analysing the union budget 2010 direct tax final

8/8/2019 Analysing the Union Budget 2010 Direct Tax Final

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Topic / Section Header /Divider Slide (Arial 42pt Bold)

Rationalisation

Widening of Tax Base

Budget Thrust Areas

Budget Backdrop

In Summary

Contents

© 2010 KPMG, an Indian Partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), aSwiss entity. All rights reserved.

5

4

2

1

6

2

3 Increasing Disposable Income




Budget Backdrop





Budget 2010Highlights

Backdrop

●● Global economy shows signs of turnaround (fromGlobal economy shows signs of turnaround (from --0.8 percent to 3.90.8 percent to 3.9percent)percent)

●● Key Indicators: Baltic Dry Index, Oil pricesKey Indicators: Baltic Dry Index, Oil prices●● Will this last? Are there surprises in store?Will this last? Are there surprises in store?

●● Emerging economies lead the way (from 2.1 percent to 6 percent)Emerging economies lead the way (from 2.1 percent to 6 percent)●● Major concerns: capital inflows, inflation, foreign exchange manMajor concerns: capital inflows, inflation, foreign exchange man agementagement

●● Developed economies expected to grow (fromDeveloped economies expected to grow (from --3.2 percent to 2.13.2 percent to 2.1percent)percent)

●● Major concerns: unemployment, financial systemsMajor concerns: unemployment, financial systems

●●

GG--20 Leaders pledge commitment to tackle crisis through country20 Leaders pledge commitment to tackle crisis through country --specific stimulus packagesspecific stimulus packages

India shows resilience, grows at 7.2 percent





India Today

●● Structural changes in the Indian economyStructural changes in the Indian economy●● High gross domestic savings (32.5 percent)High gross domestic savings (32.5 percent)

●● High gross domestic capital formation (percentHigh gross domestic capital formation (percent

●● Arrival of the Indian MNCArrival of the Indian MNC

●● Signs of growth revivalSigns of growth revival

●● Second half witnessed a revival in Power, Telecom and Civil AviaSecond half witnessed a revival in Power, Telecom and Civil Avia tiontion●● Index of Industrial Production revives (7.7 percent)Index of Industrial Production revives (7.7 percent)

Source: Economic Survey, BSE





India Today

●● Rise in business confidence indexRise in business confidence index●● Pick up in corporate earnings and profitsPick up in corporate earnings and profits

●● Capital MarketsCapital Markets – – FebruaryFebruary ’’10 P/E at 19.93 percent10 P/E at 19.93 percent

●● Forex reserves rise by USD 31.5 bnForex reserves rise by USD 31.5 bn●● Foreign Direct Investment levels reach USD 27 bn (DecForeign Direct Investment levels reach USD 27 bn (Dec ’’09)09)

●● Net FII positions stood at USD 191 bnNet FII positions stood at USD 191 bn

Attempt to don mantle of the fastest growing economy within next 4 years.Inflation and fiscal deficit remain key challenges





4.66.5

4.41.11.92.52.4

3.9 4 3.32.6

5.9

0

24

6

8

2004-2005 2005-2006 2006-2007 2007-2008 2008-2009 2009-2010

Revenue Deficit Gross Fiscal Deficit

7.5

9.5 9.7 9.2

6.7 7.2

0

2

4

6

8

10

2004-05 2005-06 2006-07 2007-08 2008-09 2009-2010

Year

G D P G r o w

t h ( % )

India Today

Source: Economic Survey

GDP Growth Rate

Fiscal Deficit as a percentage of GDP

F i s c a

l D e f i c i t ( % )

Year





7.3

-1.000.5-0.20-0.50

1.3 1.4 4.81.5

-2

0

2

46

8

Apr May Jun Jul Aug Sep Oct Nov* Dec*

Month (2009)

I n f l a t i o n

R a t e

( % )

India Today

Source: Economic Survey

Inflation Rates 2009

Tax Revenue as a percentage of GDP* Figures for Nov and Dec 2009 are provisional

9.4 9.911.1

1210.9 10.4

0

2

4

6

8

10

12

14

2004-05 2005-06 2006-07 2007-08 2008-09 2009-10(Budgeted)

Year

T a x

R e v e

n u e

( %





-0.7

-7.5

8.5

-4.4-2.7 -3.3

4.8

12.3

1.92

6 7

2.2

6

12.3

1.1

10.6

11.4

-0.1

-0.4 -0.2

-10

-5

0

5

1015

20

P e r c e n t a g e

GDP (on Market Price) Inflation (on CPI) Fiscal Deficit (as a % of GDP & Market Price)

India vis-à-vis Emerging Markets

Despite the challenges, India remains one of the most promising markets

Source: ©IMF, 2010 Source: Balance of Payments Statistics (Yearbook 2009)

*

BrazilRussian Federation

India China United Kingdom United States Singapore

* Projected

Country

India vis-à-vis Emerging Markets based on Global Comparatives





Budget Expectations

●● RollRoll --back of stimulus packagesback of stimulus packages

●● Managing inflation and food pricesManaging inflation and food prices

●● Policies to overcome fiscal deficitPolicies to overcome fiscal deficit

●● Opening up the external economyOpening up the external economy – – Education, Insurance, RetailEducation, Insurance, Retail

●● Roadmap for DisinvestmentRoadmap for Disinvestment

●● Timelines for implementation of DTC and GSTTimelines for implementation of DTC and GST




Budget Thrust Areas






Stimulating Growth

●● Simplification andSimplification and liberalisatonliberalisaton of foreign investment regimeof foreign investment regime

●● Relaxation of bank licensing policy for private players, NBFCsRelaxation of bank licensing policy for private players, NBFCs

●● Continued focus on infrastructural developmentContinued focus on infrastructural development●● Impetus to power Sector Impetus to power Sector – – competitive bidding for coalcompetitive bidding for coal

●● Focus onFocus on renewablesrenewables

●● Thrust on clean energyThrust on clean energy

●● Increased Allocations for infrastructure development, road & raiIncreased Allocations for infrastructure development, road & rai lwayslways

●● Introduction of new company lawIntroduction of new company law

●● Interest subvention for exports, housing financeInterest subvention for exports, housing finance

●● Recognizes the role of SEZsRecognizes the role of SEZs





Making the Growth Inclusive

●● Increased allocation to rural development programmes (Increased allocation to rural development programmes ( NREGAsNREGAs ,,

BharatBharat NirmanNirman ,, IndiraIndira AwasAwas YojnaYojna ))

●● FourFour --pronged strategy for Agricultural growthpronged strategy for Agricultural growth●● Agricultural productionAgricultural production

●● Reduction in wastage of produceReduction in wastage of produce

●● Credit support to farmersCredit support to farmers

●● Impetus to food processing sector (ECB for cold storage)Impetus to food processing sector (ECB for cold storage)

●● Increased allocation for education, health, micro and smallIncreased allocation for education, health, micro and small

enterprises, urban development & housing, unenterprises, urban development & housing, un --organised sectororganised sector





Responding to Challenges

●● Nutrient based subsidy policy for fertiliser sectorNutrient based subsidy policy for fertiliser sector

●● Strengthening transparency and public accountabilityStrengthening transparency and public accountability●● Financial sector legislative reforms commissionsFinancial sector legislative reforms commissions

●● Unique Identification number allocationsUnique Identification number allocations

●● Setup of technical advisory group for effective tax administratiSetup of technical advisory group for effective tax administrati onon

●●

Independent evaluation office to evaluate impact of flagship proIndependent evaluation office to evaluate impact of flagship pro grammesgrammes





Responding to Challenges

●● Fiscal consolidationFiscal consolidation●● Roadmap for DTC and GSTRoadmap for DTC and GST

●● Calibrated exit strategy from fiscal stimulusCalibrated exit strategy from fiscal stimulus●● PeoplePeople ’’s ownership of s ownership of PSUsPSUs

●● Explicit reduction in domestic public debtExplicit reduction in domestic public debt --GDP ratioGDP ratio

●● Decision on Kirit Parikh committee report in due courseDecision on Kirit Parikh committee report in due course





Chart title

Planned34%

Fertilizer4%

AgriculturalRelief

1%

Defence14%

Police2%

Interest22%

Others23%

Accounting for Money

Source: Budget 2009

Service Tax8%

Excise Duty15%

Custom Duty13%

Non -Tax Revenue16%

CorporateTax34%

Personal IncomeTax14%

Proposed Tax Collections (2010-2011) Proposed Expenditure (2010-2011)




`


Key Direct Tax Proposals




Increasing Disposable Income





Budget 2010

Highlights

Increasing Disposable Income

Impact Analysis

142537Effective Savings (Percent)51,50051,50020,600Effective Savings

313,120158,62035,020Proposed Tax

364,620210,12055,620Current Tax

1,500,0001,000,000500,000

Income Level (INR)

Individual

●● Deduction upto INR 20,000 for investment in infrastructure bondsDeduction upto INR 20,000 for investment in infrastructure bonds

Step towards aligning with DTC




Incentives





Budget 2010

Highlights

Incentives

●● Surcharge reduced from 10 percent to 7.5 percent for domesticSurcharge reduced from 10 percent to 7.5 percent for domesticcompaniescompanies

●● Increase in weighted average deduction for R&D expenditureIncrease in weighted average deduction for R&D expenditure●● InIn--house R&D facility (200 percent)house R&D facility (200 percent)

●● Approved Research Associations, Universities, Colleges (175 percApproved Research Associations, Universities, Colleges (175 perc ent)ent)

●● Specified persons for Approved programmes (175 percent)Specified persons for Approved programmes (175 percent)

●● InvestmentInvestment --linked tax incentive for new 2 star or above hotelslinked tax incentive for new 2 star or above hotels




Budget 2010

Highlights


●● MAT Rate enhanced from 15 percent to 18 percentMAT Rate enhanced from 15 percent to 18 percent

●●

Transfer of shares of a company at nil or below fair value taxabTransfer of shares of a company at nil or below fair value taxab le inle inthe hands of the recipientthe hands of the recipient●● Tax neutral merger, demerger and other business reorganizationsTax neutral merger, demerger and other business reorganizations excludedexcluded

●● Effective from June 1, 2010Effective from June 1, 2010

●● Double taxation on transfer of immovable property for inadequateDouble taxation on transfer of immovable property for inadequateconsideration rationalisedconsideration rationalised

●● ‘‘Source RuleSource Rule ’’ for taxation of nonfor taxation of non --residents reiterated retrospectivelyresidents reiterated retrospectively




Budget 2010

Highlights

Presumptive Tax

●● Technical Services rendered by nonTechnical Services rendered by non --residents in relation to mineralresidents in relation to mineraloil exploration sector would not be covered underoil exploration sector would not be covered under ‘‘presumptivepresumptivescheme of taxationscheme of taxation ’’

●● Higher tax exposure if services are effectively connected with aHigher tax exposure if services are effectively connected with a permanentpermanentestablishment in Indiaestablishment in India




Rationalisation





Budget 2010

Highlights

Conversion of Company into LLP - Tax Neutral

●● Conversion of Company into LLPConversion of Company into LLP – – Tax Neutral subject toTax Neutral subject toconditions:conditions:

●● CompanyCompany ’’ Total sales /Turnover / Gross receipts in any of the 3 precedinTotal sales /Turnover / Gross receipts in any of the 3 precedin ggprevious years not to exceed INR 60 lacsprevious years not to exceed INR 60 lacs

●● Applicable to private or unlisted public companiesApplicable to private or unlisted public companies – – as per LLP Act, 2008as per LLP Act, 2008

●● Conversion as per provisions of section 56 or 57 of the LLP Act,Conversion as per provisions of section 56 or 57 of the LLP Act, 20082008●● 3 year lock3 year lock --in period for distribution of companyin period for distribution of company ’’s accumulated profits directlys accumulated profits directly

or indirectly to the partnersor indirectly to the partners

●● Unabsorbed business loss and depreciation allowed to carried for Unabsorbed business loss and depreciation allowed to carried for wardward

●● MAT credit not allowedMAT credit not allowed




Budget 2010

Highlights

Other Key Rationalisation

●● Taxation in appreciation in the value of investments for non lifTaxation in appreciation in the value of investments for non lif ee

insurances companies aligned with IRDA regulationsinsurances companies aligned with IRDA regulations

●● Disallowance of ExpenditureDisallowance of Expenditure – – Marginal liberalisation of time limitMarginal liberalisation of time limit●● Expenditure not disallowed if tax deducted and deposited prior tExpenditure not disallowed if tax deducted and deposited prior t o filing returno filing return

of incomeof income

●● Marginal increase in TDS threshold limitsMarginal increase in TDS threshold limits

●● Interest on failure to deduct / deposit taxInterest on failure to deduct / deposit tax●● Failure to deduct remains at 12 percent p.a. till date of deductFailure to deduct remains at 12 percent p.a. till date of deduct ionion

●● Failure to deposit hiked to 18 percent p.a. till date of depositFailure to deposit hiked to 18 percent p.a. till date of deposit




In Summary





Budget 2010

Highlights

Budget 2010

●● Is a hallmark of stability and continuity from a stable governmeIs a hallmark of stability and continuity from a stable governme ntnt●● Reinforces the structural strength and resilience in the IndianReinforces the structural strength and resilience in the Indian

economyeconomy – – Decades and decades of growth?Decades and decades of growth?●● Stimulates inclusive growth through increased outlays and forwarStimulates inclusive growth through increased outlays and forwar dd

looking reformslooking reforms

●●

Addresses fiscal consolidation through a combination of measuresAddresses fiscal consolidation through a combination of measures●● However, one needs to closely monitor:However, one needs to closely monitor:

●● InflationInflation●● Implementation of GST and DTCImplementation of GST and DTC●● Global eventsGlobal events

All in all, though not euphoric, a confident attempt




Mumbai

Lodha ExcellusApollo Mills CompoundNM Joshi Marg, Mahalaxmi

Mumbai 400 013Tel: +91 22 3989 6000Fax: +91 22 3983 6000

New Delhi

Building No.10, Tower B,8 th Floor, DLF Cyber City,

Phase – II

Gurgaon 122002 HaryanaTel +91 124 3074000Fax +91 124 2549101

Bangalore

Maruthi Info-Tech Centre11-12/1, Inner Ring RoadKormangala,

Bangalore 560071Tel +91 80 3980 6000Fax +91 80 3980 6999

Hyderabad

8-2-618/2Reliance Humsafar, 4 th Floor Road No. 11, Banjara Hills

Hyderabad 500 034Tel +91 40 6630 5000Fax +91 40 6630 5299

Chennai

No.10 Mahatma Gandhi Road,Nungambakam,Chennai 600 034Tel +91 40 3914 5000Fax +91 40 3914 5999

Kolkata

Infinity Benchmark,

Plot No.G-1, 10th floor,Block - EP & GP,Sector - V, Salt Lake CityKolkata 700091Tel: +91 33 44034066Fax: +91 33 4403 4199

Pune

703, Godrej Castlemaine,Bund Garden,Pune 411 001Tel +91 20 305 85764/65Fax +91 20 305 85775

Kochi

4/F, Palal Towers

M.G.Road,Ravipuram,Kochi 682 016Tel +91 484 309 4120Fax +91 484 309 4121

The information contained herein is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although weendeavor to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continueto be accurate in the future. No one should act on such information without appropriate professional advice after a thorough examination of the particular situation.


analysing the union budget 2010 direct tax final

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