2. Overview of the Union Budget 2012-13 2
Foreword
Foreword
Despite the crisis in Euro zone, slow recovery in the United States, political
“The Budget seemed more benign than it is.
instability in the Middle East and subsequent rise in crude oil prices, the resilience While most of the amendments were
of India’s domestic economy is once again evident with this year’s GDP anticipated such as tinkering of personal tax
Key policy growth estimate of over 6.5%. However, this consumption-driven growth may not rates, small exemptions for the middle income
announcements be sustainable in the long run unless it is accompanied with an investment-driven group and widening the net of service tax and
growth. taking the rate up, the fine print has wider
ramifications. Retrospective amendments to
address Vodafone like situations, bringing
Against this backdrop, growth and stability remained central to the Budget this year. domestic related party transactions under the
Fiscal and
By setting the fiscal deficit target of 5.1% for 2012-13 and expressing its intentions ambit of transfer pricing are a case in
economic review
to keep central subsidies under 2% of GDP in 2012-13, and further bring them point. Measures announced to boost
down to 1.75% of GDP in the next 3 years, the government has steered clear of infrastructure, agriculture, aviation and power
populist measures. industries is very heartening."
Snapshot of tax
Pallavi J Bakhru
proposals The Budget endeavours to shore up investment in infrastructure with proposals Partner & Practice Leader
to make more sectors eligible for Viability Gap Funding under PPP scheme and Tax & Regulatory Services
other measures including tax free bonds of Rs 60,000 crore for financing Walker, Chandiok & Co
infrastructure projects in 2012-13 alone.
Direct tax
proposals
Nevertheless, the common man, hard-pressed by inflation, also has some reasons to cheer while the Budget proposes revisions in
income tax exemption limit for the general category and brings forth the provision for allowing External Commercial Borrowing
(ECB) to promote low cost housing. However, an upward revision in service tax and other indirect taxes is likely to affect purchasing
Indirect tax power of aam admi, on the other hand.
proposals
Overall the Budget attempts to do a balancing act with a focus on structural reforms. We have developed this report in view of
providing you a comprehensive overview of the Budget and we hope that you find it useful.
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Tax & Regulatory Services Team
Grant Thornton India LLP
3. Overview of the Union Budget 2012-13 3
Subsidies Rationalisation of key policies
Foreword
• Attempt to keep subsidies below 2% of Gross Domestic
• Amendment to the Fiscal Responsibility and Budget
Product ('GDP') during Financial Year ('FY') 2012-13
Management ('FRBM') Act – key features being concepts of:
• Subsidies fully provided for effective administration of the
- Effective revenue deficit – difference between revenue
Key policy proposed Food Security Legislation
announcements deficits and grants for creation of capital assets
• Nation-wide roll out of mobile-based Fertilizer Management
- Medium-term expenditure framework
System to provide complete information on movement of
statement – to set forth a 3-year rolling target for
fertilisers and subsidies
expenditure indicators
Fiscal and • Goods and Service tax ('GST') network to be set-up as
economic review Budget Estimates
National Information Utility and operational by August 2012
• Gross Tax Receipts estimated at Rs 1,077,612 crores for FY • 20 crore people enrolled under UID-Aadhaar mission.
2012-13 Adequate funds allocated for further enrolment of 40 crores
Snapshot of tax • Total expenditures budgeted at Rs 1,490,925 crores for FY • White Paper on Black Money to be presented in Parliament
proposals 2012-13 in the Budget session
• National Food Security Bill, 2011 is presently before
Disinvestments Parliamentary Standing Committee
Direct tax • Bill regarding Public Procurement Legislation to be
proposals • For FY 2012-13, while 51% ownership and management introduced in Parliament to combat corruption
control to remain with the Government, disinvestments target
have been set at Rs 30,000 crores
Indirect tax
proposals
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4. Overview of the Union Budget 2012-13 4
Financial Sector Textile Sector
Foreword
• Introduction of Rajiv Gandhi Equity Saving Scheme which • Financial stimulus of Rs 3,884 crores for waiver of loans of
allows income tax deduction of 50% to new retail investors handloom weavers
investing upto Rs 50,000 in equities
Key policy Power and Coal Sector
• Rs 15,888 crores proposed for capitalisation of public sector
announcements banks and financial institutions
• ECB to part finance Rupee debt of existing power projects
• Central KYC depository to be developed in FY 2012-13
Transport Sector
Fiscal and Infrastructure Sector
economic review
• Road Transport and Highways Ministry allocation
• Government to establish joint venture companies in PPP
enhanced by 14% to Rs 25,360 crores
mode by defence PSUs
• ECB proposed for capital expenditures for road toll systems
Snapshot of tax • Tax free bonds of Rs 60,000 crores for financing
infrastructure projects in FY 2012-13 • Direct import of Aviation Turbine Fuel for Indian carriers
proposals
permitted
• Introduction of National Manufacturing Policy to raise
share of manufacturing in GDP to 25% creating 10 crore jobs • Equity participation of foreign airlines in an airport
undertaking upto 49% is under consideration
• External Commercial Borrowings ('ECB') allowed for low
Direct tax
cost housing projects • ECB with a ceiling of US$1 billion to be permitted for 1 year
proposals in respect of working capital requirements of airline industry
• Rural Infrastructure Development Fund allocation
enhanced to Rs 20,000 crores out of which Rs 5,000 crores has
been assigned towards creating warehousing facilities
Indirect tax
proposals
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5. Overview of the Union Budget 2012-13 5
Agriculture Employment
Foreword
• Target for agriculture credit flow to increase by • Allocation for National Rural Livelihood Mission
Rs 1,00,000 crores to Rs 5,75,000 crores in FY 2012-13 increased by 34% to Rs 3,915 crores
• Interest subvention scheme to continue in FY 2012-13 • Prime Minister's Employment Generation Programme
Key policy
• Additional subvention of 3% available for prompt payments allocation enhanced by 23% to Rs 1,276 crores in FY 2012-13
announcements • Allocation of Rs 1,000 crores for National Skill
• Regional Rural Bank credit refinance fund set-up for
disbursing short-term crop loans Development Fund in FY 2012-13
• Allocation for Accelerated Irrigation Benefit Program
Fiscal and enhanced by 13% to Rs 14,242 crores Social Security
economic review • Irrigation and Water Resource Finance Company to be
operationalized to mobilise large resources to fund projects • Allocation under National Social Assistance Program
enhanced by 37% to Rs 8,447 crores in FY 2012-13
Snapshot of tax Micro, Small and Medium Enterprises
proposals Defence
• India Opportunities Venture Fund of Rs 5,000 crores to
be set up with Small Industries Development Bank of India • Provision of Rs 1,93,407 crores made for defence services of
which Rs 79,579 crores is towards capital expenditure
Direct tax
Healthcare
proposals
Education
• No case of polio reported in the last one year
• Allocation for National Rural Health Mission to Rs 20,882 • Allocation for Sarva Shiksha Abhiyan enhanced by 21.7%
Indirect tax crores in FY 2012-13 to Rs 25,555 crores in FY 2012-13
proposals • National Urban Health Mission to be launched in FY
2012-13 to meet the health needs of the urban poor
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6. Overview of the Union Budget 2012-13 6
Indirect Tax
Foreword • The exact date and rate of GST has not been announced and
• This year's Union Budget has proposed certain key the target date of 1 April 2012 for implementation has clearly
amendments to the structure of Indirect Taxation in India been missed
Key policy
• The commitment to implement GST (Goods and Services • Central Sales Tax has not been abolished
announcements
Tax) has been reiterated. Though there is no appointed date,
the Finance Minister has given all indications for its early
implementation
“The Budget 2012-13 is a painful pill with Service
Fiscal and Tax being extended to all services (without the
economic review • The Constitutional Amendment Bill required to implement credits of GST) and a sharp 2% hike in the
GST had been introduced in the Parliament and referred to the Service Tax and Central Excise rates. This will
Parliamentary Standing Committee in March 2011. The lead to price rises across the board. But the
recommendations of the Committee are still awaited compass is set on Indirect Tax reforms and the
Snapshot of tax various steps taken to lead to an early
proposals implementation of GST are welcome.”
• The Empowered Committee of State Finance Ministers has
approved the basic structure of the proposed GST Amrita Mitra
Partner – Indirect Tax
Direct tax Grant Thornton India LLP
proposals
• The intention to merge the Service Tax and Central Excise
legislation into one Common Tax Code has been announced.
• The levy of Service Tax has been extended to all services with
Indirect tax a short negative list
proposals
• The above developments are a clear precursor to GST
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7. Overview of the Union Financial Budget 2012-13 7
Economic Growth GDP trends
10.00
Foreword 8.4 8.4
7.6
• GDP growth rate during FY 2011-12 is estimated to be 6.9% 8.00 6.9
as compared to 8.4% during previous two FYs. Global 6.00
%age
economic slack and oil price rise triggered this fall in GDP
Key policy growth 4.00
announcements • During FY 2011-12, the services sector is expected to grow at 2.00
9.4% as against 9.3% last year. Its contribution to GDP is
0.00
estimated at 59%
2009-10 2010-11 2011-12 2012-13AE
Fiscal and • However, Manufacturing sector's growth has been Financial Years
economic review lacklustre. It has seen a steep fall from 9% during April-
December 2010 to 3.9% during April-December 2011 Sectoral Composition of GDP
• Growth in exports reduced from 40.5% during FY 2010-11 to
23.5% during FY 2011-12 with insignificant change in the rate Financial
Agriculture Industry Services
Snapshot of tax Years
of growth in imports
proposals
• Inflation remained a major concern during FY 2011-12 due to 2010 – 11 14.5 27.8 57.7
upsurge in global commodity prices and crude oil though
Wholesale Price Index moderated from 9% during April- 2011 – 12AE 13.9 27.0 59.0
Direct tax November 2011 to 7% in February 2012
proposals • Foreign exchange reserves augmented by US$ 6.7 billion
from US$ 304.8 billion at end of March 2011 to US$ 311.5
billion at end of September 2011 Headline Inflation
12.00
9.6 9.1
Indirect tax 10.00 8.1
proposals 8.00
%age
6.00
3.8
4.00
2.00
Contact us 0.00
2008-09 2009-10 2010-11 2011-12AE
Financial Years
8. Overview of the Union Financial Budget 2012-13 8
Fiscal Deficit
Foreword Gross Fiscal Deficit
• Increase in fiscal deficit from 4.8% in FY 2010-11 to 7.00 6.5
estimated 5.9% of GDP during FY 2011-12. It is expected to 5.9
drop to 5.1% of GDP during FY 2012-13 6.00
Key policy 5.1
4.8
5.00
announcements Key Initiatives
%age
4.00
• Pradhan Mantri Gram Sadak Yojana (Bharat Nirman) 3.00
Fiscal and proposes to connect 54,648 habitations involving construction
economic review of 146,184 km of rural roads 2.00
• Draft National Policy on Electronics (released on 03 1.00
October 2011) envisions creating a globally competitive
electronics system design and manufacturing industry 0.00
Snapshot of tax 2009-10 2010-11 2011-12AE 2012-13AE
proposals • Draft National Policy on Information Technology 2011
Financial Years
focuses on deployment of information communication
technology in all sectors of the economy
• Additional budgetary support of Rs 91,800 crores to enhance
Direct tax productivity and resilience of agriculture
proposals
• 'Green India' mission proposes additional afforestation of 10
million hectares of forest lands, wastelands and community
lands with projected expenditure of Rs 46,000 crores
Indirect tax
proposals
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9. Overview of the Union Budget 2012-13 9
Direct tax proposals
Foreword
• No change in Corporate tax rate, Minimum Alternate Tax, • Submission of Tax Residency Certificate made a necessary
Surcharge and Education Cess (but not the sole) condition for availing tax treaty benefits
• Minimum Alternate Tax to be applicable to Insurance, • Indirect transfer of capital asset proposed to be taxed in India.
Key policy Banking and Companies engaged in the generation or Clause introduced to validate all actions of the tax officer
announcements supply of electricity, etc notwithstanding anything contained in any judgement, decree
• Scope for Alternate Minimum Tax extended to all tax or order. (Vodafone decision reversed)
payers (other than companies) claiming specified deduction • General Anti Avoidance Rules provisions introduced
Fiscal and • Concessional rate of taxation of dividends from foreign • Consideration for computer software (even off the shelf)
economic review subsidiaries @ 15% extended by 1 year proposed to be treated as royalty
• Cascading effect of Dividend Distribution Tax in multi-tier • Reduced withholding tax rate of 5% applicable on foreign
structure removed borrowings by companies engaged in specified businesses
Snapshot of tax • Weighted deduction introduced for expenditure on Notified • Personal income tax slabs widened
proposals Agriculture Projects and Skill Development Projects in • Filing of income tax return made mandatory for residents
manufacturing sector having any assets outside India or having signing authority in
• Weighted deduction for in-house research extended by 5 any account outside India
years • Tax Officer permitted to appeal against Dispute
Direct tax
• Investment linked deduction extended coupled with Resolution Panel order
proposals
weighted deduction for specified businesses
• Power companies to get additional depreciation as well as
extension in terminal date for availing tax holiday
Indirect tax • 'Pass through' status accorded for all investments by
proposals Venture Capital Funds / Companies
• Deeming provisions introduced to treat share premium
received in excess of fair market value as income in the hands
of closely held investee company
Contact us • Share capital, share premium etc in the books of closely held
company treated as explained only if source is proved
10. Overview of the Union Budget 2012-13 10
Transfer pricing
Foreword
• Advance pricing agreement introduced in transfer pricing “While the DTC has been deferred, the Union
(prospective) Budget has brought in some key provisions of the
DTC in the Bill like the anticipated general anti
Key policy avoidance rules (GAAR) and the advance pricing
• Definition of international transaction and intangible property agreements (APA). The most glaring thing that
announcements
clarified (retrospective) comes out of the amendments is the introduction of
key provisions retrospectively to overrule recent
• International transaction includes business restructuring or judgments in the area of international tax and
Fiscal and reorganization, covered; whether or not it has bearing on the transfer pricing. This would surely not boost the
confidence of the foreign investor. A welcome
economic review profit, income, losses or assets of such enterprises at the time
amendment is the APA regime introduced
of the transaction or at any future date (retrospective) to provide a progressive mode of dispute resolution
in the area of transfer pricing. Of course the APA
Snapshot of tax • Transfer Pricing Regulations apply to specified domestic scheme should also practically turn out to be a
transactions between domestic related parties (prospective) favorable and unbiased platform for the
proposals
multinationals and not be construed as another
round of aggressive transfer pricing audit. On the
• Tax authorities can appeal against the order incorporating the other hand by bringing domestic transactions in the
Direct tax
DRP directions (prospective) ambit of transfer pricing, the compliance burdens on
the tax payer is going to increase multifold.”
proposals
• Currently, the arm’s length range is based on a uniform Karishma R. Phatarphekar
tolerance band of 5% around the transfer price. The 5% band Partner - Transfer Pricing
has been replaced with 3% (prospectively) Grant Thornton India LLP
Indirect tax
proposals
• Amendments propose to eliminate viewing of this 5% range
as a standard deduction and also clarifies that the new
provision disabling the standard deduction will be applicable
for all assessment proceedings pending before the Assessing
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Officer as on 1 October 2009. However, the proposed
amendment limits the tax authorities ability to re-open or
rectify assessments concluded before 1 October 2009
11. Overview of the Union Budget 2012-13 11
Indirect tax proposals
Foreword
Roadmap to GST laid out Rates increase for manufacture and services
• There are clear indications that GST will be implemented • The rate of Service Tax has been increased from 10% to 12%
Key policy within a short time span
announcements
• The standard rate of Central Excise Duty has been increased
• The Constitutional Amendment Bill was introduced in the from 10% to 12%
Parliament in March 2011 and is before the Parliamentary
Fiscal and Standing Committee for recommendations
• The merit rate of Central Excise duty has been increased from
economic review
5% to 6%
• The Empowered Committee of State Finance Ministers have
approved the basic structure. The IT enabled GST Network
• The lower merit rate of Central Excise Duty on specified 130
(GSTN) has been approved and will become operational by
Snapshot of tax products has increased from 1% to 2%
proposals August 2012. A common PAN-based registration, return and
payment processing platform for all states will check tax
evasion • The Basic Custom Duty (BCD) rate remains the same at 10%
Direct tax Effective Dates
• The drafting of legislation for Centre and State GST is under
proposals
progress
• The Central Excise rates will be effective from midnight of 16
• The Government has extended the levy of Service Tax on all March 2012
Indirect tax services with a short negative list
proposals • The Service Tax rate will be effective from 1 April 2012
• The provisions of Central Excise and Service Tax are proposed
to be merged into a Common Tax Code
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• Common registration and return provisions have been
proposed. The CENVAT Credit Rules are already common
12. Overview of the Union Budget 2012-13 12
Foreword Service Tax Excise
• Proposal to tax all services except those in the negative list • Duty increased to more than 12% in few cases such as
comprising of 17 heads automobile and cement
Key policy
announcements
• Alignment made to harmonize Central Excise and Service Tax • Duty evasion of amount more than Rs 30 lakh is a cognizable
into a Common Tax Code. offence where person can be arrested without warrant
Fiscal and • A common simplified registration form and a common return • Benefit of reduced penalty, i.e. 25% of the penalty amount is
economic review comprising of one page proposed in this direction available only if penalty along with duty and interest paid
within 30 days
• Place of Supply Rules for determining the location of service
Snapshot of tax and consumption to be put in public domain for stakeholder’s • Interest is not payable on credit wrongly taken unless the same
proposals comments is utilized
• Point of Taxation Rules to be rationalized to be in line with the • The rate for CENVAT reversal for exempt services/ goods
other proposed changes under Rule 6(3) of CENVAT Credit Rules is revised from 5%
Direct tax
to 6%
proposals
• CENVAT Credit permitted on number of services to reduce
Customs
cascading of taxes
Indirect tax • The peak rate of customs duty on non-agricultural goods
proposals • New Scheme announced for simplification of refunds remains at 10%
• Revision Application Authority and Settlement Commission
being introduced in Service Tax for dispute resolution
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13. Overview of the Union Budget 2012-13 13
Foreword • Exemption given to the following sectors: • Transfer of unutilized credit of Additional duty ('SAD') lying in
• Agriculture balance at the end of each quarter to another factory of the
• Fuel for power manufacturer is permitted
• Machinery for mining
Key policy
• Protective warning systems for railways • The duty free allowance under Baggage Rules is increased from
announcements
Rs 25,000 to Rs 35,000 for person of Indian origin and Rs
• Specific road construction
12,000 to Rs 15,000 for children upto 10 years of age
• Aircraft machineries
• New leases of aircrafts
Fiscal and • Exemption from Countervailing Duty ('CVD') is provided
economic review • Iron ore plants retrospectively to foreign going vessels from 1 March 2011 to
• Steel coating material 16 March 12
• Textile machinery
Snapshot of tax • Specific medical devices like stents
proposals • LED and LCD TV
• Mobiles
• Life saving drugs, etc
Direct tax
proposals • Export duty on chromium ore is enhanced from Rs 3,000 per
tonne to 30% ad valorem
Indirect tax • Method of computation of education cess and secondary &
proposals higher education cess is simplified to avoid computation of
such cesses twice
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14. Overview of the Union Budget 2012-13 14
Rates of income - taxes
Foreword
Personal tax Corporate tax
• Personal income-tax slabs proposed to be revised as under: • No change in corporate tax rate
Key policy
• No change in Minimum Alternate Tax ('MAT') rate (18.5%)
announcements Existing Slab Revised Slab
(Rs) (Rs)
Tax rate (%) • No change in surcharge for domestic companies (5%)
• No change in surcharge on foreign companies (2%)
Upto 180,000 Upto 200,000 NIL
• Marginal relief provisions to continue
Fiscal and 180,001 to 500,000 200,001 to 500,000 10
• Education Cess and Secondary and Higher Education Cess at
economic review
500,001 to 800,000 500,001 to 1,000,000 20 2% and 1%, respectively to continue
• No change with respect to excluding Education Cess and
Above 800,000 Above 1,000,000 30 Secondary and Higher Cess on tax deducted or collected at
Snapshot of tax source, in case of domestic companies and other resident
proposals persons
• Minimum exemption limit for women changed from Rs
• Concessional rate of 15% for dividend received from foreign
190,000 to Rs 200,000 (the category of women below the age
subsidiary has been extended by 1 more year
of 60 years has been removed)
Direct tax • Limits remain unchanged for senior citizens (age of 60 years
Securities Transaction Tax ('STT')
proposals and above but less than 80 years) at Rs 250,000
• STT payable by purchaser and seller in respect of delivery
• Limits remain unchanged for very senior citizen (age of 80
based transaction for equity shares in company / units of
years and above) at Rs 500,000
equity oriented fund entered into through a recognised stock
Indirect tax • Education Cess and Secondary and Higher Education Cess at exchange reduced from 0.125% to 0.1%
proposals 2% and 1% respectively to continue
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15. Overview of the Union Budget 2012-13 15
MAT Alternate Minimum Tax ('AMT') to be levied on all
Foreword persons, other than companies
• It is proposed to widen the scope of MAT provision and levy
MAT to companies which prepare their profit and loss • It is proposed to widen the scope of AMT and include all
accounts in accordance with provisions of the Act governing class of assesses (other than companies) under the ambit of
Key policy such companies such as Insurance companies, Banking AMT provisions who are claiming deductions vide chapter
announcements companies or Companies engaged in the generation or supply VI-A under the heading 'C-deduction in respect of certain
of electricity, etc incomes' (i.e. Sections 80H to 80RRA, other than Section
80P) or under Section 10AA of the Income Tax Act, 1961
('IT Act')
• It is also proposed that 'Book profit' is to be increased by the
Fiscal and amount standing in the revaluation reserve relating to the
economic review revalued asset which has been retired or disposed, if the same • The proposed provisions shall not apply to an individual or a
is not credited to the profit and loss account Hindu Undivided Family ('HUF') or an association of persons
('AOP') or a body of individuals ('BOI') (whether
incorporated or not) or an artificial juridical person if the
Snapshot of tax • This amendment will take effect from Assessment Year ('AY')
adjusted total income (i.e. total income as increased by the
proposals 2013-14 (FY 2012-13)
deduction under chapter VI-A, as mentioned above and
Section 10AA) of such person does not exceed Rs 2 million
Direct tax • Tax credit in respect of AMT paid would continue to be
proposals available for a period of subsequent 10 AYs
• This amendment will take effect from AY 2013-14 (FY 2012-
Indirect tax 13)
proposals
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16. Overview of the Union Budget 2012-13 16
Removal of cascading effect of Dividend Distribution Expenditure on skill development project
Foreword Tax ('DDT')
• A new provision (Section 35CCD) is proposed to be
• To remove the cascading effect of DDT in multi-tier introduced in the IT Act to allow weighted deduction of
corporate structure, it is proposed that a company (holding 150% of the expenses (not being expenditure in the nature of
company) receiving dividend from it Indian subsidiary where: cost of any land or building) incurred on skill development
Key policy
- such Indian subsidiary has paid DDT on the dividend projects in manufacturing sector
announcements
paid to the holding company;
- can take credit of the DDT that the Indian • The eligible projects for this weighted deduction shall be
subsidiary has paid while distributing dividend in the notified by the Board in accordance with the prescribed
Fiscal and same year guidelines
economic review - additional condition that the holding company should
• This amendment will take effect from AY 2013-14 (FY 2012-
not be a subsidiary of any other company has been
13)
removed.
• The proposed amendment will take effect from 1 July 2012
Snapshot of tax Weighted deduction to in- house scientific research
proposals
Expenditure on Notified Agricultural extension
• Under Section 35(2AB), weighted deduction of 200% for
projects
expenditure (not being in the nature of cost of any land or
• A new provision (Section 35CCC) is proposed to be building) incurred on in-house research and development
Direct tax
introduced in the IT Act to allow weighted deduction of facilities, have been extended for a further period of 5 years
proposals
150% of the expenditure incurred on notified agricultural i.e. up to 31 March 2017
extension projects
• This will take effect from AY 2013-14 (FY 2012-13)
Indirect tax • The eligible projects for this weighted deduction shall be
proposals notified by the Board in accordance with the prescribed
guidelines
• This amendment will take effect from AY 2013-14 (FY 2012-
13)
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17. Overview of the Union Budget 2012-13 17
Investment linked incentives Exemption in respect of income received by certain
Foreword foreign companies
• Investment linked deductions proposed to be extended to the
following businesses commencing operations on or after 1 • Exemption is provided to foreign companies in respect of any
April 2012: income received by it in India in Indian currency on account
Key policy - setting up and operating of an inland container depot of sale of crude oil to any person in India subject to specified
announcements - a container freight station conditions
- bee-keeping and production of honey and beeswax
Extension of sunset clause - power companies
- setting up and operating a warehousing facility for
storage of sugar • The terminal date of availing deduction for the undertaking
Fiscal and
• Weighted deduction of 150% of the capital expenditures (as engaged in business of generation and distribution of power,
economic review
against current 100% deduction) proposed to be allowed to transmission and distribution of power by laying network of
the following businesses commencing operations on or after 1 transmission and distribution lines, undertaking renovation or
April 2012: modernization of existing distribution lines is extended from
Snapshot of tax - setting up and operating a cold chain facility 31 March 2012 to 31 March 2013
proposals - setting up and operating a warehousing facility for
storage of agricultural produce Additional depreciation to power companies
- building and operating a hospital with at least one • It is proposed to extend the benefit of additional depreciation
Direct tax hundred beds for patients to taxpayers engaged in the business of generation or
proposals - developing and building a housing project under a generation and distribution of power
scheme for affordable housing
- production of fertilizers • This amendment will take effect from AY 2013-14 (FY 2012-
• This amendment will take effect from AY 2013-14 (FY 2012- 13)
Indirect tax
13)
proposals
• Investment linked deduction would continue to be available
to hotel owners where it owns the hotel but the operation of
such hotel is transferred to another person. This amendment
will take effect retrospectively from AY 2011-12 (FY 2010-11)
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18. Overview of the Union Budget 2012-13 18
Computation of tonnage income Thresholds for tax audit
Foreword
• The following amendment has been proposed for calculation • Threshold for tax audit is proposed to be revised as under, from
of tonnage income of a qualifying ship and will take effect AY 2013-14 (FY 2012-13)
from AY 2013-14 (FY 2012-13)
Existing Revised
Key policy Audit under threshold threshold
announcements (Rs) (Rs)
Qualifying Existing amount Proposed 44AB - Tax audit for persons
6 million 10 million
ship having of daily tonnage amount of daily carrying on business
net tonnage income tonnage income 44AB - Tax audit for persons
Fiscal and 1.5 million 2.5 million
carrying on profession
economic review Rs 46 for each 100 Rs 70 for each 100
up to 1,000
tons tons
exceeding 1,000 Rs 460 plus Rs 35 for Rs 700 plus Rs 53 for • The due date for furnishing the tax audit report is aligned with
but not more than each 100 tons each 100 tons the due date for filing the tax return
Snapshot of tax 10,000 exceeding 1,000 tons exceeding 1,000 tons
proposals Rs 3,610 plus Rs 28 Rs 5,470 plus Rs 42 Thresholds for applicability of tax on presumptive basis
exceeding 10,000
for each 100 tons for each 100 tons
but not more than
25,000
exceeding 10,000 exceeding 10,000 • For the purpose of presumptive taxation under Section 44AD,
tons tons
threshold limit of total turnover or gross receipts is proposed to
Direct tax Rs 7,810 plus Rs 19 Rs 11,770 plus Rs 29 be increased from Rs 6 million to Rs 10 million
for each 100 tons for each 100 tons
proposals exceeding 25,000
exceeding 25,000 exceeding 25,000 • This amendment will take effect from AY 2013-14 (FY 2012-13)
tons tons. • Further, the following persons are proposed to be carved out of
presumptive taxation :
- professionals covered under Section 44AA
Indirect tax
proposals - persons earning income in the nature of commission or
brokerage
- persons carrying on agency business
• This amendment will take effect retrospectively from AY 2011-
Contact us 12 (FY 2010-11)
19. Overview of the Union Budget 2012-13 19
Clarification in relation to amalgamation and Share premium in excess of Fair Market Value ('FMV')
Foreword demerger involving subsidiary to be treated as income
• Even where a subsidiary company amalgamates with its • It is proposed to insert a new provision (Section 56(2)(viib))
holding company, in order to obtain a tax neutral treatment of where any consideration received for issue of shares is in
the amalgamation in the hands of such shareholder (i.e. excess of face value of shares, then the consideration
Key policy holding company), there was a requirement to issues of shares exceeding FMV of the shares shall be chargeable to income
announcements to shareholders of the amalgamating company (i.e. the tax under the head 'Income from other sources
subsidiary), which was impossible to achieve as the holding • The FMV shall be higher of the following:
company could not issue shares to itself. This requirement has – FMV, as per the prescribed guidelines; or
Fiscal and been dispensed with. – FMV as may be substantiated by the issuing company
economic review • Similarly, in case of a demerger, where demerged company is • This provision is proposed to be applicable only for
a subsidiary company and the resulting company itself is the companies in which public are not substantially interested (i.e.
holding company, the requirement relating to issues of shares closely held companies). Further, this provision is not
by such resulting company (i.e. holding company) to the applicable to venture capital undertaking, with respect to
Snapshot of tax demerged company (i.e. subsidiary company) has been shares issued to venture capital company / fund
proposals dispensed with • This will take effect from AY 2013-14 (FY 2012-13)
• This amendment will take effect from AY 2013-14 (FY 2012-
13) Exemption of any sum or property received by an
HUF from its members
Direct tax Provisions relating to Venture Capital Fund ('VCF') or
proposals Venture Capital Company ('VCC') • It is proposed to exclude any sum or property received by an
HUF from its members without consideration or inadequate
• Sectoral restrictions on business of Venture Capital consideration, from taxation
Undertaking ('VCU') to claim exemption from income by • The proposed new provision will take effect retrospectively
Indirect tax
VCF or VCC have been done away with i.e. 'pass through' from 1 October 2009
proposals
status is accorded for all investments by VCF or VCC
• It is also proposed that income accruing to VCF or VCC shall
be taxable in the hands of investor or accrual basis with no
deferral
Contact us • This amendment will take effect from AY 2013-14 (FY 2012-
13)
20. Overview of the Union Budget 2012-13 20
Clarification in connection with 'cost to previous Relief from long term capital gains tax to an
Foreword owner' individual or an HUF on sale of a residential property
• It is proposed that in the following transactions the cost of • A new provision (Section 54GB) is proposed to be
capital assets in the hands of the recipient would be equal to introduced to allow relief from long term capital gains on sale
the cost of such assets in the hands of the previous owner of residential property (house or a plot of land) whereby the
Key policy (transferor): sale consideration is reinvested in the equity of a Small
announcements Enterprise (as per the Micro, Small and Medium Enterprises
- transfer of capital assets in course of
demutualisation/ corporatisation of a recognised Act, 2006) and which is utilised by such company for the
stock exchange as a result of which AOP/BOI purchase of new plant and machinery
Fiscal and (previous owner) is converted into a company • The above relief is available subject to fulfillment of certain
economic review (recipient) prescribed conditions such as lock in period for 5 years for
- transfer of capital assets/ intangible assets on investment and assets purchased, minimum shareholding
conversion of sole proprietary concern / firm requirement, time frame for utlisation of subscription amount
(previous owner) into a company (recipient) by the company, etc
Snapshot of tax • The said exemption applies to any transfer of a residential
• This amendment will take effect retrospectively from AY property made before 31 March 2017
proposals
1999-00 (FY 1998-99) • This amendment will take effect from AY 2013-14 (FY 2012-
13)
FMV to be considered as 'full value of consideration'
Direct tax
proposals • A new provision is proposed to be inserted (Section 50D) Reference to Valuation Officer
under which FMV of capital asset (on the date of transfer) is
to be considered as 'full value of consideration' for • The powers of Assessing officer has been widened with
transactions where sales consideration is not ascertainable or respect to cases to be referred to a Valuation Officer. As per
Indirect tax cannot be determined the amended provisions, the Assessing officer could now
proposals • This amendment will take effect from AY 2013-14 (FY 2012- refer a case to Valuation Officer even when FMV is lower
13) than stated by the tax payer (as against earlier provisions
where the reference could only be made if FMV was higher)
• The proposed provision will take effect from 1 July 2012
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21. Overview of the Union Budget 2012-13 21
Transfer of capital assets not situated in India Transfer of capital assets not situated in India
Foreword
• It is proposed to tax indirect transfer of capital assets in India • A validation clause has been introduced whereby any notice
by inserting the following deeming / clarificatory sent or purported to have been sent, taxes levied, demanded,
amendments: assessed, etc with regard to such transfers is deemed to have
– definition of 'capital asset' to include controlling been valid notwithstanding anything contained in any
Key policy
interest in an Indian company. It states that any rights judgement, decree or order.
announcements
in or in relation to Indian company, including rights
of management of control or any other rights Reassessment of income in relation to any asset
whatsoever will deemed to be regarded as 'capital located outside India
Fiscal and asset'
– definition of 'transfer' to specifically include
economic review • To reassess the income in relation to any asset located outside
disposition or parting with any interest directly or
India (including financial interest in any entity), which has
indirectly irrespective of whether such transfer is
escaped assessment, the following amendments are proposed:
effected or dependent upon or flowing from transfer
Snapshot of tax of shares of company registered or incorporated – time limit for issue of notice for reopening of an
proposals outside India. assessment to be increased to 16 years
– the term 'through' under in Section 9(1)(i) to mean – income shall be deemed to have escaped assessment
and include 'by means of', 'in consequence of' or 'by where a person is found to have any asset (including
reason of' financial interest in any entity) located outside India
Direct tax – any share or interest in a company or entity registered – the reassessment provisions are procedural in nature
proposals or incorporated outside India is deemed to be and will take effect from 1 July 2012 for enabling
situated in India if the share or interest derives, reopening of proceedings for an AY prior to this
directly or indirectly its value substantially from the date. It is further proposed that the extended period
Indirect tax assets located in India of 16 years for initiating reassessment will also apply
proposals – withholding tax provisions under Section 195 applies to any AY beginning on or before 1 April 2012
/to be applicable to non-residents irrespective of
whether non-resident has a residence or place of
business or business connection in India or any other
presence in India
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• This amendment will take effect retrospectively from AY
1962-63 (FY 1961-62)
22. Overview of the Union Budget 2012-13 22
General Anti-Avoidance Rules ('GAAR')
Foreword
• GAAR (under Chapter X-A) is a broad set of provisions • Where GAAR is triggered, the consequences could be as
which seek to tax an 'impermissible avoidance follows:
arrangement'(which may be a step, a part or whole of an – disregarding or combining any step of the
arrangement and hereinafter referred to as 'Transaction') arrangement
Key policy
whose main purpose is to obtain a tax benefit and: – ignoring the arrangement for the purpose of taxation
announcements
– creates rights or obligation which wouldn't arise law
between persons dealing at arm's length; or – disregarding or combining any party to the
– results in the misuse or abuse of the provisions of the arrangement
Fiscal and Act in any way; or – reallocating expenses and income between the parties
economic review – lacks commercial substance either wholly or in part; to the arrangement
or – relocating place of residence of a party, or location of
– is entered or carried out in a manner which would a transaction or situs of an asset to a place other than
not be employed for bonafide purposes provided in the arrangement
Snapshot of tax • Specific provisions are inserted which describes the – considering or looking through the arrangement by
proposals circumstances under which transaction is deemed to lack disregarding any corporate structure
'commercial substance' – re-characterizing equity into debt, capital into revenue
• Onus lies with the tax payer to prove that the main purpose etc.
of the arrangement was not to obtain tax benefit • It is also provided that a scheme for regulating the condition
Direct tax and the manner of application of GAAR provisions would be
proposals prescribed
• This will take effect from AY 2013-14 (FY 2012-13)
Indirect tax
proposals
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23. Overview of the Union Budget 2012-13 23
Tax treaty related amendments Expansion of definition of 'Royalties'
Foreword
• The following amendments are proposed in relation to • The definition of 'royalty' has now been amended to clarify
applicability of provisions under Double Taxation Avoidance and include the transfer of any 'right for use' or 'right to use' a
Agreement or an agreement with Government of foreign computer software (including granting of a licence),
country or specified territory outside India (together referred irrespective of the medium through which such right is
Key policy
to as 'treaty') transferred
announcements
• submission of Tax Residency Certificate ('TRC'), containing • Further, 'royalty' would also cover consideration in respect of
prescribed particulars, made a necessary condition for availing any right, property or information whether or not:
treaty benefits. – possession or control of such right, property or
Fiscal and • Treaty benefits cannot be availed where provisions of information is with the payer;
economic review Chapter-X –A i.e. GAAR are invoked – such right, property or information is used directly by
• This amendment will take effect from AY 2013-14 (FY 2012- the payer; and
13) – the right, property or information is located in India.
• Further any meaning assigned, through notification, to a term • The term 'process' which has now been specifically defined to
Snapshot of tax used in a treaty but not defined (in the IT Act or the said include transmission by satellite (including up-linking,
proposals treaty ) is proposed to be effective from the date on which the amplification, conversion for down-linking of any signal),
relevant treaty came into force cable, optic fibre or by any other similar technology, whether
• This amendment will take effect retrospectively from 1 or not such process is secret.
October 2009 (for Section 90) and 1 June 2006 (for Section
Direct tax • The above clarifications have been introduced with
90A)
proposals retrospective effect from 1 June 1976
Indirect tax
proposals
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24. Overview of the Union Budget 2012-13 24
Tax Deduction at Source ('TDS')
Foreword
Section Proposed Amendment
TDS shall not be required on any interest payable:
a) to an individual or a HUF, who is resident in India
Section 193 of the IT Act- TDS
b) on any debenture issued by a company in which the public are substantially interested
Key policy from payment of interest on
c) where the aggregate amount of interest paid during a FY does not exceed Rs 5,000 and the interest is
announcements debentures
paid by account payee cheque.
This amendment will take effect from 1 July 2012.
Payments made to 'entertainer' is subject to TDS. The rate of TDS for all payments covered under Section 194E
Section 194E of the IT Act -
Fiscal and of the IT Act is proposed to be increased to 20%
TDS from payment to non-
economic review resident entertainer
This amendment will take effect from 1 July 2012.
Any remuneration or fees or commission payable to a director of a company, other than those on which tax is
Section 194J of the IT Act - deductible under Section 192, shall be liable for TDS under the provisions of Section 194J
TDS from payment to director
Snapshot of tax This amendment will take effect from 1 July 2012.
proposals Section 194LA of the IT Act - Increase in exemption limit from Rs 100,000 to Rs 200,000
Exemption on enhanced
compensation This amendment will take effect from 1 July 2012
Any person responsible for paying any sum to a resident transferor by way of consideration for transfer of any
Direct tax immovable property (other than agricultural land), shall deduct an amount equal to 1% of such sum as income-
proposals Section 194LAA – TDS from tax thereon. The requirement to deduct TDS applies only where the consideration exceeds the prescribed
payment for immovable threshold. Also, withholding tax proof is made a pre-condition for the registering office to register the property.
property in certain cases
This amendment will take effect from 1 October 2012
Indirect tax Tax shall be charged at the rate of 5% on any income of a non-resident (not being a company) or a foreign
proposals Section 194LC- TDS from
company by way of interest on foreign current borrowings from sources outside India between 1 July 2012 and
1 July 2015 by specified companies.
payment of interest to a non-
resident by an Indian company
This amendment will take effect from 1 July 2012
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25. Overview of the Union Budget 2012-13 25
Tax collection at source ('TCS') Cases where tax is not deducted at source due to
Foreword bonafide reasons
• TCS proposed to be introduced on the following:
• It is proposed to dilute the responsibility of the 'assessee in
TCS on
TCS Rate 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
Key policy 'assessee in default' in respect of such tax if such resident:
Sale of certain minerals 1
announcements − has duly furnished his return of income
Cash sale of bullion and jewellery - if sale
consideration exceeds Rs 0.2 million
1 − has taken into account such sum for computing
income in such return of income; and
Fiscal and • The proposed new provision will take effect from 1 July 2012 − has paid the tax due on the income declared by him
economic review in such return of income
Liability to pay advance tax in case of non deduction • Further, the person is required to furnish a certificate to this
of tax effect from a Chartered Accountant in the prescribed form
• Similar changes are also introduced in relation to TCS
Snapshot of tax • It is proposed that where a person receives any income • The proposed provision will take effect from 1 July 2012
proposals without TDS or TCS, he shall be liable to pay advance tax • It is also proposed that where the payer fails to deduct the
with respect to such income. This amendment will take effect whole or any part of the tax on the payment made to a
retrospectively from AY 2012-13 (FY 2011-12) resident and he is not deemed to be an 'assessee in default'
(where the payee has paid the tax on such payment – as
Direct tax explained above), such payment will be allowed as a
proposals deduction. This will take effect from AY 2013-14 (FY 2012-
13)
Indirect tax
proposals
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26. Overview of the Union Budget 2012-13 26
Deductions under Chapter VIA for individual and HUF Deductions under Chapter VIA in relation to donation
Foreword – Effective from AY 2013-14 (FY 2012-13) payment
Deduction for life insurance premium • Deduction in respect donation (Section 80G and 80GGA) in
excess of Rs 10,000 is proposed to be allowed only if such
• Deduction in respect of premium paid on life insurance policy sum is paid by any mode other than cash
Key policy
issued on or after 1 April 2012 is proposed to be allowed
announcements
provided premium payable for any of the years does not
exceed 10% (presently 20%) of actual capital sum assured Eligibility conditions for exempt life insurance
policies
(Section 80C). Corresponding amendment brought in
Fiscal and Section 10D
• Any sum received under life insurance policy issued on or
economic review
Deduction for preventive health check-up
after 1 April 2012 will be exempt provided premium payable
for any of the years during the term of the policy does not
exceed 10% (presently 20%) of the actual capital sum assured
• Under Section 80D, a deduction of Rs 5,000 is allowed for
Snapshot of tax expenditure incurred during the year by a tax payer on
proposals
account of preventive health check-up of self, spouse,
dependent children or parents
• The above deduction to be within the overall limits of Rs
Direct tax 15,000 / Rs 20,000 prescribed under the said Section of the
proposals Act
Deduction for interest on savings account
Indirect tax
proposals • Deduction upto Rs 10,000 proposed to be allowed in respect
of interest on deposits (not being time deposit) in a savings
account with a banking company, co-operative society
engaged in banking business and post office (Section
Contact us 80TTA)
27. Overview of the Union Budget 2012-13 27
Filing of income tax return in relation to assets Dispute Resolution Panel ('DRP')
Foreword located outside India
• The Assessing Officer shall now have the right to appeal to
• It is proposed to make it compulsorily for a resident taxpayer the Appellate Tribunal against the order passed in pursuance
to file a return of income (even if his taxable income is below of directions of the DRP in respect of an objection filed on or
the basic exemption limit) if any one of the following is after 1 July 2012
Key policy triggered: • It is further clarified that the power of the DRP to enhance
announcements
- the taxpayer has any asset located outside India, the variation shall include and shall always be deemed to have
including any financial interest in any entity outside included the power to consider any matter arising out of the
India; or assessment proceedings relating to the draft assessment order.
Fiscal and - the taxpayer has signing authority in any account This power to consider any issue would be not withstanding
economic review located outside India that such matter was raised by the eligible assessee or not.
• This amendment will take effect retrospectively from AY This amendment will take effect retrospectively from AY
2009-10 (FY 2008-09)
2012-13 (FY 2011-12)
Snapshot of tax
proposals
Direct tax
proposals
Indirect tax
proposals
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28. Overview of the Union Budget 2012-13 28
Extension of time for completion of assessments and reassessments
Foreword
Proceedings under Section Current time frame Proposed time frame
143 – Scrutiny Assessment 21 months from end of AY 24 months from end of AY
143 & 92CA – Scrutiny Assessment & Transfer 33 months from end of AY 36 months from end of AY
Key policy
Pricing Assessment
announcements
148 – Income Escaping Assessment 9 months from end of FY in which notice issued 12 months from end of FY in which notice issued
148 & 92CA - Income Escaping Assessment & 21 months from the end of FY in which notice 24 months from end of FY in which notice issued
Transfer Pricing Assessment issued
Fiscal and
250 – Appellate Proceedings 9 months from end of FY in which notice issued 12 months from end of FY in which notice issued
economic review 254 – Appellate Tribunal
263 – Revision of orders prejudicial to revenue
250 – Appellate Proceedings 21 months from end of FY in which notice issued 24 months from end of FY in which notice issued
Snapshot of tax 254 – Appellate Tribunal
proposals 263 – Revision of orders prejudicial to revenue
92CA – Transfer Pricing
Direct tax
proposals
Indirect tax
proposals
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29. Overview of the Union Budget 2012-13 29
Penalties
Foreword
Section Existing Provisions Proposed Amendment
Explanation 7 to Section 271 -
Failure to furnish returns ,
Specified domestic transaction will be covered. Consequent amendment to be made to
comply with notices, Covers 'international transaction' only
Section 271G and Section 271AA also
concealment of income
Key policy (wef FY 2012-13)
announcements
Section 271 AA - Failure to
keep and maintain information Provides penalty only if there is a Additionally, penalty shall be levied :
and document in respect of failure to keep and maintain any • if any person fails to report the international transaction or specified domestic
international transaction information and document as required transaction, or
Fiscal and (wef 1 July 2012) by Section 92D(1) and 92D(2) • maintains or furnishes an incorrect information or document
economic review
The provision covers the cases of
Section 271 AAA- undisclosed search which have been initiated This penalty is applicable upto 1 July 2012. A new Section 271AAB has been proposed
income in the case of search under Section 132 on or after 1 June hereinafter
2007
Snapshot of tax
Penalty shall be imposable, where search has been initiated on or after 1 July 2012:
proposals
(a) at the rate of 10% of the 'undisclosed income' of the specified previous year, if
taxpayer admits during the course of search the undisclosed income
Provides to charge penalty at the rate
Section 271 AAB (New Section) of 10% of the undisclosed income of
(b) at the rate of 20 % of the 'undisclosed income' of the specified previous year , if
Direct tax the specified previous year
taxpayer does not admit the undisclosed income at the time of search but at the time of
proposals filing return after search
(c) in other cases penalty may range from 30% to 90% of undisclosed income
Indirect tax
proposals
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