Proposed amendments to the Finance Bill, 2010

The Finance Bill, 2010 (the Bill) was presented by the Finance Minister (FM) before the Lok Sabha ( The lower house of Parliament of India ⁾ with certain amendments. This Flash News gives a snapshot of the key  amendments to the Bill as passed by the Lok Sabha. The Bill including these amendments will become law only after they are passed by the Rajya Sabha (The upper house of Parliament of India ⁾ and thereafter receive the assent of the President of India.

Direct tax

Investment-linked benefits extended to specified hospitals and housing projects under the slum redevelopment or rehabilitation scheme

• A deduction is allowed in respect of capital expenditure (other than expenditure on the acquisition of any land or goodwill or financial instrument) incurred by the taxpayer for the purpose of specified business (See Note 1) . This benefit has been extended to the following businesses for taxpayers commencing operations on or after 1 April, 2010:

– Building and operating a new hospital with at least 100 patient beds

– Developing and building a housing project under a scheme for slum redevelopment or rehabilitation framed by the Central Government or a State Government which is notified by the Central Board of Direct Taxes under guidelines to be prescribed.

 

Tax neutrality for shareholders on conversion of a Company into a Limited Liability Partnership (LLP)

• The tax neutrality specified for a private company or an unlisted public company (both referred hereafter as the company) on transfer of capital / intangible assets to LLP on conversion into LLP has been extended to their shareholders transferring shares in the company
• The above exemption stands withdrawn if the specified conditions associated with the conversion to LLP are not complied with. Accordingly, the profit or gains from the transfer of the capital assets or intangible asset arising on conversion will be taxable for the successor LLP and the shareholders of the predecessor company.
• Where the asset being rights of the LLP partner (Under section 42 of the LLP Act, 2008)  on tax neutral conversion of company into a LLP (Under proposed section 47(xiiib) of the Ac)  are subsequently transferred, the cost of acquisition thereof will be cost of the share(s) in the company immediately before its conversion.

 

 

Service Tax-

• Air Travel – incidence of service tax capped

– Service tax levy to be limited to INR 100 per travel for domestic journey in any class and INR 500 per travel for international journey by economy class (See Note 2). It needs to be seen whether such specific rates would be subject to CENVAT credit restrictions

– Domestic air travel to and from the North-Eastern sector to be exempted(See Note 2)

– Exemption earlier available to in-transit passengers has been removed.

• Construction services – relief granted, albeit partial

– Abatement to be enhanced from 67 percent to 75 percent where value includes the value of the land. Effective service tax rate in such cases to reduce from 3.4 percent to 2.6 percent (See Note 2)

– Procedure for the completion certificate expected to be simplified (See Note 2)

– Exemption to be provided on construction of low cost housing under specified schemes (JNNURM and Rajiv Awas Yojna) (See Note 2)

• Commercial Coaching and Training Service – scope of exemption extended

– Exemption extended to ‘Modular Employment Skill Development courses’ provided by specified training institutes (See Note 2)

• Retrospective amendment in Rule 6(7) of Cenvat Credit Rules 2004 proposed by Finance Bill 2010 allowing proportionate reversal of Cenvat Credit attributable to inputs used in manufacture of exempted goods – has been extended to input services.

Central Excise

•        Excise duty rates reduced on following items (See Note 3)

– Hand rolled cheroots priced upto INR 3 per stick – reduced to 10 percent advalorem. Additional Excise duty to be 1.6 percent ad valorem

– Corrugated boxes and cartons manufactured from corrugated paper or paperboard (from 8 percent to 4 percent)

– Waste paper (from 10 percent to 4 percent)

•        Exemption extended to items (See Note 3)

– Scented supari

– All types of packing materials manufactured by small scale units, irrespective of whether sold under a brand name or not

•        MRP based levy items (See Note 3)

– extended to parts, components and assemblies of earthmoving machinery like loaders and excavators

Customs Duty

• Basic Customs Duty rate reduced on following items8

– Eleven specified drugs including drugs for anti-cancer and AIDS – reduced to 5 percent

– Stainless steel melting scrap (from 5 percent to 2.5 percent)

• Basic Customs Duty exemptions extended/ restored on following items

– Parts and components of tunnel boring machines used for hydroelectric projects

– Specified parts or components for manufacture of

Optical Disc Drives

– Flax fibre and yarn

– Ostomy appliances

• Special CVD (Additional Duty in lieu of VAT) exemption extended to

– Acetate rayon tow used for manufacturing cigarette filter rods

• Export Duty increased on following items

– Raw cotton from INR 2500 PMT to INR 10,000 PMT

– Iron ore lumps from 10 percent to 15 percent

Note 1.

(a) Setting up and operating cold chain facilities;

(b) Warehousing facilities for storage of agricultural produce; (c) Laying and operating cross-country natural gas or crude or petroleum oil pipeline network for distribution, including storage facilities being an integral part of such network.

Note 2

Proposal made by Finance Minister in his Speech while replying to the debate on Finance Bill-2010 in Lok Sabha. Necessary notification to this effect expected post the presidential assent to the Bill.

Note 3

Proposal made by Finance Minister in his Speech while  replying to the debate on Finance Bill-2010 in Lok Sabha.