The Institute of Chartered Accountants of India, New Delhi
BUDGET HIGHLIGHTS 2012-13
The Economy
• The Union Budget 2012-13 identifies five objectives relating to growth, investment, supply bottlenecks, governance, and removing malnutrition to be addressed effectively in the ensuing fiscal year. It is a status quo budget rather than a reformist budget.
• GDP growth to be 7.6 per cent (+ 0.25 percent) during 2012-13.
• Gross Tax Receipts estimated at Rs. 10,77,612 crore.
• Net Tax to Centre estimated at Rs. 7,71,071 crore.
• Non-tax Revenue Receipts estimated at Rs. 1,64,614 crore.
• Non-debt Capital Receipts estimated at Rs. 41,650 crore.
• Temporary arrangement to use disinvestment proceeds for capital expenditure in social sector schemes extended for one more year.
• Total expenditure for 2012-13 budgeted at Rs. 14,90,925 crore.
• Amendment to the FRBM Act proposed as part of Finance Bill. New concepts of “Effective Revenue Deficit” and “Medium Term Expenditure Framework” introduced.
• Central subsidies to be kept under 2 per cent of GDP; to be further brought down to 1.75 per cent of GDP over the next 3 years.
• Investment in 12th Plan in infrastructure to go upto Rs. 50,00,000 crore; half of this is expected from private sector.
• White Paper on Black Money to be laid in the current session of Parliament.
Tax proposals mark progress in the direction of movement towards DTC and GST
• Total expenditure budgeted at Rs. 14,90,925 crore; plan expenditure at Rs. 5,21,025 crore – 18 per cent higher than 2011-12 budget; non plan expenditure at Rs. 9,69,900 crore
• Fiscal deficit targeted at 5.1 per cent of GDP, as against 5.9 per cent in revised estimates for 2011-12
• Central Government debt at 45.5 per cent of GDP as compared to Thirteenth Finance Commission target of 50.5 per cent
• Medium-term Expenditure Framework Statement to be introduced; will set forth 3-year rolling target for expenditure indicators.
• Currrent account deficit is likely to be at 3.6%.
• Net market borrowing required to finance the deficit to be Rs. 4.79 lakh crore in 2012 -13.
• Effective Revenue Deficit to be 1.8 per cent of GDP in 2012 -13.
• Official amendment to “The Pension Fund Regulatory and Development AuthorityBill, 2011”, “The Banking Laws (Amendment) Bill, 2011” and “The InsuranceLaw (Amendment) Bill, 2008” to be moved in this session.
• Defence services get Rs. 193407 crore.
Direct Tax Proposals
I Anti-Avoidance Measures
• General Anti-Avoidance Rules (GAAR) proposed to be introduced in the Income -tax Act, 1961 to check aggressive tax planning. Earlier, the Direct Taxes Co de Bill, 2010 had proposed to introduce GAAR.
• Transfer pricing provisions proposed to be introduced in respect of specified domestic transactions exceeding the prescribed threshold.
• Clarifications in sections 9 and 195 in the context of judicial decisions to tax gains from off-shore transactions where the underlying assets are located in India.
• Introduction of compulsory reporting requirement in case of assets held abroad by residents.
• Tax Residency Certificate to be submitted by the tax payer in case he wants to claim the benefit of DTAAs under section 90 or 90A. This is a necessary condition but not sufficient for availing the benefits of the DTAA.
II Measures to prevent generation and use of unaccounted money –
• Additional onus on closely held companies to explain the source of sum credited as share capital and share premium in their accounts in the hands of the resident shareholder. Otherwise, provisions of section 68 would be attracted in the hands of the company.
• The consideration received in excess of fair market value of shares to be treated as income of a closely held company, where consideration received for issue of shares exceeds the face value of shares.
• Unexplained money, investment, cash credits to be taxed at the maximum marginal rate of 30%, without allowing basic exemption or allowance for expenditure.
• Tax to be collected at source by the seller in respect of sale of jewellery in cash, where the value exceeds Rs.2 lakh, irrespective of its ultimate use, and in respect of sale of minerals, namely, coal, iron ore and lignite, to be used for trading purposes.
• Resident having any asset outside India (including financial interest in any entity) to file return of income compulsorily, even if he does not have taxable income.
• Extended period of 16 years for reassessment, in respect of persons whose income in relation to such assets located outside India has escaped assessment.
• Undisclosed income found during the course of search and admitted at the stag e of search will attract penalty of 10% and if admitted at the stage of filing return, will attract penalty @ 20%. In other cases, penalty would range between 30% to 90% of undisclosed income.
• Prosecution mechanism strengthened by providing for constitution of special courts, application of summons trial for offences and provisions for appointment of public prosecutors.
III Transfer Pricing Provisions
• Introduction of Advance Pricing Agreements for determining arm’s length price of international transactions.
• Transfer Pricing Officer empowered to examine international transactions not reported by the assessee.
• Transfer Pricing regulations to apply to specific transactions entered into by domestic related parties where the aggregate amount of such transactions exceed the monetary threshold of Rs. 5 crores during the year.
• Due date for filing return of income in case of non corporate payers who are required to file transfer pricing report under 92E also extended to 30 th November of the assessment year. Due date for filing tax audit report in all such cases, both corporate and non corporate, is also 30th November of the assessment year.
• Definition of international transaction further amplified to clarify the scope of “intangible property” included therein and to include business restructuring or re -organisation, entered into by an enterprise with an associated enterprise, whether or not it has a bearing on the profits, income, losses or assets of such enterprises at the time of the transaction or at any future date.
• Amendments relating to DRP like appeal against its directions and its power to enhance variations are proposed to be incorporated.
IV Business Taxation
• Alternate Minimum Tax (AMT) levy extended to all persons other than companies, claiming profit linked deduction. However, if the adjusted total income does not exceed Rs.20 lakh for individuals, HUFs, AOPs, BOIs and Artificial Juridical Persons, the provisions for levy of AMT would not be applicable.
• The turnover limit for compulsory tax audit of accounts as well as for presumptive taxation proposed to be raised from Rs.60 lakhs to Rs.1 crore.
• Expenditure on agricultural extension project and expenditure on skill development project to qualify for weighted deduction @ 150%.
• Scope of definition of “specified business” to qualify for investment -linked tax deduction expanded to include setting up and operating an inland container depot or a container freight station, beekeeping and warehousing facility for storage of sugar.
• Provision of weighted investment-linked tax deduction for certain specified businesses like setting up and operating a cold chain facility, a warehousing facility for storage of agricultural produce, etc.
• Extension of sunset date for tax holiday for power sector by one more year.
• Benefit of initial depreciation @ 20% of actual cost of new machinery or plant acquired and installed in the year extended to power sector undertakings.
• Weighted deduction for in-house scientific research and development extended for a further period of five years.
• Disallowance under section 40(a)(ia) for non-deduction tax at source in respect of certain payments not to be attracted where the assessee is not deemed to be an assessee in default under section 201(1) on account of payment of the taxes by the payee.
• Daily tonnage income of Shipping Companies calculated on presumptive basis proposed to be increased.
• Net profit as per the relevant statute to be considered for computing book profit for levy of Minimum Alternate Tax in case of Banking ,Insurance companies etc which do not maintain accounts as per Schedule VI of the Companies Act, 1956. Further, reference to Part III is proposed to be removed since Revised Schedule VI does not contain Part III.
V Personal taxation
• Personal income-tax rates rationalized. Basic exemption limit to be increased to Rs.2 lakhs for both women and men, thereby removing gender discrimination. 30% rate to be attracted in respect of income over Rs.10 lakhs.
• Deduction of upto Rs.10,000 for interest on savings bank account.
• Additional deduction of upto Rs.5,000 for preventive health check -up.
• Senior citizens not having business income to be exempted from payment of advance tax.
• Age of senior citizen for availing higher deduction for medical insurance premium, medical treatment of a specified disease or ailment, etc. aligned with the reduced age of 60 years for availing higher basic exemption limit.
VI Capital Gains
• Capital gains tax on sale of residential property to be exempt if the sale consideration is used for subscription in equity of a manufacturing SME company for purchase of new plant and machinery.
• Reduction in STT rate for delivery based purchase and sale of equity shares and units of equity oriented fund by 20%.
• Benefit of exemption under section 54B in respect of transfer of agricultural land and purchase of new agricultural land extended to HUFs also.
VII Provisions for deduction of tax at source
• TDS @ 1% on transfer of certain immovable properties (other than agricultural land) if consideration exceeds specified threshold.
• TDS @ 10% on remuneration to a director, which is not in nature of salary.
• Threshold for TDS on compensation or consideration for compulsory acquisition to be increased from Rs.1 lakh to Rs.2 lakhs.
• Threshold for TDS on payment of interest on debentures increased from Rs.2,500 to Rs.5,000 and this limit would be applicable in respect of interest on unlisted debentures also.
VIII Tax Exemptions and Benefits
• Interest paid by specified company to non-resident in respect of borrowing made in foreign currency from sources outside India to be subject to concessional rate of 5%.
• Concessional rate of taxation @ 15% of gross dividends received by an Indian company from specified foreign company to be extended in respect of dividend received in F.Y. 2012-13 also.
• Cascading effect of dividend distribution tax (DDT) under section 115 -O removed in multi-tier corporate structure also.
Source- ICAI
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