2. Overview of the Union Budget 2012-13 2
Key policy
announcements
Snapshot of tax
proposals
Direct tax
proposals
Indirect tax
proposals
Foreword
Fiscal and
economic review
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Foreword
Despite the crisis in Euro zone, slow recovery in the United States, political
instability in the Middle East and subsequent rise in crude oil prices, the resilience
of India’s domestic economy is once again evident with this year’s GDP
growth estimate of over 6.5%. However, this consumption-driven growth may not
be sustainable in the long run unless it is accompanied with an investment-driven
growth.
Against this backdrop, growth and stability remained central to the Budget this year.
By setting the fiscal deficit target of 5.1% for 2012-13 and expressing its intentions
to keep central subsidies under 2% of GDP in 2012-13, and further bring them
down to 1.75% of GDP in the next 3 years, the government has steered clear of
populist measures.
The Budget endeavours to shore up investment in infrastructure with proposals
to make more sectors eligible for Viability Gap Funding under PPP scheme and
other measures including tax free bonds of Rs 60,000 crore for financing
infrastructure projects in 2012-13 alone.
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
power of aam admi, on the other hand.
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.
Tax & Regulatory Services Team
Grant Thornton India LLP
“The Budget seemed more benign than it is.
While most of the amendments were
anticipated such as tinkering of personal tax
rates, small exemptions for the middle income
group and widening the net of service tax and
taking the rate up, the fine print has wider
ramifications. Retrospective amendments to
address Vodafone like situations, bringing
domestic related party transactions under the
ambit of transfer pricing are a case in
point. Measures announced to boost
infrastructure, agriculture, aviation and power
industries is very heartening."
Pallavi J Bakhru
Partner & Practice Leader
Tax & Regulatory Services
Walker, Chandiok & Co
3. Overview of the Union Budget 2012-13 3
Subsidies
• Attempt to keep subsidies below 2% of Gross Domestic
Product ('GDP') during Financial Year ('FY') 2012-13
• Subsidies fully provided for effective administration of the
proposed Food Security Legislation
• Nation-wide roll out of mobile-based Fertilizer Management
System to provide complete information on movement of
fertilisers and subsidies
Budget Estimates
• Gross Tax Receipts estimated at Rs 1,077,612 crores for FY
2012-13
• Total expenditures budgeted at Rs 1,490,925 crores for FY
2012-13
Disinvestments
• For FY 2012-13, while 51% ownership and management
control to remain with the Government, disinvestments target
have been set at Rs 30,000 crores
Key policy
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Snapshot of tax
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Direct tax
proposals
Indirect tax
proposals
Foreword
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economic review
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Rationalisation of key policies
• Amendment to the Fiscal Responsibility and Budget
Management ('FRBM') Act – key features being concepts of:
- Effective revenue deficit – difference between revenue
deficits and grants for creation of capital assets
- Medium-term expenditure framework
statement – to set forth a 3-year rolling target for
expenditure indicators
• Goods and Service tax ('GST') network to be set-up as
National Information Utility and operational by August 2012
• 20 crore people enrolled under UID-Aadhaar mission.
Adequate funds allocated for further enrolment of 40 crores
• White Paper on Black Money to be presented in Parliament
in the Budget session
• National Food Security Bill, 2011 is presently before
Parliamentary Standing Committee
• Bill regarding Public Procurement Legislation to be
introduced in Parliament to combat corruption
4. Overview of the Union Budget 2012-13 4
Key policy
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Snapshot of tax
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Direct tax
proposals
Indirect tax
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Foreword
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Financial Sector
• Introduction of Rajiv Gandhi Equity Saving Scheme which
allows income tax deduction of 50% to new retail investors
investing upto Rs 50,000 in equities
• Rs 15,888 crores proposed for capitalisation of public sector
banks and financial institutions
• Central KYC depository to be developed in FY 2012-13
Infrastructure Sector
• Government to establish joint venture companies in PPP
mode by defence PSUs
• Tax free bonds of Rs 60,000 crores for financing
infrastructure projects in FY 2012-13
• Introduction of National Manufacturing Policy to raise
share of manufacturing in GDP to 25% creating 10 crore jobs
• External Commercial Borrowings ('ECB') allowed for low
cost housing projects
• 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
Textile Sector
• Financial stimulus of Rs 3,884 crores for waiver of loans of
handloom weavers
Power and Coal Sector
• ECB to part finance Rupee debt of existing power projects
Transport Sector
• Road Transport and Highways Ministry allocation
enhanced by 14% to Rs 25,360 crores
• ECB proposed for capital expenditures for road toll systems
• Direct import of Aviation Turbine Fuel for Indian carriers
permitted
• Equity participation of foreign airlines in an airport
undertaking upto 49% is under consideration
• ECB with a ceiling of US$1 billion to be permitted for 1 year
in respect of working capital requirements of airline industry
5. Overview of the Union Budget 2012-13 5
Snapshot of tax
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Direct tax
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Indirect tax
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Foreword
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Employment
• Allocation for National Rural Livelihood Mission
increased by 34% to Rs 3,915 crores
• Prime Minister's Employment Generation Programme
allocation enhanced by 23% to Rs 1,276 crores in FY 2012-13
• Allocation of Rs 1,000 crores for National Skill
Development Fund in FY 2012-13
Social Security
• Allocation under National Social Assistance Program
enhanced by 37% to Rs 8,447 crores in FY 2012-13
Defence
• Provision of Rs 1,93,407 crores made for defence services of
which Rs 79,579 crores is towards capital expenditure
Education
• Allocation for Sarva Shiksha Abhiyan enhanced by 21.7%
to Rs 25,555 crores in FY 2012-13
Agriculture
• Target for agriculture credit flow to increase by
Rs 1,00,000 crores to Rs 5,75,000 crores in FY 2012-13
• Interest subvention scheme to continue in FY 2012-13
• Additional subvention of 3% available for prompt payments
• Regional Rural Bank credit refinance fund set-up for
disbursing short-term crop loans
• Allocation for Accelerated Irrigation Benefit Program
enhanced by 13% to Rs 14,242 crores
• Irrigation and Water Resource Finance Company to be
operationalized to mobilise large resources to fund projects
Micro, Small and Medium Enterprises
• India Opportunities Venture Fund of Rs 5,000 crores to
be set up with Small Industries Development Bank of India
Healthcare
• No case of polio reported in the last one year
• Allocation for National Rural Health Mission to Rs 20,882
crores in FY 2012-13
• National Urban Health Mission to be launched in FY
2012-13 to meet the health needs of the urban poor
Key policy
announcements
Fiscal and
economic review
6. Overview of the Union Budget 2012-13 6
Snapshot of tax
proposals
Direct tax
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Indirect tax
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Foreword
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Key policy
announcements
Fiscal and
economic review
Indirect Tax
• This year's Union Budget has proposed certain key
amendments to the structure of Indirect Taxation in India
• The commitment to implement GST (Goods and Services
Tax) has been reiterated. Though there is no appointed date,
the Finance Minister has given all indications for its early
implementation
• The Constitutional Amendment Bill required to implement
GST had been introduced in the Parliament and referred to the
Parliamentary Standing Committee in March 2011. The
recommendations of the Committee are still awaited
• The Empowered Committee of State Finance Ministers has
approved the basic structure of the proposed GST
• 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
a short negative list
• The above developments are a clear precursor to GST
• The exact date and rate of GST has not been announced and
the target date of 1 April 2012 for implementation has clearly
been missed
• Central Sales Tax has not been abolished
“The Budget 2012-13 is a painful pill with Service
Tax being extended to all services (without the
credits of GST) and a sharp 2% hike in the
Service Tax and Central Excise rates. This will
lead to price rises across the board. But the
compass is set on Indirect Tax reforms and the
various steps taken to lead to an early
implementation of GST are welcome.”
Amrita Mitra
Partner – Indirect Tax
Grant Thornton India LLP
7. Overview of the Union Financial Budget 2012-13 7
Key policy
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Snapshot of tax
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Direct tax
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Indirect tax
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Foreword
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Economic Growth
• GDP growth rate during FY 2011-12 is estimated to be 6.9%
as compared to 8.4% during previous two FYs. Global
economic slack and oil price rise triggered this fall in GDP
growth
• During FY 2011-12, the services sector is expected to grow at
9.4% as against 9.3% last year. Its contribution to GDP is
estimated at 59%
• However, Manufacturing sector's growth has been
lacklustre. It has seen a steep fall from 9% during April-
December 2010 to 3.9% during April-December 2011
• Growth in exports reduced from 40.5% during FY 2010-11 to
23.5% during FY 2011-12 with insignificant change in the rate
of growth in imports
• Inflation remained a major concern during FY 2011-12 due to
upsurge in global commodity prices and crude oil though
Wholesale Price Index moderated from 9% during April-
November 2011 to 7% in February 2012
• 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
8.4 8.4
6.9
7.6
0.00
2.00
4.00
6.00
8.00
10.00
2009-10 2010-11 2011-12 2012-13AE
%age
Financial Years
GDP trends
8.1
3.8
9.6 9.1
0.00
2.00
4.00
6.00
8.00
10.00
12.00
2008-09 2009-10 2010-11 2011-12AE
%age
Financial Years
Headline Inflation
Financial
Years
Agriculture Industry Services
2010 – 11 14.5 27.8 57.7
2011 – 12AE 13.9 27.0 59.0
Sectoral Composition of GDP
8. Overview of the Union Financial Budget 2012-13 8
Key policy
announcements
Snapshot of tax
proposals
Direct tax
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Indirect tax
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Foreword
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Fiscal Deficit
• Increase in fiscal deficit from 4.8% in FY 2010-11 to
estimated 5.9% of GDP during FY 2011-12. It is expected to
drop to 5.1% of GDP during FY 2012-13
Key Initiatives
• Pradhan Mantri Gram Sadak Yojana (Bharat Nirman)
proposes to connect 54,648 habitations involving construction
of 146,184 km of rural roads
• Draft National Policy on Electronics (released on 03
October 2011) envisions creating a globally competitive
electronics system design and manufacturing industry
• Draft National Policy on Information Technology 2011
focuses on deployment of information communication
technology in all sectors of the economy
• Additional budgetary support of Rs 91,800 crores to enhance
productivity and resilience of agriculture
• '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
6.5
4.8
5.9
5.1
0.00
1.00
2.00
3.00
4.00
5.00
6.00
7.00
2009-10 2010-11 2011-12AE 2012-13AE
%age
Financial Years
Gross Fiscal Deficit
9. Overview of the Union Budget 2012-13 9
Key policy
announcements
Direct tax
proposals
Indirect tax
proposals
Foreword
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Direct tax proposals
• No change in Corporate tax rate, Minimum Alternate Tax,
Surcharge and Education Cess
• Minimum Alternate Tax to be applicable to Insurance,
Banking and Companies engaged in the generation or
supply of electricity, etc
• Scope for Alternate Minimum Tax extended to all tax
payers (other than companies) claiming specified deduction
• Concessional rate of taxation of dividends from foreign
subsidiaries @ 15% extended by 1 year
• Cascading effect of Dividend Distribution Tax in multi-tier
structure removed
• Weighted deduction introduced for expenditure on Notified
Agriculture Projects and Skill Development Projects in
manufacturing sector
• Weighted deduction for in-house research extended by 5
years
• Investment linked deduction extended coupled with
weighted deduction for specified businesses
• Power companies to get additional depreciation as well as
extension in terminal date for availing tax holiday
• 'Pass through' status accorded for all investments by
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
• Share capital, share premium etc in the books of closely held
company treated as explained only if source is proved
• Submission of Tax Residency Certificate made a necessary
(but not the sole) condition for availing tax treaty benefits
• Indirect transfer of capital asset proposed to be taxed in India.
Clause introduced to validate all actions of the tax officer
notwithstanding anything contained in any judgement, decree
or order. (Vodafone decision reversed)
• General Anti Avoidance Rules provisions introduced
• Consideration for computer software (even off the shelf)
proposed to be treated as royalty
• Reduced withholding tax rate of 5% applicable on foreign
borrowings by companies engaged in specified businesses
• Personal income tax slabs widened
• Filing of income tax return made mandatory for residents
having any assets outside India or having signing authority in
any account outside India
• Tax Officer permitted to appeal against Dispute
Resolution Panel order
Snapshot of tax
proposals
Fiscal and
economic review
10. Overview of the Union Budget 2012-13 10
Key policy
announcements
Direct tax
proposals
Indirect tax
proposals
Foreword
Contact us
Transfer pricing
• Advance pricing agreement introduced in transfer pricing
(prospective)
• Definition of international transaction and intangible property
clarified (retrospective)
• International transaction includes business restructuring or
reorganization, covered; whether or not it has bearing on the
profit, income, losses or assets of such enterprises at the time
of the transaction or at any future date (retrospective)
• Transfer Pricing Regulations apply to specified domestic
transactions between domestic related parties (prospective)
• Tax authorities can appeal against the order incorporating the
DRP directions (prospective)
• Currently, the arm’s length range is based on a uniform
tolerance band of 5% around the transfer price. The 5% band
has been replaced with 3% (prospectively)
• 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
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
Snapshot of tax
proposals
“While the DTC has been deferred, the Union
Budget has brought in some key provisions of the
DTC in the Bill like the anticipated general anti
avoidance rules (GAAR) and the advance pricing
agreements (APA). The most glaring thing that
comes out of the amendments is the introduction of
key provisions retrospectively to overrule recent
judgments in the area of international tax and
transfer pricing. This would surely not boost the
confidence of the foreign investor. A welcome
amendment is the APA regime introduced
to provide a progressive mode of dispute resolution
in the area of transfer pricing. Of course the APA
scheme should also practically turn out to be a
favorable and unbiased platform for the
multinationals and not be construed as another
round of aggressive transfer pricing audit. On the
other hand by bringing domestic transactions in the
ambit of transfer pricing, the compliance burdens on
the tax payer is going to increase multifold.”
Karishma R. Phatarphekar
Partner - Transfer Pricing
Grant Thornton India LLP
Fiscal and
economic review
11. Overview of the Union Budget 2012-13 11
Key policy
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Direct tax
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Indirect tax
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Foreword
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Indirect tax proposals
Roadmap to GST laid out
• There are clear indications that GST will be implemented
within a short time span
• The Constitutional Amendment Bill was introduced in the
Parliament in March 2011 and is before the Parliamentary
Standing Committee for recommendations
• The Empowered Committee of State Finance Ministers have
approved the basic structure. The IT enabled GST Network
(GSTN) has been approved and will become operational by
August 2012. A common PAN-based registration, return and
payment processing platform for all states will check tax
evasion
• The drafting of legislation for Centre and State GST is under
progress
• The Government has extended the levy of Service Tax on all
services with a short negative list
• The provisions of Central Excise and Service Tax are proposed
to be merged into a Common Tax Code
• Common registration and return provisions have been
proposed. The CENVAT Credit Rules are already common
Rates increase for manufacture and services
• The rate of Service Tax has been increased from 10% to 12%
• The standard rate of Central Excise Duty has been increased
from 10% to 12%
• The merit rate of Central Excise duty has been increased from
5% to 6%
• The lower merit rate of Central Excise Duty on specified 130
products has increased from 1% to 2%
• The Basic Custom Duty (BCD) rate remains the same at 10%
Effective Dates
• The Central Excise rates will be effective from midnight of 16
March 2012
• The Service Tax rate will be effective from 1 April 2012
Snapshot of tax
proposals
Fiscal and
economic review
12. Overview of the Union Budget 2012-13 12
Key policy
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Direct tax
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Snapshot of tax
proposals
Service Tax
• Proposal to tax all services except those in the negative list
comprising of 17 heads
• Alignment made to harmonize Central Excise and Service Tax
into a Common Tax Code.
• A common simplified registration form and a common return
comprising of one page proposed in this direction
• Place of Supply Rules for determining the location of service
and consumption to be put in public domain for stakeholder’s
comments
• Point of Taxation Rules to be rationalized to be in line with the
other proposed changes
• CENVAT Credit permitted on number of services to reduce
cascading of taxes
• New Scheme announced for simplification of refunds
• Revision Application Authority and Settlement Commission
being introduced in Service Tax for dispute resolution
Excise
• Duty increased to more than 12% in few cases such as
automobile and cement
• Duty evasion of amount more than Rs 30 lakh is a cognizable
offence where person can be arrested without warrant
• Benefit of reduced penalty, i.e. 25% of the penalty amount is
available only if penalty along with duty and interest paid
within 30 days
• Interest is not payable on credit wrongly taken unless the same
is utilized
• The rate for CENVAT reversal for exempt services/ goods
under Rule 6(3) of CENVAT Credit Rules is revised from 5%
to 6%
Customs
• The peak rate of customs duty on non-agricultural goods
remains at 10%
Fiscal and
economic review
13. Overview of the Union Budget 2012-13 13
Key policy
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• Exemption given to the following sectors:
• Agriculture
• Fuel for power
• Machinery for mining
• Protective warning systems for railways
• Specific road construction
• Aircraft machineries
• New leases of aircrafts
• Iron ore plants
• Steel coating material
• Textile machinery
• Specific medical devices like stents
• LED and LCD TV
• Mobiles
• Life saving drugs, etc
• Export duty on chromium ore is enhanced from Rs 3,000 per
tonne to 30% ad valorem
• Method of computation of education cess and secondary &
higher education cess is simplified to avoid computation of
such cesses twice
• Transfer of unutilized credit of Additional duty ('SAD') lying in
balance at the end of each quarter to another factory of the
manufacturer is permitted
• The duty free allowance under Baggage Rules is increased from
Rs 25,000 to Rs 35,000 for person of Indian origin and Rs
12,000 to Rs 15,000 for children upto 10 years of age
• Exemption from Countervailing Duty ('CVD') is provided
retrospectively to foreign going vessels from 1 March 2011 to
16 March 12
14. Overview of the Union Budget 2012-13 14
Key policy
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Rates of income - taxes
Personal tax
• Personal income-tax slabs proposed to be revised as under:
• Minimum exemption limit for women changed from Rs
190,000 to Rs 200,000 (the category of women below the age
of 60 years has been removed)
• Limits remain unchanged for senior citizens (age of 60 years
and above but less than 80 years) at Rs 250,000
• Limits remain unchanged for very senior citizen (age of 80
years and above) at Rs 500,000
• Education Cess and Secondary and Higher Education Cess at
2% and 1% respectively to continue
Corporate tax
• No change in corporate tax rate
• No change in Minimum Alternate Tax ('MAT') rate (18.5%)
• No change in surcharge for domestic companies (5%)
• No change in surcharge on foreign companies (2%)
• Marginal relief provisions to continue
• Education Cess and Secondary and Higher Education Cess at
2% and 1%, respectively to continue
• No change with respect to excluding Education Cess and
Secondary and Higher Cess on tax deducted or collected at
source, in case of domestic companies and other resident
persons
• Concessional rate of 15% for dividend received from foreign
subsidiary has been extended by 1 more year
Securities Transaction Tax ('STT')
• STT payable by purchaser and seller in respect of delivery
based transaction for equity shares in company / units of
equity oriented fund entered into through a recognised stock
exchange reduced from 0.125% to 0.1%
Existing Slab
(Rs)
Revised Slab
(Rs)
Tax rate (%)
Upto 180,000 Upto 200,000 NIL
180,001 to 500,000 200,001 to 500,000 10
500,001 to 800,000 500,001 to 1,000,000 20
Above 800,000 Above 1,000,000 30
15. Overview of the Union Budget 2012-13 15
Key policy
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Snapshot of tax
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Direct tax
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Foreword
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MAT
• It is proposed to widen the scope of MAT provision and levy
MAT to companies which prepare their profit and loss
accounts in accordance with provisions of the Act governing
such companies such as Insurance companies, Banking
companies or Companies engaged in the generation or supply
of electricity, etc
• It is also proposed that 'Book profit' is to be increased by the
amount standing in the revaluation reserve relating to the
revalued asset which has been retired or disposed, if the same
is not credited to the profit and loss account
• This amendment will take effect from Assessment Year ('AY')
2013-14 (FY 2012-13)
Alternate Minimum Tax ('AMT') to be levied on all
persons, other than companies
• It is proposed to widen the scope of AMT and include all
class of assesses (other than companies) under the ambit of
AMT provisions who are claiming deductions vide chapter
VI-A under the heading 'C-deduction in respect of certain
incomes' (i.e. Sections 80H to 80RRA, other than Section
80P) or under Section 10AA of the Income Tax Act, 1961
('IT Act')
• The proposed provisions shall not apply to an individual or a
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
adjusted total income (i.e. total income as increased by the
deduction under chapter VI-A, as mentioned above and
Section 10AA) of such person does not exceed Rs 2 million
• Tax credit in respect of AMT paid would continue to be
available for a period of subsequent 10 AYs
• This amendment will take effect from AY 2013-14 (FY 2012-
13)
16. Overview of the Union Budget 2012-13 16
Key policy
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Removal of cascading effect of Dividend Distribution
Tax ('DDT')
• To remove the cascading effect of DDT in multi-tier
corporate structure, it is proposed that a company (holding
company) receiving dividend from it Indian subsidiary where:
- such Indian subsidiary has paid DDT on the dividend
paid to the holding company;
- can take credit of the DDT that the Indian
subsidiary has paid while distributing dividend in the
same year
- additional condition that the holding company should
not be a subsidiary of any other company has been
removed.
• The proposed amendment will take effect from 1 July 2012
Expenditure on Notified Agricultural extension
projects
• A new provision (Section 35CCC) is proposed to be
introduced in the IT Act to allow weighted deduction of
150% of the expenditure incurred on notified agricultural
extension projects
• The eligible projects for this weighted deduction shall be
notified by the Board in accordance with the prescribed
guidelines
• This amendment will take effect from AY 2013-14 (FY 2012-
13)
Expenditure on skill development project
• A new provision (Section 35CCD) is proposed to be
introduced in the IT Act to allow weighted deduction of
150% of the expenses (not being expenditure in the nature of
cost of any land or building) incurred on skill development
projects in manufacturing sector
• The eligible projects for this weighted deduction shall be
notified by the Board in accordance with the prescribed
guidelines
• This amendment will take effect from AY 2013-14 (FY 2012-
13)
Weighted deduction to in- house scientific research
• Under Section 35(2AB), weighted deduction of 200% for
expenditure (not being in the nature of cost of any land or
building) incurred on in-house research and development
facilities, have been extended for a further period of 5 years
i.e. up to 31 March 2017
• This will take effect from AY 2013-14 (FY 2012-13)
17. Overview of the Union Budget 2012-13 17
Key policy
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Investment linked incentives
• Investment linked deductions proposed to be extended to the
following businesses commencing operations on or after 1
April 2012:
- setting up and operating of an inland container depot
- a container freight station
- bee-keeping and production of honey and beeswax
- setting up and operating a warehousing facility for
storage of sugar
• Weighted deduction of 150% of the capital expenditures (as
against current 100% deduction) proposed to be allowed to
the following businesses commencing operations on or after 1
April 2012:
- setting up and operating a cold chain facility
- setting up and operating a warehousing facility for
storage of agricultural produce
- building and operating a hospital with at least one
hundred beds for patients
- developing and building a housing project under a
scheme for affordable housing
- production of fertilizers
• This amendment will take effect from AY 2013-14 (FY 2012-
13)
• 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)
Exemption in respect of income received by certain
foreign companies
• Exemption is provided to foreign companies in respect of any
income received by it in India in Indian currency on account
of sale of crude oil to any person in India subject to specified
conditions
Extension of sunset clause - power companies
• The terminal date of availing deduction for the undertaking
engaged in business of generation and distribution of power,
transmission and distribution of power by laying network of
transmission and distribution lines, undertaking renovation or
modernization of existing distribution lines is extended from
31 March 2012 to 31 March 2013
Additional depreciation to power companies
• It is proposed to extend the benefit of additional depreciation
to taxpayers engaged in the business of generation or
generation and distribution of power
• This amendment will take effect from AY 2013-14 (FY 2012-
13)
18. Overview of the Union Budget 2012-13 18
Thresholds for tax audit
• Threshold for tax audit is proposed to be revised as under, from
AY 2013-14 (FY 2012-13)
• The due date for furnishing the tax audit report is aligned with
the due date for filing the tax return
Thresholds for applicability of tax on presumptive basis
• For the purpose of presumptive taxation under Section 44AD,
threshold limit of total turnover or gross receipts is proposed to
be increased from Rs 6 million to Rs 10 million
• This amendment will take effect from AY 2013-14 (FY 2012-13)
• Further, the following persons are proposed to be carved out of
presumptive taxation :
- professionals covered under Section 44AA
- persons earning income in the nature of commission or
brokerage
- persons carrying on agency business
• This amendment will take effect retrospectively from AY 2011-
12 (FY 2010-11)
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Computation of tonnage income
• The following amendment has been proposed for calculation
of tonnage income of a qualifying ship and will take effect
from AY 2013-14 (FY 2012-13)
Qualifying
ship having
net tonnage
Existing amount
of daily tonnage
income
Proposed
amount of daily
tonnage income
up to 1,000
Rs 46 for each 100
tons
Rs 70 for each 100
tons
exceeding 1,000
but not more than
10,000
Rs 460 plus Rs 35 for
each 100 tons
exceeding 1,000 tons
Rs 700 plus Rs 53 for
each 100 tons
exceeding 1,000 tons
exceeding 10,000
but not more than
25,000
Rs 3,610 plus Rs 28
for each 100 tons
exceeding 10,000
tons
Rs 5,470 plus Rs 42
for each 100 tons
exceeding 10,000
tons
exceeding 25,000
Rs 7,810 plus Rs 19
for each 100 tons
exceeding 25,000
tons
Rs 11,770 plus Rs 29
for each 100 tons
exceeding 25,000
tons.
Audit under
Existing
threshold
(Rs)
Revised
threshold
(Rs)
44AB - Tax audit for persons
carrying on business
6 million 10 million
44AB - Tax audit for persons
carrying on profession
1.5 million 2.5 million
19. Overview of the Union Budget 2012-13 19
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Clarification in relation to amalgamation and
demerger involving subsidiary
• Even where a subsidiary company amalgamates with its
holding company, in order to obtain a tax neutral treatment of
the amalgamation in the hands of such shareholder (i.e.
holding company), there was a requirement to issues of shares
to shareholders of the amalgamating company (i.e. the
subsidiary), which was impossible to achieve as the holding
company could not issue shares to itself. This requirement has
been dispensed with.
• Similarly, in case of a demerger, where demerged company is
a subsidiary company and the resulting company itself is the
holding company, the requirement relating to issues of shares
by such resulting company (i.e. holding company) to the
demerged company (i.e. subsidiary company) has been
dispensed with
• This amendment will take effect from AY 2013-14 (FY 2012-
13)
Provisions relating to Venture Capital Fund ('VCF') or
Venture Capital Company ('VCC')
• Sectoral restrictions on business of Venture Capital
Undertaking ('VCU') to claim exemption from income by
VCF or VCC have been done away with i.e. 'pass through'
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
• This amendment will take effect from AY 2013-14 (FY 2012-
13)
Share premium in excess of Fair Market Value ('FMV')
to be treated as income
• It is proposed to insert a new provision (Section 56(2)(viib))
where any consideration received for issue of shares is in
excess of face value of shares, then the consideration
exceeding FMV of the shares shall be chargeable to income
tax under the head 'Income from other sources
• The FMV shall be higher of the following:
– FMV, as per the prescribed guidelines; or
– FMV as may be substantiated by the issuing company
• This provision is proposed to be applicable only for
companies in which public are not substantially interested (i.e.
closely held companies). Further, this provision is not
applicable to venture capital undertaking, with respect to
shares issued to venture capital company / fund
• This will take effect from AY 2013-14 (FY 2012-13)
Exemption of any sum or property received by an
HUF from its members
• It is proposed to exclude any sum or property received by an
HUF from its members without consideration or inadequate
consideration, from taxation
• The proposed new provision will take effect retrospectively
from 1 October 2009
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Clarification in connection with 'cost to previous
owner'
• It is proposed that in the following transactions the cost of
capital assets in the hands of the recipient would be equal to
the cost of such assets in the hands of the previous owner
(transferor):
- transfer of capital assets in course of
demutualisation/ corporatisation of a recognised
stock exchange as a result of which AOP/BOI
(previous owner) is converted into a company
(recipient)
- transfer of capital assets/ intangible assets on
conversion of sole proprietary concern / firm
(previous owner) into a company (recipient)
• This amendment will take effect retrospectively from AY
1999-00 (FY 1998-99)
FMV to be considered as 'full value of consideration'
• A new provision is proposed to be inserted (Section 50D)
under which FMV of capital asset (on the date of transfer) is
to be considered as 'full value of consideration' for
transactions where sales consideration is not ascertainable or
cannot be determined
• This amendment will take effect from AY 2013-14 (FY 2012-
13)
Relief from long term capital gains tax to an
individual or an HUF on sale of a residential property
• A new provision (Section 54GB) is proposed to be
introduced to allow relief from long term capital gains on sale
of residential property (house or a plot of land) whereby the
sale consideration is reinvested in the equity of a Small
Enterprise (as per the Micro, Small and Medium Enterprises
Act, 2006) and which is utilised by such company for the
purchase of new plant and machinery
• The above relief is available subject to fulfillment of certain
prescribed conditions such as lock in period for 5 years for
investment and assets purchased, minimum shareholding
requirement, time frame for utlisation of subscription amount
by the company, etc
• The said exemption applies to any transfer of a residential
property made before 31 March 2017
• This amendment will take effect from AY 2013-14 (FY 2012-
13)
Reference to Valuation Officer
• The powers of Assessing officer has been widened with
respect to cases to be referred to a Valuation Officer. As per
the amended provisions, the Assessing officer could now
refer a case to Valuation Officer even when FMV is lower
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
21. Overview of the Union Budget 2012-13 21
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Transfer of capital assets not situated in India
• It is proposed to tax indirect transfer of capital assets in India
by inserting the following deeming / clarificatory
amendments:
– definition of 'capital asset' to include controlling
interest in an Indian company. It states that any rights
in or in relation to Indian company, including rights
of management of control or any other rights
whatsoever will deemed to be regarded as 'capital
asset'
– definition of 'transfer' to specifically include
disposition or parting with any interest directly or
indirectly irrespective of whether such transfer is
effected or dependent upon or flowing from transfer
of shares of company registered or incorporated
outside India.
– the term 'through' under in Section 9(1)(i) to mean
and include 'by means of', 'in consequence of' or 'by
reason of'
– any share or interest in a company or entity registered
or incorporated outside India is deemed to be
situated in India if the share or interest derives,
directly or indirectly its value substantially from the
assets located in India
– withholding tax provisions under Section 195 applies
/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
• This amendment will take effect retrospectively from AY
1962-63 (FY 1961-62)
Transfer of capital assets not situated in India
• A validation clause has been introduced whereby any notice
sent or purported to have been sent, taxes levied, demanded,
assessed, etc with regard to such transfers is deemed to have
been valid notwithstanding anything contained in any
judgement, decree or order.
Reassessment of income in relation to any asset
located outside India
• To reassess the income in relation to any asset located outside
India (including financial interest in any entity), which has
escaped assessment, the following amendments are proposed:
– time limit for issue of notice for reopening of an
assessment to be increased to 16 years
– income shall be deemed to have escaped assessment
where a person is found to have any asset (including
financial interest in any entity) located outside India
– the reassessment provisions are procedural in nature
and will take effect from 1 July 2012 for enabling
reopening of proceedings for an AY prior to this
date. It is further proposed that the extended period
of 16 years for initiating reassessment will also apply
to any AY beginning on or before 1 April 2012
22. Overview of the Union Budget 2012-13 22
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General Anti-Avoidance Rules ('GAAR')
• GAAR (under Chapter X-A) is a broad set of provisions
which seek to tax an 'impermissible avoidance
arrangement'(which may be a step, a part or whole of an
arrangement and hereinafter referred to as 'Transaction')
whose main purpose is to obtain a tax benefit and:
– creates rights or obligation which wouldn't arise
between persons dealing at arm's length; or
– results in the misuse or abuse of the provisions of the
Act in any way; or
– lacks commercial substance either wholly or in part;
or
– is entered or carried out in a manner which would
not be employed for bonafide purposes
• Specific provisions are inserted which describes the
circumstances under which transaction is deemed to lack
'commercial substance'
• Onus lies with the tax payer to prove that the main purpose
of the arrangement was not to obtain tax benefit
• Where GAAR is triggered, the consequences could be as
follows:
– disregarding or combining any step of the
arrangement
– ignoring the arrangement for the purpose of taxation
law
– disregarding or combining any party to the
arrangement
– reallocating expenses and income between the parties
to the arrangement
– relocating place of residence of a party, or location of
a transaction or situs of an asset to a place other than
provided in the arrangement
– considering or looking through the arrangement by
disregarding any corporate structure
– re-characterizing equity into debt, capital into revenue
etc.
• It is also provided that a scheme for regulating the condition
and the manner of application of GAAR provisions would be
prescribed
• This will take effect from AY 2013-14 (FY 2012-13)
23. Overview of the Union Budget 2012-13 23
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Tax treaty related amendments
• The following amendments are proposed in relation to
applicability of provisions under Double Taxation Avoidance
Agreement or an agreement with Government of foreign
country or specified territory outside India (together referred
to as 'treaty')
• submission of Tax Residency Certificate ('TRC'), containing
prescribed particulars, made a necessary condition for availing
treaty benefits.
• Treaty benefits cannot be availed where provisions of
Chapter-X –A i.e. GAAR are invoked
• This amendment will take effect from AY 2013-14 (FY 2012-
13)
• Further any meaning assigned, through notification, to a term
used in a treaty but not defined (in the IT Act or the said
treaty ) is proposed to be effective from the date on which the
relevant treaty came into force
• This amendment will take effect retrospectively from 1
October 2009 (for Section 90) and 1 June 2006 (for Section
90A)
Expansion of definition of 'Royalties'
• The definition of 'royalty' has now been amended to clarify
and include the transfer of any 'right for use' or 'right to use' a
computer software (including granting of a licence),
irrespective of the medium through which such right is
transferred
• Further, 'royalty' would also cover consideration in respect of
any right, property or information whether or not:
– possession or control of such right, property or
information is with the payer;
– such right, property or information is used directly by
the payer; and
– the right, property or information is located in India.
• The term 'process' which has now been specifically defined to
include 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.
• The above clarifications have been introduced with
retrospective effect from 1 June 1976
24. Overview of the Union Budget 2012-13 24
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Tax Deduction at Source ('TDS')
Section Proposed Amendment
Section 193 of the IT Act- TDS
from payment of interest on
debentures
TDS shall not be required on any interest payable:
a) to an individual or a HUF, who is resident in India
b) on any debenture issued by a company in which the public are substantially interested
c) where the aggregate amount of interest paid during a FY does not exceed Rs 5,000 and the interest is
paid by account payee cheque.
This amendment will take effect from 1 July 2012.
Section 194E of the IT Act -
TDS from payment to non-
resident entertainer
Payments made to 'entertainer' is subject to TDS. The rate of TDS for all payments covered under Section 194E
of the IT Act is proposed to be increased to 20%
This amendment will take effect from 1 July 2012.
Section 194J of the IT Act -
TDS from payment to director
Any remuneration or fees or commission payable to a director of a company, other than those on which tax is
deductible under Section 192, shall be liable for TDS under the provisions of Section 194J
This amendment will take effect from 1 July 2012.
Section 194LA of the IT Act -
Exemption on enhanced
compensation
Increase in exemption limit from Rs 100,000 to Rs 200,000
This amendment will take effect from 1 July 2012
Section 194LAA – TDS from
payment for immovable
property in certain cases
Any person responsible for paying any sum to a resident transferor by way of consideration for transfer of any
immovable property (other than agricultural land), shall deduct an amount equal to 1% of such sum as income-
tax thereon. The requirement to deduct TDS applies only where the consideration exceeds the prescribed
threshold. Also, withholding tax proof is made a pre-condition for the registering office to register the property.
This amendment will take effect from 1 October 2012
Section 194LC- TDS from
payment of interest to a non-
resident by an Indian company
Tax shall be charged at the rate of 5% on any income of a non-resident (not being a company) or a foreign
company by way of interest on foreign current borrowings from sources outside India between 1 July 2012 and
1 July 2015 by specified companies.
This amendment will take effect from 1 July 2012
25. Overview of the Union Budget 2012-13 25
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Tax collection at source ('TCS')
• TCS proposed to be introduced on the following:
• The proposed new provision will take effect from 1 July 2012
Liability to pay advance tax in case of non deduction
of tax
• It is proposed that where a person receives any income
without TDS or TCS, he shall be liable to pay advance tax
with respect to such income. This amendment will take effect
retrospectively from AY 2012-13 (FY 2011-12)
TCS on
TCS Rate
(%)
Sale of certain minerals 1
Cash sale of bullion and jewellery - if sale
consideration exceeds Rs 0.2 million
1
Cases where tax is not deducted at source due to
bonafide reasons
• It is 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 July 2012
• It is also 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 – as
explained above), such payment will be allowed as a
deduction. This will take effect from AY 2013-14 (FY 2012-
13)
26. Overview of the Union Budget 2012-13 26
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Deductions under Chapter VIA for individual and HUF
– Effective from AY 2013-14 (FY 2012-13)
Deduction for life insurance premium
• Deduction in respect of premium paid on life insurance policy
issued on or after 1 April 2012 is proposed to be allowed
provided premium payable for any of the years does not
exceed 10% (presently 20%) of actual capital sum assured
(Section 80C). Corresponding amendment brought in
Section 10D
Deduction for preventive health check-up
• Under Section 80D, a deduction of Rs 5,000 is allowed for
expenditure incurred during the year by a tax payer on
account of preventive health check-up of self, spouse,
dependent children or parents
• The above deduction to be within the overall limits of Rs
15,000 / Rs 20,000 prescribed under the said Section of the
Act
Deduction for interest on savings account
• 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
80TTA)
Deductions under Chapter VIA in relation to donation
payment
• Deduction in respect donation (Section 80G and 80GGA) in
excess of Rs 10,000 is proposed to be allowed only if such
sum is paid by any mode other than cash
Eligibility conditions for exempt life insurance
policies
• Any sum received under life insurance policy issued on or
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
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Filing of income tax return in relation to assets
located outside India
• It is proposed to make it compulsorily for a resident taxpayer
to file a return of income (even if his taxable income is below
the basic exemption limit) if any one of the following is
triggered:
- the taxpayer has any asset located outside India,
including any financial interest in any entity outside
India; or
- the taxpayer has signing authority in any account
located outside India
• This amendment will take effect retrospectively from AY
2012-13 (FY 2011-12)
Dispute Resolution Panel ('DRP')
• The Assessing Officer shall now have the right to appeal to
the Appellate Tribunal against the order passed in pursuance
of directions of the DRP in respect of an objection filed on or
after 1 July 2012
• It is further clarified that the power of the DRP to enhance
the variation shall include and shall always be deemed to have
included the power to consider any matter arising out of the
assessment proceedings relating to the draft assessment order.
This power to consider any issue would be not withstanding
that such matter was raised by the eligible assessee or not.
This amendment will take effect retrospectively from AY
2009-10 (FY 2008-09)
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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
Pricing Assessment
33 months from end of AY 36 months from end of AY
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 &
Transfer Pricing Assessment
21 months from the end of FY in which notice
issued
24 months from end of FY in which notice issued
250 – Appellate Proceedings
254 – Appellate Tribunal
263 – Revision of orders prejudicial to revenue
9 months from end of FY in which notice issued 12 months from end of FY in which notice issued
250 – Appellate Proceedings
254 – Appellate Tribunal
263 – Revision of orders prejudicial to revenue
92CA – Transfer Pricing
21 months from end of FY in which notice issued 24 months from end of FY in which notice issued
Extension of time for completion of assessments and reassessments
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Penalties
Section Existing Provisions Proposed Amendment
Explanation 7 to Section 271 -
Failure to furnish returns ,
comply with notices,
concealment of income
(wef FY 2012-13)
Covers 'international transaction' only
Specified domestic transaction will be covered. Consequent amendment to be made to
Section 271G and Section 271AA also
Section 271 AA - Failure to
keep and maintain information
and document in respect of
international transaction
(wef 1 July 2012)
Provides penalty only if there is a
failure to keep and maintain any
information and document as required
by Section 92D(1) and 92D(2)
Additionally, penalty shall be levied :
• if any person fails to report the international transaction or specified domestic
transaction, or
• maintains or furnishes an incorrect information or document
Section 271 AAA- undisclosed
income in the case of search
The provision covers the cases of
search which have been initiated
under Section 132 on or after 1 June
2007
This penalty is applicable upto 1 July 2012. A new Section 271AAB has been proposed
hereinafter
Section 271 AAB (New Section)
Provides to charge penalty at the rate
of 10% of the undisclosed income of
the specified previous year
Penalty shall be imposable, where search has been initiated on or after 1 July 2012:
(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
(b) at the rate of 20 % of the 'undisclosed income' of the specified previous year , if
taxpayer does not admit the undisclosed income at the time of search but at the time of
filing return after search
(c) in other cases penalty may range from 30% to 90% of undisclosed income
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Penalties - contd
Section Existing Provisions Proposed Amendment
Section 271 H- Penalty for
failure to furnish TDS/TCS
returns (New Section wef 1
July 2012)
A person shall be liable to pay a sum between Rs 0.01 million to Rs
0.1 million if he fails to deliver or delivers an incorrect information
under Section 200(3) or 206C(3) of the IT Act
However, no penalty shall be levied if the person proves that he had
delivered the required statement within one year of the period
prescribed under the said Sections
Similar amendment shall also be made to Section 273B
Section 272 A - Penalty for
failure to answer questions,
furnish statements , etc. (wef
1 July 2012)
Section 272A (2)(k) provides for the penalty of Rs 100
per day to be levied in case a person fails to deliver the
statement (i.e. TDS and TCS returns) within the time
prescribed in Section 200(3) or 206C(3)
A proviso is proposed to be inserted after Section 272A(2)(k) to
provide that no penalty shall be levied under this Section for late
filing of TDS /TCS returns
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Unexplained cash credits
• It is proposed to amend the existing provisions with respect
to unexplained cash credits to provide that any explaination
offered by a closely held company with regard to credit of
share application money, share capital, share premium or any
such amount shall be deemed to be non-satisfactory unless:
− the resident person whose name credit has been
recorded offers explanation about nature and source
of such credit; and
− tax authorities find such explanation to be
satisfactory
• This will take effect from AY 2013-14 (FY 2012-13)
Assessment of charitable organization in case
commercial receipts exceed the specified threshold
• It is proposed to provide that any charitable trust or
institution registered under Section 12AA and 10(23C) will
not get benefit of tax exemption in the year in which it's
receipts from commercial activities exceed the threshold
whether or not the registration or approval granted or
notification issued is cancelled, withdrawn or rescinded.
• This will take effect retrospectively from AY 2009-10 (FY
2008-09)
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Transfer pricing
Introduction of advance pricing agreement (wef 1
July 2012)
• An APA is an agreement between the taxpayer and the taxing
authority
• It will enable determination of the arm’s length price or
specify the manner/ methodology in which arm’s length price
shall be determined
• The agreement is
.
- valid for not more than five years
- available to all taxpayers falling within the ambit of Indian
TP legislation
- The APA enabling provisions are imported from the DTC
and detailed rules and forms are expected to be issued by
the Government shortly
- APAs to be entered by the CBDT with the approval of
Central Government
- Ability to use any method other than one of the prescribed
5 methods available
- The APA has binding force only on the taxpayer with
whom it is signed and in respect of the relevant
international transaction vis-à-vis the jurisdictional
commissioner of income-tax
- The APA shall not be binding/annulled in the following
instances:
• Change in Law
• If the taxpayer has signed the APA with the
CBDT based on misrepresentation of facts.
CBDT will annul in this case by way of an order
- On conclusion of APA, the taxpayer is required to file
revised return(s) with the Assessing Officer who has to
complete the assessment/reassessment within one year
from the end of the FY in which the revised return is filed
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International transactions (retrospective effect from
1 April 2002)
• The definition of international transactions has been amended
to :
- elaborate on tangible, intangible property, services,
financing transactions; and
- include transactions of business restructuring or
reorganization, covered; whether or not it has bearing on
the profit, income, losses or assets of such enterprises at
the time of the transaction or at any future date
Specified domestic transactions (wef 1 April 2013)
• Specified domestic transactions’ broadly comprise
transactions entered into by domestic related parties or by an
undertaking with other undertakings of the same entity for
the purposes of section 40A, Chapter VI-A, section 10AA
and which exceed a monetary threshold of Rupees 5 crore
during a FY
Intangibles (retrospective effect from 1 April 2002)
• Intangible property has been specifically explained. Other
than marketing, technical, artistic, data processing, engineering
related intangibles it includes intangibles related to:
- “customers” like customer lists, open purchase orders;
- “human capital” like trained & organized work force;
- “location” like leasehold interests and also mentions and
lastly it also has an open item to include
- “any item that derives its value from intellect content
rather than its physical attributes
• This kind of a broad definition leaves the tax authority to
construe significant items as intangibles and this could have a
major impact on the characterization of entities when
conducting a function, asset and risk analysis of the
international transaction
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Reduction in 5% variation and disenabling standard
deduction
• Currently, the arm’s length range is based on a uniform
tolerance band of 5% around the transfer price. However, the
Government had amended proviso to sub section (2) of
section 92C in the Finance Act, 2011, whereby the
Government was to notify an allowable variation for different
business activities and types of transactions. The current 5%
band has been replaced with 3%
• There were two litigation issues around the 5% range. One
was that it was not allowed as a standard deduction by the tax
authorities and the other was that new proviso of the
variation was being applied retrospectively for AYs prior to
the amendment date of 1 October 2009
• Major tribunals for both these issues had ruled in favour of
the tax payer. However, the proposed amendments overturn
these tribunal decisions and do not permit the 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 AO as on 1
October 2009. This would mean that even for AYs prior to
2010-11 pending before the AO as on 1 October 2009 the
new provisions of the variation would prevail and thereby
standard deduction not permitted to the tax payers. However,
the proposed amendment limits the tax authorities ability to
re-open or rectify assessments concluded before 1 October
2009
Power of the transfer pricing officer ('TPO')
• The TPO is empowered to determine Arm’s Length Price of an
international transaction noticed by him in the course of
proceedings before him, even if the said transaction was not
referred to him by the Assessing Officer. Although this
amendment takes effect retrospectively from 1st June 2002,
reopening of any proceeding would not be done only on account
of such an amendment. The proposed changes could have
ramifications where taxpayer has entered in to free of cost
transactions (i.e. loan guarantee or extended short term liquidity
to its associated enterprises) and has not charged any price for
such services and consequently not reporting it as international
transactions in its disclosure
• The Assessing Officer cannot under section 147 or section 154
enhance the assessment or reduce a refund in respect of
completed proceedings
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Stringent penalties for non reporting international
transactions or specified domestic transaction
• Section 271AA has been amended to levy penalty at the rate
of 2% of the value of the international transaction or specified
domestic transaction, if the taxpayer
- fails to maintain prescribed documents or information or;
- fails to report such transaction which is required to be
reported, or;
- maintains or furnishes any incorrect information or
documents
- This would be in addition to penalties in section
271BA and 271G. This amendment will take effect from 1
July, 2012
Filing of accountants report
• Filing of Form 3CEB under section 92E for non-corporate
taxpayer revised to 30 November
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Service Tax
Rate change – effective 1 April 2012
• The rate of service tax is being restored to the statutory rate
of 12%. This is aligned to the excise duty rate. The earlier
notification reducing the rate to 10% has been rescinded.
• Consequent changes have also been made in composition
rates such as works contract services
Taxation of Services based on negative list approach
– effective from a date to be notified
• There is paradigm shift in the way services are proposed to be
taxed in future. Taxation will be based on what is popularly
known as ‘Negative List of Services’.
• Negative list of services covers specified 17 services as under:
- Services provided by Government or local authority
- Services provided by Reserve Bank of India
- Services by a foreign diplomatic mission located in India
- Services relating to agriculture
- Trading of goods
- Processes amounting to manufacture or production of
goods
- Selling of space or time slots for advertisements other
than advertisements broadcast by radio or television
- Access to a road or a bridge on payment of toll charges
- Betting, gambling or lottery
- Entry to Entertainment Events and Access to
Amusement Facilities
- Transmission or distribution of electricity
- Specified services relating to education
- Services by way of renting of residential dwelling for use
as residence
- Financial sector
- Service relating to transportation of passengers
- Service relating to transportation of goods
- Funeral, burial, crematorium or mortuary services
including transportation of the deceased
• Presently the word ‘service’ has not been defined. The
Finance Bill 2012 proposes to is specifically define the word
‘service’. Service shall also include certain activities that have
been specified as declared services.
• If an activity meets the characteristics of a ‘service’ it is
taxable unless specified in the negative list or otherwise
exempted by a notification.
• Most of 88 exemptions to be rescinded or merged in a mega
exemption notification. Proposed exemptions under Mega
Notifications shall include services provided to specified
organisations, temporary transfer of copyrights in
cinematographic films, etc.
• A new charging section is proposed to be introduced to levy
service tax on all services, other than those in the negative list,
provided or agreed to be provided in the taxable territory by
one person to another.
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• The existing provisions and charging sections will cease to
apply after the new provisions become effective but will
remain relevant in respect of services provided prior to the
applicability of the new provisions
Other changes proposed consequent to negative list
approach – effective from a date to be notified
CENVAT Credit Rules
• In the light of negative list it is proposed that the service-
specific references in the CENVAT Credit Rules will be
replaced by broad descriptions retaining the essence of the
existing provisions
• The definition of output service shall include exports of
service where payment is not received within the period
specified under the RBI requirements. Thus the benefit of not
reversing the input tax credits for exports without treating
them exempt will continue for the period specified for
realizing export proceeds
• In terms of the proposed amendment to the valuation rules
services shall exclude interest on (a) deposits; and (b) delayed
payment of any consideration for the provisions made
(services/goods). This will keep such amounts outside the
value and thus not be relevant for reversal of credits under
CENVAT Credit Rules
• Interest on loans and advances will now be an exempt
income. This will require reversal of credits used for earning
such income. Specified provisions have been proposed for
such reversal
Service Tax Rules
• With the proposed introduction of the Place of Provision of
Services Rules, 2012 and the proposed omission of the Export
of Services Rules, 2005 (as amended) a transaction will qualify
as export when it meets following requirements:
- the service provider is located in Taxable territory
- service recipient is located outside India
- service provided is a service other than in the negative
list
- the place of provision of the service is outside India and
- the payment is received in convertible foreign exchange
Place of Provision of Services Rules, 2012
• The Finance Bill 2012 proposes to introduce the Place of
Provision of Services Rules, 2012. The draft rules have been
released for comments and feedback for the time being. The
essence is that a service should be taxed in the jurisdiction of
consumption
• It is proposed that these Rules will replace the existing Export
of Services Rules, 2005 and the Taxation of Services
(Provided from Outside India and Received in India) Rules,
2006
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Valuation Rules
• Negative list will require some reformulations away from
service-specific provisions. The abatements available for
certain taxable services and composition rate for works
contract services will undergo change
• Presently for works contract services, value of services is
equal to the total amount charged for the contract reduced by
the value of property transferred in goods for State VAT
purpose. If the value is not so deduced, it is proposed that an
ad-hoc percentage of the total value as would be allowed as
deduction towards goods. The input tax credit on goods
forming part of the property on which VAT is payable shall
not be available as they are not used in the provision of
service. However taxes paid on capital goods and input
services will be available
• The taxable portion for services involved in supply of food
and drinks in a restaurant or as outdoor catering is being
raised. The abatement available is being adjusted to allow the
industry to utilize credit on capital goods, specified inputs
(other than foods and beverages) and input services
• Value of service shall include any amount realized as
demurrage, or by any other name, for the provision of a
service beyond the period originally contracted or in any other
manner relatable to the provision of service. It shall also
include accidental damages due to unforeseen actions not
relatable to the provision of service
• Value of service shall exclude interest on (a) deposits; and (b)
delayed payment of any consideration for the provisions made
(services/goods)
Abatements
• With the introduction of the negative list approach, changes
are proposed in the abatements available for services
involving both goods and services. It is proposed to increase
the taxable portion of value and liberalise the input tax
credits. Though the taxable portion of services may appear on
a higher side, but the availability of credits will lead to
reduction in costs and hence prices for the consumers. This
will result in neutrality of taxes i.e. the burden of taxes will not
raise the cost per se but passed on to the point of
consumption
SEZ changes
• There are no changes proposed in the present Budget.
However it is proposed that service-specific criterion for
determination of services provided exclusively within the SEZ
shall be taken care at the time of introducing negative list
• Prior to 1 March 2011 services provided to SEZs were treated
as exempt services and CENVAT credit had to be reversed
under CENVAT Credit Rules. The amendment introduced
with effect from 1 March 2011 has now been made effective
from 10 February 2006. This will neutralize the investigations
or demands for reversal of credits in respect of services
provided to SEZs for the past
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Reverse charge provisions
• The term ‘taxable territory’ has been defined and only services
provided in taxable territory will be liable to tax. Any service
provided in the State of Jammu & Kashmir will not be liable
to tax. The Place of Supply Rules, 2012 will determine
whether a service is being provided in Jammu & Kashmir
• Where the service provider is located in Jammu & Kashmir
but the services are provided in taxable territory, the tax will
be collected from the service receiver
• A new scheme is proposed to be introduced to ensure proper
collection. For the services of hiring of a motor vehicle
designed to carry passengers, supply of manpower for any
purpose and works contract both the service provider and
service receiver will be considered as persons liable to pay the
tax on a predetermined percentage. The scheme can be given
effect on enactment; however it is proposed to time it with
Negative List approach as a part of the comprehensive reform
Rules of interpretation
• Separate principles are proposed to be introduced for
interpretation of specified description of services and bundled
services
Point of Taxation Rules – effective 1 April 2012
• Continuous supply of service has been redefined to bring out
concept with better clarity, namely recurrent nature of
services and the obligation for payment periodically or from
time-to-time
• Rules have to been amended to provide that the ‘date of
payment’ shall be the earlier of, the dates of entry into books
of accounts or actual credit in the bank account. When there
is change in effective rate of tax or an introduction of new
levy between the date of entry in books or actual credit in
bank, the date of payment shall be the date of actual credit in
the bank account, if the amount is credited through a banking
instrument more than four working days after the date of
such change
• Best judgement provisions have been introduced where the
tax-payer is unable to furnish one or more of the details
needed i.e. date of payment or date of invoice or both to
determine point of taxation
CENVAT changes – effective 1 April 2012
• A simplified scheme for refunds is being introduced by
substituting the earlier provisions under CENVAT Credit
Rules. The new scheme does not require correlation between
exports and input services used in such exports. Any goods or
services that qualify as inputs or input services will be entitled
to be refunded in the ratio of the export turnover to total
turnover. The notification prescribing the detailed manner
and safeguards will be issued shortly
• Credit on motor vehicles is liberalised and will be allowed
other than those falling under tariff heading 8702, 8703, 8704,
8711 and their chassis. The credit of service tax paid on their
hiring, insurance and repair will also be allowed
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• Credit on goods can now availed without bringing them into
premises subject to due documentation regarding their
delivery and location
• Credit of tax paid by all service receivers on reverse charge is
allowed on the tax payment challan
• Rules relating to distribution of credits of input services by an
input service distributer have been amended to ensure
scientific allocation to only such units where they have been
put to use based on proportion of turnover
• The rate for CENVAT reversal for taxable/ exempt services/
goods has been revised from 5% to 6%
Service Tax Rules – effective 1 April 2012
• Service providers may issue invoice within 30 days from the
date completion of taxable service or receipt of any payment
towards value of taxable services whichever is earlier. Banking
or financial institutions may issue an invoice with 45 days of
such event
• Presently individuals and firms are allowed to pay service tax
on the basis of date of payment for eight specified services.
The said facility has been extended to all services up to a
turnover of Rs 50 lakh in a financial year provided the taxable
turnover did not exceed Rs 50 lakh in the previous financial
year. The above limits shall be computed taking into account
the turnover of the entity as a whole and not any single
registration
• The restrictions of Rs 2 lakh limiting the use of excess service
tax paid are being omitted allowing unlimited amount of
permissible adjustments – effective 1 April 2012
• A common simplified registration format for Central Excise
and Service Tax is being placed for public comments, together
with further liberalization in registration requirements,
particularly centralized registrations – will come into force
after inviting comments from stakeholders
• A new simplified one page common return with Central
Excise: to be called Excise & Service Tax Return (EST for
short) is being introduced. It is also being proposed that the
cycles for the payment service tax and filing of return should
coincide. Assessees paying tax of Rs25 lakh or more in
previous year and new assessees other than individuals and
firms would be required to make monthly payments and file
monthly returns. The periodicity for others would be
quarterly – will come into force after inviting comments from
stakeholders
Exemption given retrospective effective - effect
when the Bill receives the Presidential assent
• Exemption provided for the setting up of common facilities
for treatment and recycling of effluents and solid wastes is
made applicable effective 16 June 2005 as against 25 July 2011
• Exemption relating to repair of roads is extended for the
earlier period commencing from 16 June 2005 as against 27
July 2009
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• Service tax exemption is granted with retrospective effect on
management, maintenance or repair service in relation to non-
commercial Government buildings from 16 June 2005 till the
coming into force of the negative list when such repair will be
exempted by the new mega notification
Penalty waiver for Renting of Immovable Property
Service - effect when the Bill receives the
Presidential assent
• The taxability of Renting of Immovable Property Services had
been a subject of litigation. In the matter of Retailers Assn. of
India v/s Union of India, Honourable Supreme Court, had
ruled in October 2011, that litigants should pay 50% of the
arrears within six months in three equated instalments and for
the balance, solvent surety should be furnished to the
satisfaction of the Jurisdictional Commissioner. It is proposed
that penalty may be waived for those taxpayers who pay the
service tax due as on the 6 March 2012, in full along with
interest within six months
Other legislative changes - effect when the Bill
receives the Presidential assent (unless specified
otherwise)
• The small scale exemption notification has been amended in
line with Point of Taxation Rules stating that the threshold
exemption from service tax would be value of taxable services
charged in the first consecutive invoices valuing up to Rs 10
lakh. Presently the threshold is linked to sum total of first
consecutive receipts – effective 1 April 2012
• It is proposed to introduce Special Audit Provisions
separately under the Finance Act, 1994 to give comprehensive
powers for such audit relevant for service tax purposes.
Presently the same are made available and applicable through
the Central Excise Act
• The period for issue of demands in normal situations is being
raised from 12 months to 18 months
• Provisions relating to Settlement Commission under Central
Excise Act are made applicable to Service Tax. On the date of
the enactment of the Finance Bill, notification containing
Service Tax (Settlement of Cases) Rules, 2007 along the lines
of Central Excise (Settlement of Cases) Rules, 2007, will come
into effect. This should encourage quick settlement of
disputes and save the business from the worries of
prosecution in certain situations
• The periods for filing appeals in service tax are being aligned
with Central Excise. New limitations will apply to decisions or
orders passed after the date on which Finance Bill, 2012
receives the assent of the President
• At present in service tax, appeals against the order of
Commissioner (Appeals) lie before the Tribunal; whereas in
Central Excise, a revision mechanism is available to hear
certain specified matters. It is proposed to introduce revision
mechanism for service tax, to the extent applicable
• Prosecution for non-issue of invoice within time specified
would be invoked only if the same is done knowingly with the
intent to evade payment of service tax
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Central Excise
Rate
• Rate of excise duty on non petroleum products is increased
from 10% to 12%
• Merit rate of excise duty is increased from 5% to 6%
• 1% excise duty on 130 items is increased to 2% with few
exceptions being coal, mobile handsets and cellular phones,
articles of jewellery, fertilizers
Important legislative changes
• Definition of 'inter-connected undertaking' is amended to
incorporate with the definition given under the Monopolies
and Restrictive Trade Practices Act, 1969 which is more
conservative and has a wider scope
• Amount of duty evasion resulting in imprisonment of 7 years
has been increased from Rs 1 lakh to Rs 30 lakh
• Duty evasion punishable with imprisonment of 3 years or
more would a cognizable offence. In all other cases, it would
be a non-cognizable offence
• Order of stay from any court would not be included to
calculate the period of 1 year or 5 years for issuance of show
cause notice
• Benefit of reduced penalty of 25% is available only if the
penalty is also paid within 30 days. Earlier only tax and
interest amount was required to be paid
• Bail would not be granted in case of offences resulting in
imprisonment of more than 3 years without giving the public
prosecutor an opportunity to present his case
• For units undertaking substantial expansion in the state of
Jammu and Kashmir, the exemption period of 10 years would
be computed from the date of commencement of commercial
production from the expanded capacity. This amendment has
a retrospective effect
• Packing, repacking, labeling or relabeling of containers,
including declaration or alteration of Retail Sale Price on
cigarettes would be deemed to be 'manufacture'.
• Tariff value for jewellery other than silver is fixed at 30% of
invoice value. However, this would not be applicable in case
of jewellery manufactured from precious metal or old
jewellery provided by retail customer
• Manufacturer receiving goods under Notification no. 34/
2001- CE(NT) dated 21 June 2001 i.e. goods received under
concessional or without payment of duty, are required to file
quarterly returns instead of monthly
• Tariff value of articles of apparel (tariff heading 6201) is
reduced from 45% to 30% of Retail Sale price
• Optional payment in case of manufacturer of exempted
goods or provider of exempted is services increased from 5%
to 6%
• Manufacturer having more than one manufacturing unit
would be allowed to transfer additional duty of customs
under section 3(5) of the Customs Tariff Act paid on inputs
to its other unit on quarterly basis
• Form of excise return is amended to include details of inter-
unit transfer of CENVAT Credit
• The above would come into effect from the date of
enactment of Finance Bill, 2012
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Central Excise
Changes in CENVAT Credit Rules, 2004
• In case of removal of capital goods after use, higher of the
following would be payable
• Per quarter reduction of 2.5% (other than computer
and peripherals)
• Duty payable @ 12% on the transaction value
Earlier, transaction value was applicable only if capital goods
were sold as scrap
• Excise duty paid on motor vehicles including parts, other than
used for transportation of persons, would be eligible for
CENVAT credit by the manufacturers
• Transfer of unutilized credit of SAD lying as closing balance
at the end of each quarter to another factory of the
manufacturer is permitted
• The Hon'ble Supreme Court observed that interest would be
applicable from the date of incorrect availment of cenvat
credit and date of utilization would be irrelevant. Now the
words 'availed or utilized' has been changed to 'availed and
utilized' thus making utilization as the basis to charge interest
on wrong availment.
Retrospective amendment is made to Rule 14 of the
CENVAT Credit rules, 2004 to nullify the effect of above
decision. In other words, interest is not payable on credit
wrongly taken unless the same is utilized
Exemption from excise duty
• Footwear, whether imported or domestic, with RSP not
exceeding Rs 500 is fully exempted from duty subject to
condition that RSP indelibly marked/embossed on footwear
itself.
• Exemption to branded silver jewellery continues.
• Gold coins are (purity 99.5% & above)/Silver coins (purity
99.9% & above) exempt subject to condition that
manufactured from gold or silver on which appropriate duty
paid.
• Exemption is granted to intraocular lens ( levied last year vide
Notification No 1/2011-CE)
• Benefit of concessional rate of Rs 30 per square metre under
Notification No 4/2006 – CE is extended to polished marble
slabs.
• Exemption to pipes used for water supply projects is
extended to pipes executed in river bed with zero energy
consumption, provided these are integral part of project.
• Exemption applicable to cigarettes having length not
exceeding 60 mm is now applicable to length not exceeding
65 mm
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Product/ Description Existing rate Proposed rate
Cement
• Packaged Cement manufactured in mini –
cement plant
• Packaged cement manufactured in plant
other than mini plant
• Cement not cleared in packaged form
• 10% ad valorem
• 10% ad valorem + specific
amount
• 10% ad valorem
• 6% ad valorem + Rs
120
• 12% ad valorem + Rs
120
• 12% ad valorem
Motor vehicles (length not exceeding 4 meters)
• Engine capacity not exceeding 1200cc (petrol,
LPG or CNG)
• Engine capacity not exceeding 1500cc
(diesel)
• Motor vehicle (other than above) having
engine capacity not exceeding 1500cc
• Engine capacity exceeding 1500cc
• 10% ad valorem
• 10% ad valorem
• 22% ad valorem
• 22% + Rs 15,000 ad valorem
• 12% ad valorem
• 12% ad valorem
• 24% ad valorem
• 27% ad valorem
Chassis for automobiles 10% / 22% ad valorem + Rs
10,000
15% /25% ad valorem
Cigars, cheroots and cigarillos 10% ad valorem or Rs 1,227 per
thousand
12% ad valorem or Rs
1,370 per thousand
Increased rate of duty
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Increased rate of duty
Product/ Description Existing rate Proposed rate
Unbranded precious metal jewellery (except
silver jewellery).
NIL 1%
Pan masala, gutkha, chewing tobacco, zarda,
scented tobacco
The rate of duty under the compounded levy scheme is increased
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Reduced rate of duty
Product/ Description Existing rate Proposed rate
Batteries of electrically operated vehicles
supplied to manufacturers
10% Concessional rate of duty of
6%
Iodine 10% 6%
LED lamps 10% 6%
Processed food products of soya 10% 6%
Matches manufactured by ‘semi – mechanized
units
10% 6%
Parts of blood pressure monitors and blood
glucose monitoring systems on actual user basis
10% 6%
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• Full BCD exemption is provided to shuttle less looms,
parts/components of shuttle less loom by actual users for
manufacturing specified silk machinery. The exemption is
available to only new machinery
• Concessional 5% duty rate available to specified textile
machinery is restricted to new textile machinery
• Relief measures in terms of full exemption from BCD is
provided to certain items as under
• Initial setting up and substantial expansion of fertiliser
project – upto 31 March 2015
• Steam coal - along with reduction of CVD from 5% to
1% upto 31 March 2014
• Natural gas/LNG imported for power generation by a
power generation company
• Uranium concentrate, sintered natural uranium
dioxide, sintered uranium dioxide pellets for
generation of nuclear power
• Steel tube and wire, cobalt chromium tube, Hayness
alloy – 25 and polypropylene mesh for manufacture of
coronary stents / coronary stent systems and artificial
heart valves subject to actual user condition
• Equipment imported for road construction projects
awarded by Metropolitan Development Authorities
along with Nil CVD and Nil SAD
• Tunnel excavation and specified lining equipment
along with Nil CVD and Nil SAD
CUSTOM
• The peak rate of customs duty on non-agricultural goods remains
at 10%
Increase in rates BCD/CVD
Products Pre
budget
rates
(%)
Post
budget
rates (%)
Completely built Units of large cars/ MUVs /
SUVs permitted for import without type
approval (value exceeding US$40,000 and
engine capacity exceeding 3000cc for petrol
and 2500cc for diesel)
60% 75%
Boric acid 5% 7.50%
Digital Still Cameras of certain specifications Nil 10%
Flat rolled products (HR and CR) of non alloy
steel
5% 7.50%
Standard gold bars and platinum bars 2% 4%
Non standard gold 5% 10%
Gold ore/concentrate and ore bars for refining
(CVD)
1% 2%
Cut and polished coloured gemstones Nil 2%
Bicycles 10% 30%
Parts of bicycles 10% 20%
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• Method of computation of Education Cess and Secondary &
Higher Education Cess is simplified to exempt the cesses as
leviable on CVD portion of customs duty and avoid
computation of such cesses twice
• In the notification exempting SAD, a condition is inserted
requiring the importer of the specified goods to declare the
State of destination where the goods are intended to be sold
for the first time on payment of VAT after import and
declaration of importer’s VAT registration number in that
State
• CENVAT Credit Rules are amended to permit transfer of
unutilised credit of SAD lying in balance at the end of each
quarter to other registered premises of same manufacturer
• The duty free allowance under Baggage Rules is increased from
Rs 25,000 to Rs 35,000 for adult passenger of Indian origin and
Rs 12,000 to Rs 15,000 for children upto 10 years of age
• Project import status as available to installation of mechanized
handling systems and pallet racking systems in mandis /
warehouses for food grains and sugar is extended to such
systems installed for handling horticultural produce
• Project import status with 5% BCD is granted to green houses
set up for protected cultivation of horticulture and floriculture
produce
• Coal mining projects
• New and retreaded aircraft tyres along with Nil CVD
• Part of aircraft and testing equipment for maintenance
and repair of air craft imported by third party MRO
Units
• Tunnel boring machines for hydel and road projects
for all infrastructure projects and parts required for
assembly of such machines
• Tri band phosphor
• Waster paper
• Lithium ion batteries for the manufacture of battery
packs for supply to electric or hybrid vehicle
manufacturers along with 6% CVD and Nil SAD
• Relief measures in terms of reduction of BCD is provided to
certain agriculture and agro-processing items, prescribed items
in textile industry, railway safety equipment and railway track
laying machines, machinery and instruments for surveying and
prospecting of mines, certain fertilisers, certain life saving
drugs / vaccines, capital goods & plants imported for setting
up or substantial expansion of iron ore pellet plants or iron ore
beneficiation plants, coffee brewing and vending machines of
commercial type
• The new rates come into effect from 17 March 2012
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• Section 104A of the Customs Act is inserted to provide that
bail in case of offences punishable with a term of
imprisonment of 3 years of more shall not be granted by a
Court or Magistrate without opportunity being given to Public
Prosecutor to present his case
• Monetary limits for adjudication of cases involving
confiscation of goods and imposition of penalty has been
enhanced
• Exemption from CVD is provided retrospectively to foreign
going vessels from 1 March 2011 to 16 March 12
• Export duty on chromium ore is enhanced from Rs 3,000 per
tonne to 30% ad valorem
• The above would come into effect from the date of enactment
of Finance Bill, 2012
Legislative Amendments
• Section 2 and Section 7 of the Customs Act is amended to
include ‘air-freight stations’ resulting into empowering Central
Board of Excise and Customs to appoint air freight stations for
uploading of import cargo and loading of export cargo as in
case of Inland Container Depots
• Section 28AAA of the Customs Act is introduced to provide
for recovery of duties from the person to whom the duty credit
scrips were issued and such scrips were obtained by means of
collusion or wilful misstatement or suppression of facts. Such
person and such recovery shall be without prejudice to any
action that may be taken against the importer. Also provisions
related to provisional attachment of property are made
applicable to Section 28AAA
• Section 47 of the Customs Act is amended to insert a new
proviso to provide that the Central Government may specify
the classes of importers who shall pay customs duty
electronically
• Section 104 of the Customs Act is amended to provide that all
offences (except an offence punishable with term of
imprisonment of 3 years of more) shall be non-cognizable and
bailable and all offences punishable with term of imprisonment
of 3 years of more shall be cognizable.