The Finance Bill, 2011 (the Bill) was introduced by the Finance Minister (FM) in the Lok Sabha yesterday. The FM has proposed certain amendments to the Bill in the Lok Sabha. Here we are giving a snapshot of the key amendments proposed to the provisions of the Bill as passed by the Lok Sabha. It may be noted that these proposals will become law only after they are passed by the Rajya Sabha and thereafter receive assent of the President of India.
Direct Tax
Tax on dividends received by an Indian company from specified foreign company
• The Bill had introduced a provision taxing dividend income declared, distributed or paid by a ‘foreign subsidiary company’ to its Indian parent at the rate of 15 percent in the hands of the Indian company. Further, the term ‘foreign subsidiary company’ was defined to mean a company in which 50 percent of the equity capital is held by the Indian company.
• The words ‘foreign subsidiary company’ have been replaced by the words ‘specified foreign company’. Further, ‘specified foreign company’ is defined as a company in which an Indian company holds at least 26 percent in nominal value of equity share capital. The Finance Minister has clarified in his speech that the reduction in the threshold for equity is to enable overseas joint ventures with Indian partnership to avail the concessional rate.
• Accordingly, an Indian company which is currently taxed at 33.22 percent on the dividend received from foreign companies would be taxed at 15 percent provided it holds at least 26 percent in nominal value of equity share capital of the foreign company.
Computation of Book profits under the Minimum Alternate Tax Provisions
• Deductions with respect to export profi ts under Section 80HHC, 80HHE and 80HHF of the Income-tax Act, 1961 (the Act) were to be reduced from the ‘book profits’ while computing the Minimum Alternate Tax (MAT).
• The above-mentioned export related deductions were not available from 1 April 2005. However, the taxpayer continued to reduce the above deduction from book profits while computing MAT even after 1 April 2005.
• Therefore, the amended Bill now provides that with retrospective effect from 1 April 2005, such deductions will not be reduced while computing book profits.
Allowability of contributions by an employer to a pension scheme on account of an employee
• The Bill had introduced a provision allowing contributions made by an employer in a pension scheme on account of an employee as deduction in computing the employer’s income to the extent it does not exceed 10 percent of the employee’s salary during that year.
• Section 40A(9) of the Act disallows the amount paid by the taxpayer as an employer for setting up of or a contribution made to any fund, trust, company, etc. However, it provides that the payment made by an employer towards approved provident fund, approved superannuation fund or approved gratuity fund will not be subject to the above disallowance.
• The amended Bill provides that payments made by the employer towards the pension scheme will also not be subject to disallowance under Section 40A(9) of the Act.
Indirect tax
Service Tax
• Point of Taxation rules
– Were to be effective from 1 April 2011, however in view of certain changes in the relevant provisions, an additional period of three months upto 30 June 2011 is being provided to make the transition.
• Hospital Services4
– Proposal to levy service tax in respect of services provided by Hospitals and Diagnostic centers withdrawn.
Central Excise
• Excise duty on branded ready made garments
– Abatement percentage for levy of duty on MRP increased from 40 to 55 percent
– Relief provided to small manufacturers to pay duty on wholesale price at which goods are sold to brand owners instead of MRP
– Exemption of excise duty on goods returned upto 10 percent of clearance value in the preceding financial year.
• Excise duty of 1 percent on 130 items
– MRP based assessment extended to many of these items with an abatement of 35 percent
– Exemption provided to any waste, scrap or parings arising in the manufacture of these items
– Procedural relaxation such as simplified form of returns provided to manufacturers of these products.
• Applicability of Legal Metrology Act, 2009
– Substitution of Standards of Weight and Measures Act, 1976 with Legal Metrology Act with effect from date to be notified in the official gazette instead of 1 March 2011.
Customs Duty
• Customs Duty exempted on following items
– Certain types of coking coal imported for the manufacture of iron or steel;
– Specified parts of personal computers from levy of SAD;
– Silicon wafers imported for manufacture of solar cells and modules from CVD
• Concessional rate of Customs Duty on following items
– Reduced rate of 5 percent CVD and Nil SAD extended to parts of all computer printers imported by actual users
– 1 percent excise duty and CVD on mobile handsets including cellular phones
– Basic customs duty rate reduced from 60 to 30 percent on CKD kits containing preassembled engine, gear box or transmission assembly, imported for the manufacture of vehicles.
• Anti dumping duty
– Anti dumping duty can be extended on articles in case of circumventions.
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