Budget 2012 - Highlights (Tax Proposals)

INDIAN FINANCE BILL 2012

TAX PROPOSALS

DIRECT TAXES PROPOSALS

1)      DTC rates proposed to be introduced for personal income tax.

2)      Changes in tax rates, deductions, withholding tax :-

a.       Basic Exemption limit raised for the general category of individual taxpayers. The limit is proposed to be enhanced from `1,80,000 to `2,00,000 giving a tax relief of `2,000.

b.      Upper limit of 20 per cent tax slab to be raised from `8 lakh to `10 lakh.

c.       In line with earlier notification exempting specified salary earners from filing their returns, a deduction of upto `10,000 for interest from savings bank accounts is now to be allowed to individual tax payers.

d.      Deduction of upto `5,000 for preventive health check up to be allowed to individuals.

e.       No advance tax to be paid by senior citizens who do not have any business income.

f.       Rate of withholding tax (TDS on foreign payments) on interest payment on ECBs to be reduced from 20 per cent to 5 per cent for 3 years for certain sectors.

g.      Repatriation of dividends from foreign subsidiaries of Indian companies at lower tax rate of 15 per cent. Extended upto 31.3.2013.

3)      Business Deductions

a.                   Investment linked deduction of capital expenditure for certain businesses to be allowed at an enhanced rate of 150 per cent. New sectors are to be added for the purposes of investment linked deduction.

b.                  Proposal to extend weighted deduction of 200 per cent for R&D expenditure in an in-house facility for a further period of 5 years upto March 31, 2017.

c.                   Providing weighted deduction of 150 per cent on expenditure incurred for agri-extension services.

d.                  Weighted deduction at 150 per cent of expenditure incurred on skill development in manufacturing sector.

e.                   Extending sunset date for setting up power sector undertakings by one year for claiming 100 per cent deduction of profits for 10 years.

4)      Restriction on Venture Capital Funds to invest only in 9 specified sectors proposed to be removed.  So far the government had restricted investment to information technology, software, nanotechnology, biotechnology, basic drugs and seed development and research, biofuels, hotels, dairy and poultry projects in India  However, this restriction has been removed. Apart from a small negative list which includes agriculture and atomic energy, Venture Capital Funds will be allowed to invest in all other sectors.

5)      Tax Audit Limits to be increased :-

Raising of Turnover limit for compulsory tax audit of accounts and presumptive taxation of small and medium enterprises from `60 lakhs to `1 crore.

6)      Ensuring Flow of Capital investment to SMEs.

Exemption from Capital Gains tax on sale of residential property, if sale consideration

is used for subscription in equity of a manufacturing small and medium enterprise for purchase of new plant and machinery. This is mainly to give a boost to setting up of small and medium enterprises.

7)      Reduction in securities transaction tax by 20 per cent on cash delivery transactions.

8)      Proposal to extend the levy of Alternate Minimum Tax to all business entities (all persons other than companies) claiming profit linked deductions. This will mean a higher rate of tax for businesses.

9)      Introduction of General Anti Avoidance Rule to counter aggressive tax avoidance scheme. Measures proposed to deter the generation and use of unaccounted money.

Estimated Effect of the Direct Tax Proposals – Net revenue loss of `4,500 crore.

INDIRECT TAXES

Service Tax

1)      Sevice tax confronts challenges of its share being below its potential, complexity in tax law, and need to bring it closer to Central Excise Law for eventual transition to GST.

2)      Introduction of negative list of services. Proposal to tax all services except those in the negative list comprising of 17 heads. For a list of the proposed negative services, please refer to Annexure 1.

3)      Exemption from service tax for some sectors.

4)      Rationalisation of Service Tax law. Harmonising Service Tax and Central Excise provisions. The main aim is to introduce a single unified code for Service Tax and Central Excise.

5)      Simplified Registration Form and Common Return (single page) for Service Tax and Central Excise.

6)      Utilization of input tax credit permitted in number of services to reduce cascading

of taxes.

7)      Revision Application Authority and Settlement Commission being introduced in Service Tax for dispute resolution.

8)      Place of Supply Rules for determining the location of service to be put in public

      domain for stakeholders’ comments.

9)      New scheme announced for simplification of refunds.

10)  Rules pertaining to point of taxation are being rationalised. To maintain a healthy fiscal situation proposal to raise service tax rate from 10 per cent to 12 per cent, with corresponding changes in rates for individual services.

Estimated Effect of Service Tax Proposals - Additional revenue of `18,660 crore.

Excise and Customs

1)      Given the imperative for fiscal correction, standard rate of excise duty to be raised from 10 per cent to 12 per cent, merit rate from 5 per cent to 6 per cent and the lower merit rate from 1 per cent to 2 per cent with few exemptions.

2)      Excise duty on large cars also proposed to be enhanced.

3)      No change proposed in the peak rate of customs duty of 10 per cent on non-agricultural goods.

4)      To stimulate investment relief proposals for specific sectors - especially those under stress.

a)      Agriculture and Related Sectors

·         Basic customs duty reduced for certain agricultural equipment and their parts;

·         Full exemption from basic customs duty for import of equipment for expansion or setting up of fertiliser projects upto March 31, 2015.

b)      Infrastructure

·         Proposal for full exemption from basic customs duty and a concessional CVD of 1 per cent to steam coal till 31st March, 2014.

·         Full exemption from basic duty provided to certain fuels for power generation.

c)      Mining

·         Full exemption from basic customs duty to coal mining project imports.

·         Basic custom duty proposed to be reduced for machinery and instruments needed for surveying and prospecting for minerals.

d)      Railways

Basic custom duty proposed to be reduced for equipments required for installation of train protection and warning system and upgradation of track structure for high speed trains.

e)      Roads

Full exemption from import duty on certain categories of specified equipment needed for road construction, tunnel boring machines and parts of their assembly.

f)        Civil Aviation

Tax concessions proposed for parts of aircraft and testing equipment for third party maintenance, repair and overhaul of civilian aircraft.

g)      Manufacturing

Relief proposed to be extended to sectors such as steel, textiles, branded readymade garments, low-cost medical devices, labour-intensive sectors producing items of mass consumption and matches produced by semi-mechanised units.

h)      Health and Nutrition

·         Proposal to extend concessional basic customs duty of 5 per cent with full exemption from excise duty/CVD to 6 specified life saving drugs/vaccines.

·         Basic customs duty and excise duty reduced on Soya products to address protein deficiency among women and children.

·         Basic customs duty and excise duty reduced on Iodine.

·         Basic customs duty reduced on Probiotics.

i)        Environment

·         Concessions and exemptions proposed for encouraging the consumption of energy saving devices, plant and equipment needed for solar thermal projects.

·         Concession from basic customs duty and special CVD being extended to certain items imported for manufacture for hybrid or electric vehicle and battery packs for such vehicles.

5)      Proposal to increase basic customs duty on imports of gold and other precious metals.

6)      Additional resource mobilization

a.       Proposals to increase excise duty on ‘demerit’ goods such as certain cigarettes, hand-rolled bidis, pan masala, gutkha, chewing tobacco, unmanufactured tobacco and zarda scented tobacco.

b.      Cess on crude petroleum oil produced in India revised to `4,500 per metric tonne.

c.       Basic customs duty proposed to be enhanced for certain categories of completely built units of large cars/MUVs/SUVs.

10)  Rationalization measures

a.       Excise duty rationalised for packaged cement, whether manufactured by mincemeat plants or others.

b.      Levy of excise duty of 1 per cent on branded precious metal jewellery to be extended to include unbranded jewellery. Operations simplified and measures taken to minimise impact on small artisans and goldsmiths.

c.       Branded Silver jewellery exempted from excise duty.

d.      Chassis for building of commercial vehicle bodies to be charged excise duty at an ad valorem rate instead of mixed rate.

e.       Import of foreign-going vessels to be exempted from CVD of 5 per cent retrospectively.

f.       Duty-free allowances increased for eligible passengers and for children of upto 10 years.

Estimated Effect of  Customs and Central excise Proposals - Net revenue gain of `27,280 crore.

Net gain of `41,440 crore in the Budget due to various taxation proposals.

TAX REFORMS

1)      Progress towards DTC and GST.

2)      DTC Bill to be enacted at the earliest after expeditious examination of the report of the Parliamentary Standing Committee.

3)      Drafting of model legislation for the Centre and State GST in concert with Statesis under progress.

4)      GST network to be set up as a National Information Utility and to become operational by August 2012.

DISINVESTMENT POLICY

1)      Government has further evolved its approach to divestment of Central Public Sector Enterprises by allowing them a level playing field vis-à-vis the private sector in respect of practices like buy backs and listing at stock exchanges. For 2012-13, `30,000 crore to be raised through disinvestment. At least 51 per cent ownership and management control to remain with Government.

OTHER PROPOSALS HAVING AN IMPACT ON THE ECONOMY :-

INVESTMENT

Foreign Direct Investment

Efforts to arrive at a broadbased consensus in consultation with the State Governments in respect of decision to allow FDI in multi-brand retail upto 51 per cent.

Advance Pricing Agreement

Provision regarding implementation of Advance Pricing Agreement to be introduced in Finance Bill, 2012.

Financial Sector

Rajiv Gandhi Equity Saving Scheme to allow for income tax deduction of 50 per cent to new retail investors, who invest upto `50,000 directly in equities and whose annual income is below `10 lakh to be introduced. The scheme will have a lock-in period of 3 years.

Capital Market

Various steps proposed to be taken for deepening the reforms in the Capital markets, including simplifying process of IPOs, allowing QFIs to access Indian Bond Market etc.

Legislative Reforms

Official amendment to “The Pension Fund Regulatory and Development Authority Bill, 2011”, “The Banking Laws (Amendment) Bill, 2011” and “The Insurance Law (Amendment) Bill, 2008” to be moved in this session.Various Bills proposed to be moved in the Budget session of the Parliament to take forward the process of financial sector legislative reforms.

GOVERNANCE

UID-Aadhaar

Enrolment of 20 crore persons completed under UID mission. Adequate funds to be allocated to complete enrolment of another 40 crore persons.

Black Money

Proposal to lay a White Paper on Black Money in current session of Parliament.

Public Procurement Legislation

Bill regarding Public Procurement Legislation to be introduced in the Budget Session of the Parliament.

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ANNEXURE 1

(Refer to Service Tax Proposal – item no. 2)

Negative List as per concept paper introduced for public discussion

1.            Notified services provided by:

a. Government* and Judiciary;

b. RBI; and

c. government regulatory bodies

2.            Services provided by individuals to Government in relation to their representation on any council, commission  or similar body set up by the Government.

3.            Service by UN, international bodies, diplomatic missions under diplomatic and consular   arrangements as per laid down conditions (details to be specified). Services provided to such entities to remain exempt as at present.

4.            Services provided by organizations registered as non-profit entities in matters relating to public and social welfare activities-excluding education and health (covered separately)-including charitable fund-raising events, sponsorships to charitable events and voluntary donations to charity.

5.            Funeral, burial, crematorium and mortuary services.

6.            Agriculture & animal husbandry  : Services directly used for growing, cultivation, harvesting of the agricultural produce, horticulture, animal husbandry, forestry, dairy, poultry farming and pisciculture (including renting of vacant land exclusively or predominantly for any such purpose) Certain support services in relation to agriculture and allied activities may be separately exempted.

7.            Sale, purchase or acquisition of securities and debts on principal-to-principal basis Acquisition of               shares in lieu of services will be liable to tax.

8.            Interest

9.            Dividend on investments

10           Inter-bank sale and purchase of foreign currency

11           Transport of passengers by:

a) public transport buses on a point-to-point basis (except tourist buses) and stagecarriage basis;

b) public transport in ship or vessel of less than 15 net tonnage on a point-to-point basis;

c) by metered taxis or three-wheeler auto rickshaw plying within the precincts of a city

12           Transport of goods to a destination outside India by any means of transport

13           Supply of goods carriage to a person engaged in the business of transportation of goods

14           Construction, works-contract, repair, alteration, renovation or restoration of:

a) roads, airports, railways, transport, terminals, bridges, tunnels, dams, canals, irrigation and  flood control waterworks including watershed development and water-bodies, water treatment plants and water supply pipelines;

b) buildings owned by Government, other than meant predominantly for industrial or commercial use, including government hospitals and educational institutions

c) residential building comprising of a single dwelling unit;

d) homeless shelter, orphanage, old-age home, rehabilitation & de-addiction centre, child day-care home or place of worship

15           Renting of personal dwelling for residential use of a person below a threshold (to be finalized after debate) and when used otherwise as a hotel, inn, guest house, club or campsite or similar accommodation

16           Pre-school, school and recognized education** and vocational training recognized by NCVT except as capitation fee, donations or similar charges in relation to admission.

17.          Option 1: Services provided by a clinical establishment with a turnover below Rs 4 crore in the

previous year

Option 2: Hospital, medical care, diagnostic, paramedical services except in relation to

preventive health check-up within the precincts of a clinical establishment,cosmetic or plastic surgery.

Note : Apart from the above, there are other services specified such as copyright services of original literary works, services provided by independent journalist to PTI and UNI, services provided by sportspersons as players, coach referees, religious services, trade union services, etc. There is no clarity with reference to these services, which are in addition to the 17 services as per the draft paper.

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Taxationexperz team.