IMPORTANT AMENDMENTS & MAJOR DIRECT TAX PROPOSALS IN FINANCE BILL, 2012 CORPORATE TAX No change in the head corporate tax. Extension of sunset date for tax holiday for power sector to 2013; Initial depreciation @ 20% to the power sector extended by one year. 200% weighted deduction extended by 5 years for in-house R&D. New provisions for 150% weighted deduction for agriculture extension projects, skill development projects. Investment-linked deduction under section 35AD extended to inland container depot or a container freight station, bee-keeping and production of honey and beeswax and warehousing facility for sugar. Share capital or premium not an unexplained income u/s 68 of the closely-held company only if source of funds explained in the hands of the resident shareholder (excluding regulated entities). No deduction or basic exemption available on income in the nature of cash credits, unexplained money, investments etc.; Income addition to be taxed at a flat rate of 30%. Rates of daily tonnage income of shipping company revised. Cascading effect of Dividend Distribution Tax (DDT) in multi-tier corporate structure removed. Lower tax rate of 15% on dividends received from foreign companies to continue for one more year. Income accruing to VCF/ VCC shall be taxable in the hands of investor on accrual basis with no deferral; exemption of TDS applicability on income paid/credit to investors withdrawn. Tax rate reduced on interest on foreign currency loan borrowed from non-resident for specific infrastructure projects reduced to 5% from 20%; TDS rate also reduced. Exemption to foreign company on income received in India in Indian currency on account of sale of crude oil to any person in India. Share premium in excess of the fair market value to be treated as income for closely held companies. STT in Cash Delivery segment reduced from existing 0.125% to 0.1%. Book profit for the purpose of section 115JB increased by amount in revaluation reserve relating to revalued asset retired or disposed, if same is not credited to the profit and loss account. NON-CORPORATE TAX PROPOSALS Exemption limit for the general category of individual taxpayers proposed to be enhanced from Rs. 1,80,000 to Rs. 2,00,000. Upper limit of 20 per cent tax slab proposed to be raised from Rs. 8 lakhs to Rs. 10 lakhs. Proposal to extend the levy of Alternate Minimum Tax @ 18.5% to all persons, other than companies, claiming profit linked deductions and having income exceeding Rs. 20 lakhs. Tax Audit Limit for business increased from Rs 60 lakhs to Rs 1 crore and for professionals increased from Rs 15 lakhs to Rs 25 lakhs. Page 1 of 5
Threshold limit for presumptive taxation for business enhanced from Rs 60 lakhs to Rs 1 crore. Presumptive taxation scheme is not applicable to person referred in sec 44AA(1) i.e. professionals, person earning commission or brokerage income, person carrying agency business. Senior citizens not having income from business to be exempted from payment of advance tax In case of an individual or an HUF long term capital gains tax on sale of a residential property (house or plot of land) shall not be chargeable to tax 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 said company for the purchase of new plant and machinery. Aggregate payment to the extent of Rs. 5,000 made by an assessee on account of preventive health check-up of self, spouse, dependant children or parents eligible for deduction u/s. 80D subject to old cap of Rs. 15,000. A deduction to the extent of Rs.10,000 for interest from savings bank account shall be allowed to an assessee being, individual and HUF. Benefit of exemption under Sec 54B extended to HUF. Any sum or property received without consideration or inadequate consideration by an HUF from its members would be excluded from taxation INTERNATIONAL TAXATION In order to tax offshore transfer amendment has been brought to clarify that an asset or capital asset being any share or interest in a company registered or incorporated outside India shall be deemed to be and shall always be deemed to have been situated in India if share or interest derives, directly or indirectly, its value substantially from the assets located in India. The amendment will take effect retrospectively from 1 st April, 1962. Long controversy with respect to royalty has now been settled by following amendments - It has been clarified that consideration for use or right to use of computer software transfer of all or any right for use or right to use a computer software (including granting of a licence) irrespective of medium of transfer, constitutes royalty u/s 9(1)(vi). Royalty u/s 9(1)(vi) includes and has always included consideration in respect of any right, property or information, whether or not - the possession or control of such right, property or information is with the payer, - such right, property or information is used directly by the payer, - or location of such right, property or information is in India. Further it has also been clarified that term process u/s 9(1)(vi) 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. It is proposed to amend Section 90 and 90A of the Act to provide that any meaning assigned through notification to a term used in an agreement but not defined in the Act or agreement, shall be effective from the date of coming into force of the agreement. Section 2(47) defining transfer amended to clarify that transfer includes and shall be deemed to have always 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, Page 2 of 5
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 registered or incorporated outside India. Validation Clause to provide that notwithstanding anything contained in any judgment, decree or order of any Court or Tribunal or any Authority, any tax levied in respect of income from transfer of capital asset situated in India as a consequence of shares transferred outside India, can be validly recovered. In case of a person who is treated as agent of a non-resident, time limit for issue of notice u/s 149 has been extended from 2 years to 6 years. Section 195 to be amended to provide that the Board may, by notification, specify a class of persons or cases, where the person responsible for paying to a non-resident (not being a company) or to a foreign company, whether or not such payment is chargeable under the Act, shall make an application to the AO to determine the appropriate proportion of sum chargeable. It is proposed to amend section 115BBA to provide that income arising to a non-citizen, nonresident 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. It is also proposed to increase the taxation rate, in case of non-citizen, non-resident sportsmen and non-resident sports association, from 10% to 20% of the gross receipts. Submission of Tax Residency Certificate containing prescribed particulars, a necessary but not sufficient condition for availing benefits of the agreements referred to in section 90 and 90A. Exclusion of time period for completion of assessment or reassessment where information is sought under a DTAA has been extended from 6 months to 1 year. General Anti Avoidance rule introduced in the current legislation having wide spread implications wherein onus to prove that main purpose of an arrangement is not to obtain tax benefit has been cast on the tax payer. TRANSFER PRICING It has been proposed to amend the transfer pricing regulations to cover certain transactions between domestic related parties for purposes of Sec 40A,, Sec 80A, Sec 80-IA(8), Chapter VI-A and Sec 10AA in view of SC decision in Glaxo SmithKline Asia Pvt. Ltd, where the aggregate of such transactions exceed Rs. 5 crores in the previous year. Explanation to be added to Sec 92B retrospectively from 1st June 2002, to clarify inclusion of purchase/sale/transfer/lease/use of tangible property; purchase/sale/transfer/lease/use of intangible property business restructuring or reorganization; provision of services; capital financing including provision of 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. Sec 92C to clarify that even prior to Finance Act, 2009, benefit of 5% variation not standard deduction; Various ITAT rulings wherein it was held that such benefit was standard deductions, would stand nullified; Reassessment or rectification proceedings could not be initiated where proceedings have been completed before 1st October 2009. Page 3 of 5
Proposed retrospective amendment w.e.f 1st June 2002 to allow TPO to determine ALP of international transactions not reported in Form 3CEB; such international transactions shall be deemed to have been referred by the AO; Reopening or rectification proceedings cannot be initiated for cases where proceedings have been completed prior to 1st July 2012. Advance Pricing Agreement (APA) proposed to be introduced w.e.f 1st July 2012; Board authorized to enter into APA to determine ALP or manner of calculating ALP; Agreement valid for maximum of 5 years; Agreement not binding in case of change of law or change in fact which have bearing on the agreement; Board to prescribe scheme for APA regarding procedure, manner, forms etc.; Modified return to be filed within 3 months from end of month in which APA was entered. Due date for filing income tax return in case of non-corporate assessees, who are required to file tax audit report for transfer pricing in Form 3CEB, proposed to be extended to 30th November. Sec. 147 to provide that non-reporting of an international transaction in Form 3CEB would amount to deemed escapement of income. Sec 144C (w.e.f 1st April 2009) to provide that DRP authorized to deal with any issue arising out of assessment proceeding relating to the draft assessment order including enhancement of the variation, irrespective of the fact that the assessee has raised the matter before the DRP or not; AO can file appeal against DRP order; In case of assessment pursuant to search proceedings where objections filed before DRP, time limit for completing assessment to be in accordance to Sec 144C and appeal to be filed before ITAT, not CIT(A). Sec 271AA to provide penalty @ 2% of the value of international transactions, if taxpayer fails to maintain prescribed documents or information, fails to report any international transaction required to be reported, or maintains or furnishes any incorrect information or documents. OTHER PROVISIONS Where a person has received any income without deduction or collection of tax, he shall be liable to pay advance tax in respect of such income. In case of conversion of sole proprietorship or firm into a company which is not regarded as transfer, the cost of acquisition of asset in the hands of the company would be the same as that in the hand of the sole proprietary concern or the firm. Where the Assessing Officer is of the opinion that the value taken by the assessee as on 1.4.1981 is higher than the fair market value of the asset as on that date, the AO can make reference to the Valuation Officer u/s. 55A for determining the fair market value of the property on that dare. In case of amalgamation or demerger between holding - subsidiary companies conditions of issue of shares by amalgamated company and resulting company to itself will not be applicable. Fair market value of asset shall be deemed to be the full value of consideration if actual consideration is not attributable or determinable Page 4 of 5
ASSESSMENTS, PENALTY AND COMPLIANCES Processing of return u/s 143(1) not necessary in a case where notice under sub section (2) of section 143 has already been issued for scrutiny. Time limit for completion of assessment u/s 143(3) and reassessment u/s 147 increased by 3 months. Reassessment of income in relation to any asset located outside India permissible upto 16 years. The provisions of section 234D would be applicable to any proceeding which is completed on or after 1st June, 2003, irrespective of the AY to which it pertains. Penalty on undisclosed income found during the course of search even if undisclosed income is admitted during search. Due date for furnishing tax audit report under section 44AB would be the same as due date specified for furnishing of return under section 139, if assessee entered into Transfer Pricing provisions. Compulsory filing of income tax return in relation to any asset (including financial interest in any entity) located outside India, irrespective of level of taxable income. TDS AND TCS: Payer failing to deduct whole or part of tax from payment to resident payee not to be deemed as assessee in default, where payee files return u/s 139, pays tax due on his income and furnishes certificate from accountant. No disallowance u/s 40(a)(ia) 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. Interest u/s 201(1A)(i) payable by payer from date on which tax was deductible to date of furnishing of return of income by resident payee. Time limit for TDS assessment u/s. 201 extended from 4 years to 6 years. Threshold limit for tax deduction as per Sec 194LA for compulsory acquisition of immovable property increased from Rs. 1,00,000 to Rs. 2,00,000. Threshold limit for tax deduction as per Sec 193 for payment of interest on debentures increased from Rs. 2,500 to Rs. 5,000. TDS @ 1% on transfer of immovable properties exceeding Rs 50 lakhs (in specified urban areas) and Rs 20 lakhs (in other areas) and proof of TDS payment a pre-requisite for registration of the property document. TDS @ 10% applicable on remuneration paid to directors TCS @ 1% on cash sale of bullion and jewellery exceeding RS 2 lakhs. TCS @ 1% on sale of coal, lignite, iron ore; Does not apply on purchase for the purpose of manufacturing, processing or producing articles or things or for self consumption. ****** Page 5 of 5