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India Budget 2009 VERENDRA KALRA NANGIA & CO. Chartered Accountants Nangia & Co. Budget 2009 PRESENTATION MADE TO Dehradun Branch of CIRC of ICAI ATDehradun.

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Presentation on theme: "India Budget 2009 VERENDRA KALRA NANGIA & CO. Chartered Accountants Nangia & Co. Budget 2009 PRESENTATION MADE TO Dehradun Branch of CIRC of ICAI ATDehradun."— Presentation transcript:

1 India Budget 2009 VERENDRA KALRA NANGIA & CO. Chartered Accountants Nangia & Co. Budget 2009 PRESENTATION MADE TO Dehradun Branch of CIRC of ICAI ATDehradun ON18 Th July 2009

2 INCOME TAX Para A of Part III of the First ScheduleFor AY 2010-11 Tax Rates Income Tax exemption limits have been raised across the board for all individuals. The new income tax rates are as under: The minimum amount not chargeable to tax in the case of Women however, shall be Rs. 190,000 and in the case of Senior Citizens shall be Rs. 240,000. Income up to Rs. 160,000NIL Rs. 160,001 to Rs. 300,00010% Rs. 300,001 to Rs. 500,00020% Rs. 500,001 and above30% Nangia & Co. Budget 2009

3 INCOME TAX Para A of Part III of the First ScheduleFor AY 2010-11 Surcharge No surcharge shall be levied in the case of Individuals, Cooperative Societies, Firms (which now includes LLP’s) and Local Authorities. TDS rate not to include Surcharge and Education Cess: W.E.F. - April 1, 2010 In order to simplify the computation of TDS, it is proposed to remove surcharge and cess on the basic tax rates provided for tax deduction on non-salary payments made to resident taxpayers. SC will continued to be levied on TDS payments on salaries to residents and on all payments to non-resident companies. Nangia & Co. Budget 2009

4 DEFINITIONS Modification in Section 2(15)W.E.F. - April 1, 2009 Charitable Purposes The definition of charitable purpose has been amended to include – ‘the preservation of the environment (including watersheds, forests and wildlife)’ and ‘preservation of monuments or places or objects or artistic or historic interest’ along with relief to the poor, education and medical relief. The above modification has been made so as to separately list the preservation of environment and preservation of monuments or places or objects of artistic or historic interest so that they would be excluded from the applicability of the restrictive conditions applicable to the “advancement of any other object of general public utility”. Nangia & Co. Budget 2009

5 DEFINITIONS Modification in Section 2(22AAA)W.E.F. - April 1, 2010 Electoral Trust Electoral trust has been defined to mean a trust so approved by the Board in accordance with the scheme made by the Central Government. Modification in Section 2(24)(iia)W.E.F. - April 1, 2010 Income Definition of income has also been amended to include therein voluntary contributions received by the such trusts. Nangia & Co. Budget 2009

6 DEFINITIONS Insertion of clause (29BA) in section 2W.E.F. - April 1, 2009 Manufacture It is proposed to insert a new clause (29BA) in section 2 so as to provide that ‘manufacture’, with all its grammatical variations, shall mean a change in a non-living physical object or article or thing,  Resulting in transformation of the object or article or thing into a new and distinct object or article or thing having a different name, character and use; or  Bringing into existence of a new and distinct object or article or thing with a different chemical composition or integral structure. To overcome decisions in the SC case of Indian Cine Agencies Vs. CIT 308 ITR 98, where it was held that cutting of jumbo rolls into smaller rolls is manufacture for the purpose of claiming benefits U/s 80HH & I. Nangia & Co. Budget 2009

7 DEFINITIONS Insertion of clause (29BA) in section 2W.E.F. - April 1, 2009 Manufacture Our Comments The definition is similar to the interpretation given to the term ‘manufacture’ by the Supreme Court in Aspinwall and Co Ltd [2001] 251 ITR 323 (SC). However, it should be noted that the term ‘Production’ which is considered to be a wider term has not yet been defined under the Act. The amended section only covers ‘physical’ objects or articles or things. Therefore, it should be noted that computer software or any other intangible product or thing are not covered under the proposed sub-section. The definition of ‘ manufacture’ as per Central Excise Act, 1944 is much wider. The use of the conjuctives name, character and use will make the definition really restrictive. Nangia & Co. Budget 2009

8 DEFINITIONS Amendment in Section 2(48)W.E.F. - April 1, 2009 Zero Coupon Bonds The definition of zero coupon bond has been amended to include such bonds issued by ‘scheduled’ banks’. This will enable such banks to raise long term funds through zero coupon bonds in the same manner as allowed like FI’s. Nangia & Co. Budget 2009

9 EXEMPTIONS Section 10(23C)W.E.F. - April 1, 2009 Extension of time limit for filing applications for tax exemption Trusts, Institutions, Universities, Educational Institutions, Hospitals, etc. are required to make an application for the purposes of grant of exemption or continuance thereof at any time during the financial year immediately preceding the assessment year from which the exemption is sought. Under the new provision, such assessee will have to file the said application on or before September 30 of the relevant assessment year. This is an amendment beneficial to the assessee as it extends the period for filing such an application. Nangia & Co. Budget 2009

10 EXEMPTIONS Insertion of proviso to Section 89 and to clause (10C) of Section 10 W.E.F. - April 1, 2010 Compensation received on voluntary retirement or termination of service under a scheme of voluntary separation Presently, moneys received under a Voluntary Retirement Scheme are exempt from tax up to a limit of Rs. 500,000. Now, where any relief has been allowed to an assessee u/s 89 for any assessment year in respect of any amount received under a Voluntary Retirement Scheme, no exemption u/s 10(10C) shall be allowed to him in relation to such, or any other assessment year. Similar amendments have been made in Section 89 to deny the benefit under that section in case exemption u/s 10(10C) has been claimed. Nangia & Co. Budget 2009

11 EXEMPTIONS Insertion of proviso to Section 89 and to clause (10C) of Section 10 W.E.F. - April 1, 2010 Compensation received on voluntary retirement or termination of service under a scheme of voluntary separation These amendments negate the following decisions in favor of the assessee: CIT Vs. Nagesh DeviDas Kulkarni ( 291 ITR 407) Bom CIT Vs. Koodathil Kallytan Ambujakashan ( 219 CTR 80) Bom CIT Vs. S.Sundar ( 284 ITR 687) Mad CIT Vs. Abdul kareem ( 311 ITR 162) Mad St.Bank Of Travancore Vs. CBDT ( 282 ITR 587) Ker Nangia & Co. Budget 2009

12 EXEMPTIONS Amendment of Section 10(23D)W.E.F. - April 1, 2010 Incorporating “Other Public Sector Banks” under the expression “Public Sector Bank” Presently, an exemption is available in respect of income of a Mutual Fund set up by a public sector bank or a public financial institution authorized by Reserve Bank of India. Now, this exemption can also be availed by a bank included in the category ‘other public sector banks’ by the Reserve bank of India. Nangia & Co. Budget 2009

13 EXEMPTIONS Extension of Sections 10A & 10BW.E.F. - April 1, 2010 Extension of sunset clause for units in free trade zone and for export oriented undertakings Time limit for claiming exemption u/s 10A and 10B, in relation to exemption in respect of newly established industrial undertakings in free trade zones, etc. and newly established 100% Export Oriented Units respectively has been extended from AY 2010-11 to AY 2011-12. Our Comments The amended section will give boost to the Software Companies enjoying these tax benefits as the benefit has extended up to AY 2011-2012. Nangia & Co. Budget 2009

14 EXEMPTIONS Substitution in Section 10AA(7)W.E.F. - April 1, 2010 Clarification regarding computation of exempted profits in the case of units in Special Economic Zones (SEZs) Under the existing provisions contained in section 10AA(7), profits derived by newly established units in SEZ, from export of articles or things or services shall be the amount which bears to the profits of the business of the undertaking, being the Unit, the same proportion as the export turnover in respect of such articles or things or services bears to the total turnover of the business carried on by the assessee. Now, “assessee” will be substituted by the word “undertaking”. After the amendment, deduction under aforesaid section shall be computed with reference to the total turnover of the undertaking. Nangia & Co. Budget 2009

15 EXEMPTIONS Substitution in Section 10AA(7)W.E.F. - April 1, 2010 Clarification regarding computation of exempted profits in the case of units in Special Economic Zones (SEZs) With this amendment, the government has accepted a long standing demand of the Industry. Earlier, SEZ units having operations outside the SEZ area could not avail the full benefits under this section as the old formula to calculate the exemption did not permit them to do so. The amendment could have been made retrospectively w.e.f. 10-02- 2006, i.e. the date when the SEZ rules were notified. Nangia & Co. Budget 2009

16 EXEMPTIONS Insertion of Section 13BW.E.F. - April 1, 2010 Deduction in respect of contributions to Electoral trusts Voluntary contributions received by an electoral trust shall not be included in the total income if such electoral trust functions in accordance with the rules framed by the Central Government; and such electrical trust distributes to any political party, registered u/s 19A of the Representation of People Act, 1951, 95% of the aggregate donations received by it alongwith the surplus, if any brought forward. This amendment is a significant development as it will help the donors to maintain their anonymity by routing donations to political parties through trusts. It will help to bring transparency in public & political life. However, it seems that the amendments would require more clarifications and changes from its present form due to overlooking of certain practical problems. Nangia & Co. Budget 2009

17 EXEMPTIONS Insertion of Section 13BW.E.F. - April 1, 2010 Deduction in respect of contributions to Electoral trusts Entire amount will becoem taxable, if trusts fail to disburse 95%. This is not the case with trusts exempt u/s 11, wherein only shortfall in application is taxed. What is surplus needs to be defined properly, especially in cases where the trust has failed to get exemption. Whether such taxed income, will again be considered as surplus to be B/F and utilized in next year needs to be clarified. Only voluntary contributions are tax free. What about intt. & other income on amount retained by trust. There is no provision for that. 95% of the income of the trust has to be distributed. What about exepnsses in running the trusts? Nangia & Co. Budget 2009

18 SALARIES Substitution of sub-clause (vi) of clause (2) of Section 17 W.E.F. - April 1, 2010 Perquisite on ESOPs Presently, ESOPs, etc. are taxed as ‘Fringe Benefits’. Now, it has been proposed to amend section 17(2) and define ‘perquisites’ to include the value of any ESOPs. Thus, instead of being taxed as Fringe Benefits, the value of the ESOPs will be directly includible in the hands of the concerned employee in the following manner:  Perquisite value will be the difference between FMV on the date of exercise of ESOPs and the amount actually paid by the employee.  FMV will be computed as per the method to be notified. Presently, value of ESOPs considered for computing perquisite in the hands of the employees is considered as cost of acquisition on sale. Now, FMV considered for computing the perquisite value shall be considered as cost of acquisition on sale. Nangia & Co. Budget 2009

19 SALARIES Substitution of sub-clause (vi) of clause (2) of Section 17 W.E.F. - April 1, 2010 Perquisite on ESOPs There is no clarification on what happens to ESOP’s already exercised in last year? There is no clarification. FMV can fluctuate from date of exercise to date of sale. Can lead to hardship for employees as taxed will be paid on non- realised income. Nangia & Co. Budget 2009

20 SALARIES Insertion of sub-clause (vii) in clause (2) of Section 17 W.E.F. - April 1, 2010 Perquisite on contribution to Superannuation Fund Presently, Superannuation fund contributions made by the employer for an employee are taxed as ‘Fringe Benefits’. Now, any contribution to an approved superannuation fund by the employer shall be taxed as a perquisite in the hands of the assessee, to the extent it exceeds Rs. 100,000. However, this will result in double taxation as withdrawals of Super Annuation fund are also taxable. Insertion of sub-clause (viii) in clause (2) of Section 17 W.E.F. - April 1, 2010 Perquisite on any other Benefit Perquisite taxable in the hands of the employees will now include the value of any other fringe benefit or amenity as may be prescribed. Nangia & Co. Budget 2009

21 SALARIES Both these amendments will result in tax in the hands of the employees, despite the fact that such income does not result in cash inflow for the employee at the time of paying the tax. However, the shifting of tax incidence in the hands of the employees on ESOP’s will enable expat employees to claim tax credit for tax paid in India on such perquisites. Nangia & Co. Budget 2009

22 BUSINESS INCOME Insertion of Section 35ADW.E.F. - April 1, 2010 Investment-linked tax incentive for Specified Business Section 35AD has been enacted to provide for taxation of newly set up “specified businesses”. Specified businesses include the business of setting up and operating of cold chain facilities for storage or transportation of agricultural produce, dairy products and other related items, including business of warehousing for storing agricultural produce and the business of laying and operating a cross-country national gas or crude or petroleum oil pipeline network for distribution, including storage facilities. The salient features of the new regime of investment-linked tax incentives are:  Deduction of the entire capital expenditure incurred (except expenditure incurred on acquisition of land or goodwill or financial instrument) would be allowed, if it has been incurred wholly and exclusively for the said specified business. Nangia & Co. Budget 2009

23 BUSINESS INCOME Insertion of Section 35ADW.E.F. - April 1, 2010 Investment-linked tax incentive for Specified Business  The deduction shall be available only if operations of the business of laying and operating a cross-country national gas or crude or petroleum oil pipeline network for distribution, including storage facilities is commenced on or after April 1, 2007 and for other specified businesses, on or after April 1, 2009.  No deduction shall be permissible in respect of the capital expenditure under any other provision.  In cases where expenditure on a capital asset has been allowed u/s 35AD and such asset is demolished, destroyed, discarded or transferred, any sum received or receivable on such account (except to the extent relating to land or goodwill or a financial instrument) shall be taxed as profits and gains of business or profession. Nangia & Co. Budget 2009

24 BUSINESS INCOME Insertion of Section 35ADW.E.F. - April 1, 2010 Investment-linked tax incentive for Specified Business  The word used is Specified “business” and not “undertaking.”This will impact subsequent claims as more undertakings are set up but the specified business remains the same.  It is actually accelerated depreciation and nothing more. Something like 100% depreciation on “ pollution control equipments”. Yet, it is not treated like that.  Sale value of assets will become fully taxable. If it had been treated like depreciation, then such sale value would have been allowed to be deducted from Block value, but here it becomes fully taxable.  The logic ion favor of investment based benefits is totally contrary to the logic given earlier at the time of withdrawal on investment allowance U/s 32A, when it was stated that investment based tax breaks act as distortions. Nangia & Co. Budget 2009

25 BUSINESS INCOME Extension of Section 35(2AB)W.E.F. - April 1, 2010 Weighted deduction for in-house research and development Under Section 35(2AB), weighted deduction of 150% of expenditure incurred on scientific research is allowed to assessee’s engaged in the business of biotechnology or in the business of manufacture or production of drugs, pharmaceuticals, electronic equipments, computers, telecommunication equipments, chemicals or any other article notified by the Board and which has incurred expenditure on in- house scientific research and development facility approved by the prescribed authority. It is proposed to extend the benefit of weighted deduction to all companies engaged in the business of manufacture or production of an article or thing except those specified in the Eleventh Schedule of the Income-tax Act, 1961. Nangia & Co. Budget 2009

26 BUSINESS INCOME Amendment in Section 36(1)(viii)W.E.F. - April 1, 2010 Special deduction to National Housing Bank (NHB) Presently, a specified entity engaged in a specified business, including the business of long term financing of ‘construction or purchase of houses in India for residential purpose’ is allowed deduction upto twenty percent of profits derived from such business, if such amount is transferred to a special reserve. The ambit of this provision is sought to be widened whereby the words ‘construction or purchase of houses in India for residential purpose’ shall be substituted with the words ‘housing development’. The modification should have been by way of addition and not replacement as it may affect existing beneficiaries. Omission of clause (xvi) in sub-section (1) of Section 36 W.E.F. - April 1, 2009 Commodities Transaction Tax Deduction of Commodities Transaction Tax shall no longer be available. This amendment is consequential in nature and will be applicable with retrospective effect from April 1, 2009. CTT in fact was never notified in the first place. Nangia & Co. Budget 2009

27 BUSINESS INCOME Revision of limits in Section 40(b)(v)W.E.F. - April 1, 2010 Remuneration to partners in a Firm Under the provisions of Section 40(b)(v), the payment of salary, bonus, commission or remuneration to a working partner of a partnership firm is allowed as deduction if it is authorized by the partnership deed and subject to ceiling of monetary limits. It is proposed to revise the existing limits of the remuneration as well as prescribe uniform limits for both professional and non-professional firms. The revised limits are: On the first Rs. 300,000 or book profit/loss Rs. 150,000 or 90% of book profit On the balance book profitAt the rate of 60% Nangia & Co. Budget 2009

28 BUSINESS INCOME Revision of limits in Section 40A(3)W.E.F. – October 1, 2009 Enhancement of limit for disallowance of expenditure made in the case of transporters U/s 40A, expenditure is disallowed in cases where the payment is made in excess of Rs. 20,000 in a day, otherwise than by account payee cheque drawn on a bank or account payee bank draft. Now, the amount of Rs. 20,000 has been enhanced to Rs. 35,000 in cases where the payments are made for plying, hiring or leasing goods carriages. This limit needs to be revised in other cases also as it was prescribed 40 years back. Nangia & Co. Budget 2009

29 BUSINESS INCOME Substitution in Section 44ADW.E.F. – April 1, 2011 Special provision for computing profits and gains of business on presumptive basis Presently u/s 44AD, assessee engaged in the business of civil construction are subject to presumptive taxation at the rate of 8% of gross revenues provided that the gross receipts during the year did not exceed Rs. 40 lacs. Now, the benefit of this presumptive taxation scheme has been extended to all businesses, except the business of plying, hiring or leasing goods carriages referred to in section 44AE. The benefit of this presumptive tax scheme shall be available to Individuals, HUF & Partnership Firms not being LLPs. Assessee availing the benefit of the aforesaid presumptive tax scheme shall not be liable to pay advance tax. Consequential changes have been made in sections dealing with maintenance of books and Tax audit requirements. Nangia & Co. Budget 2009

30 BUSINESS INCOME Substitution in Section 44ADW.E.F. – April 1, 2011 Special provision for computing profits and gains of business on presumptive basis Our Comments No reason for excluding LLPs from claiming benefits under section 44AD has been provided. The words gross receipts as well as certain decisions which held that the word Business includes “ profession” create a doubt whether 44AD will apply to professional firms also. An assessee opting for claiming benefits under section 44AD shall be exempted from payment of advance tax related to such business under the current provisions of the Income-tax Act. However, if he is earning income from any other source, he shall liable for payment of advance tax on that income. In the case of a firm, the normal deduction in respect of salary and interest to partners under section 40(b) is still allowed. Nangia & Co. Budget 2009

31 BUSINESS INCOME Revision of limits of Section 44AEW.E.F. - April 1, 2011 Presumptive income for truck owners Presently, there is a presumptive tax scheme of assessee’s engaged in the business of plying, hiring or leasing not more than 10 goods carriages. For this purpose, the said section prescribes deemed profit rates of Rs. 3,500 per month for each heavy goods vehicle and Rs. 3,150 per month for each other vehicle. These rates have been amended so as to provide for deemed profit rates of Rs. 5,000 for each heavy goods vehicle and Rs. 4,500 for other vehicles. Modification in Section 43(6)W.E.F. - April 1, 2010 Definition of Written down Value Written down value of assets used in a business which is partially agricultural and partially chargeable to tax shall now be determined by reducing the total depreciation that would have been allowed from the actual cost of the assets, if the entire income was chargeable to tax. Modification made to overrule decision in the case of CIT vs. Doom Dooma India Ltd. ( 222 CTR 105) Nangia & Co. Budget 2009

32 CAPITAL GAINS Modification in Section 50CW.E.F. – October 1, 2009 Provisions for deemed valuation in certain cases of Transfer The existing provisions of section 50C provide that where the consideration received or accruing as a result of the transfer of a capital asset, being land or building or both, is less than the value adopted or assessed by an authority of a State Government (stamp valuation authority) for the purpose of payment of stamp duty in respect of such transfer, the value so adopted or assessed shall be deemed to be the full value of the consideration received or accruing as a result of such transfer for computing capital gain. Now, the value which stamp duty valuation authority would have adopted or assessed if referred to, would be considered as full value of consideration, if the same is higher than the actual consideration. Difference of opinion on the assessable value, will need to be referred to the valuer. Nangia & Co. Budget 2009

33 CAPITAL GAINS Modification in Section 50CW.E.F. – October 1, 2009 Provisions for deemed valuation in certain cases of Transfer It has been made to cover cases of transactions by POA’s / agreements. It may also cover cases of amalgamations where according to state laws, the transactions need not actually require payment of stamp duty. Nangia & Co. Budget 2009

34 INCOME FROM OTHER SOURCES Modification in Section 56W.E.F. – October 1, 2009 Taxation of certain transactions without consideration or for an inadequate consideration as income from other sources Presently under section 56(2)(vi), any sum of money, exceeding Rs. 50,000, which is received without consideration by an individual or HUF from persons other than relatives, is considered as taxable in the hands of the recipient. Now, in cases where specified properties, including a sum of money, are received from persons other than relatives, without consideration or for inadequate consideration, the same would be taxable in the hands of the recipient as ‘Income from Other Sources’, as under:  Where an immovable property is transferred without any consideration or for insufficient consideration, and the stamp duty value of such property exceeds Rs. 50,000, the entire stamp duty value, or the difference between the stamp value and the consideration;  Where a movable property is transferred without any consideration or for insufficient consideration, and the FMV value of such property exceeds Rs. 50,000, the entire FMV value, or the difference between the FMV and the consideration. Nangia & Co. Budget 2009

35 INCOME FROM OTHER SOURCES Modification in Section 56 Our Comments Individuals/HUF’s receiving shares, jewellery, archaeological collections, valuable drawings, paintings, sculptures or property valued at over Rs 50,000 as gifts from non-relatives, will have to pay tax from October 1, 2009. Therefore, jewellery or valuable artifacts, received from a non-relative for little or no consideration, a fair market value will be arrived at to determine the tax liability in the hands of the recipient. If the property is received for inadequate consideration, it will also come under the tax net and tax will be imposed on the difference between the state government notified rate and the price paid for it. The owner of the immovable property will be covered u/s 50C for transferring property not registered with stamp duty valuation authority and will be liable to pay tax on the capital gain computed by taking into account value assessed by stamp valuation authority as full value of consideration received. (will result in tax on both buyer and seller of capital assets) Nangia & Co. Budget 2009

36 INCOME FROM OTHER SOURCES Modification in Section 56 Our Comments It is important to remember that still, only properties so specified will stand covered as definition has been made exhaustive. The provisions say that rules will be made to assess value. It remains to be seen as how rules can be made to cover each such situation. Will lead to disputes in valuations at the time of assessments and will have consequences for assessee such as short payment of advance taxes, and levy of intt. U/s 234A,B. How will one judge the value and take effect for differences in valuation in cases of Unequal partition of HUF’s, amalgamations, De merger etc. Definition of income has not been amended u/s 2(24) to include under it incomes specified in the newly inserted section 56(20(vii). Further, amendment is also required in Sec 49, to increase the cost of acquisition, on the amount on which tax is paid, when the recipinet sells the assets and pays his capital gains. Nangia & Co. Budget 2009

37 INCOME FROM OTHER SOURCES Insertion of clause (viii) in sub-section (2) of 56 and substitution in Section 145A W.E.F. – April 1, 2010 Rationalization of provisions for taxation of interest received on delayed compensation or enhanced compensation It is proposed to insert clause (viii) in sub-section (2) of 56 to provide that interest received on compensation or on enhanced compensation shall be chargeable to tax as ‘income from other sources’. Further, a deduction of 50% of such amount shall be allowed u/s 57(iv). Section 145A has been substituted to provide that interest received by an assessee on compensation or on enhanced compensation shall be deemed to be the income of the year in which it is received, irrespective of method of accounting followed. The amendments have been made to nullify the judgment in the case of Rama bai ( 181 ITR 400) SC, wherein it was held that income will have to be taxed on accrual basis. This judgment had precluded the Deptt. to levy tax in time barred cases. An express provision to allow deduction of interest should also be made in case intt. is required to be refunded, in case it is not recd. finally. Nangia & Co. Budget 2009

38 SET OFF & C/F OF LOSSES insertion of Section 73AW.E.F. – April 1, 2010 Set off & Carry forward of losses of Specified businesses U/s 35AD It has now been provided that losses of such businesses can only be set off against income from specified businesses and can be carried forward indefinitely till they are setoff fully. Nangia & Co. Budget 2009

39 DEDUCTIONS Modification in Section 80AW.E.F. – April 1, 2003 Amendment in Chapter VIA to prevent abuse of tax incentives Presently, deductions specified in sections 80C to 80U of the Act are allowed from the gross total income to the extent such deductions do not exceed the gross total income of the assessee.  The amendment seeks to provide that in the case of a taxpayer claiming exemption u/s 10A, 10AA, 10B or 10BA, no further deduction under any provision of the Act will be provided in respect of the profits and gains so claimed exempt. (section 80A(4))  Further, in cases where a taxpayer fails to claim exemption u/s 10A, 10AA, 10B or 10BA, or under sections 80C to 80U in his return of income, no deduction shall be allowed to such taxpayer. (section 80A(5)) Nangia & Co. Budget 2009

40 DEDUCTIONS Modification in Section 80AW.E.F. – April 1, 2003 Amendment in Chapter VIA to prevent abuse of tax incentives Our Comments The above amendments have been proposed to prevent the misuse of of the tax incentives provided and overrule the decision in the case of Jindal Exports (P) Ltd 311 TD 217 but is in consonance with the judgement of ITAT in the case of ACIT vs. Hindustan Mint & Agro Products Pvt. Ltd. [ITA No. 1537/Del/07] wherein it was held that the deduction of export profit under Section 80HHC of the Act is required to be computed after reducing the profits which are allowed as deduction under Section 80IA or 80IB. The stringent requirement proposed for availing tax exemption/ deduction only on claiming such exemption/deduction of income is in line with the decision of the Apex Court in case of Goetze (India) Ltd. v. Commissioner of Income-Tax (284 ITR 323). However, it is contrary to the CBDT circular dated 11-4-55. Nangia & Co. Budget 2009

41 DEDUCTIONS Modification in Section 80AW.E.F. – April 1, 2003 Amendment in Chapter VIA to prevent abuse of tax incentives Our Comments There are certain judgments which say that claims which could not be raised before the AO can be raised before the Commissioner or even the Tribunal. Can this amendment prevent such claims remains to be seen. Tommorrow, if income is enhanced by the AO, the assessee will suffer hardship as he will not be allowed to raise claims, because he never claimed them at the time of filing of return. Nangia & Co. Budget 2009

42 DEDUCTIONS Modification in Section 80AW.E.F. – April 1, 2009 Amendment in Chapter VIA to prevent abuse of tax incentives Further, under section 80A(6), where goods or services are transferred by the taxpayer between the eligible undertaking and any other business carried on by the taxpayer and the consideration for transfer does not correspond with the market value, then, for the purpose of deduction, the profits or gains of the undertaking will be computed by adopting the market value on the date of the transfer. Revision of limits in Section 80-DDW.E.F. – April 1, 2010 Deduction for medical treatment of a dependent suffering from disability Presently, deduction, subject to an upper limit, of Rs. 75,000 is available to an Individual or HUF, who is resident in India, in respect of expenditure for the medical treatment (including nursing), training and rehabilitation of a dependant, being a person with disability; and amount paid to LIC or other insurance in respect of a scheme for the maintenance of a disabled dependant. Now, this upper limit has been revised to Rs. 100,000. Nangia & Co. Budget 2009

43 DEDUCTIONS Modification in Section 80CCDW.E.F. – April 1, 2009 Tax Benefits for New Pension System Presently, an individual employed by the Central Government or any other employer who has paid or deposited any amount in his account under a Government notified pension scheme, is allowed deduction in computing his total income of the whole of the amount paid or deposited by him not exceeding 10% of his salary in the previous year. Now, the deduction under this section has been extended to all other individual taxpayers. Further, Section 80CCD(5) has been inserted to provide that the assesee shall be deemed to have not received any amount in the previous year if such amount is used to purchase an annuity. The above provisions will help to make the pension scheme attractive. However, Sec 80CCD(1) still says 10% of his salary. This needs to be amended to allow computation in the hand of the individual non salaried tax payer. Nangia & Co. Budget 2009

44 DEDUCTIONS Modification in Section 80EW.E.F. – April 1, 2010 Deduction in respect of Interest on loan taken for higher education Interest on loan taken from any financial institutions or any approved charitable institution for the purpose of pursuing higher education in specified fields of study is allowable as a deduction. Under the existing provisions, the deduction is available only for pursuing full time studies for any graduate or post-graduate course in engineering, medicine, management or for post-graduate course in applied sciences or pure sciences including mathematics and statistics. Now, the benefit of this deduction shall be extended in respect of any course of study pursued after passing the SSE or its equivalent from any school, board or university recognized by the Union or the State Government or local authority or by any other authority authorized. Our Comments The amendment had been brought to create human capital in the country and will help taxpayers pursuing vocational courses. Nangia & Co. Budget 2009

45 DEDUCTIONS Modification in Section 80GW.E.F. – October 1, 2009 Donations to Certain Funds, Charitable Institutions, etc. Presently, approval is granted by the Commissioner to any institution or fund for the purpose of section 80G(5)(vi). Such approval is valid for a period of maximum period of 5 years. Now, the limit of maximum period has been discontinued and consequently, approvals shall be valid in perpetuity. An amendment has also been made to provide that trusts receving approval under this section in FY 07-08 will be held to be charitable for FY 08-09, even if they are covered by the proviso to sec 2(15). Our Comments The proposed amendment has been brought into effect due to the hardships faced by the approved institutions in getting their approvals renewed from time to time. It was burdensome on the approved institutions and led to wastage of time and resources of the tax administration in the renewal process. Nangia & Co. Budget 2009

46 DEDUCTIONS INSERTION OF SECTION 80GGDW.E.F. – April 1, 2010 Donations in respect of contributions to political parties Presently, any sum contributed by an Indian company to a political party is allowable as a deduction. The benefit of the deduction has been extended to cover contributions made to Electoral Trusts. (Section 80GGB) Presently, any sum contributed by any other person, except a local authority or artificial juridical person wholly or partly funded by the Government, to a political party is allowable as a deduction. The benefit of the deduction has been extended to cover contributions made to Electoral Trusts. (Section 80GGC). Our Comments The above amendments have been brought into effect to maintain the anonymity of the political parties to whom the contribution is being made. Nangia & Co. Budget 2009

47 DEDUCTIONS Extension of time limit in Section 80-IAW.E.F. – April 1, 2009 Extension of sunset clause for tax holiday Presently, deduction u/s 80IA for the following undertakings was subject to sunset clause whereby deduction would no longer be permissible for operations commenced after March 31, 2010:  Undertaking set up in any part of India for the generation or generation and distribution of power;  Transmission or distribution by laying a network of new transmission or distribution lines;  Undertakes substantial renovation and modernization of existing network or transmission or distribution lines. The sunset clause has been amended whereby, the period of commencement of operations shall be extended from March 31, 2010 to March 31, 2011. Nangia & Co. Budget 2009

48 DEDUCTIONS Extension of time limit in Section 80-IAW.E.F. – April 1, 2009 Extension of sunset clause for tax holiday Deduction u/s 80IA is allowable to undertakings set up for reconstruction or revival of a power generating plant, if such undertaking begins to generate or transmit or distribute power before March 31, 2008. The date to being generation, transmission or distribution of power has been extended from March 31, 2008 to March 31, 2011. Amendment in Section 80-IAW.E.F. – April 1, 2010 Omission of Profit-linked Deduction Presently, deduction u/s 80IA is allowable to undertakings engaged in the business of laying and operating a cross-country natural gas distribution network. This deduction shall be omitted with effect from April 1, 2010 as they are now covered under section 35AD. Nangia & Co. Budget 2009

49 DEDUCTIONS Amendment in Section 80-IB Deduction in respect of profits and gains from undertakings engaged in commercial production of mineral oil Deduction u/s 80-IB is allowable in certain cases to undertakings other than infrastructure development undertakings, deriving profits and gains from commercial production or refining of mineral oils. The amendments provide that the assessee will be entitled to a deduction of 100% of profits and gains for 7 years if the undertaking fulfils either of the following conditions:  The undertaking is located in any part of India and has begun or begins commercial production of mineral oil on or after April 1, 1997; or  The undertaking is engaged in the refining of mineral oil and begins such refining on or after the October 1, 1998. Nangia & Co. Budget 2009

50 DEDUCTIONS Amendment in Section 80-IB Deduction in respect of profits and gains from undertakings engaged in commercial production of mineral oil (cont.) Now, in computing the deduction allowable under this section, all blocks licensed under a single contract shall be treated as a single ‘undertaking’. (Section 80IB(9)) [ WEF APRIL 1, 2000] Furthermore, the deduction shall be so allowable to the undertakings engaged in the refining of mineral oils and which begin such refining before March 31, 2012. (as against 31-03-2009 earlier). Additionally, now the benefit of the said deductions will also be allowed in respect of commercial production of natural gas, but only in cases where the undertaking is engaged in commercial production of natural gas in blocks licensed under the VIII Round of bidding for the award of exploration contracts under NELP and begins commercial production of natural gas on or after April 1, 2009. [ WEF AY 10-11] Nangia & Co. Budget 2009

51 DEDUCTIONS Our Comments The said amendment restricts the deduction to all blocks licensed under a single contract by treating them as a single ‘undertaking’. This is against the interpretation of the term ‘Undertaking’ as hedl in the case of ACIT vs. Niko resources and will also impact the defintion as understood by the Supreme Court in Textile Machinery Corpn. Ltd. v. CIT [1977] 107 ITR 195 (SC) and various High Courts in CIT v. Premier Cotton Mills Ltd. (240 ITR 434) (Mad), etc. Till date, the section was silent on whether the term ‘mineral oil’ includes natural gas for the purpose of the applicability of this section. Due to the absence of the clear definition of the term ‘mineral oil’, the assesses used to rely on the meaning given in sister legislations (e.g. Petroleum Tax Guide, 1999, Petroleum and Natural Gas Rules, 1959, Section 44BB of the IT Act etc.) which includes Natural Gas in the meaning of the term ‘Mineral Oil’. This view is in consonance with the Tax Tribunal judgment in the case of ACIT vs. Niko Resources Ltd. (123 TTJ 310) (AHD). Nangia & Co. Budget 2009

52 DEDUCTIONS Our Comments The amendment brings more clarity by stating that the benefit is available to production of Natural Gas (though limited to NELP-VIII). But still the debate remains as to whether such interpretation applies to those earlier allotted contracts. Nangia & Co. Budget 2009

53 DEDUCTIONS Amendment in Section 80-IB(10)W.E.F. – April 1,2010 Rationalizing the provisions of deduction of 80-IB Deduction u/s 80IB is allowable to the extent of 100% deduction of the profits derived by an undertaking developing and building housing project approved by a local authority before March 31, 2007. The following two additional conditions have been prescribed for grant of this deduction:  That not more than one residential unit is allotted to any person not being an individual; and  In case where a residential unit in the housing project is allotted to a person being an individual, no other residential unit in such housing project is allotted to: spouse or minor children of such individual; or the HUF in which such individual is Karta; or the person representing such individual, the spouse or the mineral child of such individual or the HUF in which the individual is the Karta. Nangia & Co. Budget 2009

54 DEDUCTIONS Amendment in Section 80-IB(10)W.E.F. – April 1,2010 Rationalizing the provisions of deduction of 80-IB Our Comments The objective of the tax benefit for housing projects is to build housing stock for low and middle income households. This has been ensured by limiting the size of the residential unit. However, this is being circumvented by the developer by entering into agreement to sell multiple adjacent units to a single buyer. To curb this exercise, the said amendment was brought into effect. But the question arises as to how the scheme will be implemented in cases where part benefits have already been claimed under proportionate completion method. Further, there are certain judgements such as in the case of ACIT vs. Bengal Ambuja Housing Development Ltd. ( ITAT No. 1735 & 1595) Kol, wherein it was held that even if some of the units exceed the specified area, the deduction will be given proportionately. Keeping this in view, the assesee may not lose the full deduction in case of such violation. Should prescribe procedure for computation of proprtionate benefit in such cases. Nangia & Co. Budget 2009

55 INTERNATIONAL TAXATION Extension in Section 90W.E.F. – October 1, 2009 Empowering Central Government to enter into agreement with specified non-sovereign territories Presently u/s 90, the Indian Government can enter into agreements with foreign countries for the grant of relief in respect of income on which income-tax has been paid both under the said Act and income tax in the foreign country. Now, the Indian Government, in addition to entering into agreements with foreign countries, can enter into agreements with specified territories outside India, like Hongkong, Taiwan, Cayman Islands. These specified territories mean areas outside India that shall be notified as such, for the purpose of this section by the Central Government. Our Comments The amendment will expand the government's scope by entering into a DTAA or TIEAs with non-sovereign jurisdictions and will give rise to inquiry of overseas transactions like Vodafone-Hutch case. Nangia & Co. Budget 2009

56 INTERNATIONAL TAXATION Modification in Section 92CW.E.F. – October 1, 2009 Determination of arm's length price in cases of international transactions Presently u/s 92C, for the purpose of Transfer Pricing Provisions, where the most appropriate method results in more than one price, the arithmetical mean of such, or at the option of the assessee, a price which differs from the arithmetical mean by an amount not exceeding 5% of such mean may be taken to be the arm’s length price in relation to the international transaction. Now, where the most appropriate method results in more than one price, the arithmetical mean of such prices shall be the arm’s-length price. If the variation between the arm’s-length-price so determined and the price at which the international transaction has actually been undertaken does not exceed 5%, the price at which the international transaction has actually been undertaken, shall be deemed to be the arm’s-length-price. Nangia & Co. Budget 2009

57 INTERNATIONAL TAXATION Our Comments It is not clear what would be the adjustment to the income of the taxpayer when the variation exceeds 5%. Would the adjustment be restricted to variation in excess of 5% or it would extend to entire difference including 5%. the following judgments are sought to be negated, wherein it has been held that the 5% range should be allowed to the taxpayer even in cases where the price of the transaction was outside the 5% range:  Development Consultants Pvt. Ltd. Vs DCIT (115 TTJ 577) (KOL),  E-Gain Communication Pvt Ltd. Vs. ITO (ITA No.1685/PN/2007) (Pune),  Mentor Graphics (Noida) Pvt. Ltd. Vs DCIT (18 SOT 76) (Delhi),  Sony India (P) Limited Vs DCIT (2008-TIOL-439) (Delhi) Nangia & Co. Budget 2009

58 INTERNATIONAL TAXATION Extension in Section 92CW.E.F. – April 1, 2009 Determination of arm's length price in cases of international transactions A new section has been introduced to provide for ‘safe harbor rules’ that will be specified by the Board. ‘Safe Harbour’ means circumstances in which the income-tax authorities shall accept the transfer price declared by the assessee. Robust safe harbour rules in line with international recognized and practiced norms would be a welcome step which would simplify the arduous process of determination of arm’s length price and would significantly reduce the pending and potential disputes. Nangia & Co. Budget 2009

59 MINIMUM ALTERNATE TAX Modification in Section 115JB Revision of Rates & Time Limit W.E.F. – April 1, 2010 Presently under the provisions of 115JB, MAT is calculated at 10% of book profit. Now, the MAT rate has been increased from 10% to 15% of book profit. Presently, MAT credit can be carried forward and set off for a period of upto 7 Assessment Years. Now, the carry forward period has been increased to 10 years. (Section 115JAA(3A)) Modification in Section 115JB Amendment in the definition of ‘book profit’ W.E.F. – April 1, 1998/2001 The definition of ‘book profit’ has been amended to provide that any provision for diminution in the value of any asset will also be included in the computation of book profit. This amendment will take effect retrospectively from April 1, 1998 in case of Sec 115JA(2) and w.r.e.f April 1, 2001 in case of Section 115JA(2). Nangia & Co. Budget 2009

60 MINIMUM ALTERNATE TAX Modification in Section 115JBW.E.F. – April 1, 2010 Revision of Rates & Time Limit Our Comments The Supreme Court in the case of HCL Comnet Systems & Services Limited [2008] 305 ITR 408 had held that provisions towards bad & doubtful debts should be viewed as a diminution in the value of an asset, rather than as provision towards an ‘Unascertained liability’. To reverse the aforesaid interpretation, the amendment has been introduced with retrospectively effect from AY 2001-02. Nangia & Co. Budget 2009

61 SEARCH & SEIZURE Amendment in section 132 Clarificatory amendment in search and seizure operations Presently, with regards to a search and seizure operation, where the Director General or Director of the Chief Commissioner of Commissioner, or any such Joint Director or Joint Commissioner authorized by the Board on his satisfaction of certain conditions, may issue warrant of authorization for conducting search and seizure operation. It has been clarified that Additional Director or Additional Commissioner had always the power to issue warrant of authorization for conducting search and seizure. It has been further clarified that Joint Director or Joint Commissioner had always the power to issue warrant of authorization for conducting search and seizure-[WEF 1 OCTOBER 1998.] Nangia & Co. Budget 2009

62 SEARCH & SEIZURE Amendment in section 132 Clarificatory amendment in search and seizure operations Furthermore, now, no such authorization shall be issued by the Additional Director or Additional Commissioner or Joint Director or Joint Commissioner on or after October 1, 2009 unless he has been empowered by the Board to do so. [ wef June 1, 1994] This negates the following judgments in favor of the assessee: Dr.Nalini Mukherjee Vs. Director of I. Tax (Inv.) (257 ITR 123) All Raghuraj pratap singh Vs. ACIT ( 179 Taxman 73 ) All Presently, Director General or Director of the Chief Commissioner or Commissioner may authorize any Joint Director, Joint Commissioner, Assistant Director or Deputy Director, Assistant Commissioner or Deputy Commissioner of Income Tax Officer to requisition books of accounts, etc. Now, Additional Director or Additional Commissioner may be authorized to exercise the powers so specified. Nangia & Co. Budget 2009

63 ASSESSMENT PROCEDURES Amendment in section 143(1)W.E.F. – April 1, 2009 Presently, for summary assessment u/s 143(1), it is provided that the Central Government may, by notification make modifications to the provisions of the Act relating to processing the returns and that such notification may not be issued after March 31, 2009. The time limit has been extended from March 31, 2009 to March 31, 2010. Section 144CW.E.F. – October 1, 2009 Alternate Dispute Resolution mechanism The subjects of transfer pricing audit and the taxation of foreign company are at a nascent stage in India. Often the Assessing Officers and the Transfer Pricing Officers tend to take a conservative view. The correction of such view takes a very long time with the existing appellate structure. For speedy disposal, an alternate Dispute Resolution Panel shall be formed. Under the new provisions, the Assessing Officer shall be bound to give a draft order to the assessee who shall have the option to take up the case before the Dispute Resolution Panel. The decision of the Dispute Resolution Panel shall be final and binding on the Revenue in case of orders U/s 92CA(3) and in cases of foreign companies. Nangia & C o. Budget 2009

64 ASSESSMENT PROCEDURES Section 144CW.E.F. – October 1, 2009 Alternate Dispute Resolution mechanism In case the panel does not give its recommendations, then whether assesment will be carried out as per draft order has not been specified any where. Whether CIT can revise this order u/s 263, as this order retains the character of AO’s order, remains to be seen. Further, whether such an order is subject to proceedings u/s 148, remains an area of concern. Nangia & C o. Budget 2009

65 ASSESSMENT PROCEDURES Amendment in section 147 Clarificatory amendment in respect of reassessment proceedings Reassessment provisions are sought to be amended to provide that an AO may assess or reassess income in respect of any issue which has escaped assessment and such issue comes to his notice subsequently in the course of proceedings, notwithstanding the fact that the reasons for such issue have not been included in the reasons recorded prior to commencement of proceedings u/s 147. Our Comments This amendment have been brought into effect after the case of Vipin Khanna Vs. Commissioner of Income Tax (High Court of Punjab & Haryana) 255 ITR 220, wherein it was held that the Assessing Officer was not justified in launching inquiry into other issues which were not connected with the issues on which proceeding under section 147 were initiated. Also, the case of Jay Bharat Maruti Vs. CIT ( 223 CTR 269) Nangia & Co. Budget 2009

66 TAX DEDUCTION AT SOURCE Section 194CW.E.F. – October 1, 2009 Clarification regarding ‘work’ For the purpose of TDS from contractual payments to resident contractors the following amendments have been made:  the expression ‘work’ is now defined to include advertising, broadcasting and telecasting, carriage of goods or passengers by any mode of transport other than railways, catering and manufacturing or supplying a product according to the requirement or specification of a customer by using material purchased from such customer. However, work shall not include manufacturing or supply a product according to the requirement of a customer by using material purchased from a person other than such customer. (Expl. (iv))  Tax shall be deducted on the value of the invoice excluding the value of material if such value is mentioned separately in the invoice, or on the whole of the invoice value if the value of material is not so separately mentioned. (Sec 194(C))(3)) Nangia & Co. Budget 2009

67 TAX DEDUCTION AT SOURCE Section 194CW.E.F. – October 1, 2009 Clarification regarding ‘work’ The changes give due regard to the decisions in the case of By virtue of the proposed amendment, the settled legal position [as laid down in the cases of BDA Ltd. : 281 ITR 99 (Bom); CIT vs. Dabur India Ltd.: 283 ITR 197 (Del); CIT vs. Reebok India Co. 221 CTR 508 (Del); CIT vs. Seagram Manufacturing (P) Ltd. : 221 CTR 509 (Del) and Circular No. 13 of 2006 dated 13-12-2006 read with Circular No. 681 dated 08-03- 1994 issued by the CBDT] that outsourcing of manufacturing of goods was a transaction for purchase and sale on principal to principal basis and did not amount to the transaction in the nature of work contract so as to attract provisions of section 194C of the Act has been given statutory recognition. Nangia & Co. Budget 2009

68 TAX DEDUCTION AT SOURCE Section 194CW.E.F. – October 1, 2009 Clarification regarding ‘work’ (cont.)  The provisions of TDS shall not apply in cases of payment for plying, hiring or leasing goods carriages provided that the resident contractor provides his PAN to the payer. Payers shall furnish to the prescribed Income Tax Authority such details and particulars as may be prescribed. (Sec 194C(6)).  Presently, payments to resident contractors are subject to TDS at the rate of 2%. The rates of TDS have been revised to 1% where the payee is an individual or HUF. For other payees, the rate shall continue to be 2%. (Sec 194C(1))  Presently, in the case of payment for an advertising contract, TDS is required to be deducted at 1%. Now, a person other than an Individual/HUF contractor/sub-contractor for advertising will be required to deduct TDS at 2%. Nangia & Co. Budget 2009

69 TAX DEDUCTION AT SOURCE Section 194IW.E.F. – October 1, 2009 Rationalization of TDS Rates Presently, rental payments in respect of land or building are subject to TDS at 15% to 20% of gross rentals, depending upon the status of the payee. The TDS rates in such cases have been reduced to 10% for all payees. (section 194-I(b)). Presently, rentals of plant or equipment are subject to TDS at 10% of gross rentals. The TDS rates have been reduced to 2%. (section 194-I(a)). Nangia & Co. Budget 2009

70 TAX DEDUCTION AT SOURCE Section 200AW.E.F. – April 1, 2010 Processing of statements of tax deducted at source All TDS returns shall be processed by the Revenue Authorities and all sums deductible shall be computed after making adjustment of any arithmetical error or apparent incorrect claim in the statement. Interest, if any, shall be charged on the sum so computed. The sum payable or refundable to the deductor shall be determined after adjusting the sum so computed against the tax and interest paid by the assessee. Intimation shall be sent to the assessee specifying the amount payable or refundable. However, no intimation shall be sent after the expiry from the end of the financial year in which the statement is filed. It is also provided that the Board may make a scheme for centralized processing of TDS returns to expeditiously determine the tax payable by, or the refund due to the deductor. Nangia & Co. Budget 2009

71 TAX DEDUCTION AT SOURCE Section 201(3)W.E.F. – April 1, 2010 Providing time limits for passing of orders u/s 201(1) holding a person to be an assessee in default Presently, no time limit has been prescribed for passing an order, holding a person to be taxpayer in default, for failure to withhold appropriate taxes. Now, the following time limits have been prescribed for passing an order where the deductee is a resident taxpayer:  Two years from the end of the financial year in which the statement of taxes withheld is filed by the deductor;  Four years from the end of the financial year in which payment is made or credit is given, where no such statement is filed.  Order for withholding tax proceedings for the financial year beginning April 1, 2007 and earlier years can be completed by March 31, 2011. The above time limits shall be subject to the time limits prescribed for the order giving effect to the orders of the various appellate authorities, to the extent applicable. Nangia & Co. Budget 2009

72 TAX DEDUCTION AT SOURCE Our Comments The above amendment is welcome and the time limit prescribed is in consonance with the Tribunal judgements in the case of Raymond Woolen Mills Ltd. v. ITO (57 ITD 536) (Mum). However, it seems that the amendment in relation to time limit for passing the order under section 201(1) is not applicable where –  The deductor has deducted but not deposited the tax;  The employer has failed to pay the tax wholly or partly, under section 192(1A), as the employee would not have paid tax on such perquisites; and  The deductee is a non-resident (to overcome the decision of Special Bench of Tribunal in the case of Mahindra and Mahindra Ltd. v. DCIT (2009-TIOL-255-ITAT-MUM-SB)).  On the flip side, this will also ensure better follow up by the Deptt., more demands of interest, penalties etc. and will keep the assessee on his tows. Nangia & Co. Budget 2009

73 TAX DEDUCTION AT SOURCE Section 200(3)W.E.F. – October 1, 2009 Filing of TDS and TCS statements Changes have been made to the system of filing of statements of taxes withheld/collected. Presently, statements of taxes withheld/collected are required to be filed quarterly for each financial year. Now, such statements will be required to be filed within the time limit and in a form and manner as prescribed by the CBDT. Corresponding amendments in other relevant sections have been made. Nangia & Co. Budget 2009

74 TAX DEDUCTION AT SOURCE Insertion of Section 206AAW.E.F. – April 1, 2010 Compliance with provisions of quoting PAN through the TDS regime A new section 206AA shall be inserted relating to the following requirement to furnish PAN: Where the deductee fails to furnish its PAN or furnishes an incorrect PAN to the deductor, the deductor will be required to withhold taxes, at higher of the following:  At the rate specified under the Income-tax Act; or  At the rates in force; or  At the rate of 20% No certificate for lower rate of withholding taxes shall be issued by the Revenue authorities to the deductee, unless the PAN of the deductee is mentioned on the application. PAN to be indicated in all correspondence, bills, vouchers and other documents exchanged between the deductor and deductee. Nangia & Co. Budget 2009

75 TAX DEDUCTION AT SOURCE Insertion of Section 206AAW.E.F. – April 1, 2010 Compliance with provisions of quoting PAN through the TDS regime Our Comments The above amendment is very harsh on the deductor as it will result into disallowance of entire expenditure under section 40(a) if the deductor fails to deduct TDS at a appropriate rate, i.e. if the deductor has deducted TDS of 2% on a resident contractor but has furnished incorrect PAN, his entire expenditure will be disallowed as he was supposed to deduct TDS at 20%. The onus has bee cast on every deductor to verify every PAN submitted by the payee. It is suggested to take a photo copy of the PAN card from each payee. PAN can be verified from www.tin-nsdl.com/ onlinepanintro.asp. Causes hard ship to non-residents who may not like to take a PAN, especially where tax is being borne by the resident payer. Nangia & Co. Budget 2009

76 PENALTIES Explanation 5A to Section 271W.E.F. – June 1, 2007 Rationalization of provisions relating to penalty for concealment of income Presently, in search cases, if the taxpayer is found to be the owner of specified assets or income based on book entry for any financial year, which has ended before date of search and the due date of return of income has expired and the taxpayer has not filed the return of income, he would be deemed to have concealed the particulars of its income. Now, the scope of penalty provisions will extend to cases where the taxpayer has filed the return of income for any financial year and the income found during the course of search is not disclosed in such return of income. Nangia & Co. Budget 2009

77 PROVISIONAL ATTACHMENT Section 281BW.E.F. – April 1, 1987 Rationalization of provisions relating to provisional attachment of asset Presently u/s 281B, every order for provisional attachment of asset ceases to have effect after an expiry of six months (extendable to two years) from the date of such order. In certain cases, the taxpayers obtain a stay from courts of the assessment proceedings, while the order for provisional attachment of asset may expire. Now, the period during which assessment or reassessment is stayed by a court will be excluded in calculating the validity period of such an order. This will hit all pending cases immediately. Nangia & Co. Budget 2009

78 LIMITED LIABILITY PARTNERSHIP Clause 23 of section 2 defines ‘firms’, ‘partner’ and ‘partnership’. The definition has been amended to include ‘firms’, ‘partner’ and ‘partnership’ as defined in the Limited Liability Partnership Act, 2008. The return of income of a LLP shall be signed and verified only by the designated partner. Where for unavoidable reason the designated partner is unable to sign the return or where there is no designated partner, the return may be signed and verified by any other partner. Where any tax is due from a LLP which cannot be recovered, then every person who was a partner at the time (to which the tax pertains), shall be jointly and severally liable for the payment of such tax unless he proves that the non-recovery cannot be attributed to any gross neglect, misfeasance or breach of duty on his part in relation to the affairs of the LLP. Nangia & Co. Budget 2009

79 LIMITED LIABILITY PARTNERSHIP Our Comments The LLP Act also allows the conversion of general partnership and private limited companies into LLP. However, no amendments in relation to tax implications of such a conversion have been carried out in the IT Act, 1961. Therefore, the issue would arise whether such a conversion would lead to a transfer liable to tax under section 45. In this regard, the explanatory memorandum to the Budget clarifies that no tax liability would arise in case of a conversion of a general partnership, so long as there is no change in the rights and obligations of the partners and no transfer of assets or liabilities post the conversion. However, the conversion of a general partnership into LLP would inevitably involve the limitation of personal liability of the partners, thereby resulting in a change in the obligations of the partners. This fact seems to have been inadvertently missed out while introducing the provisions relating to conversion of a general partnership into LLP. Nangia & Co. Budget 2009

80 LIMITED LIABILITY PARTNERSHIP Our Comments The practice of taxing the income of the LLP in the hands of the firm is a divergence from the practice of treating the LLP as a tax transparent entity in certain other countries like UK and USA, which tax the income of the LLP in the hands of the partners. Thus, in case of the income of the LLP is also taxed in other jurisdiction where the income is taxed in the hands of the partners, the availability of tax credit to LLP in India might lead to certain difficulties. LLPs will be more attractive as there is no MAT or DDT in case of LLP’s as compared to case of the companies. Nangia & Co. Budget 2009

81 TAX BENEFITS FOR NEW PENSION SYSTEM Any income received by any person for or on behalf of the New Pension System Trust established on February 27, 2008 under the Indian Trust Act, 1882 will not be included in the total income of such trust. This amendment will take effect retrospectively from April 1, 2009. The provisions of DDT (Section 115-O) have been amended to provide that in the case of any company, dividend chargeable to DDT shall now be reduced by the amount of dividend, if any, paid to any person for, or on behalf of, the NPS Trust. This amendment will take effect retrospectively from April 1, 2009. Payments to any person for, or on behalf of the NPS Trust shall not be subject to TDS (Section 197A). Securities Transaction Tax will not be applicable to transactions entered into by the NPS Trust. Nangia & Co. Budget 2009

82 MISCELLANEOUS Modification in Section 115BBCW.E.F. – April 1, 2010 Tax Relief on anonymous donations in certain cases Under the provisions of section 115BBC, where the anonymous donations is made to an educational or medical institution run by partly religious and partly charitable entities, such donations are taxed at the rate of 30%. Now it has been proposed that anonymous donations, to the extent they are in excess of, Rs. 100,000 or 5% of the total income of the assessee, whichever is more, shall be taxable at 30% with effect from April 1, 2010. What will constitute ‘total income’ can be open to some doubt. Nangia & Co. Budget 2009

83 MISCELLANEOUS Modification in Section 208W.E.F. - April 1, 2009 Enhancement of the limit for payment of advance tax Under the provisions of section 208, the liability to pay advance tax is attracted in case the tax payable is Rs. 5,000 or more. The ceiling of Rs. 5,000 has now been raised to Rs. 10,000. Modification in Section 208W.E.F. - October 1, 2009 Introduction of facility of electronic communication Presently, a notice or requisition may be served on a person either by post or as if the same were summons issued by a court. Now, a notice, summon, requisition, order or any other communication may be served by delivering the same by post, courier, by electronic record or in any other prescribed manner. Further, the CBDT may prescribe rules in connection with the addresses for communication. Nangia & Co. Budget 2009

84 MISCELLANEOUS Insertion of Section 282BW.E.F. - October 1, 2010 Introduction of Document Identification Number Now, every Revenue authority will allot and quote a computer generated Document Identification Number in respect of every notice, order, letter or any correspondence issued to any person including any other Revenue authority. Similarly, every notice, order, letter or any correspondence received by the Revenue authority or on their behalf will be accepted and valid only after allotting and quoting a DIN. Rule 3 and 4 of Part A of the Fourth ScheduleW.E.F. – April 1, 2009 Extension of Time Limit for obtaining exemption from EPFO Presently, under Rule 3 and 4 of Part A of the Fourth Schedule to the Income-tax Act, recognition accorded to provident funds which did not satisfy specified conditions till March 31, 2009 were to be withdrawn. An extension will be granted to provident funds till December 31, 2010 to satisfy the conditions. Nangia & Co. Budget 2009

85 MISCELLANEOUS Insertion of Section 115WMW.E.F. – April 1, 2009 Omission of Fringe Benefit Tax Fringe Benefits Tax has been omitted. Insertion of Section 293CW.E.F. – October 1, 2009 Power to withdraw approvals A new section 293C has been inserted whereby, an authority granting an approval shall automatically have the power to withdraw such approval after giving the assessee, an opportunity of being heard. For eg; in the case of approvals for 80G. Amendment in Part B of the Thirteenth Schedule W.E.F. – April 1, 2010 The list of items relating to the paper industry which are ineligible for the tax holiday granted to new units located in Himachal Pradesh and Uttaranchal will be replaced with a revised list and accordingly Part B of the Thirteenth Schedule to the Income-tax Act, 1961 will be amended to match with changes in the DIPP policy. Nangia & Co. Budget 2009

86 WEALTH TAX Modification in Section 3W.E.F. – March 31, 2010 Enhancement of the limit for payment of wealth tax Under the existing provisions of section 3 of the Wealth-tax Act, wealth tax is charged every year in respect of net wealth, on the valuation date, of every individual, Hindu undivided family and company at the rate of 1% of the amount by which the net wealth exceeds Rs. 15 lakhs. It is proposed to raise the threshold limit for payment of wealth tax from Rs. 15 lakhs to Rs. 30 lakhs from the AY 2010-11. Nangia & Co. Budget 2009

87 THANK YOU Nangia & Co. Budget 2009


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