PWC Union Budget Highlights 2012

8/2/2019 PWC Union Budget Highlights 2012

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Reviving the Indiagrowth story

Flash on Union Budget 2012

16 March 2012

Economic Overview

Grossdomesticproduct(GDP)growthsloweddownto6.9%inthecurrentnancialyear

2011-12,from8.4%inthepreviousscal,owingtoweakindustrialactivitycoupledwitha

contractionininvestments.Factorssuchaspersistentandhighination,monetarytightening,

expansionoftradedecits,weakeningoftherupee,negativeglobaldevelopmentsand

domesticpoliticaluncertaintyalsocontributedtotheslowdown.

Agricultureandalliedactivitieswitnessedsignicantslowdownexhibitinggrowthofonly2.5%

duringtheyearafterahealthygrowthof7.0%lastyear.Industrialgrowthalsoslowedto3.9%

ascomparedto7.6%lastyear,aresultofhighinationandspirallinginterestrates.

Servicessectorcontinuedtobethegrowthdriverexpanding9.4%throughtheyearkeepingup

thepaceof9.3%lastyear.

Inationcontinuedtobehigharound+/-10%forthersthalfofthecurrentscal.Themain

driverswerefoodination,risingpricesofglobalcommoditiesanddepreciationofthecurrency

inthelatterhalfoftheyear.

Slow industrial growth led to lower tax collections for the government. Government

expenditureswelledonaccountofhighoutlayofsubsidies.Highinterestratesledtohigher

interestpaymentonexternaldebt.Intherstninemonths,totalexpendituresfortheyearwere

13.9%asagainstthebudgeted4.9%.

Despitetheoverallslowdown,Indiaremainsoneofthefastestgrowingeconomiesintheworld,

projectedtogrowby7.6%and8.6%inthenexttwoyears.TheUnionBudget2012aimstospur

thisgrowthstorythroughpolicymeasurestargetedatinfrastructuredevelopment,incentivising

private sector investments and enhancement of social sector development.


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Key Regulatory Proposals

FDI Policy

Policyfor51%FDIinmulti-brandretailtrading:effortsareunderwaytoattainbroad-based

consensus with State Governments.

Investmentbyforeignairlinesindomesticairtransportisbeingconsidered.

Capital Market Reforms

IPOsexceedingRs.100milliontobeinelectronicformthroughnationwidebrokernetworkof

stockexchanges-fordeeperpenetrationinsmalltownsandsimplicationinprocesses.

QualiedFinancialInstitutionstobeallowedtoaccessIndianCorporateBondsmarket.

Electronicvotingfacilitytobemademandatoryforlargelistedcompanies-toensurewider

shareholder participation in important decisions.

Two-wayfungibilityinIndianDepositoryReceiptstoenhanceforeignparticipationinIndian

CapitalMarkets.

Financial Sector Reforms

SomeimportantBillssuchasPensionFund,Banking,Insurance,MicroFinance,National

HousingBank,StampAct,etc.tobemovedinthecurrentsessionofParliament.

CreationofanancialholdingcompanyforresourcemobilizationbyPSUbanksisbeing

considered.

Revisioninindustryclassicationforprioritysectorlendingontheanvil.External Commercial Borrowings to be allowed for:

partnancingtheRupee-debtofexistingpowerprojects,

capexrequirementsformaintenanceandoperationsoftollsystemsforroadsandhighways,if

part of original project,

workingcapitalpurposesofAirlinecompaniesfor1year(subjecttoatotalceilingofUSD1

billion),and

low cost housing projects.

Legislative measures for strengthening anti-corruption framework being enacted.

Income Tax Rates

Corporate tax rates

CorporateTaxratestoremainunchanged.

Taxrateoninterestpaymentsforforeigncurrencyloansreducedfrom20%to5%forfunding

certain infrastructure sectors.

SecurityTransactionTaxratesreducedfrom0.125%to0.1%.

ThelawcurrentlyprovidesforMinimumAlternateTaxforCorporatesandAlternate

MinimumTaxforLimitedLiabilityPartnerships.AlternateMinimumTaxprovisions

introducedforbalancecategoryoftaxpayersataneffectiverateof18.5%withcredit

availableupto10years.

RatesofdailytonnageincomeunderTonnageTaxSchemeforshippingcompanyrevised.

CascadingeffectofDividendDistributionTaxremovedinmulti-tierholdingcompany

structure.

Concessionaltaxrateof15%ondividendsreceivedbydomesticcompanyfromitsoverseas

subsidiaryallowedforonemoreyear.

Nonresidententertainers(suchastheater,radioortelevisionartistsandmusicians)from

performanceinIndiatobetaxed@20%ongrossbasis.

Taxratefornonresidentsportsmenandsportsassociationincreasedfrom10%to20%on

grossbasis.

RevaluationreservenotcreditedtoProtandLossAccounttobeincludedwhilecomputing

protsunderMinimumAlternateTax.


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Personal tax

BasicexemptionlimitenhancedfromINR180,000to200,000.

20%taxslabexpandeduptoRs.10lacsandthenewtaxslabratesare:

Upto200,000 NIL

from200,001to500,000 10%

from500,001to1,000,000 20%

from1,000,001 30%

Noseparatetaxslabsforwomen.

ExpensesuptoRs.5000onpreventivehealthcheckonselfandfamilytobeeligiblefor

deduction under the overall limit of Section 80D for medical insurance premiums.

DeductionuptoRs.10,000introducedforinterestonsavingsbankaccountswithbanksand

postofces.

PremiumforlifeinsurancepoliciesissuedonorafterApril1,2012tobeeligiblefor

deductionunderSection80Conlywherepremiumdoesnotexceed10%oftheactual

capital sum assured.

Unexplainedcredits,investments,moneyandexpenditurewillbetaxedataatrateof30%

irrespectiveoftheapplicableslabrate.

Nodeductiontobeallowedu/s80GforcashdonationsinexcessofINR10,000.

Residentindividualstocompulsorilylethetaxreturnwheretheyhaveanyasset(including

nancialinterestinanyentity)locatedoutsideIndiaoraresigningauthorityinanyaccount

locatedoutsideIndia.

Seniorcitizensnothavinganyincomefrombusinessorprofessionexemptedfrompaying

advance tax.

Corporate Tax Proposals

Retrospective changes in law

ClaricatoryamendmentintroducedwithintentiontooverruleVodafonejudgment.

Transactionbetweentwononresidentcompaniesinrelationtotransferofsharesofan

overseascompanywhichsubstantiallyderivesvaluefromassetslocatedinIndiaistaxable.

Theamendmentscomeintoeffectfrom1962.

Claricatoryamendmentintroducedretrospectivelyfrom1976totaxconsiderationfrom

supplyofsoftwareandprovisionoftransmissionservices.

Claricatoryamendmentintroducedfrom2002toprovidethattolerancebandof5%intransfer pricing is not a standard deduction.

Transferpricingofcerempoweredtoexaminethetransactionnotreportedintransfer

pricingcerticate.

Tax collection

Withholdingtax/Taxcollectionatsourceprovisionsrationalizedtotakecareofsituations

whereintaxeshavebeenpaidbypayee/seller.

Withholdingtaxontransferofimmovableproperty(otherthanagriculturalland)exceeding

speciedvalue.

Withholdingtaxonremunerationpaidtodirectorwhichisnotinthenatureofsalary.

Thresholdforwithholdingtaxoncompensationforcompulsoryacquisitionofimmovable

propertyincreasedfrom100,000to200,000. ThresholdforwithholdingtaxonpaymentofinterestondebenturesincreasedfromRs.

2,500to5,000.

TaxcollectionatsourceoncashsaleofbullionandjewelleryexceedingRs.200,000.

Taxcollectionatsourceonsaleofcoal,ligniteandironorefortradingpurposes.

Timelimitforpassingordertotreatdefaulterinwithholdingtaxasassesseeindefault

wherenowithholdingtaxreturnisled,increasedfrom4yearsto6years.

Liabilitytopayadvancetaxincasethereisfailuretowithholdtaxes.

Penaltyprovisionsmadestringentonaccountoffailuretocomplywithwithholdingtaxand

tax collection at source provisions.

Venture Capital Fund or Venture Capital Undertaking

VentureCapitalUndertakingtohavethesamemeaningasprovidedinSEBIregulations. NosectoralrestrictionforVentureCapitalUndertaking.

Incometobetaxedonaccrualbasiswithnodeferral.

Exemptionfromapplicabilityofwithholdingtaxprovisionstobewithdrawn.


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Business reorganization

Costofacquisitionofassetincaseofconversionfromrm/soleproprietortocompanywould

bethesameasinthehandsofrm/soleproprietor.

Relieffromlongtermcapitalgainstaxontransferofresidentialpropertyifinvestedina

manufacturing small or medium enterprise.

Amalgamatedcompanynotrequiredtoissuesharesincaseofamalgamationofsubsidiary

withholdingcompany.Similarlyresultingcompanynotrequiredtoissueshareswhereitis

shareholderofthedemergedcompany.

Fairmarketvalueoftheassettobetreatedasconsiderationiftheactualconsiderationcannot

bedetermined.

Tax holidays

Mechanismintroducedtoprovidetaxholidaytoforeigncompaniesreceivingpaymentin

IndiainIndiancurrencyforimportofcrudeoil.

Sunsetclauseforavailingtaxholidayforpowersectorextendedbyonemoreyear.

Benetofinitialdepreciation@20%extendedtopowersector.

Weighteddeductionforinhouseresearchanddevelopmentextendedtill31March2017.

Weighteddeductionof150%forexpenditureincurredonagriculturalextensionprojectsand

expenditureincurredonskilldevelopmentinmanufacturingsector.

Investmentlinkedincentivesextendedtospeciedbusinesses.

Powers of Tax Authorities Prosecutionproceedingstobeexpedited.

PowersofDisputeResolutionPaneltoenhancevariationclariedtoconsideranymatter

arisingoutoftheorderofthetaxofcer.

TaxofcersgrantedrighttoleappealagainstdirectionsofDisputeResolutionPanel.

Taxpayershavetheoptiontochoosebetweenactualvalueandfairvalueon1April1981in

caseassetbecamepropertyofthetaxpayerbeforeApril1,1981.Thetaxofcerhasbeen

empoweredtorefertovaluationofcerincaseheisoftheopinionthatthereisvarianceinthe

valuedeclaredbythetaxpayerandfairmarketvalue.

Processingoftaxreturnsnotnecessarywherenoticefordetailedauditisissuedbythetax

authorities.

Clariedthatchargingofinterestonrecoveryofrefundsgrantedearlierbythetaxauthorities

willbeapplicableforanyproceedingcompletedonorafter1June2003.

Timelimitsextendedby3monthsforcompletionofauditsbytaxauthorities.

Timelimitforcompletionofauditsbytaxauthoritiesextendedbysixmonthswhere

informationissoughtunderTaxTreaty.

Taxauthoritiescangobackfor16yearswhereinunderreportingofincomeisrelatedtoan

assetlocatedoutsideIndia.

International Taxation

Meaningassignedthroughanoticationtoatermusedinatreatybutnotdenedunder

domestictaxlawsortreatyshallbeeffectivefromthedateofcomingintoforceofthetreaty.

TaxResidencyCerticatetobesubmittedforclaimingTreatybenets.

FeesforlingofadvancerulingincreasedfromRs2,500toRs10,000.

General Anti Avoidance Rules

Introducedtocurbaggressivetaxplanning.

Doctrineofsubstanceoverformcodied.

Mainpurposeoroneofthemainpurposesistoobtainataxbenet.

LimitedTreatyoverrideprovided.

TestslaiddownforImpermissibleavoidancearrangement.

ApprovingPanelconsistingofCommissionersprovidedtoadjudicatebeforeinvocationof

GAARprovisions.

Others

SharePremiuminexcessoffairmarketvaluetobetreatedasincomeinthehandsofrecipient

company. Thresholdlimitofgrossreceiptsfortaxauditofaccounts,ofbusinessandprofessionincreased

fromRs6milliontoRs10million,andfromRs1.5milliontoRs2.5million,respectively.

Dateoffurnishingoftaxauditreportalignedtothedateoflingthetaxreturnincaseoftax

payershavinginternationaltransactions.


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Transfer pricing

Denitionofinternationaltransactionsbroadenedtospecicallyincludebusiness

restructuring,intra-groupnancingarrangements,etc.

Transferpricingprovisions(reporting/documentation/penalty)toapplytospecied

domestic transactions

Provisionsforadvancepricingagreementsintroducedwitheffectfrom1July2012.

Armslengthrangerestrictedtoupperlimitof3%witheffectfrom1April2013.

Indirect Tax Proposals

General

GSTNetwork,theITinfrastructure,tobesetupasNationalInformationUtilityandtobe

operationalizedbyAugust2012.

NochangeinstandardrateofCustomsDuty.

ExciseDutyandServiceTaxrateincreasedfrom10%to12%.

Customs Duty

MethodofcalculationofEducationCessonimportedgoodssimplied.

BasicCustomsDuty(BCD)exemptedonLiqueedNaturalGas/NaturalGasimportedbya

powergenerationcompany.

BCDonspeciedagriculturemachineryhasbeenincreasedreducedfrom7.5%to2.5%. ExemptionofBCD,CVDandSADhasbeenextendedtoparts,componentsandsub-partsof

partsandcomponentsrequiredformanufactureofmemorycardsofmobilephones.

BCDexemptionwithdrawnonspeciedrawmaterialrequiredforuseinelectronics/IT

Industry.

BCDexemptedonLCDandLEDTVpanelsfor20inchesandabovefallingundertariff

heading8529.

BCDonCompletelyBuiltUnits(CBUs)oflargecars/MUVs/SUVspermittedforimport

withouttypeapproval(valueexceedingUS$40,000andenginecapacityexceeding3000ccfor

petroland2500ccfordiesel)increasedfrom60%to75%.

BCDandSADexemptedandCVDlevieda@6%onspecicpartsrequiredformanufactureof

hybridmotorvehicles.

BCDandCVDexemptedonpartsandtestingequipmentformaintenance,repairandoverhaulingofaircraftimportedbyMaintenance,RepairandOverhaul(MRO)units.

ForexemptionfromSAD,importersofspeciedgoodswillberequiredtodeclaretheStateof

destinationwherethegoodsareintendedtobesoldforthersttimeafterimportandtheVAT

registrationnumber.Thisconditionwouldapplytogoodsimportedonorafter1stMay2012.

NewSection28AAAhasbeeninsertedtoprovideforrecoveryofdutyfromtheperson

towhomdutycreditscripswasissued/obtainedonthebasisofcollusion/willful

misrepresentationorsuppressionoffactswithoutprejudicetoanyactionthatmaybetaken

against the importer.

Excise Duty

Meritrateofexcisedutyfornon-petroleumgoodsthatattracted5%increasedto6%.

The1%rateonnon-petroleumgoodsincreasedto2%whichexceptionofcoal,fertilizers,

jewelry,mobilehandsets.

ExciseDutyincreasedoncarswithenginecapacitylessthan1500ccfordieselandlessthan

1200ccforpetrolfrom10%to12%,subjecttolengthnotexceeding4000mm.

ExciseDutyincreasedoncarswithenginecapacity1200ccto1500cc(petrol)from22%to

24%.

ExciseDutyincreasedoncarswithenginecapacityexceeding1500cc(dieselandpetrol)from

22%plusRs.15,000to27%.

Dutyreducedfrom10%to6%onenvironmentalfriendlygoodssuchasbatterypacksand

specicpartsofhybridvehiclesonendusecondition.

Dutyratesreducedfrom10%to2%onpartsofmobilephones,providednoCenvatcreditis

taken.

CessonindigenouspetroleumcrudeoilunderOilIndustryDevelopmentActincreasedfromRs.2500toRs.4500permetrictone.

CigarettesbroughtunderMRPbasedassessmentwith50%abatement.

Abatementincreasedfrom55%to70%onbrandedready-madegarments.


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Cenvat Rules

W.e.f17March,2012,CreditRulesareamendedtoprovidedutypayableonremovalofused

capitalgoods.DutyshallbepayablebasedontheamountcalculatedbasedonCENVATcredit

takenatthetimeofreceiptreducedbyprescribedpercentageorthedutyontransactionvalue,

which ever is higher.

Rule10AinsertedtopermittransferofunutilizedcreditofSADlyinginbalanceattheendof

eachquartertoanotherfactoryofthemanufacturer.

Rulesamendedtoprovidethatinterestisnotpayableoncreditwronglytakenunlessthesame

isutilized.

Rule5ofCreditRulesrelatingtorefundofinputs/inputsservicesusedinexportgoods/

serviceshasbeenamendedtoprovidespecicformulaforcomputationofeligiblecredit

attributabletoexportgoods/services.

Rule6amendedtoincreasetherateofreversalfrom5%to6%oftheexemptedturnoverfor

bothgoodsandservices.

Rule7relatingtoInputServiceDistributoramendedtoprovideservicetaxattributableto

serviceusedwhollyinaunitshallbedistributedinthatunitaloneandwhereveritisusedin

morethanoneunitthenthecredittobedistributedonpro-ratabasis.

DenitionofcapitalgoodsamendedtoincludemotorvehiclesotherthanfallingunderTariff

Heading8702,8703,8704and8711usedinthefactoryofmanufacturer.

Restrictionremovedinrelationtoservicesprocuredfromauthorizedservicestationand

GeneralinsuranceCompanybymanufacturerofmotorvehicles.

Service Tax

Negativelistapproachi.e.servicetaxtobeleviedonallservicesexceptsomespecied

services,tobemadeeffectivefromadatetobenotied.

DraftPlaceofProvisionofServiceRules,2012proposedinlieuofexistingImportofServices

RulesandExportofServicesRules.

Compoundingratesandabatementratesrevisedwithregardtovariousservices.

Liabilitytopayservicetaxunderreversechargeshiftedpartlyonserviceprovidersfor

speciedservices.

Schemeforclaimingrefundofservicetaxforexportofservicessimplied.

TheoneyeartimelimitforissuanceofShowCauseNoticeincreasedto18months.

Provisions relating to special audit introduced.

Registrationandreturnformssimpliedandintegratedforexciseandservicetax.

ErstwhilelimitofRs.200,000forselfadjustmentofservicetaxdispensedoff.

ProvisionspertainingtoSettlementCommissionandRevisionMechanismintroduced.

Point of Taxation Rules

Timelimitforissuanceofinvoiceincreasedfrom14daysto30days.

Denitionofcontinuoussupplyofserviceexpandedtoincluderecurrentservices.

Benetofdepositingservicetaxonpaymentbasisextendedonallservicestospecied

individualsandrm

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Documents

PWC Union Budget Highlights 2012