted during the course of search 10% If undisclosed income is not admitted during the course of search but disclosed in the return filed after the date of search 20% If undisclosed income not admitted/ not disclosed in the return 30% to 90% Presumptive taxation not to apply to professions etc. : At present u/s 44AD a sum equal to 8% of total turnover or gross receipt is deemed to be the profits and gains from business. This is applicable only to a person carrying on any business, except plying, hiring or leasing goods carriage, having turnover or gross receipt less than ` 60 Lacs. It is proposed to amend section to clarify that this presumptive scheme is not applicable to following: B 21 Mukesh M. Shah & Co.

20 A person carrying on profession as referred to in section 44AA (1). It includes advocates, doctors, engineers, architects, chartered accountants, interior decorators etc. Persons earning income in nature of commission or brokerage income; or A person carrying on any agency business. This amendment will take effect retrospectively from AY Cash Credits : Section 68 of the Act states that if amounts found credited in the books maintained by the assessee during the previous year and either Assessee offers no explanation about a nature and source of credits found in books; or Explanation offered by the assessee, in the opinion of the Assessing Officer, is not satisfactory, then the amount so credited may be charged to tax as the income of the assessee of that previous year. Various Supreme Court judgments including Commissioner of Income Tax V/s Lovely Exports Pvt. Ltd.(216 CTR 195) held that the share application money received by the assessee company from alleged bogus shareholders cannot be regarded as undisclosed income of the assessee company u/s 68. As per such judicial pronouncements, onus of proof is not on the company where sum is credited either as share capital, share premium, share application money etc. Realizing the need to place the entire onus on the company to prove the source of money in the hands of such shareholder or persons making payments towards issue of shares before such sum is accepted as genuine credit, the Bill proposed to amend the Section 68. It is proposed to provide that where the assessee is a company, in which public are not substantially interested, and the sum so credited consist of share application money, share capital, share premium or any such amount by whatever name called, any explanation offered by such company shall be deemed to be treated as explained only if nature and source of funds is duly explained by the company in the hands of the resident shareholder. However the proposed amendment will not be applicable if the shareholder is a Venture Capital Fund, Venture Capital Company, registered with SEBI. Provisions relating to Capital Gain : Relief from Long term capital gain on transfer of residential property : It is proposed to insert a new section 54GB to provide for relief from tax on long term capital gain on transfer of residential property (a house or a plot of land) by an individual or HUF. The relief shall be available in respect of the sale consideration of the residential property to the extent the same is invested in the equity capital of a new start up SME company in the manufacturing sector and such money so invested is utilized by the company for purchase of new plant and machinery. The relief would be subject to the following conditions: B 22 Mukesh M. Shah & Co.

21 The amount of net sale consideration is invested by Individual/ HUF before the due date of furnishing of income tax return, in the equity capital of SME company, in which he holds more than 50% or more share capital or voting rights; The amount of such investment has to be utilized by the SME company for purchasing new plant and machinery within a period of 1 year from the date of investment; If the amount of such investment is not utilized by the company for purchase of new plant and machinery, before the due date of return of such individual/ HUF, the unutilized amount shall have to be deposited in a special bank account under prescribed scheme; If the shares acquired from such investment as well as the new plant and machinery purchased out of such investment are sold or transferred within a period of 5 years from the date of acquisition, the entire capital gain which was not subjected to tax earlier, shall be treated as income of the assessee of the year in which such transfer of shares or plant and machinery took place. No relief under this section would be available to any transfer of residential property affected on or after 1 st April, Capital Gain in cases of amalgamation and demerger : For being eligible not to be regarded as transfer as per section 47(vii), among other conditions, the amalgamated company is required to issue shares to all the shareholders of amalgamating company. In case where a subsidiary company amalgamates into the holding company, the internal shareholding gets cancelled and no new shares are issued to its own making it impossible to comply with the requirement of an eligible amalgamation. To overcome such a situation, it is proposed to exclude the requirement of issuing shares to shareholders of amalgamating company to the extent the shares are held by the holding company. However, shares will have to be issued to all other shareholders of the amalgamating company. Similar amendments are proposed in the provision of section 2(19AA) so as to exclude the requirement to issue shares where resulting company itself is a shareholder of the demerged company. Issue of shares to other shareholders would however be necessary. Fair market value to be considered as full value of consideration in certain cases : In some recent rulings, it has been held by Courts that where the consideration in respect of transfer of an asset is not determinable, the gains arising out of such transfer of asset is not liable to tax. To overcome such as situation, it is proposed that where in case of a transfer, consideration for the transfer of a capital asset is not determinable; the fair market value of that asset shall be taken to be the full market value of consideration for the purpose of computing capital gain chargeable to tax. Cost of acquisition of assets: B 23 Mukesh M. Shah & Co.