India Budget 2010:quick reactions

 

 

Ease of Doing Business: Incremental Steps But Right Intent

 
The major concern surrounding private investment in India has been the ease of doing business. The budget addresses some of these concerns, albeit through incremental measures. Clarification of the capital gains treatment on the conversion to LLPs will ease compliance requirements for private businesses that convert. The easing of tax audit limits, some rationalization in the limits for TDS and the increased time limit for payment of Tax Deduction at Source will also ease compliance, especially for small businesses. That the rollout of the Direct Tax Code was not delayed beyond 1 April 2011 is also a signal in the right direction towards a simplified tax regime. Granting additional banking licenses should aid the flow of industrial credit. However, these have only been incremental steps and measures towards higher FDI limits and a simplified corporate law would aid this further.

--Sidharth J. Negandhi

 

Giving the Bottom of the Pyramid its Due

 
The budget has laid down a roadmap towards inclusive growth with clear measures to promote growth at the bottom of the pyramid. The rollout of the nutrient-based subsidy augurs well for agricultural productivity. Seeking private participation in food grain storage capacity and allowing external commercial borrowing to be raised for food processing is a step forward in creating a robust food supply chain that benefits producers though more concrete measures such as tax holidays may have acted as additional stimulants. Also, a mere moratorium for payment of farm loans as opposed to a waiver signals that the onus of performance lies with the farmers. Setting up a national social security fund and the interest subvention for low cost housing create a rounded structure for development at the bottom of the pyramid.

--Sidharth J Negandhi

 

A New, Definite Direction Towards a Direct Tax Code

 
Budget 2010 is a turning point in the move from the current tax regime to the Direct Tax Code. The extent of the measures may be argued in light of sufficiency, but the direction and intentions are very clear. The reshuffling of the tax slabs upwards is a step towards what the DTC regime proposes. Increase in the 80C (includes provident fund, life insurance premium, pension plans, mutual fund investments, infrastructure bonds and national savings certificate) exemption limit. especially targeting the infrastructure sector is also a key reform. The increase in the limit for tax audit, reduction of surcharge for companies, allowing business activities up to Rs. 10 lakhs, introduction of the Saral II form for individuals, change in provisions for deductibility vis-à-vis late deposit of Tax Deducted at Source are all steps towards rationalizing the tax regime into one that is more tax-payer friendly and transparent.

--Manas Mody

 

No More Holiday for the Tech Sector

 
Disappointing the IT & ITES sector, the finance ministry decided not to extend the tax holiday beyond its expiry on March 31, 2010. In addition, the Minimum Alternative Tax has been increased to 18% from 15%. As a result, the IT & ITES sector will be adversely affected. The sector contributes about 25% of India's export revenues and about 5% to GDP. This sector employs about 10 million people directly and indirectly. Clearly, sustenance and growth of the IT & ITES sector is essential if India's economy is to achieve double digit growth. Also, given the macro-economic environment and the need of the IT & ITES companies (especially the small and medium-sized ones) for fiscal support, it would have been most prudent to extend the tax holiday for a few more years. Unfortunately, the budget turned out to be unfavorable.

--Mahesh Yellai

 

Positive Though Slow Move Towards Fiscal Consolidation

 
The budget has retained Service Tax at 10%. The base excise duty rate on major non-petroleum products have been hiked to 10% from 8% as a roll back of the stimulus measure taken last year. These moves outline a positive movement towards fiscal consolidation. The fine print says that the proposal for common rates for a wide variety of products and services go beyond just intent and actually pave the way for a smoother implementation of Goods and Services Tax code by the new proposed deadline of 1st April, 2011. However, considering that the current year is a non election year, the measures could have been more drastic especially given that the Direct Tax Code has also been pushed to a later implementation date. The budget also does not make any amendments to Central Sales Tax rates which were proposed to be phased out gradually prior to the commencement of GST.

--Somesh Satnalika

 

A Lack of Political Will in Education

 
It is a watershed year for the education sector in India with the Right to Education Act becoming operational from April 1, 2010. The budget has increased the allocation for education to 31,036 crore rupees from 26,900 crore rupees. The states will have access to a further 3675 crores through the Finance Commission. While this is a higher allocation, this still constitutes only about 4.5% of expected GDP, much lower than a number of other developing nations. The Finance Minister has followed the old adage of throwing more money in to build more schools and hard infrastructure, and there is no clarity on proposals for improving the quality of instruction and teachers. Year after year, we find that the Sarva Shiksha Abhiyaan has unspent amounts, and increasing inefficiencies in the delivery of quality education. The budget has stopped short of any firm commitment for the implementation of the Right to Education Act or providing the right incentives for state and private players to contribute to this mission. Overall, a plaid budget for the education sector, displaying a lack of political will to implement the Right to Education Act and making quality education a reality for all the children.

--Vignesh Nandakumar

 

More Money in Consumers' Pockets

 
The Finance Minister's promise of making the budget for the common man's benefit was fulfilled at least in terms of direct taxes. From the point of view of the individual tax payer the increase in slab limits, with the maximum slab over Rs 8 lakhs to be taxed at 30% aims to provide relief to over 60% of tax payers.
For Indian companies too there is a strong promise with the introduction of the new direct tax code from April 1, 2011. However, the Minimum Alternate Tax increase from 15% to 18% is a bit of a blow. The budget aims to earn a net gain from direct taxes of approx Rs 20,500 crores which will put more money in the hands of the consumer and in turn boost consumer spending.

--Salome Shah

 

Positive Budget for New and Existing Sources of Power

 
This is a remarkable budget for the energy sector, particularly given the visible and strong steps taken towards renewable power. The allocation of Rs 1000 cores towards the Jawaharlal Nehru National Solar Mission and the establishment of a Clean Energy Fund are very positive stimulus for further investment by the private sector and towards making India a significant renewable energy player. The budget has kept all supply options open by providing an allocation for micro-hydel plants, particularly in parts of the country where it makes more sense, e.g. Ladakh.
The budgetary allocation for addition of power capacity has been doubled from last year – particularly focused on introducing critical technology into the sector. This, coupled with the change in the Mega Power Policy, is likely to bring down the cost of power. The introduction of new technologies will also hopefully increase the efficiency of our power plants and transmission and distribution.
The establishment of a Coal Regulatory Authority for competitive bidding of the coal reserves is a step in the right direction to encourage more players to enter the field, thereby allowing for more efficient usage of limited resources, and will serve to break the entrenched monopoly in the coal sector.
In all, a very positive budget for the power sector, for both the existing and new sources of power. This could genuinely translate into more innovative technologies transforming the sector and a significant increase in output to meet current demand.

-Vignesh Nandakumar
 

Markets Cheer Budget 2010

 
With uncertain signals emanating from North Block, the expectations for Budget 2010 were extremely low. Markets were thus pleasantly surprised by a balanced budget that may be best described as one that signaled the continued commitment to the reforms process, managing the fiscal deficit and spurring economic growth. The attempts to spell out implementation timelines for programs such as the Goods and Services Tax and the Direct Tax Code, as well as take action on items such as fuel prices was clearly appreciated. While consumption is linked more to credit, markets cheered the message from the minister that he will put more money in the hands of consumers through changes in the personal tax structure. While questions remain on issues such as whether an extension of debt repayment would indeed improve banks' non-performing assets, and how firm the plans are to make the famed GST and DTC operational in April 2011, the overall feel good nature and the lack of unpleasant surprises buoyed market sentiment. [As of about 2:20, the Sensex was up 281.75 points, at 16,535.95.]

--Prashant Krishnan

 

More Licenses to NBFC and Private Players, a Welcome Move

 
Overall, the Budget announcements spell good news for the financial sector. However, the implementation and regulations to follow will determine the efficacy and benefits to be derived from the changes made.
Given that the lion's share of the populous banks are the Public Sector Unit banks, the Rs. 16,500 crore allocated to PSUs could help them revamp their operations and bring in greater efficiency and raise the standards of services offered. It would also serve to help them expand operations and mobilize savings in rural areas and small towns.
The icing on the cake is more licenses to Non Banking Financial Companies and private players, something they have been eagerly waiting for and which comes to them in small numbers. For this reason, they are traditionally concentrated in bigger towns and have not managed to extend their reach. Their presence in Tier-2 cities would not only give consumers more opportunities to borrow and invest but it will also raise standards of public sector offerings in the same area. Regulation though will continue to have to be watched in this space.
Hopefully, this will provide a stimulus for the economy to move towards greater freedom to multinational banks and financial institutions.
It was disappointing to not hear of any increased Foreign Direct Investment limits in banks/insurance companies/stock exchanges which would help develop the financial sector further.

--Husna Ilyas Ghouse

 

Exemption on Long-term Infra Bonds, the Only Silver Lining for Infrastructure

 
The proposals for infrastructure in the Union Budget 2010 were disappointing to say the least. No mention of the subsidy roll-back, in line with the Parekh committee recommendations, means that the government will have to foot an unserviceable and rising subsidy bill for yet another year. The 1 rupee hike in central excise duty seems a half-hearted measure of controlling the subsidy bill. What was more disheartening was the opposition outburst and walk-out on this announcement, which indicates that it might be passed on to citizens.

A broker reacts while trading during the presentation of India's federal budget, at a stock brokerage in Mumbai February 26, 2010.

On the taxation front, the repeated postponement of the Goods and Services Tax by another year to April 2011 was again disappointing. While the centre-state revenue sharing arrangements still need to be resolved, yet another year is a long time and the country will lose out on the immediate efficiency improvement s that the GST will bring on the infrastructure and logistics front. In addition, what's to say that the government will stand by its promise of implementing the GST next year as well – just another case of bureaucratic lethargy?
The silver lining is the exemption of 20,000 rupees on personal income for long-term infrastructure bonds, which should stimulate retail investment in infrastructure.

--Kartik Rajendran

 

Is Simply Pushing the Nutrient Fertilizer Subsidy Program Enough?

 
While it was heartening to hear the finance minister announce the introduction of nutrient-based fertilizer subsidy program from 1 April 2010, this might not be enough to alleviate sector concerns.
Rather than the fertilizer subsidy regime, the inputs going into the subsidy calculations – global raw material prices, energy consumption contirbute more to cost build-up.
Though the new regime will compensate fertilizer companies for the costs they incur, it will help little in optimization of the costs themselves. The finance minister has failed to lay out a management framework that would insulate against volatile commodity prices, energy consumption inconsistencies and ensure overall operational efficiency. The mere implementation of the new nutrient based regime will more likely pass on the burden to the tax payer.

--Soumitra Sharma

Budget 2010-: India to Be Ready to ‘Correct’ Budget If Fiscal Target at Risk

Feb. 28  -- India’s government must be ready to take “corrective steps” to achieve its fiscal deficit- reduction target for next year should its budget assumptions start falling through, an aide to the prime minister said. 

“You must be ready to correct yourself if things go wrong,” Montek Singh Ahluwalia, 66, said in an interview in his office in New Delhi yesterday. The goal of reducing the budget deficit to 5.5 percent of gross domestic product for the financial year starting April 1 “absolutely” must be met and “something will have to be done” if it’s endangered, he said. 

India must convince investors it is committed to the deficit reduction, in part because the nation needs overseas capital to finance a current-account deficit. That shortfall may reach 2.5 percent of GDP from 2.2 percent as domestic demand grows more strongly than exports, according to Ahluwalia. 

 

“We need to remain an investor-friendly environment,” said Ahluwalia, who is the deputy chairman of the Planning Commission, an agency that sets India’s growth and investment targets. He refrained from specifying what new efforts the government should be ready to adopt to maintain its fiscal goal. 

Finance Minister Pranab Mukherjee two days ago unveiled a budget proposal featuring tax increases and 400 billion rupees ($9 billion) of state asset sales to help shrink the deficit from a 16-year high of 6.9 percent of GDP. 

Budget Plan

The budget, betting on a faster global expansion in 2010, has assumed a nominal economic growth rate of 12.5 percent in India, helping boost tax revenues by 18 percent. It also aims to mobilize another 350 billion rupees by auctioning frequency licenses to mobile-phone operators. 

JPMorgan Chase & Co. Mumbai-based analysts Jahangir Aziz and Gunjan Gulati called it a “risky” plan, saying it was based “narrowly on a few adjusters” to bring down the shortfall. 

“The global economy can turn up nasty surprises,” the analysts said. “If a few things go wrong, the budget will look shaky.” 

For now, indications are that the world economy is recovering from the first global recession since World War II. The U.S. and U.K. economies grew faster-than-expected in the fourth quarter. 

The U.S. economy expanded at a 5.9 percent annual rate in the last three months of 2009, more than the government’s estimate last month, reflecting stronger business investment. Gross domestic product in Britain rose 0.3 percent last quarter, compared with a previous calculation of 0.1 percent gain, as the nation emerged from the recession.

Assuming ‘Optimism’ 

 

“We are making a set of assumptions which do build an optimism,” the Oxford-educated Ahluwalia said. “The important thing is that if they turn out to be different, are you going to react to make sure that you don’t continue to be optimistic when the facts don’t warrant.” 

In India, the latest data for industrial production showed output gained 16.8 percent in December, the fastest pace since at least 1994 as sales at carmakers and cement producers gained. 

 

Mukherjee told business chambers in New Delhi yesterday that the government had to cut next year’s budget deficit to facilitate credit flow to companies. 

Grasim Industries Ltd., India Cements Ltd. and other producers of the building material sold 15 percent more in January from a year earlier. Sales at Tata Motors Ltd. and other local car manufacturers rose 32 percent to a record in January. 

Foreign Investments 

 

That’s helped foreign investments to flow into India even with a decline in global capital flows, Mukherjee said in parliament on Feb. 26. India got $20.9 billion in the nine months to Dec. 31 compared with $21.1 billion in the same period last year, he said. 

 

“We are looking actively at having a policy environment which encourages foreign direct investments and other flows but not short-term capital flows,” said Ahluwalia, who worked as the top bureaucrat in the Ministry of Finance in 1991 when Prime Minister Manmohan Singh, then Finance Minister, opened the economy to foreign investors. Ahluwalia left the finance ministry in 1998 to join the Planning Commission as a member. 

 

Ahluwalia said India wants foreign direct investments to finance the country’s current account gap.

He also said India contributes to global economic growth and isn’t “mercantilist,” when asked about Princeton University economist Paul Krugman saying that China is sapping demand from other emerging markets.

Ahluwalia declined to comment specifically on China, saying “the Chinese say that’s not what they’re doing.”

He said a 10 percent growth rate in India is achievable over the next two decades. 

This would mean per capita income will grow at 7.5 percent a year, doubling every nine years.

“We want to stretch the limit,” Ahluwalia said. 

From: Kartik Goyal in New Delhi

Budget 2010-: Gifts, deemed gifts and deemed under-valuations incorporating proposals

 

Feb 28, 2010

Section 56(2) of the Income Tax Act, 1961 inter alia

deals with receipts without considerations. 

Since most of such receipts tantamount to gifts, the

provisions are popularly named as those of gifts and 

deemed gifts. Till 30 09 2009 only sum of money 

received without consideration was treated as income

in the hands of the recipient  being either an individual or a HUF.

By the Finance No.2 Act, 2009 with effect from 01 10 2009

the provisions were so much expanded that even they included

cases of  immovable properties received without consideration or

for inadequate consideration as compared to stamp valuation.

The expanded provisions also include receipts of specified movable

properties either without consideration or for inadequate 

consideration as compared to fair market value.

Pertinent to mention that even under expanded provisions, gifts 

from specified relatives and under specified exceptions

continued to be beyond tax net.

Provisions as contained in section 50C taxing sales of land or

building or both operative since 01 04 2002 affecting the

vendors of such properties continue.

In the above background, now while framing the Finance Bill, 2010

it seems that the Government has realized the negative effects on

genuine transactions of purchases of immovable properties and

therefore, now the wiser counsel has prevailed.

Therefore, the provision relating to inadequate consideration

in transactions of immovable properties is proposed to be 

deleted. With the result that if an individual or HUF receives

immovable property without consideration, the stamp

valuation thereof would be taxed as income provided the

stamp valuation exceeds Rs.50000/-. 

But if the consideration is there but inadequate,

there would not be any taxation in the hands of the purchaser.

However, as stated herein before the seller would continue to

be taxed on capital gains on the basis of stampvaluation 

or sale price  whichever is higher. 

Buyer will not be affected in view of the 

proposal in the Finance Bill, 2010.

Provisions as inserted by the Finance (No. 2) Act, 2009 

also cover receipts, either by way of purchase or otherwise,  

of specified movable  properties namely  shares and securities,

jewellery, archaeological collections, drawings, paintings, sculptures, 

any  work of art. 

Now by the Finance Bill, 2010 a new item has been 

added w.e.f. 01 06 2010 and that is “bullion”. Bullion 

would include gold, silver, platinum, or palladium, in the 

form of bars or ingots. Some central banks use bullion for 

settlement of international debt, and some investors 

purchase bullion as a hedge against inflation.

In respect of such movable properties it is provided that

if  the aggregate fair market value of such movable 

properties received during the year without consideration 

exceeds Rs.50000/-, then such value is income in the hands

of recipient being an individual or HUF.

In a case one receives such properties at a price but the price

is less than the aggregate fair market value of such properties

and if such difference exceeds Rs.50000/- during a year then

such difference is an income in the hands of recipient. 

For purposes of determination of fair market value,

a method would be prescribed. 

Although, the provisions have become effective

from 01 10 2009, the method has yet not been prescribed. 

Till the time method is prescribed, one may take a 

view that in the absence of prescribed method,

theprovisions have not become effective.

These provisions concerning immovable and

movable properties as enacted by the Finance (No. 2) Act, 2009

were enacted in such a manner that even a purchaser of such

movable properties in normal course of his business would have

got affected if the purchase was found to be at less than the

prescribed fair market value. To remove such hardship, now

by the Finance Bill, 2010 it is proposed that these provisions

with regard to a property would apply only when in the hands

of the recipient individual or HUF such property is a capital

asset and not as stock in trade.

Further, so far section 56(2) of the Income Tax Act treats receipts

without consideration  as income if the recipient is an individual or HUF. 

Other categories of assesses including a company and a firm have

been kept out of the taxing purview.

Although in my considered view, such entities

cannot receive gift under the general law as well as

under theprovisions of the Income Tax Act.

A gift necessarily involves a contract because the gift to

be valid and complete has to be accepted by the donee to

be valid and complete.Section 25 of the Indian Contract Act, 1872 

lays down a very basic law that a contract without 

consideration is void ab initio.

Relevant exception for the contract to be valid

without consideration is for an agreement in writing,

registered under the provisions of the Registration Act, 1908

and such an agreement is on account of natural love and affection.

The section does not affect to the gift actually made by the donor to the donee.

A claim of gift by a company cannot sustain as natural love

and affection is not possible towards an artificial person.

Further, as far as gift of the property is concerned

section 122 of the Transfer of the Property Act, 1882 

requires that transfer of property by way of gift must be 

accepted by the donee and inter alia such acceptance must

be made during life time of the donor and before the donee dies. 

Theprovisions using the words like death of donee are logically

in the context of an individual and not in the context of an

artificial person. In such a view of the matter,

it is not possible for a company to claim gift and 

therefore receipts of sums of money withoutconsideration

may not escape taxation in the hands of a company under 

other provisions of the Income Tax Act, 1961.

However, if the company receives specified movable 

properties at a price less than fair market value,

the new provisions inserted by Finance No. 2 Act, 2009

concerning deemed undervaluation of properties would

not cover such company and therefore taxation u/s. 56(2)

would not be attracted. The same analogy is applicable to a firm.

Finance Bill, 2010 makes a starting point to tax a firm

and a company in a specified situation. 

The Finance Bill, 2010 proposes to tax a firm or a closely held 

 company when it receives shares of a closely held company

either without consideration or at a consideration at less

than the fair market value. 

The provisions will not apply if such shares are 

received in the course of amalgamations, mergers, 

demergers and re-organisations.

When afterwards such company or firm transfers

such shares thevaluation whereof either fully or

partly subject to income tax, then at the time of

subsequent transfer of such shares, the cost of

acquisition would be thefair market value which was

earlier taken into consideration for taxation u/s. 56(2).

Provisions of section 56(2) that receipts without

consideration inter alia from following relatives are not income:

(i) spouse of the individual;

(ii) brother or sister of the individual;

(iii) brother or sister of the spouse of the individual;

(iv) brother or sister of either of the parents of the individual;

(v) any lineal ascendant or descendant of the individual;

(vi) any lineal ascendant or descendant of the spouse of the individual;

(vii) spouse of the person referred to in clauses (ii) to (vi).

Section 56(2) provides that gifts received from non
relatives are income but no where in the Income Tax Act
 it is provided that gifts received from relatives are
not income and therefore tax free. 

Therefore, it is not
a case that section 56(2) places the gift from relatives
 beyond taxing provisions.

If gifts are received from
specified relatives, the recipient will have to prove
genuineness of such gift with reference to identity of
the donor, capacity of the donor, source of funds of the donor, etc.

Gifts received from non relatives are generally taxable.

However, there are certain exceptions under which gifts
received from non relatives are also not taxable.

Gifts received on the occasion of marriage of an individual
 even from non relatives are not an income. In this context,
 one would be entitled to take a view that the words

“on the occasion of marriage” would have wider
 connotation than on the date of marriage.

Further following receipts without consideration are also not income :


i. under a Will or by way of inheritance;

ii. in contemplation of death of payer;

iii. from local authority as defined in Explanation to section 10(20);

iv. educational or medical institution or fund etc. referred to u/s. 10(23C);

v. trust or institution registered u/s. 12AA.

A gift is said to be made in contemplation of death when the donor is
ill and he expects to die shortly out of such illness and delivers to
 another possession of the movable property to be kept by another
 person as gift in case a donor dies of that illness.

A gift in contemplation of death can be made of any movable
 property which the donor could dispose off under a Will.

It is possible for the donor to resume such a gift before he dies.
Further in a case where donor recovers from the illness during which
 he made the gift then such a gift will not take effect.

Further if the donor survives the person to whom such gift was
 made then also such gift does not take place.

If such property instead of being given away in
 contemplation of death is made subject matter of
 the Will then the bequest under a Will would require
executor’s assent to perfect the title of the legatee
 and will be subject to probate, when applicable.

Gifts in contemplation of death
 can be made only of a movable property.

Author: CA. Tarun Ghia,

Budget 2010: Reforms process in tax administration taken forward

Feb 28, 2010

The General Budget 2010-11 has carried forward
 the process of reforms in tax administration
in the country. The citizen-centric initiative
“Sevottam” which was launched as a pilot project at Pune,
 Kochi and Chandigarh, will be extended to four more
cities this year.


The centralized processing centre
 at Bengaluru is now fully functional
and processing around 20, 000 tax returns daily.

This initiative aimed at reducing the physical
interface between the taxpayers and the tax administration
 and to speed up procedures and processes, will be taken
forward by setting up two more centers during the year.

The Income Tax department is now ready to notify SARAL-II form
 for individual salaried taxpayers for the coming assessment year.

The proposals related to indirect taxes are focused to achieve a
further degree of fiscal consolidation without impairing the
recovery process and moving forward on the road to GST.
Project ACES-Automation of Central Excise and Service Tax,
has been rolled out in the country.

This will impart greater transparency in
 tax administration and improve the delivery of
 taxpayer services. Budget proposes to expand the
scope of Settlement Commission in respect of Central
 Excise and Customs so that certain category of cases
 that hitherto fell outside its jurisdiction may be admitted.

P. Chidambaram welcomed the General Budget for 2010-11

Feb 28, 2010

The Union Home Minister, Shri P. Chidambaram has welcomed
 the General Budget for  2010-11 presented in Parliament
on friday.


 In a statement  issued here today,
 he described the budget  as a very balanced effort .

 Following is the text of the statement.

“The Finance Minister Shri Pranab Mukherjee’s Budget for
2010-11 is a very balanced effort marked by a mature
assessment of the state of the economy and of the
 measures required to sustain high and inclusive growth.

While the many features of the Budget will be debated
in and outside Parliament, I would like to draw attention
to some noteworthy aspects pertaining to the Ministry
 of Home Affairs:

For police, a sum of Rs.30,000 crore has been provided under
 Revenue and Capital account.  This is about the same level
as the expenditure that will be actually incurred in 2009-10 and,
 wisely spent, should be able to cater to the needs of security.

Of the above, assistance to States for modernisation of
 police force has been pegged at Rs.1,975 crore, a modest
increase of Rs.130 crore over the actual expenditure that
 will be incurred in 2009-10. However, I am confident that,
 if necessary, we can find additional resources through
re-appropriation or through supplementaries.

Delhi Police has been provided Rs.2,805 crore, the same
level as the estimated actual expenditure in 2009-10.

Construction of housing for the Central Police Forces
has been given Rs.444 crore and we should be able to
leverage this amount through the proposed PPP model
 and build a large number of housing units.

Immigration services have been provided Rs.155 crore
and the bulk of this provision (Rs.140 crore) will be
spent on setting up Integrated Check Posts.

The ambitious Crime and Criminal Tracking Network and
System (CCTNS) has received a generous provision of Rs.175 crore.

At my request, the Finance Minister has made a reference
 to the proposal belonging to J&K to the Central Para Military
 Forces in the year 2010.  These youth will be recruited
by CRPF, BSF, ITBP, SSB and CISF.

On the other aspects of the Budget, I would like to
commend the Finance Minister for the generous allocation
to the flagship and other key programmes such as
 NREGS (Rs.40,000 crore), Indira Awaz Yojana (Rs.10,000 crore),
the Rural Roads Programme (Rs.12,000 crore), Rural Drinking Water
 Programme (Rs.9,000 crore), Agriculture and related
activities (Rs.6,515 crore), Agricultural Research (Rs.2,300 crore),
Sarva Shiksha Abhiyan (Rs.15,000 crore), Mid-day Meal Scheme (Rs.9,440 crore),
 Higher Education (Rs.10,000 crore), Women and Child Development (Rs.10,000 crore),
Roads (Rs.16,700 crore) and Power (Rs.9,200 crore).  The centre piece of the Budget
is obviously the aam aadmi.  The thrust of the Budget is towards provision of
infrastructure and social services in rural India.

The underpinning of a Budget lies in fiscal consolidation.
 The worst may be over and the Finance Minister has signalled
that beginning 2010-11 we will move in the direction of
reducing the fiscal deficit and revenue deficit.
 While these two indicators will remain high in 2010-11
(5.5 per cent and 4.0 per cent respectively),
 I am confident that we would be able to adhere to the road map
laid down by the Thirteenth Finance Commission.

Budget 2010-: Made life Saral for salaried taxpayer

In the next financial year, the salaried will not
 only have more money to spend but also can look
 forward to easy tax filings. One of the income
tax reforms that the finance minister announced on
 Friday was the introduction of Saral II form,
which will only have two pages. The Income Tax
Department is now ready to notify Saral-II form
for individual salaried taxpayers for the coming
assessment year. This form will enable individuals
to enter relevant details in a simple format in only two pages,”

 Finance Minister Pranab Mukherjee said during his Budget speech.

For a long time, the Income Tax Department had the Saral form
that it discontinued around four years ago. This form was a
one pager but the taxpayer had to attach different sheets
showing computation of income under various income heads.

“So, it went up to four-five pages,” said Singh.
The replacement forms brought in all computation
 within the form but got tedious for the taxpayer.

Tax experts reckon that the self-employed people will
continue to use the same form as the tax computation
for professionals and businesspersons is more complicated.

These forms will be applicable to the salaried, who have
 income only from their employment and property.


In case, there is an instance of income from any other
 source, they will need to fill in different forms.

Taxpayers can also look forward to less interaction
with the tax authorities, thanks to the computerisation
 and modernisation of the Income Tax Department.

“We have continued on the path of computerisation
 in core areas of service delivery in the administration
of direct taxes. This will reduce the physical interface

One such initiative, namely the Centralised Processing
 Centre at Bengaluru is fully functional and is currently
processing around 20,000 returns a day. “This initiative
 will be taken forward by setting up two more centres during
the year,” said Mukherjee.

Tax experts say that such systems will make the audits more
 computerised and free from the control of any individual
assessing officer.

This is also an effort to reduce corruption in the tax
 department. “Not just in India  but globally governments
 believe that corruption reduces when the physical interface
 between the authorities and taxpayer lessens,” said Singh.

The government has also introduced a pilot project, called
‘Sevottam’, to provide single window system for registration
 of all applications including those for redressal of grievances,
 as well as paper returns. Currently, the scheme is on in Pune,
Kochi and Chandigarh. Four more centres will be added to this
 list in the next financial year.

Tax experts say that the ministry is undertaking these reforms
 to increase the tax base of the country and increase the
tax to GDP ratio.

Amendment in CST Act by finance Bill 2010

Feb 28, 2010

Section 6A:

Amendment in Sub- section (2 ) of 6A :

i) Provide that for making an order under that sub
section the assessing officer shall, in addition to
satisfying himself about the truthfulness of particulars
 furnished by a dealer , shall also satisfy himself that
 no interstate sale have been effected and also to provide
that the deeming provision as contained therein to the effect
 that the movement of goods have not occasioned as 
a result of sale SHALL BE SUBJECT TO THE  provisions
of sub-section (3) and


ii) Insert a new sub-section ( 3 ) so as to specify
 that nothing contained in sub- section (2) shall
 preclude re assessment by the assessing authority
on the basis of new fact discovered or revision by
a higher authority on the ground that the finding
of the assessing authority are contrary to law and
 such re assessment or revision may be done in
accordance with the provisions of general sales
tax law of the state.


New chapter VA inserted relating to appeals to
 the highest appellate authority of the state:

The proposed section seeks to insert a new
section 18A so as to make a provision foe
appeals to the highest appellate authority of
every state against the orders made under sub
section ( 2) and newly inserted sub section ( 3 ) of
 section 6A including incidental
issues relating to rate of tax ,
 computation of assessable turnover
and penalty and also
procedure before such highest
appellate authority.

Sub section ( 1) of section 20 substituted
 along with explanation given earlier :

To provide that an appeal shall lie to the authority against any order
 passed by the highest appellate authority of a state under
this act determining issues relating to stock transfers
or consignments of goods , in so far as they involve
a dispute of inter – state nature and to omit
explanation there under.

Prior to amendment Sub section ( 1 ) of section 20 :

The provision of this chapter shall apply to Apples filed by any
aggrieved person against any order of the highest appellate authority
 of a state, made under section 6A read with section 9.

Explanation :For the purpose of this section and
 section 21 , 22, and 25 highest appellate authority
of a state means any authority or tribunal or court

Sub section 1A of section 22 ( Power of the Authority )amended
and substituted the PRE DEPOSIT  words with DEPOSIT  :

The authority may grant stay of the operation of the order
of the highest appellate authority against which the appeal
is filled before it or order the pre- deposit deposit of the
tax before entertaining the appeal and while granting such
stay or making such order for the pre deposit deposit of the
tax, the Authority shall have regard, if the assessee has made
pre- deposit deposit of the tax under the general sales tax
law of the state concerned, to such pre- deposit deposit or
 pass such appropriate order as it may  deem feet.

New subsection (1B) provided under section 22 for the
 authority to issue direction for refund of tax collected by state.

Section 25 amended to delete the proviso to sub
section (2) related to transfer of pending cases :

Provided that where the highest appellate authority
find that the appellant has not availed of the
opportunity of filling first appeal before the
appellate authority , such case shall be forwarded to such authority.

Summary of Important Income tax provisions: Union Budget 2010-11

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.