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

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 enjoys exemption.

[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) 50,000 (aggregate)	30,000 (single) 75,000 (aggregate)
194D	Insurance commission	5,000	20,000
194H	Commission or brokerage	2,500	5,000
194I	Rent	1,20,000	1,80,000
194J	Fees for professional or technical services	20,000	30,000

Deductor and collector will continue to issue TDS/TCS certificate even after April 1, 2010.