Presentation on theme: "Budget 2009 9 July 2009. Direct Tax proposals 09 July 2009Budget 2009Page 3 Rates of tax Personal income tax ► Basic exemption limit of INR 190,000 for."— Presentation transcript:
Budget July 2009
Direct Tax proposals
09 July 2009Budget 2009Page 3 Rates of tax Personal income tax ► Basic exemption limit of INR 190,000 for resident women below 65 years and INR 240,000 for residents above 65 years ► Surcharge abolished. Education cess on income-tax at 3% continues PresentProposed Income slab (INR)RateIncome slab (INR)Rate Upto 150,000NilUpto 160,000Nil 150,001 – 300,00010%160,001 – 300,00010% 300,001 – 500,00020%300,001 – 500,00020% Above 500,00030%Above 500,00030%
09 July 2009Budget 2009Page 4 Rates of tax ► No changes proposed in tax rates for non-individual tax payers ► No changes in rates of surcharge and education cess for corporate tax payers
09 July 2009Budget 2009Page 5 Taxes abolished ► FBT abolished ► Following perquisites to be taxed as salary: ► ESOP/sweat equity ► Contribution to approved superannuation fund exceeding INR 100,000 ► Any other prescribed fringe benefit or amenity ► Commodities transaction tax abolished
09 July 2009Budget 2009Page 6 Minimum alternate tax (‘MAT’) ► MAT rate increased from 10% to 15% ► MAT credit carry forward increased from 7 to 10 years ► MAT profit to be enhanced by provision for diminution in value of assets. Decision of CIT vs. HCL Comnet Systems & Services Ltd. (2008) (219 CTR 222) (SC) nullified.
09 July 2009Budget 2009Page 7 Wealth tax Wealth tax exemption limit raised ► The minimum amount of net wealth exempt from wealth tax has been raised to INR 3,000,000 from INR 1,500,000
09 July 2009Budget 2009Page 8 Tax holiday for exports ► Deduction under section 10A and 10B which was earlier available only upto 31 March 2010 to be extended by 1 year to 31 March 2011 ► The anomaly in the formula for computing deduction under section 10AA which is applicable to SEZ units has been rectified with effect from 1 April 2010
09 July 2009Budget 2009Page 9 Provisions relating to computation of taxable income Taxation of non-life insurance companies ► The tax profits of non life insurance companies to be computed with reference to the profits before tax and appropriations as disclosed in the accounts prepared in accordance with the Insurance Regulatory and Development Authority (‘IRDA’) Act, 1999 and regulations made there under ► In arriving at the taxable profits, adjustments to be made for appreciation / diminution of or gains / losses on realization of investments recorded in accordance with the IRDA regulations ► Effective from A.Y and subsequent years
09 July 2009Budget 2009Page 10 Provisions relating to computation of taxable income Power to issue Zero-Coupon Bonds ► List of eligible issuers of Zero-Coupon Bonds expanded from infrastructure capital company/ infrastructure capital fund/ public sector undertaking to now also include scheduled banks, including nationalized banks Promoting investment in R&D-Section 35(2AB) ► Weighted deduction of 150% available to business of manufacture or production (except industries in negative list)
09 July 2009Budget 2009Page 11 Provisions relating to computation of taxable income Deduction for capital expenditure on specified businesses:-Section 35AD ► 100% capital expenditure (except cost of land/ goodwill/ financial instruments) to be allowed in the year in which such expenditure is incurred for: ► Setting up and operating (i) cold chain facilities for specified products and (ii) warehousing facilities for agricultural products ► Laying and operating a cross-country natural gas or crude or petroleum oil pipeline network ► Profits based deduction hitherto allowed in respect of these specified businesses now withdrawn.
09 July 2009Budget 2009Page 12 Provisions relating to computation of taxable income Relief to small businesses ► Presumptive taxation at 8% of gross receipts for businesses with turnover of less than INR 4 million ► No need to maintain books and pay advance tax Taxing receipts in ‘kind’ ► An individual/HUF would now also be taxed in respect of any moveable/immoveable property received without consideration/ for inadequate consideration, in excess of INR 50,000
09 July 2009Budget 2009Page 13 Provisions relating to computation of taxable income Special Provisions relating to computation of Capital Gains ► Value adopted or assessed or assessable under the Stamp Duty Act shall be deemed as the full value of consideration for the purpose of computing capital gain. The amendment seeks to nullify the decision in the case of Navneet Kumar Thakkar vs. ITO (2008) (110 ITD 525) (Jodh) wherein the Tribunal held that unless property transferred has been registered by sale deed and for that purpose value has been assessed and stamp duty has been paid by parties, section 50C cannot come into operation.
09 July 2009Budget 2009Page 14 Provisions relating to computation of taxable income Special deduction to financial corporations and banking companies extended to National Housing Bank ► Definition of eligible business in Section 36(1)(viii) amended to include the business of providing long-term finance for housing development instead of “construction or purchases of houses in India for residential purposes”
09 July 2009Budget 2009Page 15 LLP Taxation ► LLP taxation akin to taxation of general partnership firms ► Definition of ‘firm’, ‘partner’ and ‘partnership’ extended to also include ‘LLP’, ‘partner’ and ‘partnership’ as defined under the LLP Act ► No difference in tax treatment of general or limited partners ► Effective rate of tax for LLP 30.9% vis-à-vis 33.99% in case of companies ► DDT and MAT not applicable to LLP ► LLP typically treated as a pass-through entity in countries such as US, UK, Singapore, etc ► Some countries like US also give an option of treating LLP as a taxable entity vis-à-vis a pass-through entity
09 July 2009Budget 2009Page 16 Exemptions/deductions ► No deduction u/s 10A/10AA/10B/10BA or under Chapter VIA shall be allowed under any other provisions of the Act if it is allowed under any of the said provisions. The amendment is proposed w.e.f. AY The amendment fortifies the view taken in the case of ACIT vs. Rogini Garments (2007) (108 ITD 49) (Chennai)(SB) & Infosys Technologies Ltd. vs. JCIT (2007) (109 TTJ 631) (Bang) and nullifies the decision of Madras High Court in the case of SCM Creations vs. ACIT (2008) (304 ITR 319) (Mad). ► No deduction under aforesaid sections is allowable if not claimed in return of income. The amendment is proposed w.e.f. AY The amendment seeks to overrule the decision in the case of CIT –vs.- Ramco International (2009) 221 CTR 491 (P&H). ► However, the said deduction may be claimed by revised return u/s 139(5). There is no such bar also u/s 80AC as inserted by Finance Act 2006 w.e.f ► Definition of market value has been inserted vide 80A(6) for determining transfer price of goods captively consumed. The sale / purchase price needs to be determined subject to statutory or regulatory restrictions. The amendment is proposed w.e.f. AY
09 July 2009Budget 2009Page 17 Exemptions/deductions Provision for deduction in respect of profits from developing and building housing projects-Section 80IA ► Clarified that deduction will not be available to any undertaking which executes a housing project as a works contract awarded by any other person (the amendment is retrospective from 1 April 2000) ► Additional condition introduced to provide that the undertaking shall not be allowed to allot more than one residential unit to the same person, if the person is not an individual ► If the allottee is an individual, no other residential unit in the project may be allotted to the spouse, children, HUF or any person representing the above
09 July 2009Budget 2009Page 18 Exemptions/deductions Extension of sunset clause: ► Section 80-IA provides for deduction in respect of income from: ► Reconstruction of specified power plants, if they generate electricity prior to 1 April 2008 ► Generation and distribution of power, if generation commences prior to 1 April 2010 ► Transmission or distribution by laying a network of new lines, if new lines laid prior to 1 April 2010 ► Substantial renovation and modernization of existing network, if renovation/ modernization completed prior to 1 April 2010 ► The sunset clause in respect of the above has been extended to 1 April 2011
09 July 2009Budget 2009Page 19 Exemptions/deductions Deduction for undertakings engaged in commercial production of mineral oil or natural gas: ► Commencement date for private refiners of mineral oil extended to 31 March 2012 ► Extension of tax holiday to undertakings engaged in commercial production of natural gas provided the blocks are licensed under NELP-VIII and the production commences on or after 1 April 2009 ► Clarified that all blocks awarded under a single contract will be treated as a single undertaking (the amendment is retrospective from 1 April 2000) ► Overrules the decision of the Ahmadabad ITAT in the case of ACIT vs. Niko Resources Ltd. ITA Nos. 661 & 789/Ahd/2005
09 July 2009Budget 2009Page 20 Exemptions/deductions Charitable institutions ► Preservation of environment/monuments/objects of public interest (to be considered as ‘charitable purpose’) not subject to restrictive conditions involving carrying on of business/trade ► Anonymous donations presently taxed in hands of charitable institutions would be exempt upto 5% of the total income or INR 100,000, whichever is higher ► Time limit for charitable institutions seeking exemption under Section 10(23C) extended from 31 March to September 30 of the relevant Assessment year
09 July 2009Budget 2009Page 21 Exemptions/deductions Various provisions introduced for tax pass through for the New Pension System ► Any income received by the New Pension System Trust (Pension Trust) exempt from tax ► Dividend paid by domestic companies to the Pension Trust not liable to dividend distribution tax ► Payments to the Pension Trust shall not be liable to tax deduction at source ► Securities transaction tax to not apply to securities transactions entered into by the Pension Trust
09 July 2009Budget 2009Page 22 Exemptions/deductions Deduction under section 80CCD ► Deduction in respect of contribution to the New Pension System extended to all individuals (to cover self employed persons) ► Amount standing to the credit of the pension account applied to purchase an annuity in the same year shall not be taxed Approval under 80G ► Approval under Section 80G to be now granted for perpetuity from the existing 5 years
09 July 2009Budget 2009Page 23 Exemptions/deductions Donations to electoral trusts ► Donations made to electoral trusts allowed as 100% deduction Compensation received on voluntary retirement scheme ► Where assessee claims relief under Section 89 on any amount received/receivable on voluntary retirement/termination of service, exemption under Section 10(10C) would not be available and vice versa. ► The amendment overrules the decisions in the case of CIT vs. S. Sundar & Others (2006) (284 ITR 687) (Mad) and CIT vs. Nagesh Devidas Kulkarni (2007) (291 ITR 407) (Bom)
09 July 2009Budget 2009Page 24 Introduction of Alternate Dispute Resolution (‘ADR’) ► ADR mechanism proposed to facilitate speedy resolution of disputes. Salient features detailed as under: ► Only foreign companies/persons having transfer pricing variations eligible for ADR ► Collaborative process between Assessing Officer, Assessee and the Dispute Resolution Panel (‘DRP’) ► DRP would comprise of 3 Commissioners of Income-tax constituted by the Board ► Entire process would not exceed 10 months from the date the draft order is provided to the assessee by the Assessing officer ► Every direction by the DRP is binding on the Assessing officer ► These amendments will take effect from 1 October 2009
09 July 2009Budget 2009Page 25 Rationalization of tax administration and compliance provisions Reassessment proceedings ► In the course of reassessment proceedings, Assessing Officer to have the power to assess income in respect of any issue which may not have been recorded as the reasons for re-opening the assessment ► The above amendment to apply retrospectively from 1 April 1989 ► Overrules the decision of the Rajasthan High Court in the case of CIT vs. Ram Singh (2008) (217 CTR 345) (Raj) and Delhi High Court in the case of Jay Bharat Maruti Ltd. vs. CIT (2009) (223 CTR 269) (Del)
09 July 2009Budget 2009Page 26 Rationalization of tax administration and compliance provisions Ability of Additional Director and Additional Commissioner to issue authorization clarified ► Ability of Additional Director and Additional Commissioner to issue authorization to conduct search and seizure operations under Section 132 clarified with retrospective effect from 1 June 1994
09 July 2009Budget 2009Page 27 Rationalization of tax administration and compliance provisions Introduction of document identification number (DIN) ► Income-tax authorities to allot and quote a computer generated DIN in respect of every notice, order, letter or correspondence issued ► Non quoting of DIN shall invalidate the notice, order, letter or correspondence issued ► Document, letter or correspondence received by an income-tax authority or on his behalf to include the DIN failing which the document shall be deemed to have not been received
09 July 2009Budget 2009Page 28 Rationalization of tax administration and compliance provisions Time limits for completion of tax withholding assessments ► Limitation period for passing an order holding an assessee to be an ‘assessee in default’ specified: ► In the case of resident assessees, 2 years from the end of the financial year in which statement of tax deduction at source is filed by the deductor ► 4 years in other cases ► Proceedings for financial year 1 April 2007 and earlier years to be completed by 31 March 2011.
09 July 2009Budget 2009Page 29 Rationalization of tax administration and compliance provisions Provisional attachment of assets ► Attachment orders are typically valid for six months; validity period extendable by 2 years ► Provisions amended to provide that the period during which any proceedings are stayed by any Court shall be excluded in calculating the specified period (the amendment is retrospective from 1 April 1988)
09 July 2009Budget 2009Page 30 Rationalization of penalty provisions Penalty provisions ► Scope of penalty provisions in search cases to extend to situation where the tax return is filed but income is not disclosed in the return ► The above amendment to apply in cases of search initiated after 1 June 2007
09 July 2009Budget 2009Page 31 Tax deduction at source Permanent Account Number (PAN) made mandatory ► PAN has to be mandatorily quoted by person (including non-residents) receiving payments on which tax is deductible ► Failure to quote PAN shall result in tax deduction at the higher of the following rates: ► Rate specified under the relevant provision of the Act ► Rates in force ► 20% ► Declarations for ‘nil’ tax deduction at source valid only if PAN quoted in the declaration ► Certificate for ‘nil’ or reduced tax deduction at source shall not be granted unless PAN quoted in application made for such purpose.
09 July 2009Budget 2009Page 32 Tax deduction at source Changes proposed in rates applicable to payments in pursuance of a contract ► Distinction between contractor and sub-contractor removed ► New rates applicable: ► 1% where payment is to an individual or a HUF ► 2% in other cases ► No tax withholding provisions apply on payments to a contractor during the course of business of plying, hiring, or leasing goods carriages provided a Permanent Account Number is furnished by such contractor
09 July 2009Budget 2009Page 33 Tax deduction at source ► Tax withholding provisions not to apply to manufacturing or supplying a product according to customer specifications where the material is purchased from a person other than the customer ► For payments for manufacturing or supplying a product where the material is supplied by the customer, tax withholding shall be on the invoice value excluding value of material where such value is separately mentioned
09 July 2009Budget 2009Page 34 Tax deduction at source Changes proposed in rates applicable to rental payments Nature of paymentPresent rateProposed rate* Rent of plant, machinery or equipment 10%2% Rent of land, building or funiture ► Individual, HUF15%10% ► Others20%10%
09 July 2009Budget 2009Page 35 Double Taxation Avoidance Agreement ► Existing section 90 of the Act empowers the Central Government to enter into Double Taxation Avoidance Agreement (‘DTAA’) with the Government of any other country outside India for granting double-taxation relief and facilitate exchange of information concerning avoidance or evasion of tax. Reason for the countries to enter such agreements is to foster foreign investment. ► New provision enable the government to enter into DTAA or Tax Information Exchange Agreement (TIEA) with non- sovereign jurisdictions. ► TIEAs are generally intended for use with countries for which a DTA is not considered appropriate, mainly because they have no, or low taxes on income or profits.
09 July 2009Budget 2009Page 36 Double Taxation Avoidance Agreement ► TIEAs are much narrower in scope than DTAs, they are more detailed than DTAs on the subject of information exchange and generally prescribe in details, the rules and procedures for how such information exchange is to occur. ► Through TIEA, one country can request all financial investment information regarding their citizens and corporations, including bank accounts information and stock investments. ► These agreements may help the Government to obtain information and track the unaccounted money siphoned out of the country and kept in off-shore bank accounts in various tax havens
09 July 2009Budget 2009Page 37 Transfer Pricing Issues ► Section 92C of the Income-tax Act provides for adjustment in the transfer price of an international transaction with an associated enterprise if the transfer price is not equal to the arm's length price. As a result, a large number of such transactions are being subjected to adjustment giving rise to considerable dispute. ► Proposed to empower the Board to formulate safe harbour rules i.e. to provide for circumstances in which the Income-tax authorities shall accept the transfer price declared by the assessee. ► This amendment will take effect from 1st April, 2009.
09 July 2009Budget 2009Page 38 Transfer Pricing Issues ► “Safe Harbour Rules”, as provided in the OECD Commentary on Transfer Pricing, generally refer to use of certain provisions under which taxpayers could follow a simple set of rules, whereby the transfer price would be automatically accepted by the tax authorities. ► These rules could, for example, require taxpayers to establish transfer prices or results in a specific way, e.g. by applying a simplified transfer pricing method provided by the tax administration, or satisfy specific information reporting and record maintenance provisions with regard to controlled transactions. ► These rules are designed as a comfort mechanism, as they allow greater flexibility especially in the areas where there are no matching or comparable arm's length prices. ► Under a safe harbour, taxpayers would know in advance the range of prices or profit rates within which the corporation must fall in order to qualify for the safe harbour.
09 July 2009Budget 2009Page 39 Transfer Pricing Issues ► Proviso to sub-section (2) of section 92C of the Act provides that where more than one price is determined by the most appropriate method, the arm’s length price shall be taken to be the arithmetical mean of such prices, or at the option of the assessee, a price which may vary from the arithmetical mean by an amount not exceeding five per cent of such arithmetical mean. ► The above provision has been subject to conflicting interpretation by the assessee and the Income Tax Department. The department’s contention is that if the variation between the transfer price and the arithmetical mean is more than 5 per cent of the arithmetical mean, no allowance in the arithmetical mean is required to be made. However, the tax-practitioners & industry have generally taken a stand that the arithmetical mean should be adjusted by 5 per cent to arrive at the arm's length price or in other words, there shall be a standard deduction of 5% available to assessee at the option of the assessee. The said stand is supported by the decisions in the case of Sony India (P) Ltd. vs. DCIT (2008) 114 ITD 448 (Del-ITAT)
09 July 2009Budget 2009Page 40 Transfer Pricing Issues ► New provision to section 92C(2) to provide that where more than one price is determined by the most appropriate method, the arm’s length price shall be taken to be the arithmetical mean of such price. However, if the arithmetical mean, so determined, is within five per cent of the transfer price, then the transfer price shall be treated as the arm's length price and no adjustment is required to be made. ► Effective from 1 st October, 2009
09 July 2009Budget 2009Page 41 Other miscellaneous provisions ► Section 145A-Taxation of interest on delayed/enhanced compensation ► Interest on delayed or enhanced compensation typically taxable on accrual basis ► Provisions rationalized to provide that such interest shall be taxable only in the year of receipt ► Overrules the decision in the case of Rama Bai vs. CIT (1990) (181 ITR 400) (SC)