GT Budget Flash-Finance Bill 2012

8/2/2019 GT Budget Flash-Finance Bill 2012

1/50

Grant Thornton India LLP. All rights reserved.

Overview of the Union Budget 2012-13

Contents

1 Foreword

2 Key policy announcements

3 Fiscal and economic review

4 Snapshots of tax proposals

5 Direct tax proposals

6 Indirect tax proposals

7 Contact us


2/50

Overview of the Union Budget 2012-13 2

Key policyannouncements

Snapshot of tax

proposals

Direct tax

proposals

Indirect tax

proposals

Foreword

Fiscal and

economic review

Contact us

Foreword

Despite the crisis in Euro zone, s low recovery in the United States, politicalinstability in the Middle East and subsequent rise in crude oil prices, the resilienceof Indias domestic economy is once again evident with this years GDP

growth estimate of over 6.5%. However, this consumption-driven growth may notbe sustainable in the long run unless it is accompanied with an investment-drivengrowth.

Against this backdrop, growth and stability remained central to the Budget this year.

By setting the fiscal deficit target of 5.1% for 2012-13 and expressing its intentionsto keep central subsidies under 2% of GDP in 2012-13, and further bring themdown to 1.75% of GDP in the next 3 years, the government has steered clear of

populist measures.

The Budget endeavours to shore up investment in infrastructure with proposalsto make more sectors eligible for Viability Gap Funding under PPP scheme and

other measures including tax free bonds of Rs 60,000 crore for financinginfrastructure projects in 2012-13 alone.

Nevertheless, the common man, hard-pressed by inflation, also has some reasons to cheer while the Budget proposes revisions inincome tax exemption limit for the general category and brings forth the provision for allowing External Commercial Borrowing

(ECB) to promote low cost housing. However, an upward revision in service tax and other indirect taxes is likely to affect purchasingpower ofaam admi, on the other hand.

Overall the Budget attempts to do a balancing act with a focus on structural reforms. We have developed this report in view of

providing you a comprehensive overview of the Budget and we hope that you find it useful.

Tax & Regulatory Services Team

Grant Thornton India LLP

The Budget seemed more benign than it is.While most of the amendments wereanticipated such as tinkering of personal tax

rates, small exemptions for the middle incomegroup and widening the net of service tax andtaking the rate up, the fine print has widerramifications. Retrospective amendments toaddress Vodafone like situations, bringingdomestic related party transactions under theambit of transfer pricing are a case inpoint. Measures announced to boostinfrastructure, agriculture, aviation and powerindustries is very heartening."

Pallavi J Bakhru

Partner & Practice LeaderTax & Regulatory ServicesWalker, Chandiok & Co


3/50


Subsidies

Attempt to keep subsidies below2% of Gross DomesticProduct ('GDP') during Financial Year ('FY') 2012-13

Subsidies fully provided for effective administration ofthe

proposed Food Security Legislation Nation-wide roll out of mobile-based Fertilizer Management

System to provide complete information on movement of

fertilisers and subsidies

Budget Es t imates

Gross Tax Receipts estimated at Rs 1,077,612 crores for FY2012-13

Total expenditures budgeted at Rs 1,490,925 crores for FY

2012-13

Dis investments

For FY 2012-13, while 51% ownership and managementcontrol to remain with the Government, disinvestments targethave been set at Rs 30,000 crores


Snapshot of tax

proposals

Direct tax

proposals

Indirect tax

proposals

Foreword

Fiscal and

economic review

Contact us

Rat iona l isa t ion o f key po l ic ies

Amendment to the Fiscal Responsibility and BudgetManagement ('FRBM')Act key features being concepts of:

- Effective revenue deficit difference between revenuedeficits and grants for creation of capital assets

- Medium-term expenditure frameworkstatement to set forth a 3-year rolling target forexpenditure indicators

Goods and Service tax ('GST') networkto be set-up asNational Information Utility and operational by August 2012

20 crore people enrolled under UID-Aadhaar mission.Adequate funds allocated for further enrolment of 40 crores

White Paper on Black Money to bepresented in Parliament

in the Budget session National Food Security Bill, 2011 is presently before

Parliamentary Standing Committee

Bill regardingPublic Procurement Legislation to beintroduced in Parliament to combat corruption


4/50



Snapshot of tax

proposals

Direct tax

proposals

Indirect tax

proposals

Foreword

Fiscal and

economic review

Contact us

Financ ia l Sector

Introduction ofRajiv Gandhi Equity Saving Scheme whichallows income tax deduction of 50% to new retail investorsinvesting upto Rs 50,000 in equities

Rs 15,888 crores proposed for capitalisation of public sectorbanks and financial institutions

Central KYC depository to be developed in FY 2012-13

In f rast ruc tu re Sec to r

Government to establish joint venture companies in PPPmode by defence PSUs

Tax free bonds of Rs 60,000 crores for financing

infrastructure projects in FY 2012-13 Introduction ofNational Manufacturing Policy to raise

share of manufacturing in GDP to 25% creating 10 crore jobs

External Commercial Borrowings ('ECB') allowed for lowcost housing projects

Rural Infrastructure Development Fund allocationenhanced to Rs 20,000 crores out of which Rs 5,000 crores hasbeen assigned towards creating warehousing facilities

Tex t i l e Sec to r

Financial stimulus ofRs 3,884 crores for waiver of loans ofhandloom weavers

Power and Coal Sector

ECB topart finance Rupee debt of existing power projects

Transport Sector

Road Transport and Highways Ministry allocationenhanced by 14% to Rs 25,360 crores

ECB proposed for capital expenditures for road toll systems

Direct import of Aviation Turbine Fuel for Indian carrierspermitted

Equityparticipation of foreign airlines in an airportundertakingupto 49% is under consideration

ECB with a ceiling ofUS$1 billion to bepermitted for 1 yearin respect of working capital requirements of airline industry


5/50


Snapshot of tax

proposals

Direct tax

proposals

Indirect tax

proposals

Foreword

Contact us

Employment

Allocation for National Rural Livelihood Missionincreased by 34% to Rs 3,915 crores

Prime Minister's Employment Generation Programme

allocation enhanced by 23% to Rs 1,276 crores in FY 2012-13 Allocation ofRs 1,000 crores for National Skill

Development Fund in FY 2012-13

Soc ia l Secur i t y

Allocation under National Social Assistance Programenhanced by 37% to Rs 8,447 crores in FY 2012-13

Defence

Provision ofRs 1,93,407crores made for defence services ofwhich Rs 79,579 crores is towards capital expenditure

Educat ion

Allocation for Sarva Shiksha Abhiyan enhanced by 21.7%to Rs 25,555 crores in FY 2012-13

Agr icu l tu re

Target for agriculture credit flowto increase byRs 1,00,000 crores to Rs 5,75,000 crores in FY 2012-13

Interest subvention scheme to continue in FY 2012-13

Additional subvention of3% available for prompt payments

Regional Rural Bank credit refinance fund set-up fordisbursingshort-term crop loans

Allocation forAccelerated Irrigation Benefit Programenhanced by 13% to Rs 14,242 crores

Irrigation and Water Resource Finance Company to beoperationalized to mobilise large resources to fund projects

Micro , Smal l and Medium Enterpr ises

India Opportunities Venture Fund ofRs 5,000 crores tobe set up with Small Industries Development Bank of India

Hea l thca re

No case of polio reported in the last one year

Allocation for National Rural Health Mission to Rs 20,882crores in FY 2012-13

National Urban Health Mission to be launched in FY2012-13 to meet the health needs of the urban poor


Fiscal and

economic review


6/50


Snapshot of tax

proposals

Direct tax

proposals

Indirect tax

proposals

Foreword

Contact us


Fiscal and

economic review

Ind i rec t Tax

This year's Union Budget has proposed certain keyamendments to the structure of Indirect Taxation in India

The commitment to implement GST (Goods and ServicesTax) has been reiterated. Though there is no appointed date,the Finance Minister has given all indications for its earlyimplementation

The Constitutional Amendment Bill required to implementGST had been introduced in the Parliament and referred to theParliamentary Standing Committee in March 2011. Therecommendations of the Committee are still awaited

The Empowered Committee of State Finance Ministers hasapproved the basic structure of the proposed GST

The intention to merge the Service Tax and Central Exciselegislation into one Common Tax Code has been announced.

The levy of Service Tax has been extended to all services witha short negative list

The above developments are a clear precursor to GST

The exact date and rate of GST has not been announced andthe target date of 1 April 2012 for implementation has clearlybeen missed

Central Sales Tax has not been abolished

The Budget 2012-13 is a painful pill with ServiceTax being extended to all services (without thecredits of GST) and a sharp 2% hike in theService Tax and Central Excise rates. This willlead to price rises across the board. But thecompass is set on Indirect Tax reforms and thevarious steps taken to lead to an early

implementation of GST are welcome.

Amrita Mitra

Partner Indirect TaxGrant Thornton India LLP


7/50

Overview of the Union Financial Budget 2012-13 7


Snapshot of tax

proposals

Direct tax

proposals

Indirect tax

proposals

Foreword

Fiscal and

economic review

Contact us

Economic Growt h

GDP growth rate during FY 2011-12 is estimated to be 6.9%as compared to 8.4% during previous two FYs. Globaleconomic slack and oil price rise triggered this fall in GDP

growth During FY 2011-12, the services sector is expected to grow at

9.4% as against 9.3% last year. Its contribution to GDP is

estimated at 59%

However, Manufacturing sector's growth has beenlacklustre. It has seen a steep fall from 9% during April-December 2010 to 3.9% during April-December 2011

Growth in exports reduced from 40.5% during FY 2010-11 to23.5% during FY 2011-12 with insignificant change in the rateof growth in imports

Inflation remained a major concern during FY 2011-12 due toupsurge in global commodity prices and crude oil though

Wholesale Price Index moderated from 9% during April-November 2011 to 7% in February 2012

Foreign exchange reserves augmented by US$ 6.7 billionfrom US$ 304.8 billion at end of March 2011 to US$ 311.5billion at end of September 2011

8.4 8.4

6.97.6

0.00

2.00

4.00

6.00

8.00

10.00

2009-10 2010-11 2011-12 2012-13AE

%

age

Financial Years

GDP tre nds

8.1

3.8

9.6 9.1

0.00

2.00

4.006.00

8.00

10.00

12.00

2008-09 2009-10 2010-11 2011-12AE

%age

Financial Years

Headl ine In f la t ion

Financ ia lYears

Agr icu l tu re Industry Serv ices

2010 11 14.5 27.8 57.7

2011 12AE 13.9 27.0 59.0

Sectora l Compos i t ion o f GDP


8/50

Overview of the Union Financial Budget 2012-13 8


Snapshot of tax

proposals

Direct tax

proposals

Indirect tax

proposals

Foreword

Fiscal and

economic review

Contact us

Fisca l Def ic i t

Increase in fiscal deficit from 4.8% in FY 2010-11 toestimated 5.9% of GDP during FY 2011-12. It is expected todrop to 5.1% of GDP during FY 2012-13

Key In i t i a t i ves

Pradhan Mantri Gram Sadak Yojana (Bharat Nirman)proposes to connect 54,648 habitations involving constructionof 146,184 km of rural roads

Draft National Policy on Electronics (released on 03October 2011) envisions creating a globally competitiveelectronics system design and manufacturing industry

Draft National Policy on Information Technology 2011focuses on deployment of information communicationtechnology in all sectors of the economy

Additional budgetary support of Rs 91,800 crores to enhanceproductivity and resilience of agriculture

'Green India' mission proposes additional afforestation of 10million hectares of forest lands, wastelands and communitylands with projected expenditure of Rs 46,000 crores

6.5

4.8

5.9

5.1

0.00

1.00

2.00

3.00

4.00

5.00

6.00

7.00

2009-10 2010-11 2011-12AE 2012-13AE

%age

Financial Years

Gross F isca l Def ic i t


9/50



Direct tax

proposals

Indirect tax

proposals

Foreword

Contact us

Direc t tax proposa ls

No change in Corporate tax rate, Minimum Alternate Tax,Surcharge and Education Cess

Minimum Alternate Tax to be applicable to Insurance,

Banking and Companies engaged in the generation orsupply of electricity, etc

Scope forAlternate Minimum Tax extended to all taxpayers (other than companies) claiming specified deduction

Concessional rate of taxation ofdividends from foreignsubsidiaries @ 15% extended by 1 year

Cascading effect ofDividend Distribution Tax in multi-tierstructure removed

Weighted deduction introduced for expenditure on NotifiedAgriculture Projects

andSkill Development Projects

inmanufacturing sector

Weighted deduction for in-house research extended by 5years

Investment linked deduction extended coupled withweighted deduction for specified businesses

Power companies to get additional depreciation as well asextension in terminal date for availingtax holiday

'Pass through' status accorded for all investments byVenture Capital Funds / Companies

Deeming provisions introduced to treat share premiumreceived in excess of fair market value as income in the handsof closely held investee company

Share capital, share premium etc in the books of closely heldcompany treated as explained only ifsource is proved

Submission ofTax Residency Certificate made a necessary(but not the sole) condition for availing tax treaty benefits

Indirect transfer of capital asset proposed to be taxed in India.

Clause introduced tovalidate all actions of the tax officernotwithstanding anything contained in any judgement, decreeor order. (Vodafone decision reversed)

General Anti Avoidance Rules provisions introduced

Consideration for computer software (even off the shelf)proposed to be treated as royalty

Reduced withholding tax rate of5% applicable on foreignborrowings by companies engaged in specified businesses

Personal income tax slabs widened

Filing of income tax return made mandatory for residentshaving any assets outside India or having signing authority inany account outside India

Tax Officer permitted to appeal against DisputeResolution Panel order

Snapshot of tax

proposals

Fiscal and

economic review


10/50



Direct tax

proposals

Indirect tax

proposals

Foreword

Contact us

Transfer pr ic ing

Advance pricing agreement introduced in transfer pricing(prospective)

Definition of international transaction and intangible propertyclarified (retrospective)

International transaction includes business restructuring orreorganization, covered; whether or not it has bearing on theprofit, income, losses or assets of such enterprises at the time

of the transaction or at any future date (retrospective)

Transfer Pricing Regulations apply to specified domestic

transactions between domestic related parties (prospective)

Tax authorities can appeal against the order incorporating theDRP directions (prospective)

Currently, the arms length range is based on a uniformtolerance band of 5% around the transfer price. The 5% band

has been replaced with 3% (prospectively)

Amendments propose to eliminate viewing of this 5% rangeas a standard deduction and also clarifies that the newprovision disabling the standard deduction will be applicable

for all assessment proceedings pending before the AssessingOfficer as on 1 October 2009. However, the proposedamendment limits the tax authorities ability to re-open or

rectify assessments concluded before 1 October 2009

Snapshot of tax

proposals

While the DTC has been deferred, the UnionBudget has brought in some key provisions of theDTC in the Bill like the anticipated general anti

avoidance rules (GAAR) and the advance pricingagreements (APA). The most glaring thing thatcomes out of the amendments is the introduction ofkey provisions retrospectively to overrule recentjudgments in the area of international tax andtransfer pricing. This would surely not boost theconfidence of the foreign investor. A welcomeamendment is the APA regime introducedto provide a progressive mode of dispute resolutionin the area of transfer pricing. Of course the APAscheme should also practically turn out to be afavorable and unbiased platform for themultinationals and not be construed as anotherround of aggressive transfer pricing audit. On theother hand by bringing domestic transactions in theambit of transfer pricing, the compliance burdens onthe tax payer is going to increase multifold.

Karishma R. PhatarphekarPartner - Transfer PricingGrant Thornton India LLP

Fiscal and

economic review


11/50



Direct tax

proposals

Indirect tax

proposals

Foreword

Contact us

Ind i rec t tax proposa ls

Roadmap to GST la id out

There are clear indications that GST will be implemented

within a short time span

The Constitutional Amendment Bill was introduced in theParliament in March 2011 and is before the Parliamentary

Standing Committee for recommendations

The Empowered Committee of State Finance Ministers haveapproved the basic structure. The IT enabled GST Network(GSTN) has been approved and will become operational by

August 2012. A common PAN-based registration, return andpayment processing platform for all states will check taxevasion

The drafting of legislation for Centre and State GST is underprogress

The Government has extended the levy of Service Tax on allservices with a short negative list

The provisions of Central Excise and Service Tax are proposedto be merged into a Common Tax Code

Common registration and return provisions have beenproposed. The CENVAT Credit Rules are already common

Rates increase for manufac ture and serv ices

The rate of Service Tax has been increased from 10% to 12%

The standard rate of Central Excise Duty has been increasedfrom 10% to 12%

The merit rate of Central Excise duty has been increased from5% to 6%

The lower merit rate of Central Excise Duty on specified 130products has increased from 1% to 2%

The Basic Custom Duty (BCD) rate remains the same at 10%

Effec t ive Dates

The Central Excise rates will be effective from midnight of 16

March 2012

The Service Tax rate will be effective from 1 April 2012

Snapshot of tax

proposals

Fiscal and

economic review


12/50



Direct tax

proposals

Indirect tax

proposals

Foreword

Contact us

Snapshot of tax

proposals

Serv ice Tax

Proposal to tax all services except those in the negative listcomprising of 17 heads

Alignment made to harmonize Central Excise and Service Taxinto a Common Tax Code.

A common simplified registration form and a common returncomprising of one page proposed in this direction

Place of Supply Rules for determining the location of serviceand consumption to be put in public domain for stakeholders

comments

Point of Taxation Rules to be rationalized to be in line with theother proposed changes

CENVAT Credit permitted on number of services to reducecascading of taxes

New Scheme announced for simplification of refunds

Revision Application Authority and Settlement Commissionbeing introduced in Service Tax for dispute resolution

Exc ise

Duty increased to more than 12% in few cases such asautomobile and cement

Duty evasion of amount more than Rs 30 lakh is a cognizableoffence where person can be arrested without warrant

Benefit of reduced penalty, i.e. 25% of the penalty amount isavailable only if penalty along with duty and interest paid

within 30 days

Interest is not payable on credit wrongly taken unless the same

is utilized

The rate for CENVAT reversal for exempt services/ goodsunder Rule 6(3) of CENVAT Credit Rules is revised from 5%

to 6%

Customs

The peak rate of customs duty on non-agricultural goodsremains at 10%

Fiscal and

economic review


13/50



Snapshot of tax

proposals

Direct tax

proposals

Indirect tax

proposals

Foreword

Fiscal and

economic review

Contact us

Exemption given to the following sectors:

Agriculture

Fuel for power

Machinery for mining

Protective warning systems for railways

Specific road construction

Aircraft machineries

New leases of aircrafts

Iron ore plants

Steel coating material

Textile machinery

Specific medical devices like stents

LED and LCD TV Mobiles

Life saving drugs, etc

Export duty on chromium ore is enhanced from Rs 3,000 pertonne to 30% ad valorem

Method of computation of education cess and secondary &higher education cess is simplified to avoid computation of

such cesses twice

Transfer of unutilized credit of Additional duty ('SAD') lying inbalance at the end of each quarter to another factory of themanufacturer is permitted

The duty free allowance under Baggage Rules is increased fromRs 25,000 to Rs 35,000 for person of Indian origin and Rs

12,000 to Rs 15,000 for children upto 10 years of age

Exemption from Countervailing Duty ('CVD') is providedretrospectively to foreign going vessels from 1 March 2011 to

16 March 12


14/50



Snapshot of tax

proposals

Direct tax

proposals

Indirect tax

proposals

Foreword

Fiscal and

economic review

Contact us

Rates o f income - taxes

Personal t ax

Personal income-tax slabs proposed to be revised as under:

Minimum exemption limit for women changed from Rs190,000 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 yearsand above but less than 80 years) at Rs 250,000

Limits remain unchanged for very senior citizen (age of 80years and above) at Rs 500,000

Education Cess and Secondary and Higher Education Cess at2% and 1% respectively to continue

Corpora te tax

No change in corporate tax rate

No change in Minimum Alternate Tax ('MAT') rate (18.5%)

No change in surcharge for domestic companies (5%)

No change in surcharge on foreign companies (2%)

Marginal relief provisions to continue

Education Cess and Secondary and Higher Education Cess at2% and 1%, respectively to continue

No change with respect to excluding Education Cess andSecondary and Higher Cess on tax deducted or collected atsource, in case of domestic companies and other resident

persons Concessional rate of 15% for dividend received from foreign

subsidiary has been extended by 1 more year

Secur i t ies Transact ion Tax ( 'STT ')

STT payable by purchaser and seller in respect of deliverybased transaction for equity shares in company / units ofequity oriented fund entered into through a recognised stockexchange reduced from 0.125% to 0.1%

Existing Slab(Rs)

Revised Slab(Rs)

Tax rate (%)

Upto 180,000 Upto 200,000 NIL

180,001 to 500,000 200,001 to 500,000 10

500,001 to 800,000 500,001 to 1,000,000 20

Above 800,000 Above 1,000,000 30

O i f h U i B d 2012 13


15/50



Snapshot of tax

proposals

Direct tax

proposals

Indirect tax

proposals

Foreword

Fiscal and

economic review

Contact us

MAT

It is proposed to widen the scope of MAT provision and levyMAT to companies which prepare their profit and loss

accounts in accordance with provisions of the Act governingsuch companies such as Insurance companies, Bankingcompanies or Companies engaged in the generation or supply

of electricity, etc

It is also proposed that 'Book profit' is to be increased by theamount standing in the revaluation reserve relating to therevalued asset which has been retired or disposed, if the same

is not credited to the profit and loss account

This amendment will take effect from Assessment Year ('AY')

2013-14 (FY 2012-13)

Alternate Min imum Tax ( 'AMT' ) to be lev ied on a l lpersons, o ther than com panies

It is proposed to widen the scope of AMT and include allclass of assesses (other than companies) under the ambit of

AMT provisions who are claiming deductions vide chapter

VI-A under the heading 'C-deduction in respect of certainincomes' (i.e. Sections 80H to 80RRA, other than Section80P) or under Section 10AA of the Income Tax Act, 1961

('IT Act')

The proposed provisions shall not apply to an individual or aHindu Undivided Family ('HUF') or an association of persons('AOP') or a body of individuals ('BOI') (whether

incorporated or not) or an artificial juridical person if theadjusted total income (i.e. total income as increased by thededuction under chapter VI-A, as mentioned above and

Section 10AA) of such person does not exceed Rs 2 million

Tax credit in respect of AMT paid would continue to beavailable for a period of subsequent 10 AYs

This amendment will take effect from AY 2013-14 (FY 2012-13)

O er ie of the Union B dget 2012 13


16/50



Snapshot of tax

proposals

Direct tax

proposals

Indirect tax

proposals

Foreword

Fiscal and

economic review

Contact us

Removal o f cascad ing e f fec t o f D iv idend Dis tr ibu t ionTax ( 'DDT')

To remove the cascading effect of DDT in multi-tiercorporate structure, it is proposed that a company (holdingcompany) receiving dividend from it Indian subsidiary where:

- such Indian subsidiary has paid DDT on the dividendpaid to the holding company;

- can take credit of the DDT that the Indiansubsidiary has paid while distributing dividend in thesame year

- additional condition that the holding company shouldnot be a subsidiary of any other company has been

removed. The proposed amendment will take effect from 1 July 2012

Expendi ture on Not i f ied Agr icu l tu ra l ex tens ionp ro jec ts

A new provision (Section 35CCC) is proposed to beintroduced in the IT Act to allow weighted deduction of150% of the expenditure incurred on notified agriculturalextension projects

The eligible projects for this weighted deduction shall benotified by the Board in accordance with the prescribed

guidelines


Expendi ture on sk i l l deve lopment pro jec t

A new provision (Section 35CCD) is proposed to beintroduced in the IT Act to allow weighted deduction of150% of the expenses (not being expenditure in the nature of

cost of any land or building) incurred on skill development

projects in manufacturing sector

The eligible projects for this weighted deduction shall benotified by the Board in accordance with the prescribedguidelines


Weighted deduct ion to in - house sc ient i f ic researc h

Under Section 35(2AB), weighted deduction of 200% for

expenditure (not being in the nature of cost of any land or

building) incurred on in-house research and development

facilities, have been extended for a further period of 5 years

i.e. up to 31 March 2017

This will take effect from AY 2013-14 (FY 2012-13)

Overview of the Union Budget 2012 13 17


17/50



Snapshot of tax

proposals

Direct tax

proposals

Indirect tax

proposals

Foreword

Fiscal and

economic review

Contact us

Investmen t l i nked incen t i ves

Investment linked deductions proposed to be extended to thefollowing businesses commencing operations on or after 1

April 2012:

- setting up and operating of an inland container depot

- a container freight station

- bee-keeping and production of honey and beeswax

- setting up and operating a warehousing facility for

storage of sugar Weighted deduction of 150% of the capital expenditures (as

against current 100% deduction) proposed to be allowed tothe following businesses commencing operations on or after 1

April 2012:

- setting up and operating a cold chain facility

- setting up and operating a warehousing facility forstorage of agricultural produce

- building and operating a hospital with at least onehundred beds for patients

- developing and building a housing project under ascheme for affordable housing

- production of fertilizers This amendment will take effect from AY 2013-14 (FY 2012-

13)

Investment linked deduction would continue to be available

to hotel owners where it owns the hotel but the operation ofsuch hotel is transferred to another person. This amendment

will take effect retrospectively from AY 2011-12 (FY 2010-11)

Exempt ion in respect o f income rece ived by certa infore ign companies

Exemption is provided to foreign companies in respect of anyincome received by it in India in Indian currency on account

of sale of crude oil to any person in India subject to specifiedconditions

Extens ion o f sunset c lause - pow er com panies

The terminal date of availing deduction for the undertakingengaged in business of generation and distribution of power,transmission and distribution of power by laying network of

transmission and distribution lines, undertaking renovation ormodernization of existing distribution lines is extended from31 March 2012 to 31 March 2013

Addi t iona l deprec ia t ion to power companies

It is proposed to extend the benefit of additional depreciationto taxpayers engaged in the business of generation orgeneration and distribution of power




18/50


Thresho lds fo r tax aud i t

Threshold for tax audit is proposed to be revised as under, fromAY 2013-14 (FY 2012-13)

The due date for furnishing the tax audit report is aligned withthe due date for filing the tax return

Thresho lds fo r app l icab i l i t y o f tax on presumpt ive bas is

For the purpose of presumptive taxation under Section 44AD,threshold limit of total turnover or gross receipts is proposed to

be increased from Rs 6 million to Rs 10 million This amendment will take effect from AY 2013-14 (FY 2012-13) Further, the following persons are proposed to be carved out of

presumptive taxation :

- professionals covered under Section 44AA

- persons earning income in the nature of commission orbrokerage

- persons carrying on agency business This amendment will take effect retrospectively from AY 2011-

12 (FY 2010-11)


Snapshot of tax

proposals

Direct tax

proposals

Indirect tax

proposals

Foreword

Fiscal and

economic review

Contact us

Computa t ion o f tonnage income

The following amendment has been proposed for calculationof tonnage income of a qualifying ship and will take effectfrom AY 2013-14 (FY 2012-13)

Qualifying

ship havingnet tonnage

Existing amount

of daily tonnageincome

Proposed

amount of dailytonnage income

up to 1,000Rs 46 for each 100tons

Rs 70 for each 100tons

exceeding 1,000but not more than10,000

Rs 460 plus Rs 35 foreach 100 tonsexceeding 1,000 tons

Rs 700 plus Rs 53 foreach 100 tonsexceeding 1,000 tons

exceeding 10,000but not more than25,000

Rs 3,610 plus Rs 28for each 100 tonsexceeding 10,000tons


exceeding 25,000


Rs 11,770 plus Rs 29for each 100 tonsexceeding 25,000tons.

Audit under

Existing

threshold(Rs)

Revised

threshold(Rs)

44AB - Tax audit for personscarrying on business

6 million 10 million

44AB - Tax audit for personscarrying on profession

1.5 million 2.5 million



19/50

Overview of the Union Budget 2012 13 19


Snapshot of tax

proposals

Direct tax

proposals

Indirect tax

proposals

Foreword

Fiscal and

economic review

Contact us

Clar i f ica t ion in re la t ion to amalgamat ion anddemerger invo lv ing subs id iary

Even where a subsidiary company amalgamates with itsholding company, in order to obtain a tax neutral treatment ofthe amalgamation in the hands of such shareholder (i.e.

holding company), there was a requirement to issues of sharesto shareholders of the amalgamating company (i.e. thesubsidiary), which was impossible to achieve as the holding

company could not issue shares to itself. This requirement hasbeen dispensed with.

Similarly, in case of a demerger, where demerged company isa subsidiary company and the resulting company itself is the

holding company, the requirement relating to issues of sharesby such resulting company (i.e. holding company) to thedemerged company (i.e. subsidiary company) has been

dispensed with This amendment will take effect from AY 2013-14 (FY 2012-13)

Prov is ions re la t ing t o Venture Cap i ta l Fund ( 'VCF' ) o rVenture Capital Company ( 'VCC')

Sectoral restrictions on business of Venture CapitalUndertaking ('VCU') to claim exemption from income by

VCF or VCC have been done away with i.e. 'pass through'status is accorded for all investments by VCF or VCC

It is also proposed that income accruing to VCF or VCC shallbe taxable in the hands of investor or accrual basis with nodeferral


Share premium in exc ess o f Fa i r Market Va lue ( 'FMV')to be t rea ted as income

It is proposed to insert a new provision (Section 56(2)(viib))where any consideration received for issue of shares is inexcess of face value of shares, then the consideration

exceeding FMV of the shares shall be chargeable to incometax under the head 'Income from other sources

The FMV shall be higher of the following: FMV, as per the prescribed guidelines; or FMV as may be substantiated by the issuing company

This provision is proposed to be applicable only forcompanies in which public are not substantially interested (i.e.

closely held companies). Further, this provision is notapplicable to venture capital undertaking, with respect toshares issued to venture capital company / fund

This will take effect from AY 2013-14 (FY 2012-13)

Exempt ion o f any sum or property rec e ived by anHUF from i t s members

It is proposed to exclude any sum or property received by anHUF from its members without consideration or inadequateconsideration, from taxation

The proposed new provision will take effect retrospectivelyfrom 1 October 2009



20/50

O e e o t e U o udget 0 3 20


Snapshot of tax

proposals

Direct tax

proposals

Indirect tax

proposals

Foreword

Fiscal and

economic review

Contact us

Clar i f i ca t ion in connec t ion w i th ' cos t t o p rev iousowner '

It is proposed that in the following transactions the cost ofcapital assets in the hands of the recipient would be equal tothe cost of such assets in the hands of the previous owner

(transferor):- transfer of capital assets in course of

demutualisation/ corporatisation of a recognisedstock exchange as a result of which AOP/BOI(previous owner) is converted into a company(recipient)

- transfer of capital assets/ intangible assets onconversion of sole proprietary concern / firm

(previous owner) into a company (recipient)

This amendment will take effect retrospectively from AY

1999-00 (FY 1998-99)

FMV to be cons idered as ' fu l l va lue o f cons idera t ion '

A new provision is proposed to be inserted (Section 50D)under which FMV of capital asset (on the date of transfer) isto be considered as 'full value of consideration' fortransactions where sales consideration is not ascertainable or

cannot be determined This amendment will take effect from AY 2013-14 (FY 2012-

13)

Rel ie f f rom long term cap i ta l ga ins tax t o anind iv idua l o r an HUF on sa le o f a res ident ia l p ropert y

A new provision (Section 54GB) is proposed to beintroduced to allow relief from long term capital gains on saleof residential property (house or a plot of land) whereby the

sale consideration is reinvested in the equity of a SmallEnterprise (as per the Micro, Small and Medium Enterprises

Act, 2006) and which is utilised by such company for the

purchase of new plant and machinery The above relief is available subject to fulfillment of certain

prescribed conditions such as lock in period for 5 years forinvestment and assets purchased, minimum shareholding

requirement, time frame for utlisation of subscription amountby the company, etc

The said exemption applies to any transfer of a residential

property made before 31 March 2017 This amendment will take effect from AY 2013-14 (FY 2012-13)

Reference to Va luat ion Off icer

The powers of Assessing officer has been widened withrespect to cases to be referred to a Valuation Officer. As perthe amended provisions, the Assessing officer could nowrefer a case to Valuation Officer even when FMV is lower

than stated by the tax payer (as against earlier provisionswhere the reference could only be made if FMV was higher)

The proposed provision will take effect from 1 July 2012



21/50

g 21

Key policy

announcements

Snapshot of tax

proposals

Direct tax

proposals

Indirect tax

proposals

Foreword

Fiscal and

economic review

Contact us

Transfer o f cap i ta l assets not s i tua t ed in Ind ia

It is proposed to tax indirect transfer of capital assets in Indiaby inserting the following deeming / clarificatoryamendments:

definition of 'capital asset' to include controlling

interest in an Indian company. It states that any rightsin or in relation to Indian company, including rights

of management of control or any other rightswhatsoever will deemed to be regarded as 'capitalasset'

definition of 'transfer' to specifically includedisposition or parting with any interest directly orindirectly irrespective of whether such transfer iseffected or dependent upon or flowing from transfer

of shares of company registered or incorporated

outside India. the term 'through' under in Section 9(1)(i) to mean

and include 'by means of', 'in consequence of' or 'byreason of'

any share or interest in a company or entity registered

or incorporated outside India is deemed to besituated in India if the share or interest derives,directly or indirectly its value substantially from the

assets located in India withholding tax provisions under Section 195 applies

/to be applicable to non-residents irrespective of

whether non-resident has a residence or place ofbusiness or business connection in India or any otherpresence in India

This amendment will take effect retrospectively from AY1962-63 (FY 1961-62)

Transfer o f cap i ta l assets not s i tua t ed in Ind ia

A validation clause has been introduced whereby any noticesent or purported to have been sent, taxes levied, demanded,assessed, etc with regard to such transfers is deemed to havebeen valid notwithstanding anything contained in any

judgement, decree or order.

Reassessment o f inc ome in re la t ion t o any assetlocated outs ide Ind ia

To reassess the income in relation to any asset located outsideIndia (including financial interest in any entity), which has

escaped assessment, the following amendments are proposed:

time limit for issue of notice for reopening of an

assessment to be increased to 16 years

income shall be deemed to have escaped assessment

where a person is found to have any asset (includingfinancial interest in any entity) located outside India

the reassessment provisions are procedural in natureand will take effect from 1 July 2012 for enablingreopening of proceedings for an AY prior to thisdate. It is further proposed that the extended period

of 16 years for initiating reassessment will also applyto any AY beginning on or before 1 April 2012



22/50

22

Key policy

announcements

Snapshot of tax

proposals

Direct tax

proposals

Indirect tax

proposals

Foreword

Fiscal and

economic review

Contact us

General Anti-Avoidance Rules ( 'GAAR')

GAAR (under Chapter X-A) is a broad set of provisionswhich seek to tax an 'impermissible avoidancearrangement'(which may be a step, a part or whole of an

arrangement and hereinafter referred to as 'Transaction')

whose main purpose is to obtain a tax benefit and: creates rights or obligation which wouldn't arise

between persons dealing at arm's length; or results in the misuse or abuse of the provisions of the

Act in any way; or

lacks commercial substance either wholly or in part;or

is entered or carried out in a manner which would

not be employed for bonafide purposes Specific provisions are inserted which describes the

circumstances under which transaction is deemed to lack'commercial substance'

Onus lies with the tax payer to prove that the main purposeof the arrangement was not to obtain tax benefit

Where GAAR is triggered, the consequences could be asfollows:

disregarding or combining any step of the

arrangement

ignoring the arrangement for the purpose of taxationlaw

disregarding or combining any party to thearrangement

reallocating expenses and income between the parties

to the arrangement relocating place of residence of a party, or location of

a transaction or situs of an asset to a place other thanprovided in the arrangement

considering or looking through the arrangement by

disregarding any corporate structure re-characterizing equity into debt, capital into revenue

etc. It is also provided that a scheme for regulating the condition

and the manner of application of GAAR provisions would be

prescribed This will take effect from AY 2013-14 (FY 2012-13)



23/50

Key policy

announcements

Snapshot of tax

proposals

Direct tax

proposals

Indirect tax

proposals

Foreword

Fiscal and

economic review

Contact us

Tax t rea ty re la ted amendmen ts

The following amendments are proposed in relation toapplicability of provisions under Double Taxation Avoidance

Agreement or an agreement with Government of foreign

country or specified territory outside India (together referred

to as 'treaty') submission of Tax Residency Certificate ('TRC'), containing

prescribed particulars, made a necessary condition for availingtreaty benefits.

Treaty benefits cannot be availed where provisions ofChapter-X A i.e. GAAR are invoked


Further any meaning assigned, through notification, to a termused in a treaty but not defined (in the IT Act or the said

treaty ) is proposed to be effective from the date on which therelevant treaty came into force

This amendment will take effect retrospectively from 1October 2009 (for Section 90) and 1 June 2006 (for Section90A)

Expans ion o f def in i t ion o f 'Roya l t ies '

The definition of 'royalty' has now been amended to clarifyand include the transfer of any 'right for use' or 'right to use' acomputer software (including granting of a licence),irrespective of the medium through which such right is

transferred Further, 'royalty' would also cover consideration in respect of

any right, property or information whether or not:

possession or control of such right, property orinformation is with the payer;

such right, property or information is used directly by

the payer; and the right, property or information is located in India.

The term 'process' which has now been specifically defined toinclude transmission by satellite (including up-linking,

amplification, conversion for down-linking of any signal),cable, optic fibre or by any other similar technology, whether

or not such process is secret.

The above clarifications have been introduced withretrospective effect from 1 June 1976



24/50

Key policy

announcements

Snapshot of tax

proposals

Direct tax

proposals

Indirect tax

proposals

Foreword

Fiscal and

economic review

Contact us

Tax Deduct ion a t Source ( 'TDS' )

Section Proposed Amendment

Section 193 of the IT Act- TDSfrom payment of interest ondebentures

TDS shall not be required on any interest payable:

a) to an individual or a HUF, who is resident in Indiab) on any debenture issued by a company in which the public are substantially interested

c) where the aggregate amount of interest paid during a FY does not exceed Rs 5,000 and the interest ispaid by account payee cheque.

This amendment will take effect from 1 July 2012.

Section 194E of the IT Act -TDS from payment to non-resident entertainer

Payments made to 'entertainer' is subject to TDS. The rate of TDS for all payments covered under Section 194Eof the IT Act is proposed to be increased to 20%


Section 194J of the IT Act -TDS from payment to director

Any remuneration or fees or commission payable to a director of a company, other than those on which tax isdeductible under Section 192, shall be liable for TDS under the provisions of Section 194J


Section 194LA of the IT Act -Exemption on enhancedcompensation

Increase in exemption limit from Rs 100,000 to Rs 200,000

This amendment will take effect from 1 July 2012

Section 194LAA TDS frompayment for immovableproperty in certain cases

Any person responsible for paying any sum to a resident transferor by way of consideration for transfer of anyimmovable property (other than agricultural land), shall deduct an amount equal to 1% of such sum as income-tax thereon. The requirement to deduct TDS applies only where the consideration exceeds the prescribedthreshold. Also, withholding tax proof is made a pre-condition for the registering office to register the property.

This amendment will take effect from 1 October 2012

Section 194LC- TDS from

payment of interest to a non-resident by an Indian company

Tax shall be charged at the rate of 5% on any income of a non-resident (not being a company) or a foreigncompany by way of interest on foreign current borrowings from sources outside India between 1 July 2012 and1 July 2015 by specified companies.

This amendment will take effect from 1 July 2012



25/50

Key policy

announcements

Snapshot of tax

proposals

Direct tax

proposals

Indirect tax

proposals

Foreword

Fiscal and

economic review

Contact us

Tax co l lec t ion a t source ( 'TCS' )

TCS proposed to be introduced on the following:

The proposed new provision will take effect from 1 July 2012

Liab i l i ty to pay advance tax in case o f non deduct iono f tax

It is proposed that where a person receives any incomewithout TDS or TCS, he shall be liable to pay advance tax

with respect to such income. This amendment will take effectretrospectively from AY 2012-13 (FY 2011-12)

TCS onTCS Rate

(%)

Sale of certain minerals 1

Cash sale of bullion and jewellery - if saleconsideration exceeds Rs 0.2 million

1

Cases w here tax is not deduct ed a t source due tobonaf ide reasons

It is proposed to dilute the responsibility of the 'assessee indefault' by providing that a person, who fails to deduct tax onthe sum paid to a resident shall not be deemed to be an

'assessee in default' in respect of such tax if such resident: has duly furnished his return of income

has taken into account such sum for computing

income in such return of income; and

has paid the tax due on the income declared by himin such return of income

Further, the person is required to furnish a certificate to thiseffect from a Chartered Accountant in the prescribed form

Similar changes are also introduced in relation to TCS The proposed provision will take effect from 1 July 2012 It is also proposed that where the payer fails to deduct the

whole or any part of the tax on the payment made to aresident and he is not deemed to be an 'assessee in default'

(where the payee has paid the tax on such payment asexplained above), such payment will be allowed as adeduction. This will take effect from AY 2013-14 (FY 2012-

13)



26/50

Key policy

announcements

Snapshot of tax

proposals

Direct tax

proposals

Indirect tax

proposals

Foreword

Fiscal and

economic review

Contact us

Deduct ions under Chapter VIA for ind iv idua l and HUF Ef fec t i ve f rom AY 20 13-14 (FY 201 2-13 )

Deduct ion for l i fe insurance premium

Deduction in respect of premium paid on life insurance policy

issued on or after 1 April 2012 is proposed to be allowedprovided premium payable for any of the years does not

exceed 10% (presently 20%) of actual capital sum assured(Section 80C). Corresponding amendment brought inSection 10D

Deduct ion for prevent ive hea l th check -up

Under Section 80D, a deduction of Rs 5,000 is allowed for

expenditure incurred during the year by a tax payer on

account of preventive health check-up of self, spouse,dependent children or parents

The above deduction to be within the overall limits of Rs

15,000 / Rs 20,000 prescribed under the said Section of the

Act

Deduct ion for in teres t on sav ings account

Deduction upto Rs 10,000 proposed to be allowed in respect

of interest on deposits (not being time deposit) in a savingsaccount with a banking company, co-operative societyengaged in banking business and post office (Section

80TTA)

Deduct ions under Chapter VIA in re la t ion to donat ionpayment

Deduction in respect donation (Section 80G and 80GGA) inexcess of Rs 10,000 is proposed to be allowed only if suchsum is paid by any mode other than cash

El ig ib i l i ty cond i t ions for exempt l i fe insurancepo l ic ies

Any sum received under life insurance policy issued on orafter 1 April 2012 will be exempt provided premium payablefor any of the years during the term of the policy does notexceed 10% (presently 20%) of the actual capital sum assured



27/50

Key policy

announcements

Snapshot of tax

proposals

Direct tax

proposals

Indirect tax

proposals

Foreword

Fiscal and

economic review

Contact us

Fi l ing of income t ax re turn in re la t ion t o assetslocated outs ide Ind ia

It is proposed to make it compulsorily for a resident taxpayerto file a return of income (even if his taxable income is belowthe basic exemption limit) if any one of the following is

triggered:- the taxpayer has any asset located outside India,

including any financial interest in any entity outsideIndia; or

- the taxpayer has signing authority in any account

located outside India

This amendment will take effect retrospectively from AY

2012-13 (FY 2011-12)

Dispute Resolution Panel ( 'DRP')

The Assessing Officer shall now have the right to appeal tothe Appellate Tribunal against the order passed in pursuanceof directions of the DRP in respect of an objection filed on or

after 1 July 2012

It is further clarified that the power of the DRP to enhancethe variation shall include and shall always be deemed to have

included the power to consider any matter arising out of theassessment proceedings relating to the draft assessment order.

This power to consider any issue would be not withstanding

that such matter was raised by the eligible assessee or not.This amendment will take effect retrospectively from AY2009-10 (FY 2008-09)



28/50

Key policy

announcements

Snapshot of tax

proposals

Direct tax

proposals

Indirect tax

proposals

Foreword

Fiscal and

economic review

Contact us

Proceedings under Section Current time frame Proposed time frame

143 Scrutiny Assessment 21 months from end of AY 24 months from end of AY

143 & 92CA Scrutiny Assessment & Transfer

Pricing Assessment

33 months from end of AY 36 months from end of AY

148 Income Escaping Assessment 9 months from end of FY in which notice issued 12 months from end of FY in which notice issued

148 & 92CA - Income Escaping Assessment &

Transfer Pricing Assessment

21 months from the end of FY in which notice

issued

24 months from end of FY in which notice issued

250 Appellate Proceedings

254 Appellate Tribunal

263 Revision of orders prejudicial to revenue

9 months from end of FY in which notice issued 12 months from end of FY in which notice issued

250 Appellate Proceedings

254 Appellate Tribunal

263 Revision of orders prejudicial to revenue

92CA Transfer Pricing

21 months from end of FY in which notice issued 24 months from end of FY in which notice issued

Extens ion o f t ime for comple t ion o f assessments and reassessments



29/50

Key policy

announcements

Snapshot of tax

proposals

Direct tax

proposals

Indirect tax

proposals

Foreword

Fiscal and

economic review

Contact us

Penal t ies

Section Existing Provisions Proposed Amendment

Explanation 7 to Section 271 -Failure to furnish returns ,comply with notices,concealment of income

(wef FY 2012-13)

Covers 'international transaction' onlySpecified domestic transaction will be covered. Consequent amendment to be made toSection 271G and Section 271AA also

Section 271 AA - Failure tokeep and maintain informationand document in respect ofinternational transaction(wef 1 July 2012)

Provides penalty only if there is afailure to keep and maintain anyinformation and document as requiredby Section 92D(1) and 92D(2)

Additionally, penalty shall be levied : if any person fails to report the international transaction or specified domestic

transaction, or maintains or furnishes an incorrect information or document

Section 271 AAA- undisclosedincome in the case of search

The provision covers the cases ofsearch which have been initiatedunder Section 132 on or after 1 June2007

This penalty is applicable upto 1 July 2012. A new Section 271AAB has been proposedhereinafter

Section 271 AAB (New Section)Provides to charge penalty at the rateof 10% of the undisclosed income ofthe specified previous year

Penalty shall be imposable, where search has been initiated on or after 1 July 2012:

(a) at the rate of 10% of the 'undisclosed income' of the specified previous year, iftaxpayer admits during the course of search the undisclosed income

(b) at the rate of 20 % of the 'undisclosed income' of the specified previous year , iftaxpayer does not admit the undisclosed income at the time of search but at the time offiling return after search

(c) in other cases penalty may range from 30% to 90% of undisclosed income



30/50

Key policy

announcements

Snapshot of tax

proposals

Direct tax

proposals

Indirect tax

proposals

Foreword

Fiscal and

economic review

Contact us

Penal t ies - contd

Section Existing Provisions Proposed Amendment

Section 271 H- Penalty for

failure to furnish TDS/TCSreturns (New Section wef 1July 2012)

A person shall be l iable to pay a sum between Rs 0.01 million to Rs0.1 million if he fails to deliver or delivers an incorrect informationunder Section 200(3) or 206C(3) of the IT Act

However, no penalty shall be levied if the person proves that he haddelivered the required statement within one year of the periodprescribed under the said Sections

Similar amendment shall also be made to Section 273B

Section 272 A - Penalty forfailure to answer questions,furnish statements , etc. (wef1 July 2012)

Section 272A (2)(k) provides for the penalty of Rs 100per day to be levied in case a person fails to deliver thestatement (i.e. TDS and TCS returns) within the timeprescribed in Section 200(3) or 206C(3)

A proviso is proposed to be inserted after Section 272A(2)(k) toprovide that no penalty shall be levied under this Section for latefiling of TDS /TCS returns



31/50

Key policy

announcements

Snapshot of tax

proposals

Direct tax

proposals

Indirect tax

proposals

Foreword

Fiscal and

economic review

Contact us

Unexp la ined cash cred i ts

It is proposed to amend the existing provisions with respectto unexplained cash credits to provide that any explainationoffered by a closely held company with regard to credit of

share application money, share capital, share premium or any

such amount shall be deemed to be non-satisfactory unless: the resident person whose name credit has been

recorded offers explanation about nature and sourceof such credit; and

tax authorities find such explanation to be

satisfactory This will take effect from AY 2013-14 (FY 2012-13)

Assessment o f char i tab le organ iza t ion in casecommerc ia l rece ip ts exceed the spec i f ied th resho ld

It is proposed to provide that any charitable trust orinstitution registered under Section 12AA and 10(23C) will

not get benefit of tax exemption in the year in which it'sreceipts from commercial activities exceed the threshold

whether or not the registration or approval granted or

notification issued is cancelled, withdrawn or rescinded.

This will take effect retrospectively from AY 2009-10 (FY2008-09)



32/50

Key policy

announcements

Snapshot of tax

proposals

Direct tax

proposals

Indirect tax

proposals

Foreword

Fiscal and

economic review

Contact us

Transfer pr ic ing

In troduc t ion o f advance pr ic ing agreement (wef 1Ju ly 2012)

An APA is an agreement between the taxpayer and the taxingauthority

It will enable determination of the arms length price orspecify the manner/ methodology in which arms length priceshall be determined

The agreement is.

- valid for not more than five years

- available to all taxpayers falling within the ambit of Indian

TP legislation

- The APA enabling provisions are imported from the DTC

and detailed rules and forms are expected to be issued bythe Government shortly

- APAs to be entered by the CBDT with the approval ofCentral Government

- Ability to use any method other than one of the prescribed

5 methods available

- The APA has binding force only on the taxpayer with

whom it is signed and in respect of the relevantinternational transaction vis--vis the jurisdictionalcommissioner of income-tax

- The APA shall not be binding/annulled in the followinginstances:

Change in Law

If the taxpayer has signed the APA with theCBDT based on misrepresentation of facts.CBDT will annul in this case by way of an order

- On conclusion of APA, the taxpayer is required to file

revised return(s) with the Assessing Officer who has tocomplete the assessment/reassessment within one year

from the end of the FY in which the revised return is f iled



33/50

Key policy

announcements

Snapshot of tax

proposals

Direct tax

proposals

Indirect tax

proposals

Foreword

Fiscal and

economic review

Contact us

In te rna t iona l t ransac t ions ( re t rospec t i ve e f fec t f rom1 Apr i l 2002)

The definition of international transactions has been amendedto :

- elaborate on tangible, intangible property, services,financing transactions; and

- include transactions of business restructuring orreorganization, covered; whether or not it has bearing on

the profit, income, losses or assets of such enterprises atthe time of the transaction or at any future date

Spec i f ied domest ic t ransact ions (wef 1 Apr i l 2013)

Specified domestic transactions broadly comprise

transactions entered into by domestic related parties or by anundertaking with other undertakings of the same entity forthe purposes of section 40A, Chapter VI-A, section 10AA

and which exceed a monetary threshold of Rupees 5 croreduring a FY

In tang ib les ( re trospect i ve e f fec t f rom 1 Apr i l 2002)

Intangible property has been specifically explained. Otherthan marketing, technical, artistic, data processing, engineeringrelated intangibles it includes intangibles related to:

- customers like customer lists, open purchase orders;- human capital like trained & organized work force;

- location like leasehold interests and also mentions andlastly it also has an open item to include

- any item that derives its value from intellect content

rather than its physical attributes

This kind of a broad definition leaves the tax authority toconstrue significant items as intangibles and this could have a

major impact on the characterization of entities whenconducting a function, asset and risk analysis of the

international transaction



34/50

Key policy

announcements

Snapshot of tax

proposals

Direct tax

proposals

Indirect tax

proposals

Foreword

Fiscal and

economic review

Contact us

Reduct ion in 5% var ia t ion and d isenab l ing s tandarddeduc t ion

Currently, the arms length range is based on a uniformtolerance band of 5% around the transfer price. However, the

Government had amended proviso to sub section (2) of

section 92C in the Finance Act, 2011, whereby theGovernment was to notify an allowable variation for different

business activities and types of transactions. The current 5%band has been replaced with 3%

There were two litigation issues around the 5% range. Onewas that it was not allowed as a standard deduction by the taxauthorities and the other was that new proviso of the

variation was being applied retrospectively for AYs prior tothe amendment date of 1 October 2009

Major tribunals for both these issues had ruled in favour ofthe tax payer. However, the proposed amendments overturnthese tribunal decisions and do not permit the 5% range as a

standard deduction and also clarifies that the new provisiondisabling the standard deduction will be applicable for allassessment proceedings pending before the AO as on 1

October 2009. This would mean that even for AYs prior to2010-11 pending before the AO as on 1 October 2009 thenew provisions of the variation would prevail and therebystandard deduction not permitted to the tax payers. However,

the proposed amendment limits the tax authorities ability tore-open or rectify assessments concluded before 1 October2009

Power o f the t rans fer pr ic ing o f f icer ( 'TPO' )

The TPO is empowered to determine Arms Length Price of aninternational transaction noticed by him in the course ofproceedings before him, even if the said transaction was notreferred to him by the Assessing Officer. Although this

amendment takes effect retrospectively from 1st June 2002,reopening of any proceeding would not be done only on accountof such an amendment. The proposed changes could haveramifications where taxpayer has entered in to free of costtransactions (i.e. loan guarantee or extended short term liquidityto its associated enterprises) and has not charged any price forsuch services and consequently not reporting it as internationaltransactions in its disclosure

The Assessing Officer cannot under section 147 or section 154enhance the assessment or reduce a refund in respect of

completed proceedings



35/50

Key policy

announcements

Snapshot of tax

proposals

Direct tax

proposals

Indirect tax

proposals

Foreword

Fiscal and

economic review

Contact us

Str ingent pena l t ies fo r non report ing in ternat iona lt ransac t ions o r spec i f i ed domes t i c t ransac t ion

Section 271AA has been amended to levy penalty at the rateof 2% of the value of the international transaction or specified

domestic transaction, if the taxpayer

- fails to maintain prescribed documents or information or;

- fails to report such transaction which is required to bereported, or;

- maintains or furnishes any incorrect information ordocuments

- This would be in addition to penalties in section271BA and 271G. This amendment will take effect from 1

July, 2012

Fi l ing of account ants report

Filing of Form 3CEB under section 92E for non-corporatetaxpayer revised to 30 November



36/50

Key policy

announcements

Snapshot of tax

proposals

Direct tax

proposals

Indirect tax

proposals

Foreword

Fiscal and

economic review

Contact us

Serv ice Tax

Rate change e f fec t ive 1 Apr i l 2012

The rate of service tax is being restored to the statutory rateof 12%. This is aligned to the excise duty rate. The earlier

notification reducing the rate to 10% has been rescinded.

Consequent changes have also been made in compositionrates such as works contract services

Taxat ion o f Serv ices based on negat ive l is t approach ef fec t ive f rom a dat e t o be not i f ied

There is paradigm shift in the way services are proposed to betaxed in future. Taxation will be based on what is popularly

known as Negative List of Services.

Negative list of services covers specified 17 services as under:

- Services provided by Government or local authority- Services provided by Reserve Bank of India

- Services by a foreign diplomatic mission located in India- Services relating to agriculture- Trading of goods

- Processes amounting to manufacture or production ofgoods

- Selling of space or time slots for advertisements otherthan advertisements broadcast by radio or television- Access to a road or a bridge on payment of toll charges

- Betting, gambling or lottery- Entry to Entertainment Events and Access to

Amusement Facilities- Transmission or distribution of electricity- Specified services relating to education- Services by way of renting of residential dwelling for use

as residence- Financial sector- Service relating to transportation of passengers

- Service relating to transportation of goods- Funeral, burial, crematorium or mortuary services

including transportation of the deceased

Presently the word service has not been defined. TheFinance Bill 2012 proposes to is specifically define the word

service. Service shall also include certain activities that have

been specified as declared services.

If an activity meets the characteristics of a service it istaxable unless specified in the negative list or otherwiseexempted by a notification.

Most of 88 exemptions to be rescinded or merged in a megaexemption notification. Proposed exemptions under MegaNotifications shall include services provided to specified

organisations, temporary transfer of copyrights incinematographic films, etc.

A new charging section is proposed to be introduced to levyservice tax on all services, other than those in the negative list,provided or agreed to be provided in the taxable territory by

one person to another.



37/50

Key policy

announcements

Snapshot of tax

proposals

Direct tax

proposals

Indirect tax

proposals

Foreword

Fiscal and

economic review

Contact us

The existing provisions and charging sections will cease toapply after the new provisions become effective but will

remain relevant in respect of services provided prior to theapplicability of the new provisions

Other changes proposed consequent to negat ive l is t

approach e f fec t ive f rom a date t o be not i f ied

CENVAT Credit Rules

In the light of negative list it is proposed that the service-specific references in the CENVAT Credit Rules will bereplaced by broad descriptions retaining the essence of theexisting provisions

The definition of output service shall include exports ofservice where payment is not received within the period

specified under the RBI requirements. Thus the benefit of notreversing the input tax credits for exports without treatingthem exempt will continue for the period specified forrealizing export proceeds

In terms of the proposed amendment to the valuation rulesservices shall exclude interest on (a) deposits; and (b) delayed

payment of any consideration for the provisions made(services/goods). This will keep such amounts outside the

value and thus not be relevant for reversal of credits under

CENVAT Credit Rules

Interest on loans and advances will now be an exemptincome. This will require reversal of credits used for earningsuch income. Specified provisions have been proposed forsuch reversal

Serv ice Tax Rules

With the proposed introduction of the Place of Provision ofServices Rules, 2012 and the proposed omission of the Export

of Services Rules, 2005 (as amended) a transaction will qualifyas export when it meets following requirements:

- the service provider is located in Taxable territory- service recipient is located outside India- service provided is a service other than in the negative

list- the place of provision of the service is outside India and- the payment is received in convertible foreign exchange

Place of Provis ion of Services Rules, 2012

The Finance Bill 2012 proposes to introduce the Place of

Provision of Services Rules, 2012. The draft rules have beenreleased for comments and feedback for the time being. Theessence is that a service should be taxed in the jurisdiction of

consumption

It is proposed that these Rules will replace the existing Exportof Services Rules, 2005 and the Taxation of Services

(Provided from Outside India and Received in India) Rules,2006



38/50

Key policy

announcements

Snapshot of tax

proposals

Direct tax

proposals

Indirect tax

proposals

Foreword

Fiscal and

economic review

Contact us

Valuat ion Ru les

Negative list will require some reformulations away fromservice-specific provisions. The abatements available for

certain taxable services and composition rate for workscontract services will undergo change

Presently for works contract services, value of services isequal to the total amount charged for the contract reduced bythe value of property transferred in goods for State VAT

purpose. If the value is not so deduced, it is proposed that anad-hoc percentage of the total value as would be allowed asdeduction towards goods. The input tax credit on goods

forming part of the property on which VAT is payable shallnot be available as they are not used in the provision ofservice. However taxes paid on capital goods and input

services will be available

The taxable portion for services involved in supply of foodand drinks in a restaurant or as outdoor catering is being

raised. The abatement available is being adjusted to allow theindustry to utilize credit on capital goods, specified inputs(other than foods and beverages) and input services

Value of service shall include any amount realized asdemurrage, or by any other name, for the provision of a

service beyond the period originally contracted or in any other

manner relatable to the provision of service. It shall alsoinclude accidental damages due to unforeseen actions not

relatable to the provision of service

Value of service shall exclude interest on (a) deposits; and (b)delayed payment of any consideration for the provisions made(services/goods)

Aba temen ts

With the introduction of the negative list approach, changesare proposed in the abatements available for servicesinvolving both goods and services. It is proposed to increasethe taxable portion of value and liberalise the input taxcredits. Though the taxable portion of services may appear ona higher side, but the availability of credits will lead to

reduction in costs and hence prices for the consumers. Thiswill result in neutrality of taxes i.e. the burden of taxes will notraise the cost per se but passed on to the point of

consumption

SEZ changes

There are no changes proposed in the present Budget.However it is proposed that service-specific criterion for

determination of services provided exclusively within the SEZshall be taken care at the time of introducing negative list

Prior to 1 March 2011 services provided to SEZs were treatedas exempt services and CENVAT credit had to be reversedunder CENVAT Credit Rules. The amendment introduced

with effect from 1 March 2011 has now been made effectivefrom 10 February 2006. This will neutralize the investigationsor demands for reversal of credits in respect of servicesprovided to SEZs for the past



39/50

Key policy

announcements

Snapshot of tax

proposals

Direct tax

proposals

Indirect tax

proposals

Foreword

Fiscal and

economic review

Contact us

Reverse charge prov is ions

The term taxable territory has been defined and only servicesprovided in taxable territory will be liable to tax. Any service

provided in the State of Jammu & Kashmir will not be liableto tax. The Place of Supply Rules, 2012 will determine

whether a service is being provided in Jammu & Kashmir

Where the service provider is located in Jammu & Kashmirbut the services are provided in taxable territory, the tax will

be collected from the service receiver

A new scheme is proposed to be introduced to ensure propercollection. For the services of hiring of a motor vehicledesigned to carry passengers, supply of manpower for anypurpose and works contract both the service provider and

service receiver will be considered as persons liable to pay thetax on a predetermined percentage. The scheme can be giveneffect on enactment; however it is proposed to time it withNegative List approach as a part of the comprehensive reform

Rules o f in terpre ta t ion

Separate principles are proposed to be introduced forinterpretation of specified description of services and bundledservices

Poin t o f Taxat ion Ru les e f fec t ive 1 Apr i l 2012

Continuous supply of service has been redefined to bring outconcept with better clarity, namely recurrent nature of

services and the obligation for payment periodically or fromtime-to-time

Rules have to been amended to provide that the date ofpayment shall be the earlier of, the dates of entry into booksof accounts or actual credit in the bank account. When thereis change in effective rate of tax or an introduction of new

levy between the date of entry in books or actual credit inbank, the date of payment shall be the date of actual credit in

the bank account, if the amount is credited through a bankinginstrument more than four working days after the date ofsuch change

Best judgement provisions have been introduced where thetax-payer is unable to furnish one or more of the detailsneeded i.e. date of payment or date of invoice or both todetermine point of taxation

CENVAT changes e f fec t ive 1 Apr i l 2012

A simplified scheme for refunds is being introduced bysubstituting the earlier provisions under CENVAT Credit

Rules. The new scheme does not require correlation betweenexports and input services used in such exports. Any goods orservices that qualify as inputs or input services will be entitled

to be refunded in the ratio of the export turnover to totalturnover. The notification prescribing the detailed mannerand safeguards will be issued shortly

Credit on motor vehicles is liberalised and will be allowed

other than those falling under tariff heading 8702, 8703, 8704,8711 and their chassis. The credit of service tax paid on their

hiring, insurance and repair will also be allowed



40/50

Key policy

announcements

Snapshot of tax

proposals

Direct tax

proposals

Indirect tax

proposals

Foreword

Fiscal and

economic review

Contact us

Credit on goods can now availed without bringing them intopremises subject to due documentation regarding their

delivery and location

Credit of tax paid by all service receivers on reverse charge isallowed on the tax payment challan

Rules relating to distribution of credits of input services by aninput service distributer have been amended to ensure

scientific allocation to only such units where they have beenput to use based on proportion of turnover

The rate for CENVAT reversal for taxable/ exempt services/goods has been revised from 5% to 6%

Serv ice Tax Rules e f fec t ive 1 Apr i l 2012

Service providers may issue invoice within 30 days from thedate completion of taxable service or receipt of any payment

towards value of taxable services whichever is earlier. Bankingor financial institutions may issue an invoice with 45 days ofsuch event

Presently individuals and firms are allowed to pay service taxon the basis of date of payment for eight specified services.

The said facility has been extended to all services up to a

turnover of Rs 50 lakh in a financial year provided the taxable

turnover did not exceed Rs 50 lakh in the previous financialyear. The above limits shall be computed taking into account

the turnover of the entity as a whole and not any singleregistration

The restrictions of Rs 2 lakh limiting the use of excess servicetax paid are being omitted allowing unlimited amount ofpermissible adjustments effective 1 April 2012

A common simplified registration format for Central Exciseand Service Tax is being placed for public comments, together

with further liberalization in registration requirements,particularly centralized registrations will come into forceafter inviting comments from stakeholders

A new simplified one page common return with CentralExcise: to be called Excise & Service Tax Return (EST forshort) is being introduced. It is also being proposed that thecycles for the payment service tax and filing of return should

coincide. Assessees paying tax of Rs25 lakh or more inprevious year and new assessees other than individuals andfirms would be required to make monthly payments and file

monthly returns. The periodicity for others would bequarterly will come into force after inviting comments fromstakeholders

Exempt ion g iven re trospect ive e f fec t ive - e f fec tw hen the B i l l rece ives the Pres ident ia l assent

Exemption provided for the setting up of common facilitiesfor treatment and recycling of eff luents and solid wastes ismade applicable effective 16 June 2005 as against 25 July 2011

Exemption relating to repair of roads is extended for theearlier period commencing from 16 June 2005 as against 27

July 2009



41/50

Key policy

announcements

Snapshot of tax

proposals

Direct tax

proposals

Indirect tax

proposals

Foreword

Fiscal and

economic review

Contact us

Service tax exemption is granted with retrospective effect onmanagement, maintenance or repair service in relation to non-

commercial Government buildings from 16 June 2005 till thecoming into force of the negative list when such repair will beexempted by the new mega notification

Penal ty wa iver fo r Rent ing o f Imm ovable PropertyServ ice - e f fec t w hen the B i l l rece ives thePres ident ia l assent

The taxability of Renting of Immovable Property Services hadbeen a subject of litigation. In the matter of Retailers Assn. ofIndia v/s Union of India, Honourable Supreme Court, hadruled in October 2011, that litigants should pay 50% of the

arrears within six months in three equated instalments and forthe balance, solvent surety should be furnished to thesatisfaction of the Jurisdictional Commissioner. It is proposed

that penalty may be waived for those taxpayers who pay theservice tax due as on the 6 March 2012, in full along withinterest within six months

Other leg is la t ive changes - e f fec t w hen the B i l lrece ives the Pres ident ia l assent (un less spec i f iedo the rw ise )

The small scale exemption notification has been amended inline with Point of Taxation Rules stating that the threshold

exemption from service tax would be value of taxable services

charged

Documents

GT Budget Flash-Finance Bill 2012