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© Walker, Chandiok & Co. All rights reserved. Union Budget 2012-13: Direct Tax amendments Impact on the Real Estate sector.

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Presentation on theme: "© Walker, Chandiok & Co. All rights reserved. Union Budget 2012-13: Direct Tax amendments Impact on the Real Estate sector."— Presentation transcript:

1 © Walker, Chandiok & Co. All rights reserved. Union Budget : Direct Tax amendments Impact on the Real Estate sector

2 Union Budget | Impact on the Real Estate sector 2 Tax rates - Personal 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 Existing Slab (Rs) Revised Slab (Rs) Tax rate (%) Upto 180,000Upto 200,000NIL 180,001 to 500,000200,001 to 500, ,001 to 800,000500,001 to 1,000,00020 Above 800,000Above 1,000,00030

3 Union Budget | Impact on the Real Estate sector 3 Corporate Tax rates & GAAR 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%) Education Cess and Secondary and Higher Education Cess at 2% and 1%, respectively to continue Concessional rate of 15% for dividend received from foreign subsidiary has been extended by 1 more year General Anti-Avoidance Rule (GAAR) introduced 'Impermissible avoidance arrangement' whose main purpose is to obtain a tax benefit Onus lies with the tax payer to prove that the main purpose of the arrangement was not to obtain tax benefit This will take effect from AY (FY )

4 Union Budget | Impact on the Real Estate sector 4 Transfer Pricing provisions on domestic transactions Transfer Pricing guidelines proposed on "specified domestic transaction" Concept of "specified domestic transaction" proposed vide section 92BA Transfer Pricing applicable only when aggregate of "specified domestic transactions" exceeds Rs 5 crores in the previous year Specified domestic transactions will be required to adhere to arms length price Following additional compliance will be required: 1.Maintenance and keeping of information and document 2.Certificate from CA in Form 3CEB

5 Union Budget | Impact on the Real Estate sector 5 Fair Market Value to be considered as “full value of consideration” A new section 50D proposed to be inserted under capital gains provision Transactions where sales consideration is not ascertainable/indeterminate – Fair Market Value (FMV) of capital asset on the date of transfer considered as “full value of consideration” Transactions that may be effected Exchange Collaboration with land owners

6 Union Budget | Impact on the Real Estate sector 6 Transfer of certain immovable properties under Tax Deducted at Source (TDS) net New section 194LAA is proposed – To deduct tax by way of 1% on consideration for transfer of immovable property (other than agricultural land) Provision applicable (from 1 Oct 12) to any person transacting with resident transferor Higher of actual consideration paid or stamp duty valuation would form the basis for TDS TDS would get triggered where the consideration exceeds- ­ Rs 50 lakhs if the property is situated in specified areas ­ Rs 20 lakhs in case of other areas

7 Union Budget | Impact on the Real Estate sector 7 Amendment to Section 35AD – Investment based deduction Affordable Housing Project Amendment to section 35AD where weighted deduction of 150% of capital expenditure is proposed in affordable housing Proposed to be effective from FY Hotel owners/ operators Currently deduction under section 35AD available to hotel owners only if such owner himself operates the same Now proposed that hotel owners of two star and above categories, will get deduction of capital expenditure even if such hotel owner transfers the operations of hotel to franchisee/hotel operator Amendment inserted retrospectively with effect from 1 April 2011

8 Union Budget | Impact on the Real Estate sector 8 Clarification in connection with 'cost to previous owner' Amendment in Section 49 to define the cost of assets (“COA”) COA to company will be the cost to previous owner in the following cases: Conversion of sole proprietor into company Conversion of Firm into company Amendment to take effect retrospectively from assessment year

9 Union Budget | Impact on the Real Estate sector 9 Direct tax proposals – Interplay of section 47 and 49 Third Party Firm merges with company Company Firm Transfer between Firm to Company – Not taxable vide 47(v). COA of Capital Asset is books of Firm - Rs. 100 Sale of Capital 175 Company records Capital Asset in its books - Rs. 150 Capital Gain computation in the hands of Company for sale of Capital Asset Sale consideration – Rs. 175 Less: COA (section 49) – Rs. 100 Capital Gain Rs. 75

10 Union Budget | Impact on the Real Estate sector 10 Beneficial tax rate for funding affordable housing projects Foreign currency loan to an Indian company - in the business of developing and building a notified affordable housing project - loan taken between 1 July of 2012 and 2015 TDS on interest at the beneficial rate of 5% (plus applicable surcharge and cess) ECB to be allowed for funding notified affordable housing projects

11 Union Budget | Impact on the Real Estate sector 11 Clarification in relation to amalgamation and demerger involving subsidiary Merger of subsidiary company into holding company - For tax neutrality, consideration shares have to be issued to shareholders of the amalgamating company Demerger of subsidiary company into holding company - Similarly for demerger to be tax neutral, resultant entity has to issue shares to the shareholders of the demerging entity The above conditions are impossible to achieve as the holding company could not issue shares to itself The condition to issue shares in the above circumstances have been dispensed with amendments proposed in Finance Bill 2012

12 Union Budget | Impact on the Real Estate sector 12 Removal of cascading effect of Dividend Distribution Tax (DDT) in multi-tier structure Amendment to Section 115-O to remove the cascading effect of DDT in multi- tier corporate structure The condition of being “ultimate holding” removed for computing DDT to be paid Amendment effective from 1 July 2012 However for claiming the benefit the holding company is required to hold more than 50% equity share in subsidiary company

13 Union Budget | Impact on the Real Estate sector 13 Removal of cascading effect of DDT in multi-tier structure Present situation Proposed situation Intermediate co. Subsidiary co. Holding co. Dividend – Rs. 100 DDT – Rs Dividend – Rs. 100 DDT – Rs Holding co. Intermediate co. Dividend – Rs. 100 DDT – NIL Subsidiary co. Dividend – Rs. 100 DDT – Rs DDT cost for the Group – Rs DDT cost for the Group – Rs

14 Union Budget | Impact on the Real Estate sector 14 © Walker, Chandiok & Co. All rights reserved. Disclaimer: This document is prepared for information purposes only. No reader should act on the basis of any statement contained herein without seeking professional advice. The firm expressly disclaims all and any liability to any person who has read this, document or otherwise, in respect of anything, and of consequences of anything done, or omitted to be done by any such person in reliance upon the contents of this document. NEW DELHI National Office Outer Circle L 41 Connaught Circus New Delhi T CHANDIGARH SCO 17 2nd Floor Sector 17 E Chandigarh T GURGAON 21st Floor, DLF Square Jacaranda Marg DLF Phase II Gurgaon T HYDERABAD 7th Floor, Block III White House, Kundan Bagh Begumpet Hyderabad T MUMBAI 16th floor, Indiabulls Finance Centre Elphinstone Mill Compound 612/ 613, Senapati Bapat Marg Elphinstone Road, Mumbai T PUNE 401 Century Arcade Narangi Baug Road Off Boat Club Road Pune T CHENNAI Arihant Nitco Park, 6th floor No.90, Dr. Radhakrishnan Salai Mylapore Chennai T BENGALURU “Wings”, First Floor 16/1 Cambridge Road Halasuru Bangalore T Our offices: Thank you


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