RSM Astute Consulting - India Union Budget 2011 - Highlights Referencer

INDIA
BUDGET 2011
- HIGHLIGHTS
RSM Astute Consulting Group
Indian member of RSM International
Personnel strength of over 800
5th largest accounting and consulting group in India

(Source : International Accounting Bulletin, September 2010)
Nationwide presence
International delivery capabilities
RSM International
6th largest network of independent
accounting and consulting firms in the world
Annual combined fee income of US$ 3.9 billion
714 offices across 83 countries
www.astuteconsulting.com
INDIA
BUDGET 2011
- HIGHLIGHTS
February 2011
INDIA BUDGET 2011 - Highlights i

INDIA
BUDGET 2011
- HIGHLIGHTS
CONTENTS
EXECUTIVE SUMMARY 1
CHAPTER 1 : INTRODUCTION 7
CHAPTER 2 : INDIAN ECONOMY - AN OVERVIEW 10
CHAPTER 3 : TAX RATES 13
CHAPTER 4 : TAX INCENTIVES FOR BUSINESSES 17
CHAPTER 5 : DIRECT TAXES - SIGNIFICANT CHANGES 32

5.1 Business Entities 32
5.2 Personal 41
5.3 Non Residents 42
5.4 Transfer Pricing 43
5.5 General 44
CHAPTER 6 : INDIRECT TAXES - SIGNIFICANT CHANGES 46

6.1 Goods and Service Tax 46
6.2 Service Tax 46
6.3 Customs Duty 53
6.4 Excise Duty 56
CHAPTER 7 : OTHER SIGNIFICANT PROPOSALS 60
CHAPTER 8 : IMPACT ON SELECT INDUSTRIES 62
CHAPTER 9 : DTAA RATES 68
CHAPTER 10 : TDS RATES 75
ABBREVIATIONS 77
INDIA BUDGET 2011 - Highlights ii

EXECUTIVE SUMMARY
1.0 DIRECT TAXES
1.1 Effective Tax Rates
1.1.1 Personal taxation
The Bill proposes certain modi-

fications to the tax structure for
Individuals, HUFs, AOPs and BOIs.
Consequently, the effective
proposed and existing tax rates for the FYs 2011-12 and 2010-11
respectively, in case of Individuals / HUFs / AOPs / BOIs are as follows:
The rates of income-tax in the case of every individual (other than those specified
below) or HUF are as under:
Budget 2011 Tax Rates* Existing Tax Rates*

Upto Rs. 1,80,000 Nil Upto Rs. 1,60,000 Nil
Rs. 1,80,001 to Rs. 5,00,000 10.30% Rs. 1,60,001 to Rs. 5,00,000 10.30%
Rs. 5,00,001 to Rs. 8,00,000 20.60% Rs. 5,00,001 to Rs. 8,00,000 20.60%
Above Rs. 8,00,000 30.90% Above Rs. 8,00,000 30.90%
Females below the age of 60 years (existing limit - below 65 years)

Rs. 1,90,001 to Rs. 5,00,000 10.30% Rs. 1,90,001 to Rs. 5,00,000 10.30%
Rs. 5,00,001 to Rs. 8,00,000 20.60% Rs. 5,00,001 to Rs. 8,00,000 20.60%
Above Rs. 8,00,000 30.90% Above Rs. 8,00,000 30.90%
Senior Citizens - individuals between the age of 60-80 years (existing limit – 65 years
and above)

Rs. 2,50,001 to Rs. 5,00,000 10.30% Rs. 2,40,001 to Rs. 5,00,000 10.30%
Rs. 5,00,001 to Rs. 8,00,000 20.60% Rs. 5,00,001 to Rs. 8,00,000 20.60%
Above Rs. 8,00,000 30.90% Above Rs. 8,00,000 30.90%
INDIA BUDGET 2011 - Highlights 1

Very Senior Citizens - individuals having age of 80 years or more
Budget 2011 Tax Rates* Existing (no special slabs Tax Rates*
for Very Senior Citizens)
Rs. 2,40,001 to Rs. 5,00,000 10.30%
Rs. 5,00,001 to Rs. 8,00,000 20.60% Rs. 5,00,001 to Rs. 8,00,000 20.60%
Above Rs. 8,00,000 30.90% Above Rs. 8,00,000 30.90%
* The tax rates are inclusive of education cess of 3%. No surcharge will be
levied.
1.1.2 Corporate Taxation
ØSurcharge for domestic companies has been reduced from 7.50% to 5%.
ØSurcharge for foreign companies has been reduced from 2.50% to 2%.
ØEffective corporate tax rate for domestic companies having income
exceeding Rs. 1,00,00,000, has been reduced from 33.2175% to 32.445%.
ØEffective corporate tax rate for foreign companies having income exceeding
Rs. 1,00,00,000, has been reduced from 42.23% to 42.024%.
ØEffective MAT rate has been increased from 19.93% to 20.008% for
companies having income exceeding Rs. 1,00,00,000.
ØEffective DDT has been reduced from 16.60875% to 16.2225%.
ØLower rate of tax @ 15% on dividend received by an Indian company from
its foreign subsidiary, resulting into reduction in the effective tax rate from
33.2175% to 16.2225%.
1.1.3 Partnership Firms / LLPs
ØThe Bill proposes no change in the existing tax rate of 30.90% for
partnership firms / LLPs.
ØThe Bill proposes to apply AMT in case of LLPs also, resulting into effective
tax @ 19.055% on its adjusted total income.
1.2 Proposals for Personal Taxation
ØIn case of salaried tax payers, where there is no other source of income,
filing of tax return may not be required for certain persons as may be notified.
ØAdditional deduction of Rs. 20,000 for investment in long term infrastructure
bonds, has been extended for 1 more year.
ØThe contribution made by employer to a pension scheme shall be excluded
from the deduction limit of Rs. 1,00,000 available to employees under

section 80CCE. Accordingly, such contribution will be eligible for deduction
over and above the limit of Rs. 1,00,000.
1.3 Tax Incentives and Proposals for Businesses
ØBenefit of investment linked deduction by way of allowing 100% deduction in

respect of expenditure of capital nature has been extended to businesses
engaged in production of fertilisers and businesses engaged in developing
and building of housing projects under a scheme of affordable housing.
ØThe weighted deduction on payments made to national laboratories or
universities or IIT or a specified person for the approved scientific research
programme, has been increased from 175% to 200%.
ØIt is proposed to discontinue the exemption from MAT in case of SEZ
developers and units in SEZ.
ØIt is proposed to discontinue DDT exemption to SEZ developers, effective
from 1 June 2011.
ØThe terminal date for tax holiday available to power sector has been
extended for 1 more year i.e. upto 31 March 2012.
ØNo extension in terminal date for tax holiday in case of STP / EOU units.
ØAny sum paid by assessee as an employer by way of contribution towards a
certain pension scheme shall be allowable expenditure to the extent of 10%
of salary of the employees.
1.4 Proposals for Non-Residents
ØIt is proposed to facilitate setting-up of dedicated debt funds for

infrastructure sector. Once notified, such funds are proposed to be
exempted from tax. It is also proposed that the gross interest from such
funds shall be liable to tax at a reduced rate of 5% in the hands of non-
residents.
ØNon-residents operating through liaison office would be required to submit
the annual information within 60 days from the end of FY in the prescribed
manner.
1.5 Other Proposals
ØVarious provisions are proposed to be inserted to provide a set of counter

measures in relation to jurisdictions with which there is a lack of effective
exchange of information.
ØIt is proposed to extend the due date of filing of tax returns till 30 November in
case of corporate assessees, who are required to furnish the report in
respect of their international transactions. However, non-corporate

assessees having requirement of furnishing such report, have to file returns
by 30 September.
ØEffective from 1 June 2011, the TPO will have power to survey.
ØIn case of adjustment under TP, if variation of price is +/-5% then adjustment
is not to be made. It is proposed to remove such fixed percentage and
instead, the allowable variation would be notified.
ØThe TPO can determine ALP in respect of even those international
transactions, which are not referred by the AO.
ØA new simplified form ‘Sugam’ to be introduced in order to reduce the
compliance burden of small tax payers falling within presumptive taxation.
2.0 INDIRECT TAXES
2.1 Excise Duty
ØThe concessional rate of duty of 4% is being increased to 5%.

ØA duty of 1% without Cenvat credit facility is being imposed, on about 130
specified items, which were hitherto either fully exempt from excise duty or
chargeable to 'nil' rate of excise duty.
ØA mandatory duty of 10% is being imposed on readymade garments and
textile made-ups bearing a brand name or sold under a brand name.
ØDuty of 1% is being imposed on branded jewellery and branded articles of
precious metals.
ØA concessional rate of duty of 10% is being prescribed for hydrogen vehicles
based on fuel cell technology.
ØDuty on sanitary napkins, baby and clinical diapers and adult diapers is
being reduced from 10% to 1% with no Cenvat credit.
2.2 Customs Duty
ØThe general peak rate of 10% has been maintained.

ØThe basic customs duty rates of 2%, 2.50% and 3% are being unified at the
median rate of 2.50%.
ØThe existing system of assessment shall be replaced with ‘self-assessment’
of duty on imported and exported goods by the importer or exporter.
ØStatutory rate of export duty on iron ores is being increased from 20% to 30%
while unifying the effective rate of export duty on iron ore fines and lumps at
20%. Iron ore pellets are being fully exempted from export duty.
ØCVD of Rs. 140 per 10 grams and 'Nil' basic customs duty and SAD has been
prescribed for gold dore bars of upto 80% gold purity imported for refining
and manufacturing serially numbered gold bars in India.
ØBasic customs duty is being reduced from 7.50% to 5% for specified gems

and jewellery machinery.
ØAll clearances from SEZ into DTA are being exempted from SAD, provided
they are not exempt from the levy of VAT / Sales Tax.
ØConcessional CVD @ 5% and full exemption from SAD is being provided to
LEDs used for manufacture of LED lights and light fixtures.
ØConcessional import duty structure of 5% CVD and 'Nil' SAD has been
prescribed on parts of inkjet and laser-jet printers imported for manufacture
of printers.
ØFull exemption from SAD presently available up to 31 March 2011 on parts,
components and accessories for manufacture of mobile handsets including
cellular phones, is being extended up to 31 March 2012.
ØCertain notifications are being amended retrospectively to allow exports
made under the Export Promotion Capital Goods Scheme to simultaneously
avail of benefits under Export Reward Schemes such as Served From India
Scheme, Focus Market Scheme etc.
2.3 Service Tax
ØThere is no change in the current effective service tax rate of 10.30%.

ØService tax is proposed to be imposed on certain new specified category of
services such as services provided by air-conditioned restaurants having a
license to serve alcoholic beverages in relation to serving of food and/or
beverages, short-term accommodation provided by a hotel/inn/guesthouse,
etc. for a continuous period of less than 3 months. Suitable abatement is also
proposed to be prescribed in this regard.
ØScope of certain existing categories of services such as life insurance
service, club or association service, authorized service station service,
business support services, legal consultancy services, commercial training
or coaching service and health service, is being expanded / altered.
ØCertain additional exemptions have been provided in respect of certain
specified services which are covered under the category of business
exhibitions service, transport of goods through coastal and inland shipping,
works contract service, general insurance service and transportation of
goods by road, rail or air.
ØThe rates of service tax on travel by air are being revised from Rs. 100 to Rs.
150 for domestic travel (economy class), from Rs. 500 to Rs. 750 for
international travel (economy class) and 10% (standard rate) for domestic
travel (other than economy class).
ØA modified scheme is being introduced to refund service tax to SEZ units and
developers.
ØThe Export of Services Rules, 2005 and Taxation of Services (provided from
outside India and received in India) Rules, 2006 are being amended so as to

move some of the specified services from one category to another.
ØThe Works Contract (composition scheme for payment of service tax) Rules
are being amended to provide that the credit of tax on input services of
‘erection, commissioning or installation, commercial or industrial
construction and construction of complex services as available to a person
providing works contract service shall be restricted to 40% of tax paid, when
such tax has been paid on full value of the service after availment of Cenvat
credit on inputs.
ØThe Point of Taxation Rules, 2011 shall be effective from 1 April 2011. These
rules determine the point in time when the services shall be deemed to be
provided.
ØInterest on delayed payment of service tax is being increased from 13% to
18% per annum.
ØSignificant changes have been made in the Cenvat Rules including the
definition of input, input services, capital goods, exempted goods and
exempted services.
3.0 GST ROADMAP LAID OUT
ØAreas of divergence with states on proposed GST have been narrowed. As a

step towards roll out of GST, Constitution Amendment Bill proposed to be
introduced in this session of Parliament. Significant progress in establishing
the GST network, which will serve as Information Technology infrastructure
for introduction of GST. However, there is still no clarity as regards the date of
implementation of GST.
4.0 CAPITAL MARKET INITIATIVES
ØSEBI registered mutual funds permitted to accept subscription from foreign

investors who meet KYC requirements for equity schemes.
ØTo enhance flow of funds to infrastructure sector, FIIs’ limit for investment in
corporate bonds issued in infrastructure sector, being raised by US$ 20
million to US$ 25 million. This will raise the total limit available to FIIs for
investment in corporate bonds to US$ 40 billion.
ØRs. 40,000 crore to be raised through disinvestments in FY 2011-12.

CHAPTER 1: INTRODUCTION
1.1 Background
During the current year 2010-11, the

Indian economy has emerged with
remarkable resilience with a GDP growth
rate of 8.60%. Considering the global
political and economic uncertainties and
volatility in commodity prices like crude
oil, there is a need for fiscal consolidation
and high economic growth.
As such, the focus of the Budget 2011 is

on growth, a stable tax regime and
consolidation at a time when the Indian
economy is at a crucial juncture. The
Finance Minister has reiterated his
commitment to introduce Direct Taxes Code from 1 April 2012 and has laid
down specific milestones for implementation of GST from 1 April 2012.
The opening of Indian capital markets by permitting foreign investors (over

and above FIIs, sub-accounts and NRIs) to invest in SEBI approved
mutual funds, will augment foreign investments in the country in a big way.
The continuation of the current rate of 10.30% for service tax and excise
duty without rolling back the same to 12.36%, is a major positive step.
The increase in basic exemption limit to Rs. 1,80,000 for Individuals /

HUFs will benefit vast number of tax payers. The reduction of Corporate
Tax Rate from 33.22% to 32.445% (due to reduction of Surcharge from
7.50% to 5%) is a step in the right direction. Both these steps are in
alignment to the DTC rate structure.
Further, it is proposed to levy AMT @ 19.055% on the adjusted total

income in the hands of LLP. This would decrease the attractiveness of LLP
structure to a certain extent.
The export sector needed much rejuvenation due to the continued

challenging global environment and increasing trade account deficit due
to increase in crude oil and commodity prices. The announcement for
easier refunds of service tax in case of exporters will help in this direction.

However, non-extension of tax holidays to units operating in STPI and
EOU parks beyond sun-set date of 31 March 2011, is a matter of
disappointment. SEZ units which are currently not liable to MAT @ 18%,
would henceforth be liable to MAT on book profits @ 18.50% (excluding
surcharge and cess). This is completely in contradiction to the existing
notified SEZ framework.
The Budget continues to maintain thrust on infrastructure section by

allowing extension of additional deduction of Rs. 20,000 for investment in
long-term infrastructure bonds under Section 80CCF for 1 more year.
Further, investment linked deduction is being proposed to be extended for
the businesses developing affordable housing. The Bill also provides for a
lower tax on overseas borrowings by infrastructure debt funds. The
extension of tax holiday to power sector for projects commencing
operations up to 31 March 2012 as well as grant of investment based tax
deduction to fertilizer manufacturing units are welcome.
The lower rate of 15% tax (excluding surcharge and cess) on dividends
received by an Indian company from its foreign subsidiary shall be an
incentive for repatriation of funds into India, which otherwise would
continue to remain invested abroad due to higher rate of taxation @ 30%
(excluding surcharge and cess) on such dividends.
A multi-pronged strategy is proposed to be put into operation to deal with

the problem of generation and circulation of unaccounted income and
wealth.
Liberalization of Foreign Direct Investment ('FDI') policy is being

contemplated.
1.2 Scope and Limitations
In this booklet compiled by us, we intend to offer a broad outline of the

highlights of the Union Budget 2011. We have discussed the significant
proposals of general interest in respect of direct taxes. In respect of
indirect taxes and other policy initiatives, only the highlights have been
briefly enumerated. Preceding the budget proposals are the macro-
indicators of the Indian economy which provide a backdrop to the legal and
financial proposals.
This booklet is not an offer, invitation or solicitation of any kind and it does

not purport to be comprehensive, or to render legal, economic or financial
advice. This booklet should not be relied upon for taking actions or
decisions without appropriate professional advice as the facts of each
case have to be studied and the legal position analysed properly before
taking any action or decision in the matter. Further, this booklet contains
only the proposals and amendments as given in the Finance Bill, 2011,
which may be modified before it receives the approval and assent of the
Parliament and the President. The proposals regarding direct taxes would
become effective from AY 2012-13 (FY 1 April 2011 to 31 March 2012),
unless otherwise specified. In this booklet, the terms 'IT Act', 'the Rules'
and 'the Bill' are used for the 'Income-tax Act, 1961', 'Income-tax Rules,
1962' and 'Finance Bill, 2011' respectively.
While all reasonable care has been taken in preparation of this booklet, we
accept no responsibility for any errors it may contain or for any omissions
or otherwise or for any loss, howsoever caused or sustained, by the person
who relies on it.

CHAPTER 2 : INDIAN ECONOMY - AN OVERVIEW
2.1 Overview
The Indian economy has witnessed

robust growth and steady fiscal
consolidation in the FY 2010-11 so
far, thereby emphasizing itself as
one of the most exciting places
globally from an economic point of
view. India has emerged with
remarkable resilience from the
slowdown caused by the global
financial crisis in the later part of the
FY 2008-09.
As per the advance estimates of GDP for FY 2010-11, the economy is

estimated to have grown at 8.60% and the growth rate is expected to be
around 9% next year. The growth has been strong and broad based, with a
rebound in agricultural sector which is expected to grow at around 5.40% and
continued momentum in the manufacturing sector which is expected to grow
at 8.80%.
The services sector has also played a dominant role in the Indian economy
with a 57.30% share in the GDP, a high share in FDI equity inflows and a 35%
share in total exports.
During the period April 2010 to January 2011, the exports went up by 29.40%
while imports registered a growth rate of 17.60%. The Gross Fiscal Deficit in
FY 2010-11 is 4.80% of GDP as against 6.30% in the previous year. During
the current fiscal, foreign exchange reserves have increased from US$
279.40 billion in end April 2010 to reach US$ 300 billion in February 2011.
The year-on-year inflation, as measured by the WPI, remained at elevated

levels from December 2009 and stood at 8.23% in January 2011. Inflation in
primary articles, particularly food articles, was the main contributor to the

elevated levels of WPI inflation.
The monthly average exchange rate of the rupee has generally been range
bound, moving in the range of Rs. 44-47 per US$ between April and
December 2010. The exchange rate of the rupee depreciated by 1.50%
against the US$ from Rs. 44.50 per US$ in April 2010 to Rs. 45.16 per US$ in
December 2010. The Rupee also depreciated against other major
international currencies such as the Pound Sterling (3.20%) and Japanese
Yen (12.20%) during the year.
The performance of the Indian

BSE Sensex
e q u i t y m a r k e t s h a s a l s o 18000 17,578
16,430
17,823
witnessed a steady growth 16000 14000 12,938

wherein the Sensex had earlier 12000 10000 8,892
recovered from its 2009 low of 8000 6000
8,160 as on 9 March 2009 to 4000 2000
reach a level of 21,108 on 5 0
28-Feb-07 28-Feb-08 27-Feb-09 26-Feb-10 28-Feb-11
November 2010. As on 28
February 2011, the Sensex closed at the level of 17,823.
Despite the risks of global events, such as volatility in commodity prices like
crude oil exacerbated by political turmoil in the Middle-East, the Indian
economy seems poised to scale greater heights in terms of macro economic
indicators. The real GDP growth is expected to reach the 9% mark in FY
2011-12 and the next two decades may well see the economy growing faster
than it has done any time in the past. However, food inflation, governance
concerns, higher commodity prices and volatility in global commodity
markets are causes of concern.

2.2 India - Key Economic Indicators
2007-08 2008-09 2009-10 2010-11 2007-08 2008-09 2009-10 2010-11
Items
Absolute values % change over previous period
Gross Domestic Product
(Rs. thousand crore)
At current market prices 4,986 5,583PE 6,550QE 7,878AE 16.1 12.0 17.3 20.3
At factor cost (2004-05 prices) 3,899 4,163PE 4,494QE 4,879AE 9.3 6.8 8.0 8.6
(US$ billion - Annual Average

exchange rate)h 1239 1214 1381 1725 30.6 (2.0) 13.8 24.9
At current market prices
Foodgrains production 230.8 234.5 218.1a 232.1b 6.2 1.6 (7.0) 6.4
(million tonnes)
Index of Industrial
Productionc
(Base: 1993-94 = 100) 277.1 286.1 316.2 na 8.7 3.2 10.5 na
Electricity generated 704 724 768 na 6.3 2.8 6.1 na

(Utilities only) (billion KWH)
Wholesale Price Indexd 116.5 125.9 130.4 na 4.8 8.1 3.6 na

(Average)
Imports 251,654 303,696 288,373 na 35.5 20.7 (5.0) 19.0i

(US$ million)
Exports 163,132 185,295 178,751 na 29.0 13.6 (3.5) 29.5i

(US$ million)
Foreign exchange reserves 309.7 252.0 279.1 297.3e 55.5 (18.6) 10.8 6.5
(in US$ billion)
Average exchange rate 40.26 45.99 47.42 45.68f (11.0) 14.2 3.1 (3.7)
(Rs. / US$)
Gross fiscal deficit 2.5 6.0 6.3g 4.8

(% of GDP)
Populationj 1,138 1,154 1,170 1,186 1.43 1.41

. 1.39 1.37
(Million)
PE Provisional Estimates e As of 31 December 2010

QE Quick Estimates f Average exchange rate for FY 2010-11 (April - December 2010)
AE Advance Estimates g Fiscal indicators for FY 2009-10 are based on the provisional
a actuals for FY 2009-10.
Final estimates
h Calculated based on available figures.
b Second advance estimates
i April - December 2010
c The Index of Industrial Production has been revised since 1993-
j
94. The indices have been recompiled from April 2004 onwards Relates to mid-financial year (as on 1 October) based on
using new series of WPI for the IIP items reported in value terms. population figure of Central Statistical Organisation
d New series of WPI has been released from 2004-05 with base na not available / not released for FY 2010-11
2004-05=100.

CHAPTER 3 : TAX RATES
3.1 Individuals, HUFs, AOPs and BOIs
3.1.1 Tax rates
The Bill proposes certain modifications

to the tax structure for individuals,
HUFs, AOPs and BOIs. Consequently,
the effective present and proposed tax
rates for the FYs 2010-11 and 2011-12
in case of individuals / HUFs / AOPs /
BOIs are as follows:
For FY 2010-11 For FY 2011-12

Income Slabs Tax Rates* Income Slabs Proposed Tax
(Rs.) (Rs.) Rates*
0 - 1,60,000# Nil 0 - 1,80,000# Nil
1,60,001# - 5,00,000 10.30% of income 1,80,001# - 5,00,000 10.30% of income
exceeding exceeding
Rs. 1,60,000 Rs. 1,80,000
5,00,001 - 8,00,000 Rs. 35,020 plus 5,00,001 - 8,00,000 Rs. 32,960 plus
20.60% of income 20.60% of income
exceeding exceeding
Rs. 5,00,000 Rs. 5,00,000
8,00,001 - and above Rs. 96,820 plus 8,00,001 - and above Rs. 94,760 plus
30.90% of income 30.90% of income
exceeding exceeding
Rs. 8,00,000 Rs. 8,00,000
* The tax rates are inclusive of education cess of 3%.

# In case of a resident woman below 60 (reduced from 65) years of age at any time
during the previous year, the basic exemption income slab has remained
unchanged at Rs. 1,90,000 and in case of a resident individual of the age of 60
(reduced from 65) years or more (senior citizen) attained at any time during the
previous year, the basic exemption income slab is Rs. 2,50,000 (increased from
Rs. 2,40,000). Further, a new category is proposed to be introduced the resident
individuals of the age of 80 years or more (very senior citizens) attained at any
time during the previous year, for whom the basic exemption income slab is
proposed to be Rs. 5,00,000. The tax for other slabs will change accordingly.

3.1.2 Proposed tax incidence
The incidence of income-tax for individuals, women, senior citizens and

very senior citizens for FY 2011-12, having different income levels can be
exemplified as follows:
Annual Tax Liability (Rs.)
Income (Rs.) Individuals* Women Senior Citizens Very Senior Citizens
1,80,000 - - - -
2,00,000 2,060 1,030 - -
2,50,000 7,210 6,180 - -
3,00,000 12,360 11,330 5,150 -
4,00,000 22,660 21,630 15,450 -
5,00,000 32,960 31,930 25,750 -
8,00,000 94,760 93,730 87,550 61,800
10,00,000 1,56,560 1,55,530 1,49,350 1,23,600
15,00,000 3,11,060 3,10,030 3,03,850 2,78,100
20,00,000 4,65,560 4,64,530 4,58,350 4,32,600
25,00,000 6,20,060 6,19,030 6,12,850 5,87,100
* The tax incidence for HUFs, AOPs and BOIs will be same as that of
individuals.
3.2 Companies
3.2.1 Domestic companies
The effective tax rates and MAT rates for domestic companies for FY 2010-
11 and FY 2011-12 are as follows:
Domestic Effective Tax Rates Effective MAT Rates
Company
FY 2010-11 FY 2011-12 FY 2010-11 FY 2011-12
Having total 33.22% [(tax rate 32.445% [(tax 19.93% [(tax rate 20.008% [(tax
income 30% plus rate 30% plus 18% plus rate 18.50% plus
exceeding surcharge 7.50% surcharge 5% surcharge 7.50% surcharge 5%
Rs.1,00,00,000 thereon) plus thereon) plus thereon) plus thereon) plus
education cess education cess education cess education cess
3% thereon] 3% thereon] 3% thereon] 3% thereon]
Having total 30.90% (tax rate 30.90% (tax rate 18.54% (tax rate 19.055% (tax
income upto 30% plus 30% plus 18% plus rate 18.50% plus
Rs.1,00,00,000 education cess education cess education cess education cess
3% thereon) 3% thereon) 3% thereon) 3% thereon)

Marginal relief is available to ensure that the additional income-tax payable,
including surcharge of 5% for FY 2011-12 (7.50% for FY 2010-11) on the
excess of income over Rs. 1,00,00,000, is limited to the amount by which the
income is more than Rs. 1,00,00,000. However, no marginal relief shall be
available in respect of the education cess.
3.2.2 Foreign companies
Foreign Effective Tax Rates

Company
FY 2010-11 FY 2011-12
Having total 42.23% [(tax rate 40% plus 42.024% [(tax rate 40% plus
income surcharge 2.50% thereon) plus surcharge 2% thereon) plus
exceeding education cess 3% thereon] education cess 3% thereon]
Rs.1,00,00,000
Having total 41.20% (tax rate 40% plus education cess 3% thereon)
income upto
Rs.1,00,00,000
3.2.3 Additional tax on dividends distributed by domestic companies
Due to proposed reduction in the rate of surcharge from 7.50% to 5%, the
effective rate of 16.60875% [(tax rate 15% plus surcharge 7.50% thereon)
plus education cess 3% thereon] for additional tax on the dividend
distributed by the domestic companies for FY 2010-11, would be reduced to
16.2225% [(tax rate 15% plus surcharge 5% thereon) plus education cess
3% thereon] for FY 2011-12.
3.3 Partnership Firms / LLPs
The Bill proposes no change in the existing tax rate of 30.90% (tax rate 30%
plus education cess 3% thereon) for partnership firms / LLPs.
3.3.1 AMT on LLPs
The Bill proposes to levy AMT on LLPs @ 19.055% (tax rate 18.50% plus
education cess 3% thereon) on adjusted total income.
3.4 Additional Tax on Dividends Distributed by Mutual Funds
The effective rate of tax on dividends distributed by mutual funds for

FY 2010-11 and FY 2011-12 are as follows:
Type of Income Effective Tax Rate

(For FY 2010-11) (For FY 2011-12)
Income distributed by a money market mutual
fund or a liquid mutual fund to
- an Individual or a HUF 27.681%* 27.0375%*
- Others 27.681%* 32.445%*
Income distributed by a mutual fund (including
debt fund) other than a money market mutual
fund or a liquid mutual fund to
- an Individual or a HUF 13.841%* 13.519%*
- Others 22.145%* 32.445%*
* The tax rates are inclusive of surcharge of 5% for FY 2011-12 (7.50% for
FY 2010-11) and education cess of 3% thereon.
3.5 Other Entities
3.5.1 Co-operative societies
The Bill proposes no change in the tax rates for co-operative societies. As
such, the effective tax rates for FY 2010-11 as well as FY 2011-12 are as
follows:
Income Slabs (Rs.) Tax Rates
0 - 10,000 10.30%
10,001 - 20,000 Rs. 1,030 plus 20.60% of income exceeding Rs. 10,000
20,001 - and above Rs. 3,090 plus 30.90% of income exceeding Rs. 20,000
3.5.2 Local authorities
The Bill proposes no change in the effective tax rates of 30.90% (tax rate
30% plus 3% education cess thereon) for local authorities.

CHAPTER 4 : TAX INCENTIVES FOR BUSINESSES
(As Updated upto the Finance Bill, 2011)
The IT Act provides for far reaching tax

holidays and other tax incentives for the
businesses. We have enumerated, in brief,
the significant tax holidays and incentives
available to businesses along with the
nature of deductions, eligibility criteria,
quantum of deduction and period for which
the deductions are available. The tax
holidays and incentives are subject to
fulfillment of specified conditions. The
changes proposed by the Finance Bill, 2011
are highlighted in bold font.
Section Details of Exemption / Deduction Period Quantum

of Deduction
10A / Ø
For newly established undertakings in FTZ, First 10 years up to 100%
10B EHTP, STP or EOU FY 2010-11
Ø
For any eligible undertaking set up in a SEZ First 5 years 100%
after 1 April 2003 but before 31 March 2005 Next 2 years 50%
Exemption is available for profits from export of Next 3 years*
Ø 50%
certain articles or things or computer software,
manufactured or produced by an eligible
undertaking subject to fulfillment of specified
conditions
Ø
The term ‘computer software’ includes notified
‘information technology enabled services’
Ø
The profits and gains derived from on-site
development of computer software (including
services for development of software) outside
India shall be deemed to be the profits and
gains derived from the export of computer
software outside India
Ø
The benefit is available to units engaged in
cutting and polishing of precious and semi-
precious stones
Ø
The export proceeds must be realised within
the specified time
Ø
No deduction under these sections will be
allowed unless the assessee files the return of
income within the prescribed time limit
Ø
The deduction under this section is the amount
which bears to the profits of the business of the
undertaking, the same proportion as the export

of Deduction
turnover in respect of such articles or things or
computer software bears to the total turnover of
the business carried on by the undertaking
Ø The unit availing these deductions will be
subject to MAT @ 20.008% [(tax rate 18.50%
plus surcharge 5%) plus education cess 3%
thereon] (having book profit exceeding
Rs. 1,00,00,000) or 19.055% (in other cases)
Ø The tax holiday available under sections 10A /
10B to units in STPI, EHTP, FTZ and EOU will
be available up to 31 March 2011. The Finance
Bill, 2011 has not proposed extension of
such tax holidays beyond 31 March 2011
* The deduction is allowed only on creation of a
specified reserve, which is utilized for specified
purposes
10AA Ø
For any new eligible unit set up in SEZ on or First 5 years 100%
after 1 April 2005 Next 5 years 50%
Ø
Exemption is available to the entrepreneur as Next 5 years+ 50%
referred to in section (2j) of SEZ Act, 2005 for
profits derived from export of articles or things
or services, manufactured, or produced or
provided any services by an eligible unit
Ø
There is no restriction on realisation of the
export proceeds within a particular time frame
for the purpose of claiming the deduction
Ø
The profits and gains derived from on-site
development of computer software (including
services for development of software) outside
India shall be deemed to be the profits and
gains derived from the export of computer
software outside India
Ø
The benefit is available to units engaged in
cutting and polishing of precious and semi-
precious stones
Ø
The deduction under this section is to be
computed in the same proportion, which the
export turnover of the eligible unit bears with the
total turnover of the said unit
Ø
The benefit under this section will be available if :
l the unit is not formed by splitting up or
reconstruction of a business already in
existence subject to certain exceptions
l the unit is not formed by transfer of
machinery and plant previously used for
any purpose to the new business subject to
certain exceptions

of Deduction
Ø It is proposed to discontinue the exemption
from MAT in case of SEZ developers and
units in SEZ
Ø It is further proposed to discontinue the
exemption from DDT in case of SEZ
developers effective from 1 June 2011
+ The deduction is allowed only on creation of a
specified reserve, which is required to be
utilized for specified purposes
33AB Tea / Rubber / Coffee development allowance NA Upto 40%

Ø Deduction is available to assessee engaged in of profits or
the business of growing and manufacturing amount
tea, coffee or rubber in India deposited in
Ø Deduction equal to an amount deposited in a special
special account with NABARD or any Deposit account,
Account opened by the assessee and whichever
approved by the Tea Board or Coffee Board or is less
Rubber Board from the profits is allowed
Ø The amount has to be deposited within
specified period from the end of the FY or
before furnishing the return of income,
whichever is earlier
Ø The amount has to be utilized by the assessee
for specified purposes
Section Eligibility Criteria, Quantum and Period of Deduction
32 Additional Depreciation
Ø General rate of depreciation for plant and machinery is 15% (other than certain
specified types of plant and machinery)
Ø Additional depreciation of 20% is allowed for new plant and machinery acquired and
installed after 31 March 2005. Additional depreciation is available only in the year in
which such machinery is first put to use
35 / 35 Expenditure on Scientific Research

(2AA) / Ø Where any expenditure (not being in nature of capital expenditure) has been laid out
35 or expended on scientific research related to business carried on by the assessee,
(2AB) 100% of such expenditure can be claimed as deduction
Ø Where any capital expenditure (other than expenditure on land and building) is
incurred on scientific research related to the business carried on by the assessee,
100% of such expenditure can be claimed as deduction
Ø Where any expenditure is paid to a National Laboratory or a University or an Indian
Institute of Technology or a specified person with a specific direction that the said sum
shall be used for scientific research undertaken under a programme approved by the
prescribed authority, then deduction upto 125% of the expenditure incurred shall be
allowed

Ø
Where any expenditure (other than expenditure on cost of land and building) on in-
house research and development facility, as approved by the prescribed authority, is
incurred by the assessee engaged in the business of bio-technology or manufacture
or production of article or thing (except those specified in the Eleventh Schedule), the
deduction shall be 200% of the expenditure incurred upto 31 March 2012 subject to
complying with the prescribed conditions
Ø
Where amount is paid to an approved research association, which has its object of
undertaking scientific research or to a university, college or other institution to be used
for scientific research, the deduction shall be 175% of the amount paid provided that
such association, university, college or institution is approved by the Central
Government. It is proposed to increase this weighted deduction from 175% to
200%
Ø
Deduction of 125% is available for amount paid to approved research association
which has as its object of undertaking research or university, college or other
institution to be used for research in social science or statistical research
Ø
Where amount is paid to a company to be used by such company for scientific
research, provided that the company complies with the specified conditions, the
weighted deduction shall be 125%. Such an approved company will not be entitled to
claim weighted deduction under section 35(2AB). However, deduction to the extent of
100% of the sum spent as revenue expenditure on scientific research, which is
available under section 35(1)(ii) will continue to be allowed
35AD Expenditure on specified businesses
Ø Any expenditure of capital nature incurred, wholly and exclusively, during the year for
specified business
Ø Specified business and the year (in which the operations commenced) for availing
benefits under this section are as under:
l The business of setting up and operating of cold chain on or after 1 April 2009
l The business of warehousing for storing agricultural produce on or after 1 April
2009
l The business of laying and operating a cross-country natural gas or crude or
petroleum oil pipeline network for distribution, including storage facilities being an
integral part of such network, subject to fulfillment of specified conditions on or
after 1 April 2007
l The business of building and operating new hotel of two star or above category on
or after 1 April 2010. It is proposed to remove the word 'new' to allow set off
under section 73A with retrospective effect from AY 2011-12
l The business of building and operating any hospital with at least 100 beds for
patients on or after 1 April 2010
l Building a housing project under specified scheme framed for this purpose by the
Central or State Government on or after 1 April 2010
l It is proposed to include the following two new businesses as 'specified
business', which start functioning on or after 1 April 2011:
(a) developing and building a housing project under a scheme for
affordable housing framed by the Central Government or a State
Government, as the case may be, and notified by the Board in this
behalf in accordance with the guidelines as may be prescribed; and
(b) production of fertilizer in India

Ø
100% deduction is allowed in respect of any capital expenditure incurred (other than
expenditure incurred on the acquisition of any land or goodwill or financial instrument),
during the year by the specified business subject to the specified provisions
Ø
The assessee shall not be allowed any deduction in respect of the specified business
under the provisions of chapter VIA for the same or any other AY. No deduction in
respect of the expenditure incurred, in respect of which deduction has been claimed,
shall be allowed to the assesee under any other provisions of the IT Act
35DDA Any expenditure incurred by way of payment of any sum to employee in connection with his
voluntary retirement is eligible for amortisation over 5 years, subject to specified conditions.
From AY 2011-12, in case of conversion of private company or unlisted public company to a
LLP, unabsorbed expenditure incurred under voluntary retirement scheme by the private
company or unlisted public company will be amortised for the remaining period by the LLP
54G Capital gains arising on transfer of plant, machinery, land, building or any rights in land /
building effected in course of or in consequence of the shifting of an industrial undertaking
situated in an urban area to any area (other than an urban area) shall be exempt from tax.
Exemption shall be least of the following:
l Amount of capital gains
l Amount of capital gains utilized within a period of 1 year before or 3 years after the date
of transfer of the above assets, for purchase of new plant and machinery, land and
building and for shifting expenses, subject to specified conditions
54GA Capital gains arising on transfer of plant, machinery, land, building or any rights in land /
building effected in course of or in consequence of the shifting of an industrial undertaking
situated in an urban area to any SEZ shall be exempt from tax. Exemption shall be least of
the following:
l Amount of capital gains utilized within a period of 1 year before or 3 years after the
date of transfer of the above assets, for purchase of new plant and machinery, land
and building and for shifting expenses, subject to specified conditions
54EC Long term capital gains shall be exempt from tax, if an assessee invests, within a period of
6 months from the date of transfer of a long term capital asset, the capital gains in the
specified assets. The specified asset must be held for a period of 3 years from the date of
its acquisition. This exemption shall be least of the following:
l Investment in specified assets viz. bonds issued by National Highway Authority of
India and the Rural Electrification Corporation Ltd. The investment is restricted upto
Rs. 50,00,000 per assessee per FY for investment made on or after 1 April 2007
10(34) Dividend referred to in section 115-O shall not be included in the total income of assessee
10(38) Capital gain arising from transfer of long term capital asset being an equity share in a
company or a unit of an equity oriented fund, on which securities transaction tax is
charged, is exempt from tax. However, this exemption is not available for computation of
MAT

80-IA / 80-IB / Deductions of Profits derived by Newly Established Industrial
80-IC / 80-IAB Undertakings / Infrastructure Projects / Facilities / Developers of SEZs /
/ 80-ID / 80-IE / Banking units, etc.
80-LA
Sr. Nature of Activity and Location Type of Quantum of Number of
No. Organization Exemption Years
i.(a) Ø
Industrial undertaking located in Company 100% First 5 years
notified industrially backward states 30% Next 5 years
Ø
Manufacturing or producing any
articles or things or operating cold Co-operative 100% First 5 years
storage plant, which has commenced Society 25% Next 7 years
operations during 1 April 1993 to 31
March 2004 (31 March 2012 for State Others 100% First 5 years
of Jammu and Kashmir) 25% Next 5 years
Ø
Industrial undertaking deriving profit
from the business of setting up and
operating cold chain facility for
agricultural produce which has begun
to operate such facility on or after 1
April 1999 but before 31 March 2004
Ø
The deduction of 100% of the profits
hitherto available under section 80-IB
for a period of 10 AYs to notified
industries set up in North-Eastern
Region, will be available under Section
80-IC only, from FY 2003-04
i.(b) Ø Undertaking set up in any part of India All 100% Any 10

for the generation or generation and consecutive
distribution, of power, which has years out of first
commenced operations during 1 April 15 years
1993 to 31 March 2011*
Ø Undertaking which starts transmission
or distribution by laying a network of
new transmission or distribution lines
between 1 April 1999 and 31 March
2011*
Ø Undertaking which undertakes
substantial renovation and
modernization of the existing network
of transmission or distribution lines
between 1 April 2004 and 31 March
2011*
* It is proposed to extend the period
by one year, i.e. upto 31 March 2012
The renovation / modernization should
result in increase in plant and
machinery by at least 50% of the book
value of such plant and machinery as
on 1 April 2004

Sr. Type of Quantum of Number of
Nature of Activity and Location Years
No. Organization Exemption
Deduction shall not be available to a person
executing the above referred activities as a
works contract
i.(c) Undertaking owned by Indian Company Indian 100% Any 10
(formed before 30 November 2005 and Company consecutive
notified before 31 December 2005) set up years out of first
for reconstruction or revival of a power 15 years
generating unit, which has commenced
operations in power before 31 March 2011
executing the above referred activities as a
works contract
i.(d) Industrial undertaking located in A. Set up in category 'A' districts for all the
industrially backward districts of categories assessees:
A and B notified by Central Government, Company 100% First 5 years
manufacturing or producing articles or 30% Next 5 years
things (except specified low priority items)
or to operate its cold storage plant or plants Co-operative 100% First 5 years
which has commenced operations during 1 Society 25% Next 7 years
October 1994 to 31 March 2004
Others 100% First 5 years
25% Next 5 years
B. Set up in category 'B' districts for all the
assessees:
Company 100% First 3 years
30% Next 5 years
Co-operative 100% First 3 years
Society 25% Next 9 years
25% Next 5 years
i.(e) In the business of a ship which is owned by Company 30% First 10

an Indian Company and is wholly used for consecutive
the purpose of the business. It was not years
used in Indian territorial waters by a person
resident in India prior to its acquisition by
the Indian Company. Further, it was
brought to use at any time from 1 April 1991
to 31 March 1995
ii. Industrial undertaking other than (i) above, Company 30% First 10 years
manufacturing or producing articles or
things (except specified low priority items)
or operating cold storage plant which has
commenced its operations during 1 April

1991 to 31 March 1995. However, a small Co-operative 25% First 12 years
scale industrial undertaking manufacturing Society
and producing any article or thing and
commencing manufacturing operations or Other 25% First 10 years
operating cold storage plant from 1 April
1995 to 31 March 2002 is also eligible
iii. Enterprise being company or consortium of Company / 100% For 10

companies registered in India or any any other consecutive
authority or board or a corporation or any body years out of first
other body established or constituted under established 15 years
any Central or State Act, for carrying on or constituted (20 years for
business of (i) developing or (ii) operating under any road, bridge, rail
and maintaining or (iii) developing, Central or system, highway
operating and maintaining of a new State project, water
infrastructure facility like road including toll Act supply project,
road, bridge, rail system, highway project, water treatment
water supply project, water treatment system, irrigation
system, irrigation project, sanitation and project,
sewage system or solid waste sanitation and
management system, airport, port, inland sewerage
waterways and inland ports, commencing system or solid
its operations on or after 1 April 1995. waste
Widening of an existing road by management
constructing additional lanes as a part of system)
highway project is also eligible as per
Circular No. 4/2010 dated 18 May 2010

executing above referred activities as a
works contract
iv. Approved hotel located in hilly or rural area Indian 50% First 10 years
or place of pilgrimage, which has started company with
functioning during 1 April 1990 to 31 March a minimum
1994 or during 1 April 1997 to 31 March paid up
2001 capital of
Rs. 5,00,000
v. Hotel located in any place other than a hilly Indian 30% First 10 years
or rural area or place of pilgrimage which company with
has started functioning during 1 April 1991 a minimum
paid up
to 31 March 1995 or during 1 April 1997 to
capital of
31 March 2001 Rs. 5,00,000

(However, for both (iv) and (v), hotel
located at a place within the municipal
jurisdiction of four metro cities of Kolkata,
Chennai, Delhi and Mumbai are not eligible
if they start functioning during 1 April 1997
to 31 March 2001)
vi. Any company registered in India with its Company 100% For first 10 years
main object being scientific and industrial (5 years if
research and development which is for the approved before
time being approved by the DSIR at any 1 April 1999)
time after 31 March 2000 but before 1 April
2007
vii. Any undertaking which starts providing All 100% First 5 years
tele-communication services, whether 30% Next 5 years
basic or cellular, including radio paging,
domestic satellite service or network of The above 10
trunking, broadband network and internet years shall be
consecutive AYs
services on or after 1 April 1995 but before
out of first 15
31 March 2005 years
executing the above referred services as a
works contract
viii. Any undertaking which begins to develop All 100% 10 years out of
or develops and operates or maintains and first 15 AYs
operates an industrial park or SEZ notified
by the Central Government which has
commenced operations during 1 April 1997
to 31 March 2011#
# As per amendments by the SEZ Act 2005,
the exemption for SEZs notified after 1 April
2005 will now be available under a section
80-IAB
executing the above referred services as a
works contract
ix. Any assessee being developer of a SEZ All 100% 10 years out of
notified by the Central Government after first 15 years
1 April 2005

x. Any undertaking, which is engaged in All 100% First 7 years

refining of mineral oil on or after 1 October
1998 but not later than 31 March 2012
subject to certain conditions
The tax holiday is also available in respect
of profits arising from the commercial
production of natural gas from blocks which
are licensed under the VIII Round of
bidding for award of exploration contracts
under the New Exploration Licensing
Policy announced by the Government of
India and IV Round for the Coal Bed
Methane and begins commercial
production of natural gas on or after 1 April
2009. It is proposed that the deduction
will not be available for blocks licensed
under a contract awarded after 31 March
2011 under the New Exploration
Licensing Policy.
xi. Ø
Any undertaking engaged in All 100% Not applicable
developing and building housing
projects approved by a local authority
before 31 March 2008
Ø
In case of projects approved during FY
2004-05, it should be completed within
4 years from the end of the FY in which
it is approved
Ø
In case of projects approved on or after
1 April 2005, it should be completed
within 5 years from the end of the FY in
which it is approved
Ø
In other cases it should be completed
before 31 March 2008
Ø
The deduction is allowed subject to
fulfillment of various other conditions
like minimum area of the land,
maximum built-up area of residential
and commercial units, etc.
Ø
In case of multiple approvals from the
local authority, the date of first
approval will be considered for the
calculation of time limit of completion
Ø
Deduction shall not be available to a
person executing the housing project
as a works contract
Ø
The deduction is subject to a condition
that not more than one residential unit

is allotted to any person not being an

individual and in a case where a
residential unit in the housing project is
allotted to a person being an individual,
no other residential unit in such
housing project is allotted to any of the
following persons:
(i) the spouse or minor children of
such individual,
(ii) the HUF in which such individual
is the karta,
(iii) any person representing such
individual, the spouse or the minor
children of such individual or the
HUF in which such individual is
the karta
xii. Ø
An undertaking deriving profit from the Company 100% First 5 years
integrated business of handling, 30% Next 5 years
storage and transportation of food
grains subject to such business
beginning its operations on or after 1
25% Next 5 years
April 2001
Ø
The benefit is extended to
undertakings engaged in the business
of processing, preservation and
packaging of fruits and vegetables
w.e.f. 1 April 2004
Ø
Further, the benefit is extended to the
undertakings engaged in the business
of meat and meat products or poultry
or marine or dairy products which
begin to operate such business on or
after 1 April 2009
xiii. Any undertaking engaged in the business All 50% First 5 years
of building, owning and operating a
multiplex theater located at any place other
than a place within the municipal
jurisdiction of four metro cities i.e. Kolkatta,
Chennai, Delhi and Mumbai and
constructed at any time during the period of
1 April 2002 to 31 March 2005
xiv. Any undertaking engaged in the business All 50% First 5 years
of building, owning and operating a
convention center constructed at any time
during the period of 1 April 2002 to 31
March 2005

xv. Ø
Any undertaking engaged in the All 100% First 5 years
business of operating and maintaining
a hospital in a rural area
Ø
The undertaking shall be eligible for
the deduction if such hospital is
constructed in accordance with the
local regulations in force and has at
least 100 beds for patients
Ø
The hospital should be constructed
during the period beginning on 1
October 2004 and ending on 31 March
2008
Ø
The deduction is also available to
hospitals located anywhere in India
other than specified excluded areas
Ø
The said tax benefit is available to a
hospital, which is constructed and has
started or starts functioning at any time
during the period beginning 1 April
2008 and ending on 31 March 2013
xvi. a) Undertakings and enterprises, which

begins to manufacture or produce any
article or thing and / or undertake
substantial expansion of existing
undertakings
b) Undertakings and enterprises, which
articles or things or commences any
operation specified and / or undertake
substantial expansion; during the
period beginning from:
Ø If located in Sikkim, from 23 December All 100% First 10 years
2002 to 31 March 2007
Ø If located in Himachal Pradesh and Company 100% First 5 years
Uttaranchal, from 7 January 2003 to 31 30% Next 5 years
March 2012 Others 100% First 5 years
25% Next 5 years
Ø If located in North-Eastern States*, All 100% First 10 years
from 24 December 1997 to 31 March
2007
Ø List of articles and products entitled /
not entitled for such deduction have
been prescribed
* States of Assam, Tripura, Meghalaya,
Mizoram, Nagaland, Manipur and
Arunachal Pradesh

xvii. New undertakings and enterprises, which All 100% First 10 years
eligible article or thing or provide any
services or undertake substantial expansion
or carry on any eligible business in any of the
North-Eastern states beginning from 1 April
2007 to 31 March 2017
The eligible businesses for this purpose are
hotel (not below 2 star category), adventure
and leisure sports including ropeways,
providing medical and health services in the
nature of nursing home with a minimum
capacity of 25 beds; running an old-age
home; operating vocational training institute
for hotel management, catering and food
craft, entrepreneurship development,
nursing and para-medical, civil aviation
related training, fashion designing and
industrial training, running information
technology related training centre,
manufacturing of information technology
hardware and bio-technology
xviii. Ø
Offshore banking unit in SEZ Scheduled 100% First 5 years
Ø
From the business referred to in Bank or any (beginning with
section 6(1) of the Banking Regulation bank incor- the year in which
Act, 1949 porated by or prescribed
Ø
From any unit of the International under the law permissions are
of a country
Financial Services Centre from outside India. obtained)
approved business Or a unit of an
International 50% Next 5 years
Financial Ser-
vices Centre
xix. Any undertaking engaged in business of All 100% First 5 years

convention centers or hotels in specified
area of the National Capital Territory
subject to fulfillment of certain conditions
a) engaged in the business of hotel located
in specified area or b) engaged in the
business of building / owning and operating
a convention centre located in specified
area, which has started its operations from
1 April 2007 to 31 March 2010
The aforesaid deduction has been
extended to new 2 star, 3 star or 4 star
hotels located in specified districts having
'World Heritage Sites'. Such hotels are
required to be constructed and started
during the period beginning 1 April 2008
and ending on 31 March 2013

Significant Conditions for Eligibility for Deduction under section 80-IA / 80-IB / 80-IAB
/ 80-IC / 80-ID / 80-IE / 80-LA
ØFor the purpose of sections 80-IA, 80-IB and 80-IC, an eligible industrial undertaking
is one, which fulfils all of the following conditions:
l It manufactures or produces any article or thing (other than any non-priority

article or thing as specified in the Eleventh Schedule) or operates one or more
cold storage plant or plants in any part of India. However, restriction regarding
manufacture of non-priority article specified in eleventh schedule is not
applicable to small-scale industrial undertakings and industrial undertakings
located in backward states (applicable in case of section 80-IB and 80-IC).
l It employs (a) 10 or more workers in a manufacturing process carried on with

the aid of power; or (b) 20 or more workers in a manufacturing process carried
on without the aid of power (applicable in case of section 80-IB).
l It is not formed by splitting up, or reconstruction, of a business already in

existence or by transfer to a new business of machinery previously used for
any purpose (except under certain circumstances).
ØThe benefit of section 80-IA shall not be available to an amalgamated or demerged

entity after 1 April 2007.
ØThe profits and gains of an eligible business, for the purpose of determining the
quantum of deduction, is to be computed as if such eligible business were the only
source of income of the assessee during the previous year relevant to the AY for
which the deduction is to be made.
ØAn eligible enterprise engaged in the development, operation and maintenance of

any infrastructure facility should have entered into an agreement with the Central
Government / State Government / local authority / other statutory body for
developing or operating and maintaining or developing, operating and maintaining a
new infrastructure facility.
ØThe exemption is also available to profits and gains derived from ships and approved
hotels subject to fulfillment of certain conditions. In the case of a hotel, a significant
condition is that the business of the hotel should be owned and carried on by a
company registered in India with a paid up capital of Rs. 5,00,000 or more.
ØFor the enterprise where, housing or other activities are an integral part of the
highway project, then the exemption is available to profits and gains derived from
such project subject to condition that the profit has been transferred to a special

reserve account and the same is actually utilised for the highway project excluding
housing and other activities before the expiry of 3 years following the year in which
such amount was transferred to the reserve account and the amount remaining
unutilised shall be chargeable to tax as income of the year in which transfer to reserve
account took place.
ØWhere any amount of profits and gains of an industrial undertaking or of a hotel in the
case of an assessee is claimed and allowed under this section for any AY, deduction
to the extent of such profits and gains shall not be allowed under any other provision
of the IT Act and shall in no case exceed the profits and gains of the undertaking or
hotel as the case may be.
ØAny undertaking claiming a deduction under this section must furnish a report of audit
in the prescribed form duly signed and verified by an accountant.
ØNo deduction under 80-IA, 80-IB, 80-IAB, 80-IC, 80-ID, 80-IE will be allowed unless
the assessee files return of income within the due date specified under section
139(1).
ØWith retrospective effect from FY 2002-03,
ldeduction in respect of profits and gains shall not be allowed under any
provisions of section 10A or section 10AA or section 10B or section 10BA of
the IT Act or under any provisions of Chapter VI A under the heading 'C -
Deductions in respect of certain incomes' in any AY, if a deduction in respect of
same amount is claimed and allowed under the various provisions referred
above in such AY;
lthe aggregate of the deductions under the various provisions referred above,
shall not exceed the profits and gains of the undertaking or unit or enterprise or
eligible business, as the case may be;
lno deductions under the various provisions referred above, shall be allowed if
the deduction has not been claimed in the return of income.
ØThe transfer price of goods and services between the undertaking or unit or
enterprise or eligible business and any other undertaking or unit or enterprise or
business of the assessee shall be determined at the market value of such goods or
services as on the date of transfer.
ØIt is proposed that no deduction, claimed and allowed in respect of any of the
specified business referred to in section 35AD(8)(c) for any AY, shall be allowed
under chapter VI A under the heading ‘C - Deduction in respect of certain income’ for
the same or any other AY.

CHAPTER 5 : DIRECT TAXES - SIGNIFICANT CHANGES
5.1 Business Entities
5.1.1 Taxation of certain foreign

dividends at a reduced rate of 15%
Under the existing provisions of the IT

Act, dividend received from foreign
subsidiary companies is taxable in the
hands of the Indian parent company
@ 30% (plus applicable surcharge
and cess). This acts as a major disincentive for the Indian parent companies
having subsidiaries outside India, as the profits of foreign subsidiaries are
already taxed outside India and the dividends distributed are out of such
after-tax profits.
The Bill proposes to insert a new section 115BBD to provide tax on such
foreign dividends at a reduced rate of 15% (plus applicable surcharge and
cess) on the gross amount of dividends. No expenditure in respect of such
dividends shall be allowed under the IT Act.
For the purpose of section 115BBD, subsidiary foreign company means a

foreign company in which the Indian company holds more than half of the
nominal value of the equity share capital. Further, dividend shall not include
deemed dividend as per section 2(22)(e) of the IT Act.
This is a very positive step for improving inflow of funds to India. This
provision is in line with similar regulation introduced in the US in recent years
to improve dividend inflows. However, taxability of such foreign dividends
under MAT may partially negate the benefit of concessional tax rate. There is
no rationale to restrict the concessional tax treatment only to Indian
companies and the same should have been extended to all types of
taxpayers. Further, it is to be seen as to how the aforesaid provision would be
aligned in the DTC in the light of CFC Regulations contained therein. These
regulations provide for taxability of income attributable to a CFC, irrespective
of whether the dividends are distributed or not by such foreign corporations.
5.1.2 Provisions relating to MAT and DDT in case of SEZ Units and
Developers
Under the existing provisions of section 10AA of the IT Act, a deduction of

100% is allowed in respect of profits and gains derived by a unit located in a
SEZ from the export of articles or things or services for the first 5 consecutive
AYs; of 50% for further 5 AYs and thereafter, of 50% of the ploughed back
export profit for the next 5 AYs. The profits of such units are excluded for the
purpose of levy of MAT based on book profits. It is proposed to bring profits of
such units within the purview of MAT based on book profits @ 18.50% (plus
applicable surcharge and cess).
Further, under section 80-IAB of the IT Act, a deduction of 100% is allowed in

respect of profits and gains derived by an undertaking from the business of
development of an SEZ notified on or after 1 April 2005 from the total income
for any 10 consecutive AYs out of 15 AYs beginning from the year in which the
SEZ is notified by the Central Government.
Under the existing provisions of section 115JB(6), an exemption is allowed

from payment of MAT on book profit in respect of the income accrued or
arising on or after 1 April 2005 from any business carried on, or services
rendered, by an entrepreneur or a developer, in a unit or SEZ, as the case
may be.
Further, under the existing provisions of section 115O(6), an exemption is

allowed from payment of DDT in respect of the total income of an undertaking
or enterprise engaged in developing or developing and operating or
developing, operating and maintaining a SEZ for any AY on any amount
declared, distributed or paid by such developer or enterprise, by way of
dividends (whether interim or otherwise) on or after 1 April 2005 out of its
current income. Such distributed income is also exempt from tax under
section 10(34) of the IT Act.
Currently, there is no sunset date provided for exemption from MAT in the
case of a developer of an SEZ or a unit located in an SEZ. Similarly, there is no
sunset date for exemption from DDT in the case of a developer of an SEZ.
It is proposed to sunset the availability of exemption from MAT, in the case of

SEZ developers and units in SEZs in the IT Act as well as the SEZ Act.
It is further proposed to discontinue the availability of exemption of DDT in the

case of SEZ Developers under the IT Act as well as the SEZ Act for dividends
declared, distributed or paid on or after 1 June 2011.
It is also proposed to make consequential amendments by omitting the

explanation to section 10(34) of the IT Act.

5.1.3 AMT for LLP
The LLP Act, 2008 has come into effect in 2009. The LLP has features of a
body corporate as well as a traditional partnership. The IT Act provides for the
same taxation regime for a LLP as is applicable to a partnership firm. It also
provides tax neutrality (subject to fulfillment of certain conditions) to
conversion of a private limited company or an unlisted public company into a
LLP.
A LLP being treated as a firm for taxation has the following tax advantages
over a company under the IT Act:
i) it is not subject to MAT:

ii) it is not subject to DDT; and
iii) it is not subject to surcharge.
It is proposed that where the regular income-tax payable for a previous year
by a LLP is less than the AMT payable for such previous year, the adjusted
total income shall be deemed to be the total income of such LLP and it shall be
liable to pay income-tax on such total income @ 19.055%.
For the purpose of the above,
(i) ’adjusted total income’ shall be the total income before giving effect to
this newly inserted Chapter XII-BA as increased by the deductions
claimed under any section included in Chapter VI-A under the heading
’C - Deductions in respect of certain incomes’ and deduction claimed
under section 10AA;
(ii) ’alternate minimum tax’ shall be the amount of tax computed on
adjusted total income @ 18.50%; and
(iii) ’regular income-tax’ shall be the income-tax payable for a previous
year by a LLP on its total income in accordance with the provisions of
the IT Act other than the provisions of this newly inserted Chapter XII-
BA.
It is further provided that the credit for tax (tax credit) paid by a LLP under this
newly inserted Chapter XII-BA shall be allowed to the extent of the excess of
AMT paid over and above the regular income-tax. This tax credit shall be
allowed to be carried forward up to 10 AYs immediately succeeding the AY for
which such credit becomes allowable. It shall be allowed to be set off for an
AY in which the regular income-tax exceeds the AMT, to the extent of the
excess of the regular income-tax over the AMT.

Every LLP to which this section applies shall obtain a report, in such form as
may be prescribed, from an accountant certifying that the adjusted total
income and the AMT have been computed in accordance with the provisions
of this Chapter and furnish such report on or before the due date for filing of
return under section 139 (1).
5.1.4 MAT increased from 18% to 18.50%
Under the existing provisions of section 115JB(1) of the IT Act, a company is

required to pay MAT @ 18% on its book profit, if the income-tax payable on
the total income, as computed under the IT Act in respect of any previous year
relevant to AY commencing on or after 1 April 2011, is less than the MAT.
It is proposed to amend section 115JB(1) to increase MAT rate to 18.50%

(plus applicable surcharge and cess) from the existing 18% (plus applicable
surcharge and cess). However, due to reduction in surcharge, the effective
rate of 19.93% for companies having income exceeding Rs. 1,00,00,000
stands marginally increased to 20.008%.
5.1.5 Weighted deduction for contribution made for approved scientific

research programme
Under the existing provisions of section 35(2AA) of the IT Act, weighted

deduction to the extent of 175% is allowed for any sum paid to a National
Laboratory or a university or an IIT or a specified person for the purpose of an
approved scientific research programme.
In order to encourage more contributions to such approved scientific

research programmes, it is proposed to increase this weighted deduction
from 175% to 200%.
5.1.6 Investment linked deduction in respect of specified businesses
Under the existing provisions of section 35AD of the IT Act, investment-linked

tax incentive is provided by way of allowing 100% deduction in respect of any
expenditure of capital nature (other than on land, goodwill and financial
instrument) incurred wholly and exclusively, for the purposes of certain
specified business.
It is proposed to include two new businesses as ‘specified business’, i.e.
(a) developing and building a housing project under a scheme for

affordable housing framed by the Central Government or a State
Government, as the case may be, and notified by the Board in this
behalf in accordance with the guidelines as may be prescribed; and
(b) production of fertilisers in India.
Under section 73A, any loss of a ‘specified business’ (under section 35AD) is
allowed to be set-off against profit and gains of any other ‘specified business’.
In order to remove any ambiguity in this regard in respect of the business of
hotels and hospitals, it is proposed to remove the word ‘new’ from the
definition of ‘specified business’ in the case of hotels and hospitals under
section 35AD(8)(c). With this, the loss of an assessee on account of a
‘specified business’ claiming deduction under section 35AD would be
allowed to be set off against the profit of another ‘specified business’ under
section 73A, whether or not the latter is eligible for deduction under section
35AD. Therefore, an assessee who currently operates a hospital or a hotel
would be able to set-off the profits of such business against the losses, if any,
of a new hospital or new hotel which begins to operate after 1 April 2010 and
which is eligible for deduction of expenditure under section 35AD.
This amendment will take effect retrospectively from 1 April 2011 and will,
accordingly, apply in relation to AY 2011-12 and subsequent years.
5.1.7 Extension of sunset clause for tax holiday for power sector
Under the existing provisions of section 80-IA(4)(iv) of the IT Act, a deduction

of profits and gains is allowed to an undertaking which:
(a) is set up for the generation and distribution of power, if it begins to

generate power at any time during the period beginning on 1 April 1993
and ending on 31 March 2011;
(b) starts transmission or distribution by laying a network of new
transmission or distribution lines at any time during the period
beginning on 1 April 1999 and ending on 31 March 2011;
(c) undertakes substantial renovation and modernisation of existing
network of transmission or distribution lines at any time during the
period beginning on 1 April 2004 and ending on 31 March 2011.
It is proposed to amend section 80-IA(4)(iv) to extend the terminal date for a

further period of 1 year, i.e. up to 31 March 2012.

5.1.8 Sunset of tax holiday for certain undertakings engaged in commercial
production of mineral oil
Under the existing provisions of section 80-IB(9) of the IT Act, a 7 year profit-
linked deduction of 100% is available to an undertaking, if it fulfils certain
prescribed conditions.
For the purposes of claiming this deduction, all blocks licensed under a single
contract are treated as a single ‘undertaking’.
Thus, an undertaking, which is located in any part of India and is engaged in

commercial production of mineral oil, is eligible for the above-mentioned
deduction, if it has begun or begins commercial production of mineral oil at
any time after 1 April 1997. No sunset date has been provided for such
business.
It is proposed that the aforesaid deduction available for commercial

production of mineral oil will not be available for blocks licensed under a
contract awarded after 31 March 2011 under the NELP announced by the
Government of India.
5.1.9 Toolbox of counter measures in respect of transactions with persons

located in a notified jurisdictional area
In order to discourage transactions by a resident assessee with persons

located in any country or jurisdiction which does not effectively exchange
information with India, anti-avoidance measures have been proposed in the
IT Act.
It is proposed to insert a new section 94A in the IT Act to specifically deal with
the transactions undertaken with persons located in such country or area.
The proposed section provides:
Øan enabling power to the Central Government to notify any country or territory
outside India, having regard to lack of effective exchange of information by it
with India, as a notified jurisdictional area;
Øthat if an assessee enters into a transaction, where one of the parties to the
transaction is a person located in a notified jurisdictional area, then all the
parties to the transaction shall be deemed to be AEs and the transaction shall

be deemed to be an international transaction within the meaning of section
92B of the IT Act and accordingly, TP regulations shall apply to such
transactions;
Øthat no deduction in respect of any payment made to any financial institution

shall be allowed unless the assessee furnishes an authorization, in the
prescribed form, authorizing the Board or any other income-tax authority
acting on its behalf, to seek relevant information from the said financial
institution;
Øthat no deduction in respect of any other expenditure or allowance (including

depreciation) arising from the transaction with a person located in a notified
jurisdictional area, shall be allowed under any provision of the IT Act unless
the assessee maintains such other documents and furnishes the information
as may be prescribed;
Øthat if any sum is received from a person located in the notified jurisdictional
area, then the onus is on the assessee to satisfactorily explain the source of
such money in the hands of such person or in the hands of the beneficial
owner and in case of his failure to do so, the amount shall be deemed to be the
income of the assessee;
Øthat any payment made to a person located in the notified jurisdictional area
shall be liable to TDS at the higher of the rates specified in the relevant
provision of the IT Act or rate or rates in force or @ 30%.
This amendment is proposed to take effect from 1 June 2011.
5.1.10 Collection of information on requests received from tax authorities

outside India
Under the existing provisions of section 131(1) of the IT Act, certain income-
tax authorities have been conferred the same powers as are available to a
Civil Court while trying a suit in respect of discovery and inspection, enforcing
the attendance of any person, including any officer of a banking company and
examining him on oath, compelling production of books of account and other
documents and issuing commissions.
It is proposed to facilitate prompt collection of information on requests

received from tax authorities outside India in relation to an agreement for
exchange of information under section 90 or section 90A of the IT Act.

The authority notified by the Board shall be able to exercise the powers under
section 131(1) of the IT Act notwithstanding that no proceedings with respect
to such person or class of persons are pending before it or any other income-
tax authority. It is further proposed to amend section 131(3) so as to empower
the aforesaid authority, as notified by the Board, to impound and retain any
books of account and other documents produced before it in any proceeding
under the IT Act.
Similar amendments have also been proposed in section 133 of the IT Act.
These amendments will take effect from 1 June 2011.
5.1.11 Extension of time limit for assessments in case of exchange of

information
Section 153 of the IT Act provides for the time limits for completion of
assessments and reassessments. Explanation 1 to section 153 of the IT Act
provides to exclude certain periods specified therein, while computing the
period of limitation for completion of assessments and reassessments.
It is proposed to insert a new clause (viii) in explanation 1 to section 153 of the

IT Act to exclude the time taken in obtaining information from the tax
authorities in jurisdictions situated outside India, under an agreement
referred to in section 90 or section 90A, from the statutory time limit
prescribed for completion of assessment or reassessment.
It provides that the period commencing from the date on which a reference for
exchange of information is made by an authority competent under an
agreement referred to in section 90 or section 90A and ending with the date
on which the information so requested is received by the Commissioner, or a
period of 6 months, whichever is less, shall be excluded.
Similar amendments are proposed in section 153B of the IT Act.
These amendments are proposed to take effect from 1 June 2011.
5.1.12 Modification in the conditions for filing an application before the

Settlement Commission
The existing provisions contained in the proviso to section 245C(1) of IT Act

allow an application to be made before the Settlement Commission if,
(a) the proceedings have been initiated against the applicant under

section 153A or under section 153C as a result of search or a
requisition of books of account, as the case may be, and the additional
amount of income-tax payable on the income disclosed in the
application exceeds Rs. 50,00,000.
(b) in other cases, if the additional amount of income-tax payable on the
income disclosed in the application exceeds Rs. 10,00,000.
It is proposed to insert a new clause (ia) to proviso to section 245C(1) of the IT

Act to expand the criteria for filing an application for settlement by a tax payer
in whose case proceedings have been initiated as a result of search or
requisition of books of account. This stipulates that an application can also be
made, where the applicant
(A) is related to the person [referred to in (a) above] in whose case

proceedings have been initiated as a result of search and who has filed
an application; and
(B) is a person in whose case proceedings have also been initiated as a
result of search,
the additional amount of income-tax payable on the income disclosed in his

application exceeds Rs. 10,00,000.
Further, it is also proposed to insert an explanation in the section to define the

relationship between the person who makes an application under clause (ia)
of the proviso to section 245C(1) of the IT Act and the person mentioned in
clause (i) of the proviso.
5.1.13 Power of the Settlement Commission to rectify its orders
The existing provisions of section 245D(4) of the IT Act provide that the
Settlement Commission may pass an order, as it thinks fit, on the matters
covered by the applications received by it, after giving an opportunity of being
heard to the applicant and to the Commissioner. It is proposed to insert a new
section 245D(6B) of the IT Act so as to specifically provide that the Settlement
Commission may, at any time within a period of 6 months from the date of its
order, with a view to rectifying any mistake apparent from the record, amend
any order passed by it under section 245D(4). Similarly, consequential
amendments are also proposed to be made in section 22D of the WT Act.

5.2 Personal
5.2.1 Deduction for investment in long term infrastructure bonds
Under the existing provisions of section 80CCF of the IT Act, a sum of Rs.
20,000 (over and above the existing limit of Rs.1,00,000 available under
section 80CCE for tax savings) is allowed as deduction in computing the total
income of an individual or a HUF if that sum is paid or deposited during the
previous year relevant to AY 2011-12 in long term infrastructure bonds as
notified by the Central Government.
It is proposed to amend section 80CCF to allow deduction on account of

investment in notified long term infrastructure bonds for FY 2011-12 (AY
2012-13) also.
5.2.2 Tax benefits for New Pension System (NPS)
Section 80CCD of the IT Act provides, inter alia, a deduction in respect of

contributions made by an employee as well as an employer to the NPS
account on behalf of the employee. In view of the provisions of section
80CCE, the aggregate deduction under sections 80C, 80CCC and 80CCD
cannot exceed Rs.1,00,000. The allowable deduction under section 80CCD
includes the employee’s as well the employer’s contributions to the NPS.
It is proposed to amend section 80CCE so as to provide that the contribution

made by the Central Government or any other employer to a pension scheme
under section 80CCD(2) shall be excluded from the limit of Rs. 1,00,000
provided under section 80CCE.
Currently, the contribution made by an employer towards a recognised

provident fund, an approved superannuation fund or an approved gratuity
fund is allowable as a deduction from business income under section 36,
subject to certain limits. However, the contribution made by an employer to
the NPS is not allowed as a deduction.
Therefore it is proposed to amend section 36 so as to provide that any sum

paid by the assessee as an employer by way of contribution towards a
pension scheme, as referred to in section 80CCD(2) on account of an
employee, to the extent it does not exceed 10% of the salary of the employee
in the previous year, shall be allowed as deduction in computing the income
under the head ‘Profits and gains of business or profession’.

5.2.3 Exemption to a class or classes of persons from furnishing of return of
income
Under the existing provisions of section 139(1) of the IT Act, every person, if
his total income during the previous year exceeds the maximum amount
which is not chargeable to income-tax, is required to furnish a return of his
income.
In order to reduce the compliance burden of filing of return of income on small

tax payer, it is proposed to insert section 139(1C) of the IT Act which
empowers the Central Government to exempt any class or classes of
persons from the requirement of furnishing of return of income, by notification
in the Official Gazette, having regard to conditions specified in the
notification.
It is also proposed to exempt salaried employees from furnishing of return of

income in cases where there is no other source of income of the salaried
employee.
5.3. Non Residents
5.3.1. Reporting of activities of liaison offices
Foreign companies or firms or associations of individuals operate in India

through a branch or a liaison office after approval by RBI. The branch
constitutes a permanent establishment of the foreign entity and is, therefore,
required to file a return of income along with requisite details. A non-resident
does not file a return of income with regard to its liaison office on the ground
that no business activity is allowed to be carried out in India.
It is proposed to insert a new section 285 in the IT Act to seek regular

information from non-residents regarding the activities of their liaison offices
in India, mandating the filing of annual information, within 60 days from the
end of the financial year, in the prescribed form and providing prescribed
details by non-residents as regards their liaison offices.

5.3.2. Interest income from Infrastructure Debt Fund
It is proposed to amend section 115A of the IT Act to provide that any interest
received by a non-resident from investment in notified infrastructure debt
fund, shall be taxable @ 5% on the gross amount of such interest income. It is
further proposed to insert a new section 194LB to provide that tax shall be
deducted @ 5% by such notified infrastructure debt fund on any interest paid
by it to a non-resident.
5.4. Transfer Pricing
5.4.1 Instead of fixed standard variation of +/- 5%, the allowable variation
would be such percentage as may be notified
Under the existing provisions, section 92C of the IT Act provides the
procedure for computation of the ALP. The section provides the methods of
computing the ALP and mandates that the most appropriate method should
be chosen to compute ALP. It is also provided that if more than one price is
determined by the chosen method, the ALP shall be taken to be the
arithmetical mean of such prices. The second proviso to section 92C(2)
provides that if the variation between the actual price of the transaction and
the ALP, as determined above, does not exceed 5% of the actual price, then,
no adjustment will be made and the actual price shall be treated as the ALP.
It is proposed to amend section 92C of the IT Act to provide that instead of a

fixed variation of 5%, the allowable variation will be such percentage as may
be notified by Central Government in this behalf.
5.4.2 TPOs can extend determination of ALP in respect of international

transactions not referred by the AO
Under the existing provisions, section 92CA of the IT Act provides that the
TPO can determine the ALP in relation to an international transaction, which
has been referred to him by the AO.
It is proposed to amend section 92CA so as to specifically provide that the

jurisdiction of the TPO shall extend to the determination of the ALP in respect
of other international transactions, which are noticed by him subsequently, in
the course of proceedings before him. These international transactions would
be in addition to the international transactions referred to the TPO by the AO.

5.4.3 TPOs will have the power to conduct survey
Under the existing provisions, section 92CA(7) provides that for the purpose
of determining the ALP, the TPO can exercise powers of summoning or
calling for details for the purpose of inquiry or investigation into the matter.
In order to enable the TPO to conduct on-the-spot enquiry and verification, it

is proposed to amend section 92CA(7) so as to enable the TPO to also
exercise the power of survey conferred upon an income-tax authority under
section 133A of the IT Act.
5.4.4 Due date for filing return of income by Corporate Assessee where TP is
applicable has been extended
Under the existing provisions, section 139 of the IT Act stipulates 30

September of the AY as the due date for filing of return of income in case of
corporate assessees. In addition to filing a return of income, assessees who
have undertaken international transactions are also required (under the
provisions of section 92E) to prepare and file a transfer pricing report in Form
3CEB before the due date for filing of return of income.
Corporate assessees face practical difficulties in accessing contemporary

comparable data before 30 September in order to furnish a report in respect
of their international transactions. It is, therefore, proposed to amend section
139 to extend the due date for filing of return of income by such corporate
assessees to 30 November of the AY.
This amendment is proposed to take effect from 1 April 2011.
5.5. General
5.5.1. Infrastructure debt fund
In order to augment long term, low cost funds from abroad for the
infrastructure sector, it is proposed to facilitate setting up of dedicated debt
funds. Section 10 of the IT Act excludes certain incomes from the ambit of
total income. It is proposed to insert section 10(47) of the IT Act so as to
provide enabling power to the Central Government to notify any infrastructure
debt fund which is set up in accordance with the prescribed guidelines. Once

notified, the income of such debt fund would be exempt from tax. It will,
however, be required to furnish a return of income.
The above amendment is proposed to take effect from 1 June 2011.
5.5.2. Definition of ‘charitable purpose’
For the purposes of the IT Act, ‘charitable purpose’ has been defined in
section 2(15) which, among others, includes ‘the advancement of any other
object of general public utility’. However, ‘the advancement of any other
object of general public utility’ is not a charitable purpose, if it involves
carrying on of any activity in the nature of trade, commerce or business, or
any activity of rendering any service in relation to any trade, commerce or
business, for a cess or fee or any other consideration, irrespective of the
nature of use or application, or retention, of the income from such activity and
receipts from such activities is Rs. 10,00,000 or more in the previous year.
It is proposed to enhance the current monetary limit in respect of receipts

from such activities from Rs. 10,00,000 to Rs. 25,00,000.
5.5.3. Notification for processing of returns in Centralised Processing

Centres
Under the existing provisions of section 143(1B) of the IT Act, the Central
Government may, for the purpose of giving effect to the scheme made under
section 143(1A) of the IT Act, by notification in the Official Gazette, direct that
any of the provisions of the IT Act relating to processing of returns shall not
apply or shall apply with such exceptions, modifications and adaptations as
may be specified in that notification. However, no direction shall be issued
after 31 March 2011.
It is proposed to amend section 143(1B) of the IT Act to extend the existing

time limit for issue of notification to 31 March 2012.
This amendment is proposed to take effect retrospectively from 1 April 2011.

CHAPTER 6 : INDIRECT TAXES - SIGNIFICANT CHANGES
The changes effected in the Customs

and Central Excise regulations shall be
effective from 1 March 2011 or such
other specified date. The changes in
Service Tax regulations shall be effective
from a date to be notified after the
enactment of the Bill, unless otherwise
specified.
6.1 Goods and Services Tax (‘GST’)
ØThe Hon’ble Finance Minister has

stated in his budget speech that
the areas of divergence with
states have been narrowed.
However, no announcements
were made in relation to the
effective roll out plan.
ØThe Constitution Amendment Bill to facilitate implementation is proposed to

be introduced in the current session of Parliament.
ØSignificant progress has been made in establishing the technology
infrastructure network.
ØIt is proposed to initiate an informed public debate to tax services based on a
small negative list (which will be exempt), so that many untapped sectors are
brought into the tax net. The above step would help to finalise on the
approach for roll out.
6.2 Service Tax
6.2.1 General
ØThere is no change in the rate of service tax. Thus, tax shall continue to be
levied @ 10.30% [Effective Tax @ 10%, Education Cess @ 2% and
Secondary and Higher Education Cess @ 1%].
6.2.2 Point of Taxation Rules, 2011
ØThe Point of Taxation Rules, 2011 have been notified and shall be effective

from 1 April 2011.
ØThese rules determine the point in time when the services shall be deemed to
be provided. The general rule will be that the time of provision of service will
be the earliest of the :
l date on which service is provided or to be provided; or
l date of invoice; or
l date of payment.
ØConsequential changes have also been made in the Service Tax Rules, 1994
to alter the payment of service tax from receipt of payment to provision of
service and also to permit adjustment of tax when service is not finally
provided.
6.2.3 Services proposed to be specifically included in the list of taxable

services
ØServices provided by air-conditioned restaurants having a license to serve

alcoholic beverages in relation to serving of food and/or beverages.
ØShort-term accommodation provided by a hotel, inn, guesthouse, club or
campsite, or any other similar establishment for a continuous period of less
than three months. It is further indicated that the actual levy shall be restricted
to accommodation with declared tariff of Rs. 1,000 per day or higher, by an
exemption notification.
6.2.4 Extension / Alteration of the scope of existing services
Ø‘Life insurance service’ is being expanded to cover all services provided to a

policyholder or any person, by an insurer, including re-insurer carrying on life
insurance business. It is also being provided that tax shall be charged on the
portion of the premium other than what is allocated for investment, when the
break-up of premium is shown separately in any document given to the policy
holder. The composition rate is also being increased from 1% to 1.50%.
Ø‘Club or association service’ is being expanded to include service provided to
non-members.
Ø‘Authorized service station service’ is being expanded to:
l include services provided by any person;
l cover all motor vehicles other than those meant for goods carriage and
three-wheeler scooter auto-rickshaws; and
l also cover the services of decoration and similar services in respect of
vehicles.
Ø‘Business support services’ is being amended to include the services
provided by way of operational or administrative assistance in any manner.

Ø‘Legal consultancy services’ is being expanded to include:
service provided by a business entity to individuals in relation to advice,
l
consultancy or assistance in any branch of law.

l representational service provided by any person to any business
entity (representational services provided to individuals will continue
to be exempt); and
l service of arbitration provided by an arbitral tribunal to any business
entity.
ØThe definition of ‘Commercial training or coaching centre’ is being amended
to cover all unrecognized courses, irrespective of the fact that such courses
are conducted by an institute conducting courses which may lead to grant of a
recognised degree or diploma.
Ø‘Health services’ is being expanded to include:
l all services, including diagnostic services, provided, by a centrally air-
conditioned (wholly or partially) clinical establishment having more than
25 beds for in-patient treatment during any part of the year;
l diagnostic services being provided by a clinical establishment with the
aid of laboratory or other medical equipment; and
l services provided by a doctor, not being an employee of a clinical
establishment, from the premises of such establishment.
6.2.5 Additional exemptions / abatements
ØThe following exemptions / abatements would be effective from 1 March

2011:
l Exemption is being provided in respect of services provided by an
organizer of business exhibitions in relation to business exhibitions held
outside India.
l Abatement of 25% is being provided under ‘Transport of goods through
coastal and inland shipping services’.
l Exemption is being provided in respect of services provided within a port
or other port or an airport under the ‘Works contract services’ for
specified purposes.
ØThe following exemptions / abatements would be effective from 1 April 2011:

lValue of air freight included in the assessable value of goods for
charging customs duties, shall be excluded from the taxable value under
‘Transport of goods by air services’.
lExemption is being provided in respect of services related to
transportation of goods by road, rail or air, when both the origin and the
destination, are located outside India.

6.2.6 Withdrawal / Amendment of existing exemptions
The rates of service tax on travel by air are being revised as follows:
l domestic travel (economy class) from Rs. 100 to Rs. 150
l international travel (economy class) from Rs. 500 to Rs. 750
l domestic travel (other than economy class) 10% (Standard rate).
The above changes will come into effect from 1 April 2011.
6.2.7 Amendments to Cenvat Credit Rules, 2004 (‘CCR, 2004’)
ØSignificant changes are being proposed in CCR, 2004 which would generally
be effective from 1 April 2011, except a few which will be effective from 1
March 2011:
ØInput:
l ‘Input’ has been defined to include, inter-alia, all goods used in a factory
by the manufacturer and goods used for providing any output service.
l Goods that shall not constitute input have been specifically excluded.
These shall include, besides petroleum items, any goods used for
construction of a civil structure (except when they are used in the
provision of any of the specified construction services), food items,
goods used in a guesthouse, residential colony, club or a recreational
facility or a clinical establishment, which are primarily meant for the
personal use or consumption of the employees Goods, which have no
relationship whatsoever with manufacture have also been excluded.
ØInput Service:
l Definition of ‘input service’ has been aligned with the definition of ‘input’
such that goods that do not constitute ‘input’ would not qualify as ‘input
service’. Thus, a service relating to construction of civil structure will not
constitute 'input service', unless it is provided by a sub-contractor to the
main contractor.
l Services relating to motor vehicle i.e. rent-a-cab, use of tangible goods,
insurance or repair of vehicle (except in certain circumstances),
services meant primarily for the personal use or consumption of
employees, etc. will not constitute an input service.
l The expression ‘activities relating to business’ has been deleted from
the definition of ‘Input Service’ and business exhibition and legal
services added in the list of services :
ØObligation of manufacturer and provider of services
l Definition of ‘exempted goods’ shall include such excisable goods as are
covered by the notification relating to concessional duty, with the
condition that no credit of input and input service shall be availed.

lDefinition of ‘exempted services’ shall include taxable services which
are partially exempted, with the condition that no credit of input and input
service shall be availed. It has been clarified that exempted service will
include trading service.
lOption to maintain separate accounts only in respect of inputs (and not
together with input services) has also been given so that allocation as
per formula given in Rule 6(3A) is done only with regards to credits on
input services are concerned.
lThe amount payable under Rule 6(3)(i) of the CCR, 2004, in respect of
services has been reduced from 6% to 5%. Moreover, in case of
exempted services (that are partially taxed with no facility of credits), this
amount shall be 5% of the exempted value of the service.
lFor the purposes of applying the formula under Rule 6(3A), the value of
trading service as well as value of services covered by composition
schemes have been defined. The value of trading service shall be the
difference between the sale price and purchase price of goods. The
value in respect of services covered by a composition scheme will be tax
amount divided by the rate of service tax applicable under section 66
read with any general exemption. As the prevalent rate is 10% the value
shall be 10 times the amount of service paid or payable.
lA substantial part of the income of a bank or a life insurance company is
from investments or by way of interest in which a number of inputs and
input services are used. There have been difficulties in ascertaining the
amount of credit flowing into earning these amounts. Thus, a banking
company or a financial institution, including NBFCs, providing banking
and financial services are being obligated to pay an amount equal to
50% of the credit availed. In case of services relating to life insurance or
management of ULIPs, such amount will be equal to 20% of credit
availed. Other options of payment of amount under Rule 6 shall not be
available to these taxpayers.
lRule 6(5) that allows full credit of 16 specified services has been deleted.
lNew sub-rule (6A) has been added to allow provision of services without
payment of service tax to a unit in SEZ or to a developer in SEZ for their
authorized operations, without requirement of reversal of any CENVAT
credit on this account. This will help in tax-free receipt of services by
units and developers in SEZs.
6.2.8 Amendments to the Export of Services Rules, 2005 and Taxation of

Services (Provided from outside India and received in India) Rules, 2006
ØCertain services have been rearranged under the Export of Services Rules,
2005 subject to compliance with other conditions as under:

Services provided by a builder or any other person for providing
l
preferential location or development of complex shall be considered as

exported, if the immovable property is situated outside India.
l Services of rail travel agent and health check-up or preventive care shall
be considered as exported, when such services are performed outside
India.
l Services of credit rating agency, market research agency, technical
testing and analysis, transport of goods by air, road and rail and opinion
poll shall be considered as exported, if the recipient is located abroad.
ØCorresponding changes, as indicated in respect of Export of Services Rules,
2005 have been carried out for the above services by way of rearrangement
under the Taxation of Services (Provided from Outside India and Received in
India) Rules, 2006.
ØThe above changes will come into effect from 1 April 2011.
6.2.9 Refunds for SEZs
ØA modified scheme is being introduced to provide for refund of service tax to

SEZ units and developers. Some of the salient features are as under:
Criteria for determination of ‘wholly consumed’ services have been laid,
l
borrowing principles from the Export of Services Rules, 2005. It has also
been specified that all services received by an entity in a SEZ, which
does not have any other DTA operations, will constitute 'wholly
consumed’ services.
l No service tax is required to be paid ab-initio if the same are meant to be
‘wholly consumed’ within SEZ, including services liable to tax on reverse
charge basis under section 66A.
l Refund of the remaining services i.e. which are not wholly consumed,
shall be available on pro rata basis i.e. ratio of SEZ turnover to total
turnover.
ØThe above changes will come into effect from 1 March 2011.
6.2.10 Audit for small scale sector
The Hon’ble Finance Minister has announced in his budget speech that the
individual and sole proprietor assessees with a turnover upto Rs. 60 lakhs,
shall not be subject to audit.
6.2.11 Amendments to the existing rules and regulations
ØThe following change would be effective from 1 March 2011

l A new sub-rule is being inserted in the Works Contract (Composition
Scheme for Payment of Service Tax) Rules, 2007 to provide that the
credit of tax on input services of ‘Erection, commissioning or
installation’, ‘Commercial or industrial construction’ and ‘Construction of
complex’ services as available to a person providing ‘Works contract
service’ shall be restricted to 40% of tax paid, when such tax has been
paid on full value of the service after availment of Cenvat credit on
inputs.
ØThe following changes would be effective from 1 April 2011:
lIt has been provided that when an invoice has been issued or a payment
received for a service which is not subsequently provided, the assessee
may take the credit of the service tax earlier paid when the amount has
been refunded by him to the recipient or by the issue of credit note, as the
case may be.
lInterest rate for delayed payment of service tax is being increased from
13% p.a. to 18% p.a.
ØThe following changes would be effective from a date to be notified after

enactment of the Bill:
lThe maximum penalty for delay in filing of return is proposed to be

increased from Rs. 2,000 to Rs. 20,000.
lProvisions relating to prosecution are proposed to be re-introduced and
shall apply in the following situations:
(i) provision of service without issue of invoice;

(ii) availment and utilization of Cenvat credit without actual receipt of
inputs or input services;
(iii) maintaining false books of accounts or failure to supply any
information or submitting false information and
(iv) non-payment of amount collected as service tax for a period of more
than 6 months.
lAmendments have been proposed in the penal provisions. These have
been summarized here under along with their mitigation or waiver
conditions:

Position in Penalty and Complete
Situation Records Provision Mitigation Waiver
No fraud, Captured Section 76: Section 76: Section 80:

suppression 1% of tax or Totally mitigated if tax On showing
etc. Rs. 100 per and interest paid reasonable
day upto 50% before issue of notice cause
of tax amount
Cases of Captured Proviso to Provisos to section 78: Section 80 :
fraud, true and section 78: (a) 1% per month; max On Showing
suppression complete 50% of tax of 25% if all dues paid reasonable
etc. position in amount before notice; cause
records (b) 25% of tax if all
dues paid within 30
days (90 days for small
assessees)
Not so Section 78: No mitigation at all Not possible
captured Equal amount.
6.3 Customs Duty
6.3.1 General
ØThe general peak rate of 10% has been maintained.

ØBCD rate of 2%, 2.50% and 3% are being unified at the median rate of 2.50%
6.3.2 Introduction of ‘Self-Assessment’
ØSection 17 of the Customs Act, 1962 is being amended to replace the existing
system of assessment with ‘self-assessment’ of duty on imported and
exported goods by the importer or exporter. This would replace the existing
legal requirement of assessment of every bill of entry or shipping bill by the
custom officers.
ØThe revised provisions shall empower customs officers to verify the self-
assessment and if required, reassess duty on the imported or exported
goods. An obligation is also being cast on the importer or exporter to furnish
any documents or information that may be required for such verifications. It is
being further provided that the officers may conduct audit in certain situations
either in their own office or at the premises of the importer or exporter.
The above amendments shall come into effect on enactment of the Bill.

6.3.3 Precious metals, gems and jewellery
ØDuty of 'Nil' BCD, CVD of Rs. 140 per 10 gms, and 'Nil' SAD is being
prescribed for gold dore bars of upto 80% gold purity imported for refining and
manufacturing serially numbered gold bars in India.
ØBCD is being reduced from 7.50% to 5% for certain specified gems and
jewellery machinery namely; automatic chain making machine, chain twisting
machine, spiral making machine, rolling machine (combined profile groovers/
strip making) and automatic investing machine/casting machine.
6.3.4 Capital goods / Infrastructure
ØThe benefit of full exemption from BCD and CVD currently available to ‘tunnel
boring machine’ and parts thereof for hydro-electric power projects, is being
extended to such machines for highway development projects also.
ØFull exemption from BCD is being extended on bio-based asphalt sealer and
preservation agent, millings remover and crack filler, asphalt remover
and corrosion protectant and sprayer system for bio-based asphalt
applications.
ØA concessional rate of 5% BCD, 5% CVD and 'Nil' SAD is being extended to
parts and components for manufacture of 23 specified high voltage
transmission equipments.
ØThe scope of full customs duty exemption to water supply projects for
agricultural and industrial use is being expanded to the water pumping station
and water reservoir of such projects.
6.3.5 Electronics hardware
ØA concessional import duty structure of 5% CVD and 'Nil' SAD is being

prescribed on parts of inkjet and laser-jet printers imported for manufacture of
printers.
ØFull exemption from BCD is being extended to parts/components required for
manufacture of PC connectivity cables and sub-parts of parts and
components of battery chargers, hands-free head phones and PC
connectivity cable of mobile handsets including cellular phones.
ØFull exemption from SAD presently available upto 31 March 2011 on parts,
components and accessories for manufacture of mobile handsets including
cellular phones, is being extended upto 31 March 2012.
ØFull exemption from customs duty is being extended to additional specified
capital goods and raw materials for the manufacture of electronic hardware.

prescribed on parts for manufacture of DVD writers, combo drives and CD
drives, subject to actual user condition.
6.3.6 Special Economic Zone
ØAll clearances from SEZ into DTA are being exempted from SAD, provided
they are not exempt from the levy of VAT/Sales Tax.
ØThe CVD exemption currently available to plastic materials reprocessed in
India out of the scrap or the waste of goods falling under specified chapters, is
being extended to DTA clearances of such plastic materials manufactured in
SEZ units also.
6.3.7 Changes in rates of duty of certain items

Product Description Present BCD Revised BCD
Raw pistachios 30% 10%
Raw silk (not thrown) 30% 5%
Bamboo used for manufactured of agarbattis 30% 10%
Nylon chips, fibre and yarn 10% 7.50%
Rayon grade wood pulp 5% 2.50%
Solar lantern or lamps 10% 5%
Lactose for use in the manufacture of 25% 10%
homeopathic medicines
Ferro – nickel 5% 2.50%
Waste paper 5% 2.50%
Petroleum coke 5% 2.50%
Mineral Gypsum 5% 2.50%
Aircrafts for non-scheduled operations Nil 2.50%
6.3.8 Grant / Extension of exemption
ØFull exemption from BCD and SAD and concessional CVD @ 5% (by way of a
central excise duty exemption) is being extended to specified parts of the
hybrid vehicles, namely, battery pack, battery chargers, AC/DC electric
motors and motor controllers. The concession is subject to actual user
condition and will be available till 31 March 2013.
ØThe benefit of exemption currently available to ship repair units on imports of
spares and consumables required for repair of ocean going vessels, is being
extended to such spares and consumables for repairs of ocean going vessels
by owners of such vessels registered in India.
ØCotton waste is being fully exempted from BCD.

ØConcessional CVD @ 5% (by way of a central excise exemption) and full
exemption from SAD is being provided to LEDs used for manufacture of LED
lights and light fixtures.
ØEndovascular stents are being fully exempted from BCD of 5%.
ØA concessional import duty regime of 5% BCD, 5% CVD and 'Nil' SAD, is
being prescribed on specified raw material for the manufacture of syringes,
needles, catheters, cannulae on actual user basis.
ØFull exemption from BCD is being extended to fin fish feed.
ØFull exemption from BCD is being extended to stainless steel scrap.
ØExemption from BCD is being provided on the value of gold and silver
contained in the copper concentrate.
ØFull exemption from customs duty is being extended to toughened glass and
silver paste imported for manufacture of solar cells or solar modules on actual
user basis.
6.3.9 Withdrawal of exemption
ØExemption from education cess and secondary and higher education cess
presently available to aircrafts, is being withdrawn.
6.3.10 Export duty
ØStatutory rate of export duty on iron ores is being increased from 20% to 30%,
while unifying the effective rate of export duty on iron ore fines and lumps at
20%.
ØIron ore pellets are being fully exempted from the export duty.
ØExport duty of 10% is being imposed on exports of de-oiled rice bran oil cake.
6.4 Excise Duty
6.4.1 General
ØThe standard rate of duty @ 10% on non-petroleum products has been

maintained.
ØThe merit rate of duty for non-petroleum goods has been increased from 4%
to 5%. The increased rate would apply to all such goods that hitherto attracted
the rate of 4%.
6.4.2 Withdrawal of exemptions/ concessions
ØWithdrawal of about 130 exemption entries:

l A number of exemptions from duty (about 130 exemption entries) are

being withdrawn. These include some cases where the rate of duty is
'Nil' by tariff. A nominal duty of 1% ad valorem (vide Notification 1/2011-
CE dated 1 March 2011) is being imposed on these items with the
condition that no credit of the duty paid on input and input services is
taken.
lThe statutory / tariff rate for those items that hitherto attracted a 'Nil' rate
(by tariff) has been fixed at 5% ad valorem. For the remaining items in
whose case the statutory/tariff rate is not 'Nil', a general effective rate of
5% is being prescribed (without any condition) through Notification No.
2/2011-CE dated 1 March 2011. This would enable those manufacturers
who wish to avail of Cenvat credit, to pay a concessional duty of 5%.
lFurther, under the CCR, 2004 the definition of ‘exempted goods’ has
been amended to include goods in respect of which the benefit of
Notification No.1/2011-CE is availed. Credit of the duty paid on items
that are being subjected to the levy of 1% would not be available to a
manufacturer or service provider who buys them. It is also being
prescribed in the CCR, 2004 that the manufacturer of these goods
cannot discharge the duty liability on them by utilizing Cenvat credit
otherwise available in his books of accounts.
ØExemption from duty available to clearances upto 3,500 metric tonnes of

paper manufactured from non-conventional material, is being withdrawn.
ØFull exemption from duty is being withdrawn on microprocessors for
computers, other than motherboards; floppy disc drives; hard disc drives;
CD-ROM drives; DVD drives/DVD writers; flash memory and combo drives
meant for fitment inside the CPU or laptop. These goods will attract a
concessional rate of duty of 5%.
6.4.3 Gem and jewellery sector
ØDuty of 1% is being imposed on branded jewellery and branded articles of

precious metals.
ØDuty is being reduced on serially numbered gold bars, other than tola bars,
made starting from the ore/concentrate stage in the same factory from Rs.
280 per 10 gms to Rs. 200 per 10 gms.
ØConcessional duty rate of Rs. 200 per 10 gms is also being extended to
serially numbered gold bars manufactured by refining of gold dore bar.
ØExcise duty of Rs. 300 per 10 gms is being imposed on serially numbered
gold bars, other than tola bars, manufactured during the process of copper
smelting.
ØExcise duty of Rs. 1,500 per kg is being imposed on silver manufactured
during gold refining starting from ore/concentrate stage or from gold dore

bars or during the process of copper smelting.
ØA chapter note is being inserted in Chapter 71 (which cover precious metal,
etc) so as to provide that the process of refining of dore bars shall amount to
manufacture.
6.4.4 Cement
ØThe rates of duty on cement and cement clinker are being revised as follows:
Mini Cement Plant Other than Mini Cement Plant

Cement
Present Rate Revised Rate Present Rate Revised Rate
Cleared in packaged form: Rs. 185 10% ad Rs. 290 per 10% ad
Retail Sale Price ('RSP') not per tonne valorem tonne valorem plus
exceeding Rs. 190 per 50 kg Rs. 80 per
bag or of per tonne equivalent tonne
RSP not exceeding Rs. 3,800
RSP exceeding Rs.190 per Rs. 315 10% ad 10% of RSP 10% ad
50 kg bag or of per tonne per tonne Valorem valorem plus
equivalent RSP exceeding plus Rs. Rs. 160 per
Rs. 3,800 30 per tonne tonne
Cleared other than in Rs. 215 10% ad 10% or Rs. 10% ad

packaged form per tonne valorem 290 per tonne valorem
wichever is
higher
ØThe duty on cement clinkers has been revised from the present rate of Rs.
375 per tonne to 10% valorem plus Rs. 200 per tonne.
6.4.5 Health
Duty on sanitary napkins, baby, clinical and adult diapers is being reduced
from 10% to 1%, with no Cenvat credit.
6.4.6 Textiles
ØMandatory duty of 10% is being imposed on readymade garments and textile

made-ups, bearing a brand name or sold under a brand name. General SSI
scheme is also being extended to readymade garments and other textile
made-up, articles. Duty shall be charged on the tariff value @ 60% of their
retail sale price.

ØDuty of 5% is being imposed on automatic looms and projectile looms.
6.4.7 Capital goods
ØDuty exemption is being extended to goods required for expansion of an

existing mega/ultra mega power project under specified conditions at par with
exemption from CVD on the import of goods for expansion of such projects.
ØDuty is being reduced from 10% to 5% on parts of specified textile machinery.
6.4.8 Automobiles sector
ØConcessional rate of duty @10% is being extended to factory built

ambulances. Other vehicles retrofitted as ambulances subsequent to their
removal from the factory, shall continue to be eligible for refund based
concession.
ØConcessional duty structure for taxis is being rationalized to provide refund of
20% of the duty paid on vehicles, if they are registered as a taxi subsequent to
removal.
6.4.9 Environment friendly and energy saving goods
ØA concessional rate of duty of 10% is being prescribed for hydrogen vehicles

based on fuel cell technology.
ØDuty is being reduced from 10% to 5% on hybrid kits for conversion of fossil
fuel vehicles to hybrid vehicles. Parts of such kits would also attract 5% duty.
6.4.10 Amendments in Central Excise Act, 1944
ØProvisions of sections 11A, 11AA, 11AB and 11AC of the Central Excise Act,
1944 are being redrafted so as to make them more lucid and coherent. A new
category of cases is being carved out in respect of which the period of
limitation would be 5 years, but which would attract general penalty of 50% of
the duty. Waiver of show cause notice and conclusion of proceedings would
be available if the duty along with interest and specified penalty is paid before
the issue of show cause notice in such cases.
ØSection 12F is being inserted to empower the Joint Commissioner or the
Additional Commissioner of the Central Excise to himself search or authorize
a central excise officer to carry out the search of any premises.
ØPending enactment of the Bill, the rates of interest are being revised with
effect from 1 April 2011 to a uniform rate of 18% p.a. under the existing
provision of sections 11AA and 11AB.
The above changes shall come into effect on enactment of the Bill.

CHAPTER 7: OTHER SIGNIFICANT PROPOSALS
7.1 People’s Ownership of PSUs
Rs. 40,000
Ø crores proposed to
be raised through disinvestment
in Public Sector Undertakings in
FY 2011-12.
While
Ø Government to continue
on disinvestment plans, it is also
committed to retain atleast 51%
ownership and management
control of the Central Public Sector Undertakings.
7.2 Investment Environment
Discussions underway to further liberalise the FDI policy.

Ø
SEBI registered
Ø mutual funds permitted to accept subscription for
equity schemes from the foreign investors who meet KYC
requirements.
To enhance
Ø flow of funds to infrastructure sector, the limit for FIIs
investment in corporate bonds issued in infrastructure sector being
raised by US$ 20 million to US$ 25 million. This will raise the total limit
available to FIIs for investment in corporate bonds to US$ 40 billion.
To boost
Ø infrastructure development, tax free bonds of Rs. 30,000
crores being proposed to be issued by the government undertakings
during FY 2011-12.
Existing
Ø scheme of interest subvention of 1% on housing loan has
been further liberalized.
Proposal
Ø to recognize cold chains, post-harvest storage and capital
investment in fertilizer production as an infrastructure sub-sector.
Financial
Ø Sector Legislative Reforms Commission set up to rewrite
and streamline the financial sector laws, rules and regulations.

Banking Regulation Act to be amended in respect of banking licenses
Ø
to private sector players.
Share of manufacturing in GDP expected to grow from about 16% to

Ø
25% over a period of 10 years. The Government will come out with the
National Manufacturing Policy.
7.3 Multi-pronged Strategy for Unaccounted Income and Wealth
5 fold
Ø strategy to be put into operation to deal with the problem of
generation and circulation of unaccounted income and wealth.
Comprehensive
Ø national policy to be announced in near future to
strengthen controls over prevention of trafficking on narcotic drugs.
7.4 Improving Governance
A new
Ø scheme with an outlay of Rs. 300 crores to be launched to
provide assistance to states to modernise their stamp and registration
administration and roll out e-stamping in all the districts in the next 3
years.
A new
Ø simplified form ‘Sugam’ to be introduced to reduce the
compliance burden of small tax payers falling within presumptive
taxation.
3 more benches of Settlement Commission to be set up to fast track

Ø
disposal of cases.
The Companies Bill to be introduced in the Lok Sabha during current

Ø
session.
The Bill
Ø to amend the Indian Stamp Act, proposed to be introduced
shortly.
From
Ø 1 October 2011, 10,00,000 Aadhaar numbers (under UID
Mission) will be generated per day.

CHAPTER 8 : IMPACT ON SELECT INDUSTRIES
8.1 Gems and Jewellery Industry
Key highlights
ØGems & Jewellery Industry is one of the

rapidly growing industries in India and a
major contributor towards the country’s
foreign exchange earnings.
ØThe Indian Gems and Jewellery sector is expected to grow at a CAGR of
around 13% during the period 2011–2013, on the back of increasing
government efforts and incentives coupled with private sector initiatives,
according to a report ‘Indian Gems and Jewellery Market Forecast to 2013’,
by RNCOS.
ØTotal exports of the sector during April – November 2010 rose to US$ 23.50
billion from US$ 17 billion in the corresponding period last year, thereby
registering a significant growth of over 38% in the total gems and jewellery
export.
ØIt is also one of the largest employment providers in India.
Positive proposals / Impact
ØEffective corporate income tax rate for domestic companies having income
exceeding Rs. 1,00,00,000 has been reduced from 33.2175% to 32.445% as
a result of reduction of surcharge from 7.50% to 5%.
ØEffective DDT rate has been reduced from 16.60875% to 16.2225%.
ØLower tax rate of 15% (plus applicable surcharge and cess) on dividends
received by an Indian company from its foreign subsidiary as against normal
tax rate of 30% (plus applicable surcharge and cess).
ØIncrease in basic exemption limit from the present Rs. 1,60,000 to Rs.
1,80,000 shall benefit the employees / workers, as the industry is highly
labour intensive.
ØBCD is being reduced from 7.50% to 5% for specified gems and jewelley
machinery.
of duty on imported and export goods by the importer or exporter
respectively.
ØExcise duty is being reduced on serially numbered gold bars, other than tola
bars, made starting from the ore/concentrate stage in the same factory from
Rs. 280 per 10 gms to Rs. 200 per 10 gms.

ØConcessional excise duty rate of Rs. 200 per 10 gms is being extended to
serially numbered gold bars manufactured by refining of gold dore bars also.
ØService tax rate remains unchanged @ 10.30%.
ØService tax refund for exporters to be streamlined.
ØIt is proposed to extend the due date of filing of tax returns till 30 November, in
case of corporate assessees who are required to furnish the report in respect
of their international transactions with AEs.
Negative proposals / Impact
ØThere is no extension of tax holiday enjoyed by EOUs / FTZ units under

section 10A / 10B of the IT Act, beyond 31 March 2011.
ØIt is proposed to discontinue the exemption from MAT in case of units in SEZ.
ØMarginal increase in the rate of MAT from existing 18% to 18.50% (plus
surcharge and cess).
ØThe Bill proposes to apply AMT based on book profits in case of LLP also
resulting into effective tax @ 19.055% on its adjusted total income.
ØExcise duty of 1% is being imposed on branded jewellery and branded
articles of precious metals.
ØExcise duty of Rs. 300 per 10 gms is being imposed on serially numbered
gold bars, other than tola bars, manufactured during the process of copper
smelting.
ØExcise duty of Rs. 1,500 per kg. is being imposed on silver manufactured
during gold refining starting from ore/concentrate stage or from gold dore
bars or during the process of copper smelting.
ØA chapter note is being inserted in Chapter 71 (covering precious metal etc)
so as to provide that the process of refining of dore bar shall amount to
manufacture.
ØService tax point of liability proposed to be changed from the current cash
system to accrual system of accounting.
8.2 Entertainment and Media Industry
Key highlights
ØMedia, coupled with the entertainment

component, has shown a vigorous growth
over the past few years. Moreover,
technology has played a key role in
influencing the growth of this sector.
ØOver the next couple of years, the industry is

projected to grow at a CAGR of 13% to reach a size of US$ 24.04 billion by
2014.
exceeding Rs. 1,00,00,000 has been reduced from 33.2175% to 32.445%, as
a result of reduction of surcharge from 7.50% to 5%.
ØIncrease in basic exemption limit from the present Rs. 1,60,000 to Rs.
1,80,000, shall benefit the employees.
ØFull exemption from excise duty (and hence from CVD on imports) is being
provided to colour, unexposed cinematographic film in jumbo rolls of 400 feet
and 1,000 feet.
ØMarginal increase in the rate of MAT from existing 18% to 18.50% (plus
ØThe Bill proposes to apply MAT in case of LLP also, resulting into effective tax
@ 19.055% on its adjusted total income.
ØServices provided by air-conditioned restaurants having a license to serve
alcoholic beverages in relation to serving of food and / or beverages, to be
specifically included in the list of taxable services.
ØShort-term accommodation provided by a hotel, inn, guesthouse, club or
campsite, or any other similar establishment for a continuous period of less
than 3 months to be specifically included in the list of taxable services. It is
further indicated that the actual levy shall be restricted to accommodation
with declared tariff of Rs. 1,000 or higher, by an exemption notification.

8.3 Information Technology and ITES
Industry
Key highlights
ØAs the country’s premier growth engine,

the IT and ITES sector has demonstrated
tremendous growth in terms of revenue,
employment generation and value creation.
ØRevision of income tax slab rates in the case of individual assessees would
benefit the employees.
exceeding Rs.1,00,00,000, has been reduced from 33.2175% to 32.445% as
a result of reduction in surcharge from 7.50% to 5%.
ØThe weighted deduction on payments made to National Laboratories or
Universities or Indian Institutes of Technology or a specified person for the
approved scientific research programme, has been increased from 175% to
200%.
ØIt is proposed to extend the due date of filing of tax returns till 30 November in
case of corporate assessees who are required to furnish the report in respect
of their international transactions with AEs.
of duty on imported and export goods by the importer or exporter.
prescribed on parts of inkjet and laser-jet printers imported for manufacture of
printers.
ØFull exemption from customs duty is being extended to additional specified
capital goods and raw materials for the manufacture of electronic hardware.
prescribed on parts for manufacture of DVD writers combo drives and CD
drives, subject to actual user condition.

ØMarginal Increase in the rate of MAT from the existing 18% to 18.50% (plus
ØIt is proposed to discontinue the exemption from MAT in case of units in SEZ.
ØThe Bill proposes to apply MAT in case of LLP also, resulting into effective tax
ØEffective 1 June 2011, the TPO will have power of survey.
ØFull exemption from duty is being withdrawn on microprocessors for
computers, other than motherboards; floppy disc drives; hard disc drives;
CD-ROM drives; DVD drives/DVD writers; flash memory and combo drives
meant for fitment inside the CPU or laptop. These goods will attract a
concessional rate of duty of 5%.
8.4 Real Estate and Infrastructure

Industry
Key highlights
ØAccording to the data released by

DIPP, housing and real estate
sector including cineplex,
multiplex, integrated townships and commercial complexes etc., attracted a
cumulative FDI worth US$ 9,072 million from April 2000 to October 2010
wherein the sector witnessed FDI amounting US$ 716 million during April-
October 2010.
Positive proposals/ Impact
ØTo enhance flow of funds to infrastructure sector, the FII limit for investment in
corporate bonds issued in infrastructure sector, being raised by US$ 20
million to US$ 25 million. This will raise the total limit available to FIIs for
investment in corporate bonds to US$ 40 billion.
ØRevision of income tax slab rates in the case of individual assessees would
benefit the employees / workers, as the industry is highly labour intensive.
exceeding Rs.1,00,00,000 has been reduced from 33.2175% to 32.445% as
a result of reduction in surcharge from 7.50% to 5%.
ØEffective DDT rate has been reduced from 16.60875% to 16.2225%

ØTax exemption is being proposed to notified infrastructure debt funds, which
would attract foreign funds for financing of infrastructure. It is also proposed
that the gross interest from such funds shall be liable to tax at a reduced rate
of 5% in the hands of non-residents.
ØExtension of sunset clause for tax holiday for power sector by extending the
terminal date for a further period of 1 year, i.e., upto 31 March 2012.
ØBenefit of investment linked deduction by way of allowing 100% deduction in
respect of expenditure of capital nature has been extended to businesses
engaged in developing and building of housing projects under a scheme of
affordable housing.
ØThe benefit of full exemption from BCD and CVD currently available to ‘tunnel
boring machine’ and parts thereof for hydro-electric power projects, is being
extended to such machines for highway development projects also.
ØFull exemption from BCD is being extended on bio-based asphalt sealer and
preservation agent, millings remover and crack filler, asphalt remover
and corrosion protectant and sprayer system for bio-based asphalt
applications.
ØThe scope of full customs duty exemption to water supply projects for
agricultural and industrial use is being expanded to the water pumping station
and water reservoir of such projects.
ØExcise duty exemption is being extended to goods required for expansion of
an existing mega/ultra mega power project under specified conditions at par
with exemption from CVD on the import of goods for expansion of such
projects.
ØExtension and liberalization of the existing scheme of interest subvention of
1% on housing loans upto Rs. 15,00,000 where the cost of the house does
not exceed Rs. 25,00,000.
ØDiscontinuation of exemption from DDT in the case of SEZ developers for

dividends declared, distributed or paid on or after 1 June 2011.
ØMarginal Increase in the rate of MAT from existing 18% to 18.50% (plus
ØThe Bill proposes to apply AMT in case of LLP also resulting into effective tax
ØThe rates of duty on cement and cement clinker are being revised by levying
ad valorem rates with specific components.

CHAPTER 9 : DTAA RATES
(As Updated Upto the Finance Bill, 2011)
One of the major hurdles faced by

businesses, while operating on an
international scale, is the complexity
of the taxation system existing in
various jurisdictions. India, being a
major player in the world market, has
entered into DTAAs with almost 79
countries in order to mitigate the
taxation complexities and to facilitate
international business transactions.
In this chapter, we have compiled the tax rates in respect of Dividend, Interest,
Royalty and Fees for Technical Services, based on the DTAA agreements entered
into by India with various countries.
Sr. Country Dividend Interest Royalty Fees for Remarks

No. [Note 1] Technical
Service
('FTS')
Tax rate Tax rate Tax rate Tax rate
1 Armenia 10% 10% [Note 4] 10% 10%
2 Australia 15% 15% Note 5 No
Separate
Provision
3 Austria 10% 10% [Note 4] 10% 10%
4 Bangladesh 10% / 15% 10% [Note 4] 10% No 10% tax on dividends if at least 10% of
separate the capital is owned by company; in
provision any other case 15%.
5 Belarus 10% / 15% 10% [Note 4] 15% 15% 10% tax on dividends if at least 25% of
the shares are owned by company; in
any other case 15%.
6 Belgium 15% 15% / 10% 10% 10% Interest taxable at 10% if recipient is
bank; in any other case 15%.
7 Botswana 7.50% / 10% 10% [Note 4] 10% 10% 7.50% tax on dividends if at least 25%
of the capital is owned by company; in
any other case 10%.
8 Brazil 15% 15% [Note 4] 15% No 15% tax on dividends if paid to a
(25% for separate company; otherwise as per local tax
trademark) provision laws.
9 Bulgaria 15% 15% [Note 4] 15% / 20% 20% 15% tax on royalties if relating to
copyrights of literary, artistic or
scientific works, other than
cinematograph films or films or tapes
used for radio or television
broadcasting; in any other case 20%.

Service
('FTS')
10 Canada 15% / 25% 15% [Note 4] Note 5 Note 5 15% tax on dividends if at least 10% of
the voting power is owned by
company; in any other case 25%.
11 China 10% 10% [Note 4] 10% 10%
12 Cyprus 10% / 15% 10% [Note 4] 15% 15% / 10% 1. 10% tax on dividends if at least 10%
of the shares are owned by
2. Technical Fees are taxable @10%
under Article 13 and Fees for
Included Services is chargeable
@15% under Article 12.
13 Czech Republic 10% 10% [Note 4] 10% 10%
14 Denmark 15% / 25% 15% / 10% 20% 20% 1. 15% tax on dividends if at least 25%
[Note 4] of the shares are owned by
2. Interest taxable at 10% if recipient is
15 Finland 10% 10% [Note 4] 10% 10%
16 France 10% 10% [Note 4] 10% 10%
17 Germany 10% 10% [Note 4] 10% 10%
18 Greece Taxable as per domestic laws in No

source country separate
provision
19 Hungary 10% 10% [Note 4] 10% 10%
20 Indonesia 10% / 15% 10% [Note 4] 15% No 10% tax on dividends if at least 25% of
separate the shares are owned by company; in
21 Iceland 10% 10% [Note 4] 10% 10%
22 Ireland 10% 10% [Note 4] 10% 10%
23 Israel 10% 10% [Note 4] 10% 10%
24 Italy 15% / 25% 15% [Note 4] 20% 20% 15% tax on dividends if at least 10% of
any other case 25%.
25 Japan 10% 10% [Note 4] 10% 10%
26 Jordan 10% 10% [Note 4] 20% 20%
27 Kazakhstan 10% 10% [Note 4] 10% 10%
28 Kenya 15% 15% [Note 4] 20% No 17.50% tax in case of Management

separate and Professional fees.
provision

Service
('FTS')
29 Korea 15% / 20% 15% / 10% 15% 15% 1. 15% tax on dividends if at least 20%
[Note 4] of the capital is owned by company;
in any other case 20%.
30 Kuwait 10% 10% [Note 4] 10% 10%
31 Kyrgyz Republic 10% 10% [Note 4] 15% 15%
32 Libya Taxable as per domestic laws in No

source country Separate
Provision
33 Luxembourg 10% 10% [Note 4] 10% 10%
34 Malaysia 10% 10% [Note 4] 10% 10%
35 Malta 10% / 15% 10% [Note 4] 15% 15% / 10% 1. 10% tax on dividends if at least 25%
2. Technical Fees are taxable @10%
under Article 13 and Fees for
Included Services is chargeable
@15% under Article 12.
36 Mauritius 5% / 15% Taxable as per 15% No 5% tax on dividends if at least 10% of

domestic laws Separate the capital is owned by company; in
[Note 4] Provision any other cases 15%.
37 Mongolia 15% 15% [Note 4] 15% 15%
38 Montenegro 5% / 15% 10% [Note 4] 10% 10% 5% tax on dividends if at least 25% of
the capital is owned by company
(other than a partnership); in any other
case 15%.
39 Morocco 10% 10% [Note 4] 10% 10%
40 Myanmar 5% 10% [Note 4] 10% No

separate
provision
41 Namibia 10% 10% [Note 4] 10% 10%
42 Nepal 10% / 15% 15% / 10% 15% No 1. 10% tax on dividends if at least 10%
[Note 4] separate of the shares are owned by
provision company; in any other case 15%.
43 Netherlands 10% 10% [Note 4] 10% 10%
44 New Zealand 15% 10% [Note 4] 10% 10%
45 Norway 15% / 25% 15% [Note 4] 10% 10% 15% tax on dividends if at least 25% of
the capital is owned by company; in
any other case 25%.

Service
('FTS')
46 Oman 10% / 12.50% 10% [Note 4] 15% 15% 10% tax on dividends if at least 10% of
any other case 12.50%.
47 Philippines 15% / 20% 15% / 10% 15% No 1. 15% tax on dividends if at least 10%
provision company; in any other case 20%.
Financial Institution (including an
insurance company) and where the
interest is payable by a company
resident of Philippines to a resident
of India in respect of public issues of
bonds, debentures or similar obli-
gations. In any other case 15%.
3. Royalty taxable @ 15% if it is
payable in pursuance of any
collaboration agreement approved
by the Government of India. No
rates prescribed in any other case.
48 Poland 15% 15% [Note 4] 22.50% 22.50%
49 Portuguese 10% / 15% 10% [Note 4] 10% 10% 10% tax on dividends if at least 25% of
Republic the capital stock is owned by company
for an uninterrupted period of 2 years
prior to the payment of dividend; in any
other case 15%.
50 Qatar 5% / 10% 10% [Note 4] 10% 10% 5% tax on dividends if at least 10% of
any other case 10%.
51 Romania 15% / 20% 15% [Note 4] 22.50% 22.50% 15% tax on dividends if at least 25% of
any other case 20%.
52 Russian Federation 10% 10% [Note 4] 10% 10%
53 Saudi Arabia 5% 10% [Note 4] 10% No
separate
provision
54 Serbia 5% / 15% 10% [Note 4] 10% 10% 5% tax on dividends if at least 25% of
any other case 15%.
55 Singapore 10% / 15% 10%/15% 10% 10% 1. 10% tax on dividends if at least 25%
bank or similar financial institution
including an insurance company; in
any other case 15%.
56 Slovenia 5%/15% 10% [Note 4] 10% 10% 5% tax on dividends if at least 10% of
any other case 15%.

Service
('FTS')
57 South Africa 10% 10% [Note 4] 10% 10%
58 Spain 15% 15% [Note 4] 10% 10% 10% tax on royalties if paid for the use
or right to use any industrial,
commercial or scientific equipment; in
any other case 20%. However,
Royalties and Fees for Technical
Services taxable at 10% as per lower
rate specified in India-Germany DTAA
w.e.f. 26 October 1996.
59 Sri Lanka 15% 10% [Note 4] 10% No

Separate
Provision
60 Sudan 10% 10% [Note 4] 10% 10%
61 Sweden 10% 10% [Note 4] 10% 10%
62 Swiss 10% 10% [Note 4] 10% 10%

Confederation
63 Syria 5% / 10% 10% [Note 4] 10% No 5% tax on dividends if at least 10% of

separate the shares are owned by company
provision (other than a partnership); in any other
case 10%.
64 Tajikistan 5% / 10% 10% [Note 4] 10% No 5% tax on dividends if at least 25% of

separate the capital is owned by company; in
65 Tanzania 10% / 15% 12.50% 20% No 10% tax on dividends if at least 10% of
[Note 4] separate the shares are owned by company
provision during a period of 6 months
immediately preceding the date of
payment of dividend; in any other case
15%.
66 Thailand 15% / 20% 25% / 10% 15% No 1. 15% tax on dividends if at least 10%
[Note 4] separate of the voting shares are owned by
provision payee company and the payer is an
industrial company, 20% if payer
company is an industrial company
and the payee company owns at
least 25% of the voting shares; and
in any other case as per the
domestic laws of the payer
company.
any financial institution including an
insurance company; in any other
case 25%.
67 Trinidad and 10% 10% [Note 4] 10% 10%

Tobago
68 Turkey 15% 10%/15% 15% 15% Interest is taxable at 10% if recipient is

[Note 4] bank, insurance company or similar
financial institution; in any other case
15%.

Service
('FTS')
69 Turkmenistan 10% 10% [Note 4] 10% 10%
70 Uganda 10% 10% [Note 4] 10% 10%
71 Ukraine 10% / 15% 10% [Note 4] 10% 10% 10% tax on dividends if at least 25% of
the capital is owned by company
(other than a partnership); in any other
case 15%.
72 United Arab 10% 12.50% / 5% 10% No Interest taxable at 5% if recipient is

Emirates [Note 4] separate bank or similar financial institution; in
provision any other case 12.50%.
73 United Arab For rate of tax and basis of taxation, No Source country has right to tax.
Republic (Egypt) refer to DTAA provision separate
provision
74 United Kingdom 15% 15% / 10% Note 5 Note 5 Interest taxable at 10% if recipient is
[Note 4] bank; in any other case 15%.
75 United Mexican 10% 10% 10% 10% The DTAA was signed on 10
States [Note 4] September 2007 but has been notified
recently on 26 November 2010.
76 United States of 15% / 25% 10% / 15% Note 5 Note 5 1. 15% tax on dividends if at least 10%
America [Note 4] of the voting stock is owned by
bona fide bank or financial
institution including an insurance
3. Fees for Technical Services have
been referred as ‘Fees for Included
Services.’
DTAA has limitation of benefits and PE
tax articles. Protocol is very important.
77 Uzbekistan 15% 15% 15% 15% Interest received from transaction

[Note 4] approved by source country’s
government will be exempt. In any
other case, normal provisions of
domestic law will apply.
78 Vietnam 10% 10% 10% 10%

[Note 4]
79 Zambia 5% / 15% 10% 10% No 1. 5% tax on dividends if at least 25%

company provisionduring a period
of 6 months immediately preceding
the date of payment of dividend; in
any other case15%.
2. Management and Consultancy
Fees are chargeable @10%.

Notes:
1. As per section 115-O of the IT Act, subject to certain exceptions, any amount declared,
distributed or paid by a domestic company by way of dividend shall be chargeable to DDT
@ 16.60875%. In such cases, dividend distributed (which is subject to DDT) is not subject to any
withholding tax. The rates mentioned in the Table are limited to dividend other than the dividend
declared, distributed or paid by Indian companies (such as deemed dividend, etc.).
2. Unless otherwise provided, both the States have right to tax.
3. In case of Agreements made after 1 June 2005, the rate of tax under the IT Act on Royalty and/or
FTS receivable by a non-resident is reduced to 10% (plus Surcharge and Education Cess) by
the Finance Act, 2005. As per section 90(2) of the IT Act, tax rate as per the provisions of DTAA or
the IT Act, whichever is beneficial to the assessee, shall apply.
4. Interest derived and beneficially owned by the Government, a political sub-division or a local
authority or certain institutions like the RBI or Central Bank of other State or any other institution
as may be agreed upon is exempt from taxation in the country of source.
5. In case of Royalties, the rate of tax is 10% for equipment rentals and for services ancillary or
subsidiary thereto. For other cases, the tax rate is 15%. However, for first 5 years of the
agreement, the tax rate is 20% in case of payer other than Government or specified institution.
6. The Central Government has notified the 'Hong Kong Special Administrative Region (‘SAR’) of
the People’s Republic of China' as ‘specified territory’ for the purpose of Explanation 2 to Section
90 of the IT Act vide notification dated 29 April 2010. The notification enables the Central
Government to enter into a DTAA with SAR of Hong Kong. Earlier (i) Bermuda, (ii) British Virgin
Islands, (iii) Cayman Islands, (iv) Gibraltar, (all British Overseas Territories); (v) Guernsey, (vi)
Isle of Man, (vii) Jersey, (all British Crown Dependencies); (viii) Netherlands Antilles, (an
Autonomous Part of the Kingdom of Netherlands); and (ix) Macau (a Special Administrative
Region of the People’s Republic of China) had been notified, enabling the Central Government
to initiate and negotiate agreements for exchange of information for the prevention of evasion or
avoidance of income-tax and assistance in collection of income-tax with the 9 specified
territories.
7. In case, the payee is not able to furnish the PAN to the payer, tax shall be deducted @ 20% w.e.f.
1 April 2010. This higher rate of 20% shall apply even if rate prescribed under DTAA is lower. As
such, to this extent, the provision of IT Act will override the provision of DTAA.

CHAPTER 10 : TDS RATES
In this chapter, we have compiled the

relevant provisions of TDS relating to
residents, incorporating herein the
nature of payment, threshold limit for tax
deduction and the applicable rate of TDS
for different classes of recipients.
Sr. Nature of Payment Section Existing Threshold Rate at Proposed Proposed

No. for Deduction which Tax to Threshold for Rate at
be Deducted Deduction w.e.f. which Tax
1 April 2011 to be
Deducted
1 Salary 192 As per slab rates prescribed for women, senior citizens (includes very
senior citizens w.e.f. 1 April 2011) and other individuals
2 Interest other than 194A Payment in excess of 10% Payment in excess of 10%
interest on securities Rs. 5,000 p.a. Rs. 5,000 p.a.
[Note 8] [Note 7] [Note 7]
3 Winnings from lottery or 194B Payment in excess 30% Payment in excess 30%
crossword puzzle or of Rs. 10,000 of Rs. 10,000
card game or other game
4 Winnings from 194BB Payment in excess 30% Payment in excess 30%
horse race of Rs. 5,000 of Rs. 5,000
5 Payments to 194C Payment in excess of 2% (1% for Payment in excess of 2% (1% for
contractors Rs. 30,000 per contract individual Rs. 30,000 per contract individual
[Note 8] or Rs. 75,000 p.a. in and HUFs) or Rs. 75,000 p.a. in and
aggregate aggregate HUFs)
6 Insurance commission 194D Payment in excess 10% Payment in excess 10%
of Rs. 20,000 of Rs. 20,000
7 Commission or 194H Payment in excess 10% Payment in excess 10%
brokerage [Note 8] of Rs. 5,000 p.a. of Rs. 5,000 p.a.
8a Rent of land / building / 194I Payment in excess 10% Payment in excess 10%
furniture [Note 9] of Rs. 1,80,000 p.a. of Rs. 1,80,000 p.a.
8b Rent of plant, machinery 194I Payment in excess 2% Payment in excess 2%
or equipment [Note 9] of Rs. 1,80,000 p.a. of Rs. 1,80,000 p.a.
9 Fees for professional and 194J Payment in excess 10% Payment in excess 10%
technical services / of Rs. 30,000 p.a. of Rs. 30,000 p.a.
royalty [Note 8]

Notes:
1. Time of deduction of tax: Except in case of salary (wherein tax is to be deducted at

the time of payment), tax is to be deducted at the time of payment or credit, whichever
is earlier.
2. Time of deposit of tax: All sums deducted shall be deposited with the government
within 7 days from the end of the month in which the deduction is made. However,
where the amount is credited or paid to the account of the payee in the month of
March, the tax is required to be deposited with the government on or before 30 April.
3. Mode of making payment of tax: For payment of tax, challan no. ITNS 281 is to be
used. All companies and deductors who are liable to tax audit have to make payment
of tax by electronic mode, others can make payment of tax either physically or by
electronic mode at their option.
4. TDS Return: Person deducting the tax is required to file quarterly statements for the
quarters ending 30 June, 30 September, 31 December and 31 March in each
financial year, in Form 26Q (Form 24Q for Salary) along with Form 27A, on or before
15 July, 15 October, 15 January and 15 May respectively.
5. Certificate for tax deduction in case of non-salary payments: TDS Certificate in
Form 16A is required to be issued on quarterly basis within 15 days from the due date
of furnishing the statement of TDS / TCS (Quarterly basis) i.e. on or before 30 July, 30
October, 30 January and 30 May for quarters ended 30 June, 30 September, 31
December and 31 March respectively.
6. Certificate for tax deduction in case of salary payments: TDS Certificate in Form
16 is required to be issued on annual basis by 31 May of the financial year
immediately following the financial year in which the income was paid and tax
deducted.
7. Higher TDS rate of 20% for not furnishing correct PAN: In case the payee is not
able to furnish the PAN to the payer, tax shall be deducted @ 20% w.e.f. 1 April 2010.
8. Under Section 194A, the threshold limit is Rs. 10,000 where the payer is a banking
company or a co-operative society engaged in banking business, or in case of
deposits with post office under a scheme notified by Central Government. Further,
tax is not to be deducted if the payee furnishes to the payer, a declaration in writing in
duplicate in Form No.15G or 15H, as the case may be.
9. An individual or HUF or AOP or BOI, liable to tax audit under section 44AB during the
financial year immediately preceding the financial year in which sum is credited or
paid, shall be liable to deduct tax under section 194A, 194C, 194H, 194I and 194J, as
the case may be.
10. Above rates are not applicable in case of payments made to foreign companies and
non-residents.

ABBREVIATIONS
ADR Alternate Dispute Resolution
AE Associated Enterprise
ALP Arm's Length Price
AMC Asset Management Company
AMT Alternate Minimum Tax
AO Assessing Officer
AOP Association of Persons
ARC Asset Reconstruction Companies
AY Assessment Year
BCD Basic Customs Duty
BOI Body of Individuals
BPL Below Poverty Line
BSE Bombay Stock Exchange
CBDT Central Board of Direct Taxes LLP Act Limited Liability Partnership Act
CFC Controlled Foreign Corporation MRP Maximum Retail Price
CIT Commissioner of Income Tax MAT Minimum Alternate Tax
CPC Centralised Processing Centre NABARD National Bank for Agriculture and Rural
CST Central Sales Tax Development
CVD Additional Duty of Customs levied under sub- NBFC Non Banking Financial Company
section (1) of section 3 of the Customs Tariff Act, NCCD National Calamity Contingent Duty
1975 NHAI National Highway Authority of India
DDT Dividend Distribution Tax NPS New Pension System
DIN Document Identification Number NRI Non-resident Indian
DIPP Department of Industrial Policy and Promotion OCB Overseas Corporate Bodies
DRP Dispute Resolution Panel OTS Open Tin Sanitary
DSIR Department of Scientific and Industrial PAN Permanent Account Number
Research PIO Person of Indian Origin
DTA Domestic Tariff Area PSU Public Sector Undertaking
DTC Direct Taxes Code QIB Qualified Institutional Buyer
DTAA Double Taxation Avoidance Agreement R&D Research and Development
ECB External Commercial Borrowing RBI Reserve Bank of India
EHTP Electronic Hardware Technology Park RECL Rural Electrification Corporation Limited
EOU Export Oriented Unit RSP Retail Sale Price
EPCG Export Promotion Capital Goods SAD Special Additional Duty of Customs levied
ESOP Employees’ Stock Option Plan under sub-section (5) of section 3 of the
FAQ Frequently Asked Questions Customs Tariff Act, 1975
FCCB Foreign Currency Convertible Bond SEBI Securities and Exchange Board of India
FCEB Foreign Currency Exchange Bond SEZ Special Economic Zone
FDI Foreign Direct Investment SME Small and Medium Enterprises
FEMA Foreign Exchange Management Act SPV Special Purpose Vehicle
Fl Financial Institutions SSI Small Scale Industries
Fll Foreign Institutional Investors STEP Science and Technology
FIPB Foreign Investment Promotion Board Entrepreneurship Parks
FM Finance Minister STP Software Technology Park
FTZ Free Trade Zone TBI Technology Business Incubators
FY Financial Year TCS Tax Collected at Source
GDP Gross Domestic Product TDS Tax Deducted at Source
GST Goods and Services Tax TIEA Tax Information Exchange Agreement
HUF Hindu Undivided Family TP Transfer Pricing
IIT Indian Institute of Technology TPO Transfer Pricing Officer
IRDA Insurance Regulatory and Development UIDAI Unique Identification Authority of India
Authority ULIP Unit Linked Insurance Plan
IT Act Income-tax Act, 1961 UMPP Ultra Mega Power Projects
ITAT Income Tax Appellate Tribunal VAT Value Added Tax
JVs Joint Ventures WDV Written Down Value
KYC Know Your Customer WPI Wholesale Price Index
LLP Limited Liability Partnership WT Act Wealth Tax Act, 1957

NOTES

For further information please contact:
RSM Astute Consulting Group

Head Office: 13th Floor, Bakhtawar, 229, Nariman Point, Mumbai - 400 021.
T: (+91-22) 6696 0644 / 6121 4444 F: (+91-22) 2820 5685

E: emails@astuteconsulting.com www.astuteconsulting.com
Offices: Mumbai, New Delhi-NCR, Chennai, Kolkata, Bengaluru, Surat, Ahmedabad, Hyderabad and Gandhidham.
RSM Astute Consulting Group is the sole Indian member of RSM International. RSM International is a worldwide network of independent
accounting and consulting firms. RSM International and its member firms are separate and independent legal entities. RSM International does
not itself provide accounting or consultancy services. All such services are provided by affiliate members practising on their own account.
RSM International is the name given to a network of independent accounting and consulting firms each of which practices in its own right. RSM
International does not exist in any jurisdiction as a separate legal entity. The network is administered by RSM International Limited, a company
registered in England and Wales (company number 4040598) whose registered office is at 11 Old Jewry, London EC2R 8DU.
© RSM Astute Consulting, 2011

RSM Astute Consulting - India Union Budget 2011 - Highlights Referencer

Uploaded by

Document Information

Copyright

Available Formats

Share this document

Share or Embed Document

Sharing Options

Did you find this document useful?

Is this content inappropriate?

Copyright:

Available Formats

RSM Astute Consulting - India Union Budget 2011 - Highlights Referencer

Uploaded by

Copyright:

Available Formats

INDIA

Personnel strength of over 800

5th largest accounting and consulting group in India

International delivery capabilities

Annual combined fee income of US$ 3.9 billion

714 offices across 83 countries

INDIA BUDGET 2011 - Highlights i

CHAPTER 2 : INDIAN ECONOMY - AN OVERVIEW 10

CHAPTER 3 : TAX RATES 13

CHAPTER 4 : TAX INCENTIVES FOR BUSINESSES 17

CHAPTER 5 : DIRECT TAXES - SIGNIFICANT CHANGES 32

CHAPTER 6 : INDIRECT TAXES - SIGNIFICANT CHANGES 46

CHAPTER 7 : OTHER SIGNIFICANT PROPOSALS 60

CHAPTER 8 : IMPACT ON SELECT INDUSTRIES 62

CHAPTER 9 : DTAA RATES 68

CHAPTER 10 : TDS RATES 75

INDIA BUDGET 2011 - Highlights ii

1.0 DIRECT TAXES

1.1 Effective Tax Rates

1.1.1 Personal taxation

The Bill proposes certain modi-

Budget 2011 Tax Rates* Existing Tax Rates*

Females below the age of 60 years (existing limit - below 65 years)

Budget 2011 Tax Rates* Existing Tax Rates*

Budget 2011 Tax Rates* Existing Tax Rates*

INDIA BUDGET 2011 - Highlights 1

1.1.2 Corporate Taxation

1.1.3 Partnership Firms / LLPs

1.2 Proposals for Personal Taxation

INDIA BUDGET 2011 - Highlights 2

1.3 Tax Incentives and Proposals for Businesses

ØBenefit of investment linked deduction by way of allowing 100% deduction in

1.4 Proposals for Non-Residents

ØIt is proposed to facilitate setting-up of dedicated debt funds for

1.5 Other Proposals

ØVarious provisions are proposed to be inserted to provide a set of counter

INDIA BUDGET 2011 - Highlights 3

2.0 INDIRECT TAXES

2.1 Excise Duty

ØThe concessional rate of duty of 4% is being increased to 5%.

2.2 Customs Duty

ØThe general peak rate of 10% has been maintained.

INDIA BUDGET 2011 - Highlights 4

2.3 Service Tax

ØThere is no change in the current effective service tax rate of 10.30%.

INDIA BUDGET 2011 - Highlights 5

3.0 GST ROADMAP LAID OUT

ØAreas of divergence with states on proposed GST have been narrowed. As a

4.0 CAPITAL MARKET INITIATIVES

ØSEBI registered mutual funds permitted to accept subscription from foreign

INDIA BUDGET 2011 - Highlights 6

During the current year 2010-11, the

As such, the focus of the Budget 2011 is

The opening of Indian capital markets by permitting foreign investors (over

The increase in basic exemption limit to Rs. 1,80,000 for Individuals /

Further, it is proposed to levy AMT @ 19.055% on the adjusted total

The export sector needed much rejuvenation due to the continued

INDIA BUDGET 2011 - Highlights 7

The Budget continues to maintain thrust on infrastructure section by

A multi-pronged strategy is proposed to be put into operation to deal with

Liberalization of Foreign Direct Investment ('FDI') policy is being

1.2 Scope and Limitations

In this booklet compiled by us, we intend to offer a broad outline of the

INDIA BUDGET 2011 - Highlights 8