BUDGET 2011 : DIRECT TAXES

DIRECT TAXES

TAX RATES – INDIVIDUALS

Ø  Basic exemption limit raised to INR 180,000.

Ø  Women - Basic exemption limit raised to INR 190,000. (No change.)

Ø  Senior Citizen - Basic exemption limit raised to INR 250,000. Qualifying age reduced from 65 to 60 yrs

Ø  Very Senior Citizen (> 80 yrs) - Basic exemption limit raised to INR 500,000.

CORPORATE

Ø  Surcharge – For domestic companies reduced from 7.5% to 5%. For non-domestic cos, reduced from 2.5% to 2%. Basic tax is the same.

SALARY

Ø  Salaried tax payers exempted from filing return of income, subject to fulfilment of certain conditions

Ø  Contribution made under section 80CCE (New Pension Scheme) to be excluded from the limit of INR 1 Lac. Further deduction of such amount applicable to the employer. (restricted to 10% of the employee’s salary)

INVESTMENT LINKED DEDUCTION UNDER SECTION 35AD

Ø  Removal of term “new” from existing definition of specified businesses (only hotel and hospital) claiming 100% deduction under section 35AD. Thus losses under section 73A for such businesses to be freely allowed to be set off. Applicable from AY 2011-2012

Ø  2 additional businesses – “affordable housing projects”, “production of fertilizers” eligible for investment linked deduction (100%) under section 35AD. Applicable from AY 2012-2013.

MINIMUM ALTERNATE TAX (‘MAT’) AND DIVIDEND DISTRIBUTION TAX (‘DDT’)

Ø  MAT rate proposed to be increased to 18.5% on book profits.

Ø  Proposed to introduce sunset clause in the existing MAT exemption in the case of SEZ Developers and units in SEZ. MAT to be applicable to such units w.e.f AY 2012-13.

Ø  MAT made applicable to Limited Liability Partnerships. Set off of MAT tax  available against tax payable under normal provisions subject to certain conditions.

Ø  Proposal to discontinue exemption from DDT in the case of SEZ Developers and units in SEZ w.e.f 01.06.2011.

SUNSET CLAUSES FOR SECTION 80-IA/IB PROVISIONS (PROFIT LINKED) / SECTION 10

Ø  Terminal period for claiming deduction under section 80-IA, for any entity engaged in “generation and distribution of power, transmission or distribution of network lines”, extended to 31 March 2012.

Ø  In case of commercial production of mineral oil – 7 years profit linked deduction to continue except for contracts awarded under a government of India scheme.

Ø  Section 10B – No extension has been granted for the existing STPI units.

TRANSFER PRICING

Ø  Standard deduction of variation of 5% on arm’s length price outdated. New variation to be notified. Applicable from AY 2012-13 onwards.

Ø  TPO to determine the arm’s length price of additional international transactions other than those referred by the AO.

Ø  Additional powers of survey conferred on the TPO. Applicable from 01.06.2011

Ø  Filing of Accountant’s Report in Form No. 3CEB extended to 30 November. (w.e.f 01.04.2011) Applicable to A.Y . 2011-12

SETTLEMENT COMMISSION

Ø  Entities on whom search is initiated can file an application before the settlement commission if additional tax payable on disclosed income exceeds INR 50 Lacs.

Ø  Entities related (to be defined) to a tax payer on whom the search is initiated would be allowed to file an application before the settlement commission if additional tax payable on disclosed income exceeds INR 10 Lacs. Such entities should also be subject to search proceedings.

FOREIGN TAXATION:

Ø  Anti avoidance measures: New Section 94A introduced w.e.f 01.06.2011 to deal with transactions undertaken with persons located in any country or jurisdiction which does not effectively exchange information with India.

Ø  Currently dividend received from foreign subsidiary company is taxed at maximum marginal rate. This rate is amended now to be taxed at 15 percent (plus surcharge as applicable). Applicable w.e.f AY 2012-2013.

Ø  New measures introduced to facilitate prompt collection of information on requests received from tax authorities outside India.

Ø  The proposal for providing document identification number for any correspondence made by the tax officer to be implemented w.e.f 01.07.2011 is done away with.

Ø  Liaison offices to file annual information report within 60 days of end of financial year. Applicable from 01.06.2011

General

Ø  Existing monetary limit of INR 10 Lacs enhanced to INR 25 Lacs for entities to be treated as not involved in charitable activity under section 2(15).

Ø  Section 10 amended to include tax exemption to an income earned by an entity engaged in any activity for the benefit of general public excluding commercial activity.

Ø  Income earned by an infrastructure debt fund will be fully exempt.

Ø  Section 35(2AA) amended to increase the weighted average deduction from 175% to 200% towards any sum paid for approved scientific research programme

Ø  Mutual Funds to be liable to pay additional income tax on distributed income

Ø  25 percent for an individual and 30 percent for others. (money market fund or liquid fund)

Ø  12.5 percent for an individual and 30 percent for others. (debt fund)

Ø  Equity oriented funds continue to enjoy the tax exemption