• Mar
  • 26
  • 2012

Finance Bill 2012-13 – Direct Tax Highlights

CA Ashu Dalmia

Highlights of Finance Bill 2012-13 are as follows:-

1. :- Alternate Minimum Tax (AMT) on all persons other than companies

Under the existing provisions of the Income-tax Act, Minimum Alternate Tax (MAT) and Alternate Minimum Tax (AMT) are levied on companies and limited liability partnerships (LLPs) respectively. However, no such tax is levied on the other form of business organizations such as partnership firms, sole proprietorship, association of persons, etc.

In order to widen the tax base vis-à-vis profit linked deductions, it is proposed to amend provisions regarding AMT contained in Chapter XII-BA in the Income-tax Act to provide that a person other than a company, who has claimed deduction under any section (other than section 80P) included in Chapter VI-A under the heading “C – Deductions in respect of certain incomes” or under section 10AA, shall be liable to pay AMT.

Under the proposed amendments, where the regular income-tax payable for a previous year by a person (other than a company) is less than the alternate minimum tax payable for such previous year, the adjusted total income shall be deemed to be the total income of such person and he shall be liable to pay income-tax on such total income at the rate of eighteen and one-half per cent.

It is further provided that the provisions of AMT under Chapter XII-BA shall not apply to an individual or a Hindu undivided family or an association of persons or a body of individuals (whether incorporated or not) or an artificial juridical person referred to in section 2(31)(vii) if the adjusted total income of such person does not exceed twenty lakh rupees.

It is also provided that the credit for tax (tax credit) paid by a person on account of AMT under Chapter XII-BA shall be allowed to the extent of the excess of the AMT paid over the regular income-tax. This tax credit shall be allowed to be carried forward up to the tenth assessment year immediately succeeding the assessment year for which such credit becomes allowable.

2:- Tax Slab Applicable to individual/ HUF/AOP/BOI/AJP , Firm’s or co-operative societies or corporate tax payer

1.1:-In case of individual/ HUF/AOP/BOI/AJP

Proposed:

  • In case of every Individual who is below the age of 60 years
Upto Rs. 200,000 Nil
Rs. 200,001 to 500,000 10%
Rs.500,001 to 10,00,000 20%
Above Rs. 10,00,000 30%

 

  • In case of every Individual, being a resident in India and who is the age of 60 years or more
Upto Rs. 250,000 Nil
Rs. 250,001 to 500,000 10%
Rs.500,001 to 10,00,000 20%
Above Rs. 10,00,000 30%
  • In case of every Individual, being a resident in India and who is the age of 80 years or more(Very senior citizen)
Upto Rs. 500,000 Nil
Rs.500,001 to 10,00,000 20%
Above Rs. 10,00,000 30%

1.2:-In case of Firm’s or co-operative societies or corporate tax payer,

In case of Firm’s including LLP or Co-operative societies or Corporate, the tax rate remains unchanged.

The rate of Education cess (EC) & Secondary Higher education cess (SHEC) remain unchanged i.e. @ 2% and 1% respectively.

Surcharge will not be levied in case of individual/ BOI/ AOP/ HUF/ Firm /corporative society. In case of a domestic company surcharge of @ 5% and in case of companies other than domestic company surcharge @ 2% shall continue to be levied if the total income exceeds Rs. 1 Crore subject to marginal relief.

3:- Exempt Interest from saving bank a/c up to Rs. 10,000

In case of Individual tax payer, a deduction up to Rs. 10,000 for interest from saving bank accounts.

4:-Exemption from Advance tax to Senior Citizens not having business income

Senior citizens who do not have any income from business or profession are proposed to be exempted from the payment of advance tax. This will reduce their compliance burden.

5:- Enhanced deduction of Rs. 5,000 u/s 80D

Within the existing limit for deduction allowed for health insurance u/s 80D, it is also allowed to deduction up to Rs. 5000 for preventive health check-up.

However, the proposed deduction on account of expenditure on preventive health check-up (for self, spouse, dependent children and parents) shall not exceed in the aggregate Rs.5,000.

6:- “Rajiv Gandhi Equity Saving Scheme” introduced for retail stock investors

Investment in “Rajiv Gandhi Equity Scheme” will allow 50% tax deduction for those whose annual income is below 10 lakh and who invest up to Rs. 50,000 in equities. The scheme will have a lock in period of 3 years.

7:- I.T. Department to have greater power by introduced GAAR (General Anti Avoidance Rules),

GAAR (General Anti Avoidance Rules) are introduced in the budget. The implication of this is that IT department will have power to deny tax benefit if a transaction was carried out exclusively for the purpose of avoidance tax.

8:- Weighted deduction for scientific research and development,

To promote investment in research and development, it is proposed to extent the weighted deduction of 200% for R&D expenditure in an In house   facility beyond 31th March, 2012 for a further period of 5 years.

9:- Turnover or gross receipts for audit of accounts and presumptive taxation,

As per provision of section 44AB, every person carrying on business is required to get his accounts audited if the total sales, turnover or gross receipts in the previous year exceed sixty lakh rupees. Similarly, a person carrying on a profession is required to get his accounts audited if the total sales, turnover or gross receipts in the previous year exceed fifteen lakh rupees.

In order to reduce the compliance burden on small businesses and on professionals, it is proposed to increase the threshold limit of total sales, turnover or gross receipts, specified under section 44AB for getting accounts audited, from sixty lakh rupees to one crore rupees in the case of persons carrying on business and from fifteen lakh rupees to twenty five lakh rupees in the case of persons carrying on profession.

It is also proposed that for the purposes of presumptive taxation under section 44AD, the threshold limit of total turnover or gross receipts would be increased from sixty lakh rupees to one crore rupees.

10:- Tax Deduction at Source (TDS) on transfer of certain immovable properties (other than agricultural land)

In order to collect tax at the earliest point of time and also to have a reporting mechanism of transactions in the real estate sector, it is proposed to insert a new provision to provide that every transferee, at the time of making payment or crediting any sum by way of consideration for transfer of immovable property (other than agricultural land), shall deduct tax, at the rate of 1% of such sum, if the consideration paid or payable for the transfer of such property exceeds –

(a) Fifty lakh rupees in case such property is situated in a specified urban agglomeration; or

(b) Twenty lakh rupees in case such property is situated in any other area.

This amendment will take effect from 1st October, 2012.

11:- TDS on remuneration to a director

It is proposed to amend section 194J to provide that tax is required to be deducted on the remuneration paid to a director, which is not in the nature of salary, at the rate of 10% of such remuneration.

This amendment will take effect from 1st July, 2012.

12:- Compulsory filing of income tax return in relation to assets located outside India

It is proposed to amend the provisions of section 139 so that furnishing of return of income under section 139 may be made mandatory for every resident having any asset (including financial interest in any entity) located outside India or signing authority in any account located outside India. Furnishing of return by such a resident would be mandatory irrespective of the fact whether the resident taxpayer has taxable income or not.

This amendment will take effect retrospectively from the 1st day of April, 2012 and will accordingly apply to assessment year 2012-13 and subsequent assessment years.

13:-Share premium in excess of the fair market value to be treated as income

Where a company, not being a company in which the public are substantially interested, receives, in any previous year, from any person being a resident, any consideration for issue of shares. In such a case if the consideration received for issue of shares exceeds the face value of such shares, the aggregate consideration received for such shares as exceeds the fair market value of the shares shall be chargeable to income tax

Under the head “Income from other sources”.

14:- Reduction of the eligible age for senior citizens for certain tax reliefs

In order to make the effective age of senior citizens uniform across all the provisions of the Income Tax Act, it is proposed to reduce the age for availing of the benefits by a senior citizen under the aforesaid sections (sections 80D, 80DDB and 197A) from sixty-five years to sixty years.

The amendments to section 80D and section 80DDB will take effective from 1st April, 2013 and will, accordingly, apply in relation to the assessment year 2013-14 and subsequent assessment years.

The amendment to section 197A will take effect from 1st July, 2012.

15:- Threshold for TDS on compensation or consideration for compulsory acquisition

Under the existing provisions of the section 194LA of the Income-tax Act, a person responsible for paying any compensation or consideration for compulsory acquisition of immovable property (other than agricultural land) is required to deduct tax at the rate of 10% in case the consideration exceeds one lakh rupees.

In order to reduce the compliance burden of small assesses, it is proposed to increase the aforesaid threshold limit from one lakh rupees to two lakh rupees.

This amendment will take effect from 1st July, 2012.

16:- Presumptive taxation not to apply to professions etc.

Section 44AD in the Income-tax Act to provide for a presumptive income scheme for small businesses with effect from 1ST April, 2011. Under this scheme a sum equal to 8% of the total turnover or gross receipts is deemed to be the profits and gains from business. This presumptive scheme is applicable only to a person carrying on any business, except business of plying, hiring or leasing goods carriage, having turnover or gross receipt of less than 60 lakh rupees.

It is proposed to amend section 44AD to clarify that this presumptive scheme is not applicable to (i) a person carrying on profession as referred to in sub-section (1) of section 44AA; (ii) persons earning income in the nature of commission or brokerage income; or (iii) a or a person carrying on any agency business.

This amendment will take effect retrospectively from 1st April, 2011 and will, accordingly, apply in relation to the assessment year 2011-12 and subsequent assessment years.

17:- Liability to pay advance tax in case of non-deduction of tax

An assesses liable for payment of advance tax in respect of income which has been received or paid without deduction or collection of tax, it is proposed to amend the aforesaid section to provide that where a person has received any income without deduction or collection of tax, he shall be liable to pay advance tax in respect of such income.

This amendment will take effect from the 1st April, 2012 and would, accordingly, apply in relation to advance tax payable for The financial year 2012-13 and subsequent financial years.

18:- Prohibition of cash donations in excess of ten thousand rupees

Currently, there is no provision in Section 80G and 80GGA specifying the mode of payment of money. Therefore, it is proposed to amend sections 80G and 80GGA so as specify there in that any payment exceeding a sum of ten thousand rupees shall only be allowed as a deduction if such sum is paid by any mode other than cash.

These amendments will take effect from 1st April, 2013 and will, accordingly, apply in relation to assessment year 2013-14 and subsequent assessment years.

19:- Eligibility conditions for exempt life insurance policies

Under the existing provisions contained in section 10(10D) of the Income-tax Act, any sum received under a life insurance policy, including the sum allocated by way of bonus on such policy, is exempt. For this purpose, it is necessary that the premium payable for any of the years shall not exceed 20% of the actual capital sum assured.

It is proposed to reduce the threshold of premium payable to 10% of the actual capital sum assured from 20% of the actual capital sum assured. Accordingly, it is proposed to amend section 10(10D) so as to provide that the exemption for insurance policies issued on or after 1st April, 2012 would only be available for policies where the premium payable for any of the years during the term of the policy does not exceed 10% of the actual capital sum assured.

This amendment will take effect from 1st April, 2013 and will, accordingly, apply in relation to the assessment year 2013-14 and subsequent assessment years.

20:- Eligibility condition for deduction in respect of life insurance policies

The existing provisions contained in section 80C(3) provide that the deduction for life insurance premium shall be allowed for only so much of any premium or other payment made on an insurance policy as is not in excess of 20% of the actual capital sum assured.

It is proposed to amend the provisions to provide that the deduction for life insurance premium as regards insurance policies issued on or after 1st April, 2012 shall be allowed for only so much of the premium payable as does not exceed 10% of the actual capital sum assured.

These amendments will take effect from 1st April, 2013 and will, accordingly, apply in relation to the assessment year 2013-14 and subsequent assessment years.

21:- Tax Residence Certificate (TRC) for claiming relief under DTAA

As per Section 90 of the Income Tax Act:-

The Central Government to enter into an agreement with the Government of any foreign country or specified territory outside India for the purpose of:-

A) Granting relief in respect of avoidance of double taxation,

B) Exchange of information

C) Recovery of taxes

As per Section 90A of the Income Tax Act:-

The Central government to adopt any agreement between specified associations for relief of double taxation,

In exercise of this power, the Central Government has entered into various Double Taxation Avoidance Agreements (DTAA’s) with different countries and has adopted agreements between specified associations for relief of double taxation.

The provision of DTAA and domestic law provides to the taxpayers, who is the resident of one contracting country, to claim beneficial provision either of DTAA or the domestic law.

It is noticed that in many instances the taxpayers who are not tax resident of a contracting country do claim benefit under the DTAA entered into by the Government with that country. Thereby, even third party residents claim unintended treaty benefits.

Therefore, it is proposed to amend Section 90 and Section 90A of the Act to make submission of Tax Residency Certificate containing prescribed particulars, as a necessary but not sufficient condition for availing benefits of the agreements referred to in these Sections.

These amendments will take effect from 1st April, 2013 and will, accordingly, apply in relation to the assessment year 2013-14 and subsequent years.

22:- Taxation of cash credits, unexplained money, investments etc at Maximum Marginal Rate

Under the existing provision of Income Tax, the amounts under the following sections of income tax act are subject to tax as per the tax rate applicable to the assessee

Section 68- Cash credits,

Section69-Unexplianed investments,

Section 69A- Unexplained money, etc

Section 69B- Amount of investments, etc. not fully disclosed in books of accounts

Section 69C- Unexplained expenditure, etc

Section 69D-Amount borrowed or repaid on hundi

It is proposed to tax the unexplained credits, money, investment, expenditure, etc., which has been deemed as income under section 68, section 69, section 69A, section 69B, section 69C or section 69D, at the rate of 30% (plus surcharge and cess as applicable). It is also proposed to provide that no deduction in respect of any expenditure or allowance shall be allowed to the assessee under any provision of the Act in computing deemed income under the said sections.

This amendment will take effect from 1st April, 2013 and will, accordingly, apply in relation to the assessment year 2013-14 and subsequent assessment years.

Compiled by :-

Ashu Dalmia & Associates, chartered Accountants                                                                              

web: www.ada.org.in, Mail-info@ada.org.in

Sandeep Kanoi

One Response to “Finance Bill 2012-13 – Direct Tax Highlights”

  1. Dakshesh Barbhaya says:

    Heard somewhere about increase in infra bond investment limits.. please advise new infra invt. limits, if revised..

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