Direct Tax Proposals 2012 : TAX RATES......

Tax Rates

   Individuals, Hindu Undivided Families, Association of Persons and Body of Individuals

Total Income	Present ( FY 2011-12)	Proposed (FY 2012-13)
Upto INR 180,000	NIL	NIL
INR 180,000 to INR   200,000	10%	NIL
INR 200,000 to INR   500,000	10%	10%
INR 500,000 to INR   800,000	20%	20%
INR 800,000 to INR 10,00,000	30%	20%
INR 10,00,001 & Above	30%	30%

v  In the case of a resident individual of the age of sixty years or above but below eighty years, the basic exemption limit is INR 250,000

v  In the case of a resident individual of the age of eighty years or above, the basic exemption limit is INR 500,000

v  Education cess is applicable @ 3% on Income Tax

v  In FY 2011-12, exemption limit for women assessee was INR 190,000 but there is no such preference proposed for FY 2012-13 

    Firm, LLP, AOP, BOI  

There is no change proposed in taxation of above entities. The existing rates are as under:

ü  Taxable @ 30%

ü  No Surcharge

ü  Education cess @ 3% on income tax.   

    Corporate

There is no change proposed in corporate tax rates. The existing rates of corporate taxes are as under: 

Domestic Companies

ü  Taxable @ 30%

ü  Tax rate for Life Insurance companies is 12.5%

ü  Surcharge is applicable @5% if total income exceeds INR 1 crore

ü  Education cess @ 3% on income tax 

Foreign Companies

ü  Taxable @ 40%

ü  Surcharge is applicable @2% if total income exceeds INR 1 crore

ü  Education cess @ 3% income tax 

    Book Profit Based Taxations 

Minimum Alternative Tax (MAT) 

There are no changes in MAT provisions for companies. The existing rates of MAT are as under: 

ü  @ 18.5% of the adjusted book profit (if normal tax is less than 18.5% of book profit)

ü  Surcharge @ 5% is applicable if adjusted book profit is in excess of INR 1 crore.

ü  Education cess is applicable @ 3%. 

Alternative Minimum Tax (AMT) 

AMT is applicable in case of persons other than company. Till FY 2011-12, AMT is applicable only for LLP. Current budget proposals proposed to include Individual, HUF, AOP, BOI in the AMT purview.  

ü  Tax @ 18.5% of the adjusted book profit (if normal tax is less than 18.5% of book profit)

ü  Education cess is applicable @ 3%

ü  AMT will not be applicable for Individual, HUF, AOP, BOI if adjusted total income of such person does not exceeds INR 20,00,000  

    Securities Transaction Tax

Plan to reduce STT in Cash Delivery segment from the existing 0.125% to 0.1%. Details are as under:

Total Income	Present ( FY 2011-12)	Proposed (FY 2012-13)	Payable by
Purchase / Sale of equity shares, Units of equity oriented fund (Delivery based)	0.125%	0.100%	Purchaser / Seller
Sale of equity shares, units of equity oriented mutual fund (non-delivery based)	0.025%	0.025%	Seller
Sale of an option in securities	0.017%	0.017%	Seller
Sale of an option in securities, where option is exercised	0.125%	0.125%	Purchaser
Sale of a futures in securities	0.017%	0.017%	Seller
Sale of a futures in securities	0.250%	0.25%	Seller

 Proposed amendments in the rates of Securities Transaction Tax (STT) will be effective from the 1^st day of July, 2012 

    Wealth Tax 

There are no changes in Wealth Tax rates.  As per existing law, Wealth tax is imposed @ 1 percent on the value of specified assets held by the taxpayer on the valuation date (31 March) in excess of the basic exemption of INR 3,000,000.

    Tonnage Taxation ( For Shipping Company) 

Operating profit of a shipping company is determined on the basis of tonnage capacity of its ships. There are certain changes (w.e.f. 01-04-2012) proposed by finance bill 2012, which is summarised as under:  

Qualifying ship having net tonnage	Existing Rate	Proposed Rate
Up to 1,000	INR 46 for each 100 tons	INR 70 for each 100 tons
1,001 – 10,000	INR 460 plus Rs.35 for each 100 tons exceeding 1,000 tons	INR 700 plus INR 53 for each 100 tons exceeding 1,000 tons
10,001 -  25,000	INR 3,610 plus Rs.28 for each 100 tons exceeding 10,000 tons	INR 5,470 plus INR 42 for each 100 tons exceeding 10,000 tons
Above 25,000	INR 7,810 plus Rs.19 for each 100 tons exceeding 25,000 tons	INR 11,770 plus INR 29 for each 100 tons exceeding 25,000 tons

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Direct Tax Proposals 2012 : SEARCH & SEIZURE / TAX ADMINISTRATION / LITIGATION

Search & Seizure

    Penalty for Undisclosed income during search (Section 271AAA – 271AAB)

Amendments will apply to any search and seizure action taken after 1st day of July, 2012

Present Law	Proposed changes (w.e.f. 01-07-2012)
Section 271AAA : ü No penalty is levied ü If Assessee admits undisclosed income in a statement u/s 132(4) during search ü Specifies the manner in which undisclosed income earns ü Pays the taxes together with interest Section 271AAA will apply for Search Conducted till 30-06-2012	New Section 271AAB : a)   If undisclosed income admits during search ü Penalty @ 10% of undisclosed income as per existing law subject to conditions ii) If undisclosed income not admits during search, but disclosed in ROI ü Penalty @ 20% of undisclosed income as per existing law subject to conditions Except (i) & (ii) above ü Penalty @ 30% to 90% of undisclosed income

    Application before Settlement commission : Section 245C

Present Law

Proposed Law (w.e.f. 01-07-2012)

ü An Application can be filed ü Where the Applicant ·    is ‘Related to the Person’, in whose case proceedings have been initiated as a result and who had file an application and ·    is a person, in whose case proceedings have also been initiated as a result of Search ü The Additional amount of Income Tax payable disclosed in his application exceeds ü INR 10,00,000.  Definition of Related Person ü The substantial interest is found to exist, ü where a person holds more than 20% shares or ü 20% share in profits, ü At ANY TIME during the previous year

Definition of Related Person amended ü The substantial interest is found to exist, ü where a person holds more than 20% shares or ü 20% share in profits, ü As on the “DATE OF SEARCH”

    Completion of assessment in search cases referred to DRP

Present Law	Proposed Law
Section 144C / 153 ü Where an eligible assessee files an objection against the draft assessment order ü before the DRP, ü then, the time limit for completion of assessments ü for the AO,  shall be ü within One month from the end of the month ü in which direction of ‘DRP’ received	ü Also Applicable for ü Assessment made ü As a result of “Search & Seizure” W.r.e.f. 01-10-2009.

    Exemption for compulsory reopening of 6 years

Present Law	Proposed Law (w.e.f. 01-07-2012)
ü After the Search proceedings ü Notice u/s 153A should be given for compulsorily filing of return for ü 6 Assessment year, immediately preceding the AY in which search was conducted	ü Central Govt can notify cases or class of cases ü Where 153A notice will not be issued for preceding 6 AY. ü Scrutiny only for previous year in which search conducted

    Authorisation / Requisition and subsequent assessments

Proposed New Section (w.r.e.f. 01-04-1976)

As per Section 292CC in the Income-tax Act to provide that –       It shall not be necessary to issue an authorisation u/s 132 or make a requisition u/s 132A “Separately in the name of Each Person”;       Where an authorisation u/s 132 or requisition u/s 132A has been made mentioning ·         therein the name of ‘More than one person’ ·         the mention of such names of more than one person on such authorisation or requisition ·         shall not be “Deemed to Construe” that ·         it was issued in the name of ·         an association of persons or body of individuals consisting of such persons;       Notwithstanding that an authorisation u/s 132 or requisition u/s 132A has been made ·         mentioning therein the name of ‘More than one Person’, ·         the assessment or reassessment shall be made ·         Separately in the name of ‘Each of the persons” ·         mentioned in such authorisation or requisition.

Comment:

v Allahabad HC in case of CIT v. Vandana Verma 330 ITR 533 had held that “A warrant of authorization must be issued individually. If it is not issued individually, then the assessment cannot be made in individual capacity.”

v To overcome similar type of judgements & to bring clarity on the intention of statute, this amendment is proposed to be introduced. 

Extract of Memorandum:

“ In a recent Court decision, it has been held that in search cases arising on the basis of warrant of authorisation under section 132 of the Act, warrant of authorisation must be issued individually and if it is not issued individually, assessment cannot be made in an individual capacity. It was also held that if the authorization was issued jointly, the assessment will have to be made collectively in the name of all the persons in the status of association of persons/body of individuals.”

  Tax Administration & Litigation 

    Dispute Resolution Panel (DRP)

Present Law	Proposed Changes
ü  The Income Tax Department ü  does not have the right to appeal ü  against the directions given by the DRP.	ü  As the directions of DRP binding on AO ü  AO may also file an appeal before ITAT.   ü  Against the directions of DRP ü  If ü  Assessee files  objection against the draft assessment order ü  On or after  01-07-2012
ü The DRP has the power to confirm, ü reduce or enhance ü  the variations ü  Proposed in the draft order.	Due to ambiguity regarding the enhancement , it is proposed to clarify that ü Power of the DRP to enhance the variation ü shall include and ü shall always be deemed to have included ü the power to consider any matter arising out of the assessment proceedings ü Relating to the draft assessment order. ü irrespective of the fact whether ü Such matter was raised by the eligible assessee or not. ü Retrospectively applied w.e.f. 01.04.09

Comment:

v Mumbai ITAT in Dredging International NV v. ADIT 48 SOT 430 (Mum ITAT) had held that DRP power to enhancement is confined to confined to issues raised in Draft assessment order only. The same view had been taken by Karnataka HC in GE India Technology Centre (p) Ltd vs. DRP WP1010/2011 (Kar HC). To overcome these judgements this amendment is proposed.

v Earlier, against the Directions of DRP, there was no appeal in ITAT by department. Through this amendment, department can file appeal in ITAT.

v Vide these two Amendments, DRP & CIT (A) comes to a same footings. Chances of enhancement in case of DRP are much higher than DRP.

Extract of Memorandum:

“ As the directions given by the DRP are binding on the Assessing Officer, it is accordingly proposed to provide that the Assessing Officer may also file an appeal before the ITAT against an order passed in pursuance of directions of the DRP.

In a recent judgement, it was held that the power of DRP is restricted only to the issues raised in the draft assessment order and therefore it cannot enhance the variation proposed in the order as a result of any new issue which comes to the notice of the panel during the course of proceedings before it.”

    Extended time limits for Proceedings

Time limit for completion of assessment / reassessment has been proposed to be increased by three months, which is summarised as below:

Sec.	Current Time Period	Existing Time Period (w.e.f 01-07-2012)
143	21 months from the end of the A.Y.	24 months
143 & 92CA	33 months from the end of the A.Y.	36 months
148	9 months from the end of the F.Y. in which notice issued	12 months
148 & 92CA	21 months from the end of the F.Y. in which notice issued	24 months
250/254/263	9 months from the end of the F.Y. in which order received	12 months
250/254/263 & 92CA	21 months from the end of the F.Y. in which order received	24 months

Consequential changes made in section 17 of wealth tax act to increase the time limit by 3 months.

    Processing of Return u/s 143(1)

Present Law	Proposed Changes (w.e.f. 01-07-2012)
ü  100% returned processed u/s 143(1) ü  Refunds if arises issued to taxpayers. ü  Scrutiny notice u/s 143(2) issued.	ü  Processing u/s 143(1) will not be necessary ü  if ü  Notice u/s 143(2) already issued.

    Intimation after processing of TDS statement (Section 200A)

Present Law	Proposed Changes (w.e.f. 01-07-2012)
After processing of TDS statement, an intimation is generated specifying the amount payable or refundable, which is not ü  subject to rectification under section 154; ü  appealable under section 246A; and ü  Deemed notice of demand u/s 156	The intimation generated after processing of TDS statement shall be ü  subject to rectification u/s 154; ü  appealable under section 246A; and ü  Deemed notice of demand u/s 156.

    Filing fees for application before Authority for Advance Ruling (AAR)

Present Fees (Till 30.06.2012) INR 2,500

Proposed Fees (01-07-2012) INR  10,000

    Interest u/s 234D

Present Law	Proposed Law (w.r.e.f. 01-06-2003)
ü Where any refund u/s 143(1) has been granted to assessee ü and subsequently on regular assessment, ü refund amount is reduced, ü then, assessee shall be liable to pay ü Interest @ .5%  on excess refund ü Starting from the date of refund to the date of such regular assessment	ü 234D would be applicable ü to any proceeding which is completed ü on or after 1st June, 2003, ü irrespective of the assessment year to which it pertains

Comment:

In below mentioned judgements, court had held that Interest is payable for AY 2004-05 only and no interest before this period can be recovered from the assessee.

1)   C.A. Computer Associates (p) Ltd vs. DCIT 8 ITR 142 (Mum)

2)   CIT vs. Faunc India Ltd 57 DTR 340 (Kar. HC)

3)   DIT vs. Jacobs Civil Incorporated 330 ITR 578 (Delhi HC )

4)   Sony India vs DCIT 118 TTJ 865 (Del ITAT)

To overcome these judgements, Amendments in this section is proposed to be made, which is very much clear from Memorandum explaining finance bill.

    Charitable Institutions

Present Law

Proposed Law (w.r.e.f. 01-04-2009)

Section 11 & 12 ü Income of Charitable Institutions is ü Exempt if, ü Registered in India & ü Income Applied for “Charitable Purpose” in India. Section 2(15) & 2nd Provisio ü ‘Charitable Purpose’ includes “ ü Advancement of any other object of general public utility” provided that ü It does not involve carrying on of any activity ü In the nature of trade, commerce or business. Exemption will not be denied ü If receipts from Commercial Activity ü Does Not Exceeds INR 25,00,000 ü In Previous Year

Amendment in 10(23C), section 13 and section 143 ü Such organization does not get benefit of tax exemption ü In the “Previous Year” in which ü it’s Receipts from Commercial activities ü exceed the threshold INR 25,00,000 ü whether or not ü the registration or approval granted or notification issued ü is cancelled, withdrawn or rescinded

Comment:

For withdrawing exemption for a particular year, it will now not be necessary to cancel the registration of Trust. As and when receipts from commercial activities exceeds INR 25,00,000 during the previous year, then in that year, exemption of the trust will automatically be withdrawn.

    Venture capital fund (VCF) / Venture capital company (VCC)

Present Law

Proposed Changes

Section 10(23FB) : v  Income of VCF/VCC is Exempt, if v  Investment by such VCC/VCF was in v  Unlisted shares of a domestic company, i.e. a Venture Capital Undertaking (VCU). ü  Income of a SEBI regulated VCF or VCC, ü  derived from Investment in a VCU , ü  is exempt from taxation, ü  provided the VCU is engaged in ü  Only nine specified businesses. Section 115U : v  Income, in the hand of the investor v  through VCF/VCC is taxed v  in like manner and to the same extent,  as if v  the investment was directly made by investor in the VCU. v  i.e. on Receipts by investors. TDS provisions are not applicable ü  to any payment made by the ü  VCF to its investor ü  and ü  payment by VCC to the investor is ü  Exempted from DDT

10 (23FB) & 115U proposed to amend to provide that.- v  The venture Capital undertaking shall have same meaning as provided in relevant SEBI regulations and there Would be no sectoral restriction. v  Income accruing to VCF/ VCC shall be Taxable in the hands of ‘Investor’ on accrual basis ‘with No deferral’. It means that “Investor” now have to pay Tax on Accrual Basis v  The Exemption from Applicability of TDS provisions on income credited or paid by VCF/ VCC to investors shall be withdrawn.

    Prosecution

Section	Present Law	Proposed Changes (w.e.f 01-07-2012)
276C 276CC 277 277A 278	ü Where the amount of tax, penalty or interest ü which would have been evaded by a person ü exceeds INR 1,00,000, ü he shall be punishable with ü rigorous imprisonment for a term ü Min 6 months -  Max 7 years & with fine ü For Net Tax Evasion upto INR 1,00,000 ü he shall be punishable with ü rigorous imprisonment for a term ü Min 3 months -  Max 3 years & with fine	ü Amount of tax, penalty or interest evaded ü exceeds INR 25,00,000, ü Assessee shall be punishable with ü rigorous imprisonment for a term ü Min 6 months -  Max 7 years & with fine ü For Net Tax Evasion upto INR 25,00,000 ü he shall be punishable with ü rigorous imprisonment for a term ü Min 3 months -  Max 2 years & with fine
280A	New Section: Provision for constitution of Special Courts.
280B	New Section: Trail of Offences by Special Court.
280C	New Section: Application of summons trial for offences under the Act to expedite prosecution proceedings as the procedures in a summons trial are simpler and less time consuming.
280D	New Section: Providing for appointment of public prosecutors.

Comment:

Prosecution under Direct Taxes law is used as a tool for deterrence and effective enforcement of law. To become it more effective, the said amendment is proposed. 

Extract of Memorandum:

“ It is proposed to strengthen the prosecution mechanism (through new sections 280A, 280B, 280C and 280D) under the Income-tax Act by –

a)      Providing for constitution of Special Courts for trial of offences.

b)      Application of summons trial for offences under the Act to expedite prosecution proceedings as the procedures in a summons trial are simpler and less time consuming.

c)      Providing for appointment of public prosecutors.”