Feb 28, 2010
Finance Minister Pranab Mukherjee took the first step
towards implementation of the Direct Taxes Code (DTC)
on Friday. While retaining the basic exemption limits
for all income levels (as in the DTC), he increased the
other slabs. For instance, while the basic exemption limit
for individuals has been retained at Rs 1.6 lakh,
the 10 per cent rate will now be applicable for the
Rs 1.6 lakh-Rs 5 lakh bracket. Earlier, the 10 per cent rate
was applicable for income of Rs 1.6-Rs 3 lakh.
The hike in the slab means that the taxpayer is going
to save Rs 20,600 for incomes up to Rs 5 lakh.
Further, he has also increased the limit for the next income slab —
that is, the 20 per cent tax rate will be applicable for incomes
of Rs 5 lakh-Rs 8 lakh instead of Rs 3 lakh-Rs 5 lakh.
And the highest rate of 30 per cent will be applicable on
incomes of over Rs 8 lakh (earlier Rs 5 lakh).
The maximum benefit that will come because of the
increase in slabs would be Rs 51,500.
“With the consumer inflation index rising at 14.97 per cent
(December-end), this move will help reduce some of
the burden by leaving more cash at the individual’s hands,” said
a financial planner.
New tax rate for individuals
In addition, the finance minister has also increased
the limit of investments under Section 80C by Rs 20,000 — from Rs 1 lakh to Rs 1.2 lakh.
| MORE DOUGH TO BLOW | Figures in Rs | |||
| Particulars | Men | Women | Senior Citizens | |
| Threshold exemption | 160,000 | 190,000 | 240,000 | |
| Tax slabs | 10% | 160,001 to 500,000 | 190,001 to 500,000 | 240,001 to 500,000 |
| 20% | 500,001 to 800,000 | 500,001 to 800,000 | 500,001 to 800,000 | |
| 30% | Above 800,000 | Above 800,000 | Above 800,000 | |
However, the benefits will only be given to people who invest
in infrastructure bonds. A separate Section 80CCF has
been introduced under which this benefit will come to the investor.
For the taxpayer in the higher income tax bracket, if one adds the
tax benefit of Rs 51,500 with the 80CCF benefit (Rs 6,180),
the total reduction in the tax burden would be Rs 57,680.
On a total income of Rs 10 lakh there will be effective tax
saving of Rs 57,680 to an individual.
Tax rates
Corporate, partnership firms continue to be taxed at 30%.
Surcharge on domestic companies proposed to be reduced from 10% to 7.5%.
Minimum Alternate Tax (MAT) rate proposed to
be increased to 18% of book profits from 15%.
Charitable purpose liberalised
Carrying on of trade, commerce or business or rendering
of service in relation thereto for advancement of any
other object of general public utility was hitherto not
considered as charitable purpose.
It is now proposed that receipts from such activities
will be considered as charitable purpose so long if
total receipts from activity in the nature of / rendering
of any service in relation to any trade, commerce or
business do not exceed Rs 10 lakh in the previous year.
[Effective Assessment Year 2009-2010 Onwards]
Taxation of fees for technical services in hands of NRIs
Amendment to replace explanation to section 9(1) that
sought to overrule the interpretation laid down by Supreme
Court in the case of Ishikawajima-Harima Heavy
Industries Ltd. Vs DIT (2007) [288 ITR 408]
which laid impetus on the place of rendition of services
by non-residents for being taxed in India.
The explanation is proposed to be amended to
specifically provide that income shall be deemed
to accrue or arise in India to non-resident, irrespective
of the place of rendering such services.
[Retrospective Effective From June 1, 1976 Onwards]
Tax holiday for SEZ units
Anomaly in method of computation of eligible profits
as a proportion of export turnover to the total turnover
of the Special Economic Zone undertaking has been
rectified retrospectively effective from Assessment Year 2006-07.
Deduction in respect of long term infrastructure bonds
Deduction of Rs. 20,000 for subscription to investment
in long term infrastructure bonds which will be notified
by Central Government.
This deduction will be over and above existing limit of
Rs. 100,000 under section 80C, 80CCC and 80CCD.
[Effective Assessment Year 2011-2012 Onwards]
Deduction for contribution to Central Government Health Scheme (CGHS)
Contribution made to CGHS for serving and retired
Government servants allowed as deduction under
section 80D within the present limits of Rs. 15,000 and
Rs. 20,000 for senior citizens.
[Effective Assessment Year 2011-2012 Onwards]
Enhancement of weighted deduction for in-house
scientific research and development for
corporate covered under section 35(2AB)
The quantum of claiming a weighted deduction
on the expenditure incurred on in-house scientific
research and development by corporate has been
raised from 150% to 200% of such expenditure.
[Effective Assessment Year 2011-12 Onwards]
Enhancement and extension of weighted
deduction for payment made for scientific or
social or statistical research
The quantum of claiming a weighted deduction
on the payment made to an approved research
association or college or university or institutions
engaged in scientific research or research in
social science or statistical research has been
raised from 125% to 175% times of such payment.
[Effective Assessment Year 2010-11 Onwards]
Exemption of income of approved association
engaged in research of social or scientific research
The income of association engaged in engaged in
research of social or statistical research are
proposed to be made fully exempt from tax.
Presently, only a scientific research association
enjoysexemption.
[Effective Assessment Year 2010-11 Onwards]
Investment linked tax incentive scheme to hotel industry
A deduction of 100% of capital expenditure
(excluding land, goodwill, and financial instrument)
has been proposed to incentivise hotel industry for
building and operating a new hotel of two star or
above category anywhere in India, which starts
functioning after April1, 2010.
[Effective Assessment Year 2011-12 Onwards]
No disallowance if TDS deposited before
filing of return of income
It is proposed that no disallowance of the
expenditure which is subject to TDS provision
will be made, if after deduction of tax during the
previous year, tax has been paid on or before
the due date of filing of return of income.
[Effective Assessment Year 2010-11 Onwards]
Increase in rate of interest for late deposit of TDS
The rate of interest on late deposit of tax deducted has
been increased from 12% p.a. to 18% p.a. with effect from July 1, 2010.
Clarification on fee for technical services
in relation to exploration industry
It has been proposed to clarify where provision
of technical services to a person in exploration
industry shall not be covered by presumptive tax
provisions of section 44BB and will be taxed on net
or gross basis under section 44DA or 115A.
Other services in respect of exploration activities
will be only covered by presumptive tax provision.
[Effective Assessment Year 2011-12 Onwards]
Increase in limit of turnover/gross receipt for
audit of account and presumptive taxation
Threshold limits for mandatory audit of accounts (See table):
| BIGGER BITE FOR BUSINESSES | ||
| Particulars | Existing pre-Budget | Proposed post-Budget |
| Business turnover | Rs 40 lakh | Rs 60 lakh |
| Professional receipts | Rs 10 lakh | Rs 15 lakh |
| Penalty for failure to furnish audit report if turnover beyond the above threshold | Rs 1 lakh | Rs 1.50 lakh |
Tax neutral conversion of a private
company /unlisted companies into a
Limited Liability Partnership (‘LLP’)
Conversion of a private company /unlisted company
with turnover not exceeding Rs 60 lakh into a LLP is
proposed to be tax neutral. Certain other conditions
also to be satisfied. Provisions with respect to losses,
WDV, Cost of Acquisition introduced for successor LLP.
MAT credit not available to successor LLP.
Breach of conditions results into deemed taxation
in the hands of successor LLP.
[Effective form ay 20011-12 onwards]
Anti-abuse provisions to provide share
transfer without consideration or inadequate
consideration considered as income
Currently, gifts received by a firm/privately-held
company are not taxable. Anti-abuse provisions
now provide taxation of receipt of shares held in
privately held company by any firm/privately held
company from any person without consideration
or for inadequate consideration.
Any receipt in the course of amalgamation, demerger
or certain business reorganisation, is excluded from
the purview of such taxation.
This amendment is effective from June 1, 2010.
It is further proposed that in case immovable property
is transferred for consideration irrespective of its adequacy,
it shall not be taxable.
However, transfer of immovable property without consideration
shall continue to be taxable. Taxation of property for no/insufficient
consideration to cover only capital assets.
Therefore, transfer of stock in trade, raw material
and consumable stores not to be taxable in the hand
of Individual/HUF.
The tax officer would be able to refer to
the valuation officer for determination of
value of the property transferred without
consideration or for inadequate consideration.
Above amendments are effective from October 1, 2009.
Relief to housing projects pending for completion
and to new housing projects
100% deduction on profits from a housing project is
available if the project is completed within 4 years
from the end of the financial year in which approval
from local authority is obtained.
This period is proposed to be increased to 5 years.
Further, the current norm for maximum build area for
each unit is enhanced from 5% of total build up area
or 2,000 sq ft to 3% of total built-up area or 5,000 sq ft,
whichever is higher.
[Effective From Ay 2010-11 Onwards]
Relief to Hotel/convention centre pending for
completion in National Capital Territory
Deduction to a Hotel/convention centre in National
Capital Territory is available if it starts functioning
on or before March 31, 2010. In light of the fact
that the Commonwealth Games shall be held in
October 2010, it is proposed that the deduction
shall be available even if the hotel/ convention
centre starts functioning before July 31, 2010.
[Effective July 1, 2011 Onwards]
Rationalisation of provisions relating to tax
deduction at source (‘TDS’)
Threshold for the purpose of deducting TDS has
been increased with effect from July 1, 2010 in
view of rising inflation and reducing compliance burdens (See table 3).
| LESS TDS | Figures in Rs | ||
| Section reference | Particulars of payment | Existing threshold | Proposed threshold |
| 194B | Winnings for lottery or crossword puzzle | 5,000 | 10,000 |
| 194BB | Winnings from horse race | 2,500 | 5,000 |
| 194C | Payment to contractor | 20,000 (single) | 30,000 (single) |
| 194D | Insurance commission | 50,000 (aggregate) | 75,000 (aggregate) |
| 194H | Commission or brokerage | 5,000 | 20,000 |
| 194I | Rent | 2,500 | 5,000 |
| 194J | Fees for professional or technical services | 120,000 | 180,000 |
Deductor and collector will continue to issue TDS/TCS certificate even after April 1, 2010.
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