union budget 2009 accretive special communique
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X A TAX UPDATE
Budget 2009
FOREWORD:
In the run-up to the budget proposals, the Finance Minister had to address the Aam admi promises made during the elections in addition to managing the challenging economic climate. FM speaks - “the Government recognizes the challenges that this task entails, particularly at a time when the world is still struggling with an unprecedented financial crisis and an economic slowdown that has also affected India. While we are determined to convert our words into deeds, Members would appreciate that a single Budget Speech cannot solve all our problems, nor is the Union Budget the only instrument to do so. Yet, it is an important means to share the vision of the Government, particularly as we begin a new term. I propose to do just that for the next hour or so, as I dwell on the challenges and outline the approach of the government in the short term and medium term perspectives.”
The budget has been characterized with an increased government expenditure of 36% over the budget estimates of 2008-09 and purports to stimulate the growth in the challenging times. The
FM has chosen to take the risk of moving away from the Fiscal Responsibility and Budget Management Act (FRBM) targets with a fiscal deficit of 6.8% of the GDP with no clear indication on the time-lines for coming back to fiscal consolidation. On the tax proposals, while the
FM has not rolled back any of the earlier stimulus packages, he has indicated that no further stimulus packages are envisaged. His key thrust has been to move towards improving the efficiency and equity of our tax system In this Communique, we take a look at the key proposals signaling the Government’s thrust on tax reforms.
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Budget 2009
CONTENTS: Budget – At a glance: ____________________ 4
Direct Taxes: _________________________ 4 Indirect Taxes: ________________________ 6
Signaling the Tax Reforms ________________ 8 Direct Tax Proposals ____________________15
Corporate Tax ________________________15 Limited Liability Partnership _____________32 Personal Tax__________________________33 Wealth tax ___________________________36 Commodity Transaction Tax _____________36
Indirect Tax Proposals ___________________37 Goods and Services Tax _________________37 Service Tax___________________________38 Central Excise ________________________43 CENVAT____________________________47 Customs _____________________________48
Effective Dates _________________________51
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Budget 2009
BUDGET – AT A GLANCE:
DIRECT TAXES: Tax Rates for FY 2009-10 No changes in corporate tax rates. Surcharge on tax is removed for individuals,
HUF , AOP, BOI and partnership firms. MAT payable by the companies increased to
15% from 10% of book profits with an additional period for carry forward and set off of MAT Credit. The period for set off increased to 10 years from 7 years.
Basic exemption limit for personal tax increased.
Fringe Benefit Tax abolished and specified fringe benefits are taxed as perquisite.
Sweat equity or ESOPs and contribution to super annuation funds to be taxable as perquisites in the hands of the employees.
The basic exemption limit under wealth tax increased to Rs. 30 lacs from Rs. 15 lacs.
Commodity transaction tax abolished.
Exemptions / Deductions / Relief Tax holiday to STPs and EOUs extended for
one more year (FY 2010-11). Weighted average deduction of 150% of
expenditure on in-house scientific research extended to all manufacturers.
Advance tax applicable only if the total tax payable for the year is in excess of Rs. 10,000.
Ceiling on remuneration paid to partners allowable as deduction increased.
Presumptive taxation introduced for businesses with turnover / gross receipts up to Rs. 40 lacs
Limit of Rs. 20,000 increased to Rs. 35,000 for transport contracts for disallowance of expenditure if payment is not made by account payee cheque or bank draft.
Donations made to electrol trusts to be allowed as deduction.
Deduction under section 80DD hiked. Relief under Section 80E (Interest on loan for
higher education) extended to vocational studies.
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Budget 2009
Tax Deduction at Source Rate of TDS on rent of land and building
reduced to 10% and rent of machinery reduced to 2%.
Rate of TDS on contract payments rationalized.
Higher rate of TDS at 20% applicable if the deductee fails to furnish PAN w.e.f. 01.04.2010.
No TDS on payments to transport contractors on furnishing PAN details.
Surcharge and Cess not applicable on TDS for non-salary payments.
Time limit for completion of TDS assessments introduced.
Others New Direct Tax code to be introduced in next
45 days for public comments and to be placed before the Parliament in the winter session.
CBDT empowered to make rules for safe harbour provisions under TP regulations.
Dispute Resolution Panel to be established to improve tax administration and avoid prolonged uncertainty in tax matters involving foreign companies and transfer pricing.
Provisions introduced to mandate quoting of Document Identification Number in all correspondence by the income tax authorities.
Provisions introduced to enable serving of documents or orders to the assesses through electronic mode.
Provisions relating to taxation LLP introduced – provisions applicable to partnership firms to mutatis mutandis apply to LLPs.
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Budget 2009
INDIRECT TAXES:
GST to be implemented in April 2010
Rates of tax / duty No change in basic rates of customs, central
excise or service tax. No change in the rate of CST.
Service Tax Legal services brought into service tax net.
However, no service tax applicable in case of individuals.
Medical services involving cosmetic and plastic surgery brought into service tax net.
Services involving transport of goods through national water way subjected to service tax.
Production or processing of goods excluded from the category of business auxiliary services only if they are excisable goods.
Services provided to installations, structures and vessels in the continental shelf and exclusive economic zone of India exempt.
Commission agency services and GTA services received by exporters of goods from exempt.
Stock broking services provided by sub-brokers excluded.
New simplified scheme introduced for refund of service tax to exporters of goods.
Powers of the Commissioner to revise the orders dispensed with. Alternatively, the appeal provisions made applicable subject to certain modifications.
Service providers opting for composite scheme for works contracts to pay composite tax on the value of goods involved therein whether or not any consideration is received.
The rate of service tax payable by service providers opting not to maintain separate records reduced to 6% on exempt services.
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Budget 2009
Central Excise The rate of excise duty payable by
manufacturers opting not to maintain separate records reduced to 5% on exempt goods.
Duty payable by EOUs manufacturing goods wholly out of indigenous raw materials increased to 4% in case of goods wholly made of cotton and 8% if made of any other textile materials.
Transfer or right to use software for commercial exploitation exempted from duty provided that the manufacturer is registered under Service tax.
Customs Provisions introduced to facilitate claim of
refund in respect of imported goods found to be defective / non-compliant subject to conditions.
Others The Advance Ruling Authority established
under the provisions of Income Tax Act to administer the advance ruling procedures under the Customs, Central Excise and Service Tax matters.
Provisions introduced to restrict compounding of offences in certain circumstances / situations under Central Excise and Customs matters.
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Budget 2009
SIGNALING THE TAX REFORMS A LOOK BEYOND… In this section, we have outlined the government’s tax policy, macro economic indicators on tax, and a perspective on the Indian tax trends and proposals. A Macro Economic Backdrop The year 2008-09 saw a moderate growth of the Indian economy as compared to the previous years. The steep increases in prices of international crude oil and commodity prices in the beginning of the year followed by the global recession stemming from the global financial crisis, in the latter part of the year, resulted in the fall in the growth rate of the Gross Domestic Product. The impact of the global crisis was felt through the channels of capital flows, financial markets and trade. This resulted in growth of real Gross Domestic Product (at factor cost) falling to 6.7 per cent in 2008-09 as against a growth rate averaging 9.4 per cent per annum over the period 2005-06 to
2007-08. It should be noted that India has been more resilient to the global crisis when compared to many other economies. The key economic growth trends indicate that while there is a steep slowdown in growth in industry, the growth slowdown in services sector was moderate. Component wise analysis of the services sector indicates that the decline in growth in “trade, hotels, transport and communication, financing, insurance, real estate and business services” was cushioned by the significant increase in growth in “community, social and personal services.” This increased growth is attributed to increase in government expenditure in line with the fiscal policy to mitigate the impact of the global recession on economy. In the above backdrop, the focus in the second half of the financial year shifted to providing growth stimulus. The Government introduced three stimulus packages during this half year. The tax revenue receipts as per provisional accounts for 2008-09 was short by 12.80% of the budgeted estimates.
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Budget 2009
Tax Policy of the Government In recent years, tax policy has been guided by the need to increase the tax-GDP ratio and achieve fiscal consolidation. In these years, the tax-GDP ratio improved significantly from 9.2 per cent in 2003-04 to 12.6 per cent in 2007-08. This has been achieved through rationalisation of the tax structure (moderate levels and a fewer rates), widening of the tax base, and reduction in compliance costs through improvement in tax administration. Owing to the policy interventions for inflation management and subsequently for providing a stimulus to growth, Government had to forego substantial revenues from excise and customs duties. Consequently, despite the buoyancy of direct tax revenues and service tax collections, the fiscal consolidation process received a setback. It is expected that a recovery in growth of tax receipts would happen in the later part of 2009-10 and enable a return to the path of fiscal consolidation by moving closer to Fiscal Responsibility and Budget Management Act, 2003 (FRBM) targets.
The key policy directions are: while continuing on the path of simplifying and
rationalizing the tax structure and improving the tax-GDP ratio, it has been considered necessary to continue (and also enhance in some cases) fiscal support to certain labour intensive and employment oriented sectors, which continue to be beleaguered owing to falling demand in domestic and export markets.
It is also proposed to integrate the tax on
goods and the tax on services, and finally move to a common Goods and Service Tax (GST). In as much as the policy so far has sought to achieve convergence of rates, this would facilitate the introduction of GST by 1st April, 2010, as already announced by the Government. This shift to GST is expected to significantly improve buoyancy from indirect taxes, owing to the opportunity it provides for further convergence and moderation of rates and a substantial expansion in the tax base
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Budget 2009
which would extend beyond manufacturing all the way to retail.
During the FRBM period there has been a
structural change in the composition of Centre’s tax revenue. The share of direct taxes in Centre’s tax revenues has also increased to 55.5 per cent in 2008-09 from 41.4 per cent in 2003-04. The medium term strategy for direct taxes is to consolidate the achievements of the past and accelerate this process of change.
Tax Performance & Targets With an exception to Central Excise, the RE
for the year 2008-09 have shown a positive growth in the collection of taxes by 8.97% over the actuals for the year 2007-08. This growth appears to be curtailed for the year 2009-10 (BE). While the corporate income tax shows a growth by 15.64%, the overall growth in tax revenues is envisaged at a meager 2.09%.
Tax Revenue Summary Rs. Crores
Revenue 2009-10 (BE) 2008-09 (RE)
Corporate Tax 256,725 222,000Income Tax - others 112,850 122,600Customs 98,000 108,000Central Excise 106,477 108,359Service Tax 65,000 65,000Other Taxes 2,027 1,990Total 641,079 627,949
The revenue foregone remains high in terms of
overall revenue collection. The stimulus packages announced by the Central Government to mitigate the global financial crisis has reflected in the lower gross tax revenue receipts for the FY 2008-09. The gross tax receipts per provisional accounts for 2008-09 are lower by Rs. 78,010 crores when compared to the BE for 2008-09.
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Budget 2009
A Look Beyond: Our Perspectives Tax Administration Reforms A good step forward The Government has proposed several encouraging steps for further improving the tax administration. Introduction of the Dispute Resolution Panel
for fast-track resolutions of disputes faced by foreign companies and companies with transfer pricing disputes.
Initiative to bring about increased transparency in funding of political parties through establishment of electoral trusts.
Simplification of compliances for small businessmen by introduction of presumptive taxation.
Increased efficiencies in tax administration by re-engineering of key processes coupled with automation e.g. introduction of document identification numbers and recognition of electronic correspondences.
New generation industries Government’s small steps approach While there is something to cheer about for the new-age industries, the lack of any reforms on the much awaited matters appears to have put them one step back. The positives to be reckoned would be: Transfer of right to use packaged software for
further exploitation exempted from central excise duty and countervailing duties is indicative of an attempt to remove the anomalies over possible multiple taxes on software.
Weighted average deduction of 150% of the actual amount incurred for inhouse scientific research for all manufacturers signals the focus on innovation.
Proposal to introduce safe harbour provision in transfer pricing thereby reducing taxpayer hardships on litigation would improve the tax administration
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Budget 2009
The other positives include removal of FBT and reduction in the withholding tax rates
However, the impetus extended by the Government appears inadequate vis-à-vis the sector expectations. The extension of tax holiday for STPs and
EOUs by one year is much against the expectation of the industry. It is understood that the industry expected an extension by not less than 3 years.
Provisions have been made to enable STPs to
claim refund of unutilized service tax credits. While the Central Government has introduced provisions and issued various notes and circulars to facilitate speedy processing of such claims, the on-field reality is contrary. Despite repeated representations, the Central Government has chosen not to address the concerns of the trade and industry on these matters.
Much against the expectation, the corporate rates have not been reduced. To add to this, the increase in MAT by 50 percentage points is seen as a spoil sport by the exporting community.
With the increase in outbound operations of
Indian companies, there was an anticipation that the FM would provide for a foreign tax credit regime. Clarity on the foreign tax credit positions and recognition of underlying tax credits for dividends earned would not only improve the competitiveness of the Indian companies in the global market but would also encourage companies to plough back into India, the profits earned from overseas operations.
Given India's inherent strengths in information
technology, there was anticipation that India would clarify its position on certain tax issues surrounding business models in e-commerce and information technology.
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Budget 2009
Missing the Big Bang Tax reforms to stimulate investments While, the FM articulated his belief in
introducing investment linked incentives, not much was proposed to encourage circulation of private wealth.
In current economic conditions there appears
very little for the housing sector. The Government could have considered increased tax reliefs for individuals for payment of housing interest and timely repayment of loans.
Given the lack of a tax pass-through status for
LLPs; this vehicle may not function to its potential as a strong investment vehicle for high net worth individuals.
The anomaly of classifying information
technology software as goods or services has not been laid to rest. Despite various representations, the Government has apparently not made any mention or issued any clarifications in this regard.
Tax Reforms – the road ahead Key Structural Changes in Direct and Indirect Tax from 01.04.2010 As aptly stated by the Finance Minister: “Tax reform, like all reforms, is a process and not an event.” The FM has emphatically stated that a new Direct tax code and the GST would be introduced. In the words of the FM: “we need a tax system which generates revenues on a sustained basis without use of coercive tax collection methods at the end of each year to meet targets”. Both these legislations are expected to provide some key structural changes to levy and administration of the taxes. New Direct Tax Code Expected Soon The FM has committed to releasing the new Direct Taxes Code within the next 45 days. The Direct Taxes Code, along with a Discussion Paper, will be released to the public for debate. Based on the inputs received, the Government will finalise the Direct Taxes Code Bill for introduction in this House during the Winter Session. It is envisaged that the same would be promulgated by 01.04.2010.
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Budget 2009
Goods and Services Tax to be introduced from 01.04.2010 In indirect taxes the FM purports to accelerate the process for the smooth introduction of the Goods and Services Tax (GST) with effect from 1st April, 2010. As per the FM’s budget speech the Empowered Committee of State Finance Ministers has made considerable progress in preparing the roadmap and the design of the GST. Officials from the Central Government have also been associated in this exercise and through their collaborative efforts, they have reached an agreement on the basic structure, in keeping with the principles of fiscal federalism enshrined in the Constitution. The broad contour of the GST Model is that it will be a dual GST comprising of a Central GST and a State GST. The Centre and the States will each legislate, levy and administer the Central GST and State GST, respectively.
The FM has himself stated that it is his intention to make a modest start in this direction in the current year and ensure that the process is completed in the next four years. The FM speaks - “At the end of this process, I hope the Finance Minister can credibly say that our tax collectors are like honey bees collecting nectar from the flowers without disturbing them, but spreading their pollen so that all flowers can thrive and bear fruit.”
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Budget 2009
DIRECT TAX PROPOSALS
CORPORATE TAX Tax Rates For FY 2009-10 Business Profits There are no changes in the normal tax rates, surcharge or cess for the corporate sector.
Taxable Income (Rs.) Domestic Company
Foreign Company
Upto 10,000,000 30.90% 41.20%Above 10,000,000 33.99% 42.23%
- Marginal relief shall be available in certain cases - The above rates are inclusive of surcharge and
cess, as applicable - It excludes cases liable to special rates of tax
(such as, non-residents earning interest income, royalty income or fee for technical services).
Minimum alternate tax rate increased MAT payable by the companies under Section 115JB is increased from 10% to 15% of book profits. However, as a relief to the taxpayer the time period for carry forward and set-off of the tax credits is extended from 7 years to 10 years. MAT Rate
Taxable Income Domestic Company
Foreign Company
- Upto 10,000,000 - Above 10,000,000
15.45% 16.995%
15.45% 15.84%
Further amendments have been made to provide that any amount set as provision for the diminution in the value of assets is to be added back if the same is debited to profit and loss account. This amendment is made retrospectively from the financial year 2000-01. Similar amendment made in Section 115JA (erstwhile MAT provisions) retrospectively from financial year 1997-98.
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Budget 2009
Fringe Benefit Tax The provisions of fringe benefit tax have been abolished with effect from FY 2009-10.
Advance Tax Currently the liability for payment of advance tax during a financial year arises when the total amount of tax payable during that year is Rs. 5,000 or more. It is proposed to raise this threshold limit to Rs. 10,000. The proposed amendment would be effective financial year 2009-10.
Rationalization of Withholding Taxes Surcharge and Cess not applicable on TDS in
respect of non-salary payments: The surcharge at the rate of 10% of tax and education cess at 3% of the tax shall not be applicable on non salary payments to domestic tax payers / deductees.
“The Finance Act, 2005 introduced the Fringe Benefit Tax on the value of certain fringe benefits provided by employers to their employees. This tax has been perceived as imposing considerable compliance burden. Empathising with these sentiments, I propose to abolish the Fringe Benefit Tax”
FM, Mr. Pranab Mukherjee
However, in respect of payments to companies other than domestic companies, surcharge of 2.5% would continue to be applicable where such income exceeds one crore rupees in the relevant year. Further, the education cess at 3% continues to be applicable for payments to non residents.
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Budget 2009
The withholding tax rates in relation to rent payments have been rationalized and the proposed rates are as follows:
Nature of Payment Existing base rate
Proposed (01.10.2009)
Rent of plant, machinery or equipment
10% 2%
Rent of land, building or furniture to an individual and HUF
15% 10%
Rent of land, building or furniture to a person other than individual and HUF
20% 10%
The withholding tax provisions in relation to contract payments have been rationalized and effective 01.10.2009 the rates are as follows:
1% if the payee is Individual or HUF. In the case of other entities, the rate
prescribed is 2%. In the case of transport contracts, no TDS
is required if the transporter quotes his PAN. Otherwise, TDS rates as prescribed
relation to contract payments on or after 01.10.2009. the law has clarified that “work”
above are applicable.
In
shall not include manufacturing or supplying a product according to the requirement or specification of a customer by using raw material purchased from a person other than such customer as such a contract is a contract for ‘sale’. This will however not apply to a contract which does not entail manufacture or supply of an article or thing (e.g. a construction contract). Further, if the raw material is purchased from such customer then the contract would qualify as for work. It is further proposed to provide that in such a case TDS shall be deducted on the invoice value excluding the value of material purchased from such customer if such value is mentioned separately in the invoice. Where the material component has not been separately mentioned in the invoice, TDS shall be deducted on the whole of the invoice value.
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Budget 2009
No TDS in respect of payments to Transport Contractors: No TDS shall be applicable or deducted in respect of payments to transport contractors if they furnish the PAN to the deductor. However, the deductor would be required to intimate the PAN details to the Income Tax Department in the prescribed format.
Higher rate of TDS where the details of PAN
is not furnished to the deductor: The deductees / payees are required to furnish the details of PAN to the deductors. In the event, the details are not furnished, the rate of TDS applicable on such payments would be at higher of the following irrespective of the nature of payment:
20% of the amount paid / payable Rates as per the other provisions of the Act Rate/s in force for the relevant payment
The above would be equally applicable for payments made / to be made to non-residents. Both the deductor and deductee are required to quote the PAN in the correspondences, bills,
vouchers and other documents sent to each other. This amendment is applicable with effect from FY 2010-11.
The cap on the time limit for passing order for failure to deduct tax at source introduced: In case of default or failure to deduct tax at source, the time limit for passing the order to holding a person to be an assessee in default is capped at 2 years from the end of the financial year in which the statement of TDS is filed and where no statement is filed, such order can be passed within 4 years from the end of the financial year in which the payment is made or credit is given.
This cap of 2 years and 4 years would not be applicable in respect of the following:
Tax is deducted but not deposited. Employer has failed to pay tax on non
monetary perquisite under section 192(1A). The deductee is non resident.
In the above case, the order can be passed
even after the four years. These provisions are applicable for the orders passed on or after 01.04.2010.
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Budget 2009
Filing of quarterly statements dispensed with: Currently, the withholding tax compliance and administrative provisions require filing of quarterly statements in respect of the tax deducted / collected at source. These provisions are amended to provide that such statements of tax deducted / collected at source to be prepared for such period as may be prescribed. This provision is applicable from 01.10.2009.
ax Reliefs
T The sun-se
export profits undet clauses for deduction in respect of
r sections 10A and 10B of
the Income-tax Act for units operating under software technology parks and export oriented parks scheme respectively, is extended by one more year i.e. upto 31.03.2011.
“Deduction in respect of export profits is available under sections 10A and 10B of the Income-tax Act. The deduction under these sections would not be available beyond the financial year 2009-2010. In order to tide over the slowdown in exports, I propose to extend the sun-set clauses for these tax holidays by one more year i.e. for the financial year 2010-11.”
FM, Mr. Pranab Mukherjee
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Budget 2009
In relation to units operating from special economic zones, the existing provisions
Section 35(2AB) provides for a weighted
provided that the relief be computed with reference to the total turnover of the taxpayer. This would be discriminatory in so far as those taxpayers who have multiple units in both the SEZ and the domestic tariff area (DTA) vis-a-vis those taxpayers who are having units in only the SEZ. With a view to remove the anomaly, it is proposed to amend the provisions so as to provide that the deduction shall be computed with reference to the total turnover of the undertaking. This amendment will take effect financial year 2009-10.
average deduction of 150% of the expenditure incurred on in-house scientific research and development for select businesses if approved by the prescribed authority. The scope of businesses entitled to avail of this relief is widened to include all businesses engaged in the manufacture of or production of article or thing except those specified in the Eleventh Schedule (firms producing alcohol, tobacco, cosmetics, toiletries, dental care products and aerated drinks). Hitherto, the benefit was available only to companies engaged in biotechnology or in manufacture of drugs, pharmaceuticals, electronic equipments, computers, telecommunication equipments, chemicals or any other article or thing notified by the Board.
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Budget 2009
Investment linked tax incentives introduced for the following businesses.
Setting up and operating of ‘cold chain
facility’ Warehousing facilities for storing
agricultural produce Laying and operati ng cross country natural gas or crude or petroleum oil pipeline network for distribution on common carrier principle.
Under this method, all capital expenditure, other than expenditure on land, goodwill and financial instruments would be fully allowable as deduction subject to certain conditions. Further any consideration received when such assets are discarded or transfered would be liable to tax as business income. Further, the losses in relation to this business can be carried forward indefinitely to be set off against the profits and gains from such business in future.
In case a taxpayer derives income partly in the nature of agricultural income and partly business income, the depreciation is computed as if the entire income is derived from the business. Hence, the depreciation to the extent it relates to agricultural income is deemed to be allowed even though agricultural income is exempt.
Tax holiday under section 80-IB(9) of the Income Tax Act, which was hitherto available in respect of profits arising from the commercial production or refining of mineral oil, to be extended to commercial production or refining of natural gas. This tax benefit would be available if the production or refining is undertaken from oil and gas blocks which are awarded under the NELP-VIII round of bidding. Further, a retrospective amendment is made with effect from FY 1999-00, to expand the meaning of the term “undertaking” for the purposes of relief under section 80-IB(9). It will mean all blocks awarded in any single contract.
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Budget 2009
Extension of terminal dates for relief claim under Section 80IA
The terminal dates for units engaged in the
generation or distribution or transmission of power has been extended to 31.03.2011 from 31.03.2008. Consequently, the units may commence generation or transmission or distribution at any time prior to 31.03.2011 to be eligible to claim this relief. This amendment would be applicable retrospectively from 01.04.2008.
The terminal date for units availing
deduction in respect of profits and gains derived from commercial production or refining of mineral oil has been extended by three years. Consequently, these units may begin refining of mineral oil before 31.03.2012 to avail of the tax benefit. The new terminal date will be the same for both the public and the private sector.
Distribution of Profits to Partners The present ceiling of remuneration allowable
as deduction for the computation of income of a Firm as per the provision of section 40(b)(v) is increased. Further, the distinction between a firm carrying on a profession or any other business is done away with. The limits of remuneration are as follows:
Income (Rs.) (Book Profit)
Proposed Rates
Less than Rs. 300,000 or Loss
150,000 or @ 90% of the book profit
On the Balance 60% of the book profit
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Budget 2009
Presumptive taxation The presumptive taxation scheme was
erstwhile restricted to select small businesses such as retail, civil construction or supply of labour for civil construction. It is proposed to expand the scope of presumptive taxation to all businesses with effect from FY 2010-11. The salient features of the proposed presumptive taxation scheme for small business (other than goods carriages business) are as under:
The scheme shall be applicable to
individuals, HUFs and partnership firms excluding Limited liability Partnership Firms and companies. It shall also not be applicable to an assessee who is availing any tax reliefs (such as deduction under Sections 10A, 10AA, 10B, 10BA or deduction under any provisions of Chapter VIA)
The scheme is applicable for any business (excluding a goods carriages business) which has a maximum gross turnover /gross receipts of Rs. 40 lakhs.
The presumptive rate of income is prescribed at 8% of gross turnover /gross receipts.
An assessee opting for the above scheme shall be exempted from payment of advance tax related to such business.
An assessee opting for the above scheme shall be exempted from maintenance of books of accounts and tax audit.
In relation to the business of transport
operators (i.e. plying, hiring or leasing of goods carriages), the presumptive income limits have been increased. In the case of the heavy goods vehicle, the presumptive income is increased to Rs. 5000 per month from Rs. 3500 and in the other cases to Rs. 4500 per month from Rs. 3,150 per month. This amendment is applicable from the FY 2010-11.
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Budget 2009
Transfer pricing Existing provisions in relation to the arm’s
length price range state that at the option of the taxpayer, the arm’s length price may be determined as a price which may vary from the arithmetical mean by an amount not exceeding five per cent of such arithmetical mean. This provision has been subject to conflicting interpretation by the assessee and the Income Tax Department. The assessee’s view is that the arithmetical mean should be adjusted by 5 per cent to arrive at the arm's length price. However, the department’s contention is that if the variation between the transfer price and the arithmetical mean is more than 5 per cent of the arithmetical mean, no allowance in the arithmetical mean is required to be made.
With a view to resolving this controversy, it is proposed to amend the proviso to Section 92C to provide if the arithmetical mean, so determined, is within five per cent of the transfer price, then the transfer price shall be treated as the arm's length price and no adjustment is required to be made. This amendment will take effect from 1st October, 2009 and shall accordingly apply in relation to all cases in which proceedings are pending before the Transfer Pricing Officer (TPO) on or after such date.
A new Section inserted to enable CBDT to
make Rules with respect to safe harbour provisions. These rules would provide the circumstances in which the income tax authorities shall accept the transfer price declared by the assessee as an arm’s length transfer price.
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Budget 2009
Dispute Resolution Panel In order to improve tax administration and
avoid prolonged uncertainty in tax related matters for foreign companies or transfer pricing matters, it is proposed to introduce an alternate dispute resolution mechanism which will facilitate expeditious resolution of disputes in a fast track basis with effect from 01.10.2009.
Prior to finalization of an adverse order, the assessing officer shall need to forward a draft of the proposed order of assessment (draft order) to the above mentioned assessee, who may file his objections to the draft order with the DRP. The DRP shall after due consideration issue such directions, as it thinks fit, for the guidance of the Assessing Officer to enable him to complete the assessment. The law provides for the process, powers and time frames for the dispute resolution, besides enabling the CBDT to prescribe further rules for its efficient functioning.
Key aspects to note are:
The DRP has to provide a conclusive view i.e. it may confirm, reduce or enhance the variations proposed in the draft order. The DRP is not authorized to merely set aside any proposed variation or issue any direction for further enquiry and passing of the assessment order by the AO. Every direction issued by the DRP shall be
binding on the Assessing Officer and the same is appellable only with the Appellate Tribunal.
No direction shall be issued unless an opportunity of being heard is given to the assessee and the AO on such directions which are prejudicial to the interest of the assessee or the revenue, respectively. The DRP proceeding to be completed
within 9 months from the end of the month in which the draft order is forwarded to the eligible assessee.
The DRP shall have the same powers as are vested in a Court under the Code of Civil Procedure, 1908 (5 of 1908);
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Budget 2009
Curbing Revenue Leakage The profit linked deductions under various
provisions and Chapter VIA overlap, and the taxpayers, at times, claim multiple deductions for the same profits. With a view to preventing such misuse, it is proposed that:
where any deduction is claimed under
section 10A or 10B or 10AA or 10BA or under the Chapter VIA in respect of certain income, no deduction is allowed in respect of such profits in any other provision of the Act and in no case deduction shall exceed such profits and gains from such undertaking or unit or enterprises or eligible business as the case may be.
no deduction is allowed under section 10A or 10AA or 10B or 10BA or under chapter VIA-C in respect of such profits if the assessee fails to make such claim in the return of income.
The above amendments are applicable retrospectively from FY 2002-03.
Further from FY 2009-10, where deduction is claimed under the aforesaid section or chapter and where there is transfer of goods and services between the undertaking and any other business of the assessee or vice versa, the deduction under the aforesaid section is computed as if the transfer had taken place at market value of such goods and services.
Section 90 of the Income-tax Act empowers the Central Government to enter into Double Taxation Avoidance Agreement (‘DTAA’) with the Government of any other country outside India for granting double-taxation relief and facilitate exchange of information concerning avoidance or evasion of tax. The government now wishes to expand the scope of this cooperation by entering into a DTAA or TIEA (Tax Information Exchange Agreement) with specified territories within foreign countries. The proposed amendment will be effective from 01.10.2009.
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Budget 2009
In respect of profits earned from developing and building housing projects, Section 80-IB(10) provides for 100 per cent deduction of the profits. It is now clarified that the objective of this tax concession is to provide tax benefit to the person undertaking the investment risk i.e. the actual developer. Accordingly, the provisions are amended with effect from FY 2000-01 to provide that nothing contained in this sub-section shall apply to any undertaking which executes the housing project as a works contract. Further, given that the objective of the tax benefit for housing projects is to build housing stock for low and middle income households, from FY 2009-10, conditions have been introduced to ensure that the developer does not sell multiple adjacent units to a single buyer.
Other Tax Administration Measures It is proposed to introduce a computer based
system of allotment and quoting of Document Identification Number (DIN) in each correspondence sent or received by the department so as to enable tracking of documents. Consequently, if a notice, order, letter or any correspondence issued by any income-tax authority does not bear a DIN, the same shall be treated as invalid and shall be deemed never to have been issued. This amendment will take effect from 01.10.2010.
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Budget 2009
Under the existing provisions a notice or
requisition under the Act may be served on the person named therein either by post or as if it were a summons issued by a court. It is proposed to amend the said provisions to provide that the service of notice or summon or requisition or order or any other communication may be made by delivering or transmitting a copy thereof by post or courier service or in such manner as provided in the Code of Civil Procedure, 1908 (5 of 1908) for the purposes of service of summons; or in the form of any electronic record; or by any other means of transmissions as may be provided by rules made by the Board in this behalf. This amendment will take effect from 01.10.2009.
Under the existing provisions of Income-tax
Act, an approval is required to be granted by income-tax authority for availing of various incentives by the assessee. While some provisions of Income-tax Act specifically contain provisions for withdrawal of approval, in many cases there are no such specific provisions containing power of withdrawal. In order to provide explicit provisions for power to withdraw of approval, it is proposed to insert a new Section 293C to provide that an approval granting authority shall also have the powers to withdraw the approval at any time. However, such withdrawal can be made only after giving a reasonable opportunity of showing cause against the proposed withdrawal to the concerned assessee. This amendment will take effect from 01.10.2009.
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Budget 2009
Others An expenditure in respect of which payment is
made for a sum exceeding Rs 20,000 gets disallowed if the payment is made otherwise than by way of account payee cheque or account payee bank draft. This limit for payments to transport operators (i.e. engaged in the business of plying, hiring, or leasing goods carriages) is increased to Rs. 35,000. This amendment is effective from 01.10.2009.
As per the existing provisions of Section
115BBC anonymous donation received is taxable in the hands of any institution or charitable trust other than the institution or trust wholly for the religious purpose. It is proposed that such anonymous donations received by institutions / trusts not being established wholly for religious purposes would be exempt upto 5% of the total income of such trusts / institutions or a sum of Rs.1 lakh, whichever is higher.
A number of tax concessions under the
Income-tax Act are provided for encouraging manufacture of articles or things. However, the term “manufacture” has not been defined in the statute. To remove disputes and resultant judicial review in a number of cases, it is clarified with effect from FY 2008-09 that ‘manufacture’, with all its grammatical variations, shall mean a change in a non-living physical object or article or thing,— (a) resulting in transformation of the object or article or thing into a new and distinct object or article or thing having a different name, character and use; or (b) bringing into existence of a new object or article or thing with a different chemical composition or integral structure.
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Budget 2009
With a view to reforming the system of funding of political parties it is proposed to provide that donations to electoral trusts shall be allowed as a 100 percent deduction in the computation of the income of the donor. Consequentially it is proposed to provide that donations to such electoral trusts shall be treated as income of the trusts which will be specifically exempt subject to satisfaction of prescribed conditions.
The existing provisions of Income-tax Act
provide that income shall be computed in accordance with either cash or mercantile system of accounting regularly employed by the assessee. Further, the Hon’ble Supreme Court, has held that arrears of interest computed on delayed or enhanced compensation shall be taxable on accrual basis. With a view to mitigating the hardship caused to the taxpayer, from the FY 2009-10 it is proposed that the interest received by an assessee on compensation or enhanced compensation shall be deemed to be his income for the year in which it is received, irrespective of the method of accounting
followed by the assessee. Further, it is proposed that the income shall be assessed as “income from other sources” in the year in which it is received and a deduction for 50% of such income would be provided.
New Pension System (NPS) : With a view to
ensure that tax treatment of savings under this system is synchronised with the “exempt-exempt-taxed” (EET) method and that there is no incidence of taxation at the accumulation stage, it is proposed to make the NPS Trust a complete pass-through in so far as taxation is concerned.
Income of the NPS Trust to be exempted from income tax and any dividend paid to this Trust from Dividend Distribution Tax. All purchase and sale of equity shares and derivatives by the NPS Trust also to be exempt from the Securities Transaction Tax. Self employed persons to be enabled to participate in the NPS and to avail of the tax benefits available thereto.
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Budget 2009
The definition of ‘Charitable Purpose’
defined in section 2(15) shall separately list the preservation of environment (including watersheds, forests and wildlife) and preservation of monuments or places or objects of artistic or historic interest so that they would be excluded from the applicability of the prescribed conditions which are applicable to the “advancement of any other object of general public utility”.
Zero Coupon Bond scheme / provisions
extended to scheduled banks
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Budget 2009
LIMITED LIABILITY PARTNERSHIP The taxation of the LLP in the Income Tax Act
is on the same line of taxation of partnership. The income of LLP will be taxed in the hands of the LLP and will be exempt in the hands of its partners.
The LLP Act provides for nomination of
“designated partners” who have been given greater responsibility. It is proposed that the designated partner shall sign the income tax return of an LLP, or, where, for any unavoidable reason such designated partner is not able to sign the return or where there is no designated partner as such, any partner shall sign the return.
The conversion from a general partnership to
an LLP will have no implication if the rights and obligations of the partners remain the same after conversion and if there is no transfer of any asset or liability after conversion. If there is a violation of these conditions, the provisions of capital gains under Section 45 will apply.
In case of liquidation of the LLP, every partner
will be jointly and severally liable for payment of tax unless he proves that non recovery cannot be attributed to any gross neglect, misfeasance or breach of duty on his part.
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Budget 2009
PERSONAL TAX Tax Rates All (except resident women and senior citizens)
Income (Rs.) Proposed Rates
Existing Rates
0 – 150,000 Nil Nil 150,001 to 160,000 Nil 10% 160,001 to 300,000 10% 10% 300,001 to 500,000 20% 20% 500,001 and above 30% 30%
Notes: 1. In case of resident women below the age of 65
years, the basic exemption limit has been increased to Rs 190,000 from Rs 180,000
2. In case of all resident senior citizens (i.e. age of 65 years or more) the basic exemption limit has been increased to Rs 240,000 from Rs 225,000.
3. Surcharge hitherto applicable at 10% is no longer applicable
4. Cess of 3% is leviable on the above rates 5. Marginal relief shall be available in certain cases
Tax Reliefs Scope of relief (under section
80E) for interest payments on education loans extended to cover all fields of studies (including vocational studies) pursued after passing the Senior Secondary Examination or its equivalent from a recognized school, board or university. Under the existing provisions, the deduction is available only for pursuing full time studies for specified courses in engineering, medicine, management, applied sciences or pure sciences including mathematics and statistics.
Present deduction limit under section 80DD
for severe disability has been increased from Rs.75,000 to Rs. 100,000. The limit for ordinary disability remains unchanged at Rs. 50,000.
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Budget 2009
Others
Consequent to the removal of fringe benefit
tax, there is a change in definition of perquisite. Perquisites would now include:
value of any specified security or sweat equity shares allotted or transferred, directly or indirectly, by the employer, or former employer, free of cost or at concessional rate to the assessee. For this purpose, the value of any specified security or sweat equity shares shall be the fair market value of the specified security or sweat equity shares, as the case may be, on the date on which the option is exercised by the assessee as reduced by the amount actually paid by, or recovered from, the assessee in respect of such security or shares. The “fair market value” will mean the value determined in accordance with the method as may be prescribed by the Board.
The amount of contributions to super annuation funds in excess of Rs 100,000 Any other fringe benefit or amenity as may
be prescribed.
Where any capital gain arises from the transfer
of specified securities or sweat equity shares as specified in Section 17(2)(vi), the cost of acquisition of such securities shall be fair market value which has been taken into account for the purpose of valuation of perquisite. This amendment is applicable from FY 2009-10.
Compensation received on voluntary
retirement or termination of service under a scheme of voluntary separation: Hitherto, select taxpayers have claimed relief for the compensation received under both, Section 10(10C) and Section 89. Section 10(10C) provides for exemption of a lump sum amount of Rs. 500,000 from the sum received, while Section 89 provides for spreading of the salary for the period of unserved service to arrive at the relief from the tax amount. The new provision sets out that the taxpayer can choose to claim relief only under one of the provisions.
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Budget 2009
Consequent to the change in the definition of ‘charitable purpose’, donations made to certain organization would not qualify for deduction under Section 80G. In this regard, it is provided that donations made to organizations which received such donations and applied the same funding relief work for floods in Bihar or other public purposes would enjoy the exemption for the FY 2008-09 provided the organizations/trusts were approved for FY-2007-08.
Further, the approval granted by the Commissioner for Institutions under 80G(5)(iv) is applicable for five assessment years under the existing provisions. This time period of five years is now removed. This amendment is applicable from 01.10.2009.
Hitherto, an individual or Hindu Undivided Family (HUF) was liable to tax only on money received in excess of Rs 50,000, barring certain circumstances. Effective 01.10.2009, it is proposed to tax even transactions involving transfer of other specified properties without any consideration or for an inadequate consideration (i.e. transactions in kind or for money’s worth) with an exception to gifts received from relatives or under a will or under prescribed situations. The term property has been defined for this purpose to include immovable properties being land or building or both, shares and securities, jewellery, archaeological collections, drawings, paintings, sculptures or any work of art. The provisions also prescribe the basis and method of valuation of such ‘in kind’ transactions. The valuation principles are based on the stamp duty valuations for immovable property and the fair market values in other cases.
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Budget 2009
The existing provisions for valuing consideration while computing capital gains in case of transfer of land or building or both, is based on the value adopted or assessed by the prescribed stamp valuation authority and does not include transactions which are not registered with the authority and executed through an agreement to sell or power of attorney. With a view to preventing the leakage of revenue, it is proposed to include that the valuation could also be based on the value assessable (i.e. would have adopted) by the prescribed authority. This amendment shall apply in relation to transactions undertaken on or after 01.10.2009.
In concealment penalty proceedings income
pertaining to the period prior to search for which the return of income has been filed by the taxpayer but where such income has not been disclosed in the said return, then such income shall be deemed to be concealed income. The amendment is effective retrospectively from 01.06.2007.
WEALTH TAX The existing threshold limit for applicability of
wealth tax has been increased to Rs.30 lakhs from the previous limit of Rs.15 lakhs. This amendment will apply for the valuation of net wealth as on 31.03.2010.
COMMODITY TRANSACTION TAX The Commodity transaction tax has been
abolished with effect from FY 2009-10.
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Budget 2009
INDIRECT TAX PROPOSALS
GOODS AND SERVICES TAX The Finance Minister reiterated the proclaimed objective of the Central Government to implement GST by April 2010. The dual structure of GST formally announced.
“In the course of preparation of this budget, I
have had the opportunity to interact with large number of stakeholders and receive valuable inputs. Most suggestions were for structural changes in the tax system. Tax reform, like all reforms, is a process and not an event. Therefore, I propose to pursue structural changes …… in indirect taxes by accelerating the process for the smooth introduction of the Goods and Services Tax (GST) with effect from 1st April, 2010.”
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FM, Mr. Pranab Mukherjee
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Budget 2009
SERVICE TAX Tax Rate Service tax rate remains unchanged at 10%
(effective rate at 10.30%) In respect of service providers engaged in
providing taxable and exempt services and opting not to maintain separate records with respect of CENVAT credits, the rate of service tax payable on exempt services is reduced to 6% from 8%.
New Services The following services are proposed to be brought under the service tax net: Services in relation to advice, consultancy or
assistance in any branch of law provided by one business entity to another business entity. However, services provided ‘by’ or ‘to’ individuals shall not be taxable.
Services provided in relation to cosmetic surgery and plastic surgery. Reconstructive surgery undertaken to restore anatomy or body functions affected due to congenital defects, developmental abnormalities, degenerative diseases, injury and trauma are not taxable.
Legal services in the nature of appearance before any Court, Tribunal or Authority shall not be taxable. Services in relation to transport of costal goods
or goods through national water way or inland water.
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Budget 2009
Scope Expansions The scope of certain existing taxable services has been enlarged to levy service tax on additional services. Services provided in relation to transport of
goods by rail in any manner. Hitherto, the taxability was limited to transportation undertaken by non-Government railways in containers by rail.
Services in relation to production or processing
of goods for or on behalf of a client is taxable under the category of business auxiliary services with a specific exclusion to activities amounting to manufacture under Central Excise laws. This exclusion is now restricted only to such activities which amount to manufacture of excisable goods under the Central Excise Act, 1944. Consequently, such activities which result in manufacture of non-excisable goods under the Central Excise Act, 1944 would be liable to service tax. For instance, manufacture of liquor.
Exemptions The following would be exempt from service tax: Specified services provided to a goods
transport agency were exempt with effect from 05.01.2009. This exemption is now made applicable with retrospective effect from 01.01.2005. The validation provisions to give retrospective effect have been inserted.
Any taxable services provided to all
installations, structures and vessels in the continental shelf and exclusive economic zone of India is wholly exempt from service tax. Hitherto, this exemption was limited to designated areas therein as declared by the Ministry of External Affairs.
Services provided by a tour operator having a
contract carriage permit for inter-state or intrastate transportation of passengers, excluding tourism, conducted tours, charter or hire service exempt from service tax.
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Budget 2009
Services involving purchase and sale of foreign currency provided by one scheduled bank to another scheduled bank is wholly exempt from service tax.
The following services provided to exporters of
goods are exempt from payment of service tax subject to certain conditions. This exemption is applicable to the exporters liable to discharge service tax under reverse charge mechanism:
Services relating to transportation of goods by road from the CFS or the ICD to the port of export
Services provided by a commission agent location outside India. The present cap of 10% on the commission agency charges continues to be applicable. Consequently, service tax shall be payable on the amount of commission in excess of 10%.
Club or association services provided by export promotion councils are exempt from service tax. This exemption would be applicable upto 31.03.2010.
Exclusions Stock broking services have been amended to
exclude the services provided by a sub-broker. Consequently no service tax would be applicable.
Only exporters having IEC and registered with any EPCs and Service Tax provisions as recipients are eligible for this exemption
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Budget 2009
Refunds The procedure and the documentation
requirements in respect of refund claims by exporters of goods has been simplified.
The time limit for making the application
for refund is increased to 1 year from 6 months
The condition requiring filing of one application for every quarter is dispensed with
In cases where the refund amount is less than 0.25% of the FOB value of exports, refunds to be processed based on self certification of documents and a self-declaration stating the specified conditions are fulfilled. In other cases, refunds to be processed based on certificates issued by the auditors of the exporter. Refunds to be sanct ioned within 1 month Refunds to be processed without any pre-
audit
Procedural The provisions empowering the Commissioner
to revise the orders passed by any subordinate authorities is done away with.
However, the Commissioner may now examine the orders passed by the subordinate authorities and if necessary, direct such authorities to make an application to the Commissioner of Central Excise (Appeals). The application so made shall be deemed to be an appeal preferred before the Commissioner of Central Excise (Appeals). The timelimit within which the Commissioner shall issue the direction is capped at 3 months from the date of communication of the order by the subordinate authorities. Further, the subordinate authorities shall make the application to the Commissioner of Central Excise (Appeals) within 1 month from the date of such direction.
The timelimit within which an assessee may prefer an appeal before the
Page | 41 of 52
Commissioner of Central Excise (Appeals) is 3 months. However, the timelimit for the Service Tax officer to prefer an equivalent appeal is at 4 months.
Budget 2009
Others In respect of composite scheme for payment of
service tax on works contracts, the gross amount shall include:
Value of goods used, whether or not any
consideration is charged, and Value of services required to be provided
The above would not be applicable in respect of works contracts where the execution has begun or where any amounts have been received prior to 07.07.2009.
Enabling provisions have been inserted to
empower the Central Government to make Rules to identify the date for determination of rate of tax and the place of provision of taxable services.
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Budget 2009
CENTRAL EXCISE Rate of Duty The mean CENVAT rate of 8% has remained
unchanged (effective rate at 8.24%).
Description WEF 07.07.2009
Upto 06.07.2009
Ink for writing instruments 8% 4% Heat resistant latex rubber and rubber tension
8% 4%
Plywood, veneered panels and similar laminated
8% 4%
Flush doors 8% 4% Books other than note books and exercise books
8% 4%
Paper and paperboard labels 8% 4% Textiles goods of cotton, not containing any other textiles materials (*)
4% 0%
Textiles goods of materials other than cotton (*)
8% 4%
* Provided that where the manufacturer does not avail CENVAT Credit, the same would be exempt.
Description WEF 07.07.2009
Upto 06.07.2009
Manmade fibre/yarn 8% 4% Ceramic tiles 8% 4% Branded jewellery 0% 2% LPG gas stove 8% 4% Milk fat tester 8% 4% MP3 or MP4 or MPE4 players 8% 4% Branded motor spirit (petrol) (per litre)
Rs. 6.50 6% + Rs. 5
Branded high speed diesel (HSD) (per litre)
Rs. 2.75 6% + Rs1.25
Boiling point spirits (per litre) 14% 14% + Rs.15.00
Motor vehicles with engine capacity over 1999 CC (per vehicle)
20%+ Rs.15,000
20%+ Rs.20,000
Motor vehicles for transport of goods
8% 20%
Chassis of petrol driven vehicles (per chassis)
8%+ Rs. 10,000
20%+ Rs. 10,000
Contact lens 8% 4% Drawing and Mathematical instruments and parts thereof
8% 4%
Playing cards 8% 4% Paints and shaving brushes 8% 4%
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Budget 2009
In respect of goods covered under the MRP
based valuation, consequential changes in the rate of abatements have been made.
In respect of manufacturers engaged in
manufacture of dutiable and exempt goods and opting not to maintain separate records with respect of CENVAT credits, the rate of duty payable on exempt goods is reduced to 5% from 10%.
Duty on goods of cotton not containing any
other textile materials manufactured by an EOU wholly out of indigenous raw materials increased to 4% from Nil. In case of goods other than cotton, the duty increased from 4% to 8%.
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Budget 2009
Exemptions Transfer of right to use packaged software or
canned software exempt from payment of central excise duty. This exemption would be subject to the condition that:
The manufacturer produces a declaration to the effect that such transfer of right to use is for commercial exploitation, and
The manufacturer is registered under the
provisions of Service Tax
Similar amendment has been made under the Customs Act, 1962
SSI The benefit of SSI exemption is extended to
manufacturers of printed laminated rolls bearing brand name of another person. For the financial year 2009-10, this exemption would be available for the value of clearances not exceeding Rs. 150 lacs during the remaining part of the financial year.
Page | 45 of 52
Budget 2009
Others Where any books of account or other
documents are seized by or produced to the Central Excise Officer and which are not relied upon for issue of show cause notice, it is provided that the same shall be returned within 30 days from the date of issue of show cause notice or within 30 days from the date of expiry of the period for issue of show cause notice.
The timelimit for filing an appeal before the
High Court is 180 days from the date on which the order is received. It is now provided that the High Court may admit appeals even after the lapse of 180 days if there was sufficient cause for not filing the appeal within the said period.
Similar amendment has been made under the Customs
Act, 1962
In respect of the following offences or in
following circumstances, the accused will be restricted from opting for compounding of offence:
If the accused has already been allowed to
compound once in respect of specified offences
If the offence is also an offence under the Narcotic Drugs and Psychotropic Substances Act, 1985
If the accused has already compounded once in respect of an offence for the value of goods exceeding Rs. 1 Crore If the accused is convicted by any Court on / after 30.12.2005
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Budget 2009
CENVAT Inputs Scope of the term ‘inputs’ reduced in respect of
goods purchased for manufacture of capital goods which are further used in the factory of the manufacturer. Consequently, no input credit of central excise paid will be allowed on cement, angles, channels, centrally twisted deform bars, thermo mechanically treated bars and such other items used for construction of factory shed, building or laying of foundation or making of structures for support of capital goods.
Removal of Goods Where any inputs or capital goods in respect of
which the CENVAT credit is availed by manufacturers is fully written off in the books of account, it is provided that the manufacturer shall pay the amount of credit taken at the time of write-off. This provision is now extended to include service providers. Consequently, where any services providers have availed CENVAT credit on input or capital goods which are subsequently fully written off in the books of account without having put such inputs to use, an amount equal to the credit availed shall be paid at the time of write-off.
However, it is also provided that where the service provider subsequently uses such goods in provision of taxable services, the amount of credit paid may be re-availed.
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Budget 2009
CUSTOMS
Rate of Duty The mean rate of basic customs duty rates
remain unchanged. However, certain changes in effective basic
customs duty rates have been made. The following is an illustrative list.
Description WEF
07.07.2009 Upto
06.07.2009 Gold bars (per 10 gms) Rs.200 Rs.100 Gold in any other form (other than bars) (per 10 gms)
Rs.500 Rs.250
Silver in any form (per kg) Rs.1000 Rs. 500 PM synchronous generator above 500 KW
5% 7.5%
Set top Boxes 5% 0% LCD monitors 5% 10% Specified bulk drugs 5% 10% Cotton and wool waste 10% 15% Bio-diesel 2.5% 7.5% Artificial heart (left ventricular assist device)
5% 7.5%
Countervailing duty equivalent of sales tax is
exempted on import of parts, components and accessories of mobile handsets including cellular phones.
In respect of anti dumping duty, it is now
provided that the margin of dumping shall be determined based on the records concerning normal value and export price maintained by the exporter or producer. However, in the absence of such records, the margin shall be determined on the basis of the facts available.
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Budget 2009
Valuation In respect of goods which are liable to central excise duty on a tariff value basis, for the purposes of levy of CVD on like goods imported into India, the value of the imported article shall be deemed to be the tariff value. Classification In respect of goods falling in Chapters 50 to 55 or CTH 5809 or 5902, if the goods are mixture of two or more articles, the same shall be classified as if consisting wholly of that textile article which is predominant by weight. Further, if no single material is predominant in weight, it shall be classified as if consisting wholly of that textile article which is covered by the heading which occurs last in the numerical order in the Customs Tariff Act, 1975.
Refund The importer may claim refund of import duty paid on imported goods if the goods are found to be defective or otherwise not in conformity with the specifications agreed upon and if such goods are re-exported or the importer relinquishes his title to such goods or if such goods are destroyed in the presence of the customs officers. While the law provides for a period of 180 days for making the application for refund, it is necessary that the re-export or relinquishment of title or destruction of goods is done within 30 days from the date of clearance of goods by the customs officer.
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Budget 2009
Advance Rulings It is provided that the Central Government may authorize the Authority of Advance Rulings set up under the provisions of the Income Tax Act, 1961 to function as the Authority of Advance Rulings under the Customs Act, 1962. It is further provided that upon the Central Government notifying the above, the Authority of Advance Rulings set up under the Customs Act, 1962 would cease to function.
The above would be equally applicable to Central Excise and Service Tax matters.
Others In respect of the following offences or in
following circumstances, the accused will be restricted from opting for compounding of offence:
If the accused has already been allowed to
compound once in respect of specified offences
If the offence is also an offence under certain other specified Acts If the offence is in respect of goods which are specified as prohibited items If the offence or documents involved
therein are likely to affect friendly relations with the foreign state If the accused has already compou nded once in respect of an offence for the value of goods exceeding INR 10 Mil If the accused if convicted by any Court on
/ after 30.12.2005
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Budget 2009
EFFECTIVE DATES The Direct Tax proposals are effective for the financial year 2009-10 unless alternatively provided therein. The effective dates for the Indirect Tax proposals are as follows: Customs & Central Excise
Particulars Effective Date
Changes in duty rates & exemptions (including exemption to packaged software)
07.07.2009
CENVAT procedures 07.07.2009 Changes in Customs and Central Excise provisions
To be notified
Refund of import duties on damaged / defectives
To be notified
Other s To be notified
Service Tax
Particulars Effective Date
New services introduced To be notified Expansion of scope in existing services
To be notified
Exemptions to certain services 07.07.2009
Retrospective exemption to specified taxable services provided to GTA effective 01.01.2005
To be notified
Amendments in Works Contract (Composition Scheme for payment of Service Tax Rules, 2009)
07.07.2009
Refund of Service tax for exporters
07.07.2009
Reduced rates on exempted goods / services (CENVAT Rules)
07.07.2009
Other procedural changes To be notified
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Budget
Page | 52 of 52
2009
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