Budget 2011-12- Significant proposals related to Direct and Indirect Taxes

Hon’ble Finance Minister presented budget for FY 2011-12. Significant proposal

are as follows;
General: GDP is expected to grow in the region of 8.75% to 9.25%. The Minister
spoken about fiscal consolidation and put up a target of 4.6% fiscal
deficit. Government is also mooting liberalizing the FDI policy in the country,
however no details was presented. A host of new bills to bring reforms in the
financial sector to be introduced in the current parliamentary session including
Pension Bill, LIC Bill, Banking Laws Amendment Bill and SBI Subsidiaries Bill.
Bill to allow RBI to grant more banking licenses under consideration. Government
to introduce GST (Goods and Service Tax Bill) in the current Parliamentary
session. Government to move to direct tax subsidy for kerosene and fertilizer.
Subsidies to reach BPL families directly now under a new scheme, the modalities
of which will be worked out by Nandan Nilekani. Standard of of Weights &
Measure Act is being repealed and replaced by Legal Metrology Act from
01.03.2011.
Direct Taxes:
o Personal Income Tax limit have been increased to 180,000.
o Surcharge on corporate taxation have been reduced to 5%.
o MAT has been increased to 18.5%.
Indirect Taxes:
Custom:
o Self assessment in custom is being introduced.
o There is no change in the peak rate of basic custom duty.
o Assessment of postal import is being simplified with two rates, @35% and
10%.
o Aircrafts will attract custom duty @ 2.5%.
o Export duty on Iron ores have been increased to 20%.
o There shall be no export duty on Ore pellets.
o Export duty of 10% have been imposed on de-oiled rice bran cake.
o Sub-section (1) of section 27 is being substituted so as to enhance the time
limit for claiming refund of duty and interest from six months to one year for all
categories of importers. This would unify the provisions with regard to raising
of demands and claiming of refund.
Central Excise:
o The standard rate of 10% has been maintained.
o Goods attracting 4% of Central Excise duty shall attract an enhanced rate of
5%.
o Exemptions have been withdrawn from 130 items. These items will attract a
duty of 1% without Cenvat benefit.
o Rationalisation of duty rate on Cement has been made. Now the Cement
shall attract a duty to 10% ad velorem plus specific rate of Rs.30-180 PMT.
o Ready made garments and made up article of textile, bearing a brand name
has been brought under Central Excise net with imposition of duty @ 10%.
These products shall attract duty on MRP basis with an abatement of 40%. A
new Rule [Rule 4(1A) of Central Excise Rules] is being added so as to make
complying with central excise procedure a responsibility of the Brand name
owners, and not of the job workers.
o Sugar, Textile and Textile product is being removed from the schedule of
Additional Duties of Excise Act. Now there products will be subject to State’s
VAT.
o Welcome legal changes have been proposed to clarify the provisions and
reduce dispute. The maximum penalty under Section 11A has been reduced to
50% if the transaction have been recorded in the books.
o Rate of interest on delayed payment of duty is being raised to 18%.
o Power to authorize searches is being given to Joint/Additional
Commissioner in place of Assistant/Deputy Commissioner.
o Cenvat Credit Rules is being amended to clarify the definition of inputs and
input services.
o The definition of deemed manufacture is being amended and now
conversion of ores into concentrates, refining of gold dole bars, galvanization
etc. shall amount to manufacture. In respect to products falling under Chapter
22, packing, labeling etc. amounts to manufacture.
Service Tax:
o The existing rate of 10% has been retained.
o Service Tax is being proposed on air conditioned restaurants having bar
license, and short term accommodation in hotels/clubs/guest houses etc. Air
travel will attract higher service tax.
o Scope of various services have been extended.
o Definition of Commercial coaching and training is being expanded to
include all coaching/training not recognized by law irrespective of the fact that
whether the institute is providing any course recognized by law.
o The scope of the Club & Association service is proposed to be expanded to
include service provided to non-members as well.
o The scope of Business Support service is being expanded to include
operational or administrative assistance of any kind.
 o Scope of Legal consultancy services is being expanded to include Services
of advice, consultancy or assistance provided by a business entity to individuals
as well; Representational services provided by any person to a business entity
and Services provided by arbitrators to business entities.
o The scope of heath services, insurance services etc. has also been expanded.
o Legal compliance system has been proposed to be revamped.
o A new rule 5B has been introduced to provide that the applicable rate of tax
shall be the rate prevailing at the time when the services are deemed to have
been provided.
o It has also 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. The
amount stated in rule 6(4B)(iii) for adjustment of excess amount paid by an
assessee is being enhanced to Rs. 2 lakhs.
o Export and Import of Service rules are being amended and there is a
movement towards destination-based levy in respect of B2B services while
origin-based levy is largely applicable to B2C services.
o There is proposal of enhanced penalty and prosecution in Service Tax
offences.
 
The budget is taking important steps towards tax reforms. The Minister promised
that Constitutional amendment bill for implementation of GST shall be introduced
in this session of Parliament. Raodmap to various tax reforms was stated, and it is a
welcome step.

Direct Taxes Proposals

1. Income tax slabs for individual taxpayers is Given at here Deduction of an

additional amount of Rs. 20,000 allowed, over and above the existing limit of Rs.1
lakh on tax savings, for investment in long-term infrastructure bonds as notified by
the Central Government 
2. Besides contributions to health insurance schemes which is currently
allowed as a deduction under the Income-tax Act, contributions to the Central
Government Health Scheme also allowed as a deduction under the same provision.
3. Current surcharge of 10 per cent on domestic companies reduced to 7.5 per
cent. 
4. Rate of Minimum Alternate Tax (MAT) increased from the current rate of
15 per cent to 18 per cent of book profits.
5. To further encourage R&D across all sectors of the economy, weighted
deduction on expenditure incurred on in-house R&D enhanced from 150 per cent
to 200 percent. Weighted deduction on payments made to National Laboratories,
research associations, colleges, universities and other institutions, for scientific
research enhanced from 125 per cent to 175 per cent.
6. Payment made to an approved association engaged in research in social
sciences or statistical research to be allowed as a weighted deduction of 125 per
cent. The income of such approved research association shall be exempt from tax. 
7. Benefit of investment linked deduction under the Act extended to new hotels
of two-star category and above anywhere in India to boost investment in the
tourism sector.
8. Allow pending projects to be completed within a period of five years instead
of four years for claiming a deduction of their profits, as a one time interim relief
to the housing and real estate sector. Norms for built-up area of shops and other
commercial establishments in housing projects to be relaxed to enable basic
facilities for their residents.
9. Limits for turnover over which accounts need to be audited enhanced to Rs.
60 lakh for businesses and to Rs. 15 lakh for professions. Limit of turnover for the
purpose of presumptive taxation of small businesses enhanced to Rs. 60 lakh.
10. If tax has been deducted on payment by way of any expense and is paid
before the due date of filing the return, such expenditure to be allowed for
deduction. Interest charged on tax deducted but not deposited by the specified date
to be increased from 12 per cent to 18 per cent per annum.
11. To facilitate the conversion of small companies into Limited Liability
Partnerships, transfer of assets as a result of such conversion not to be subject to
capital gains tax.
12. The advancement of any other object of general public utility” to be
considered as "charitable purpose” even if it involves carrying on of any activity in
the nature of trade, commerce or business provided that the receipts from such
activities do not exceed Rs.10 lakh in the year .
13. Proposals on direct taxes estimated to result in a revenue loss of Rs. 26,000
crore for the year.
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Indirect Taxes
1. Rate reduction in Central Excise duties to be partially rolled back and the
standard rate on all non-petroleum products enhanced from 8 per cent to 10 per
cent ad valorem.
2. The specific rates of duty applicable to portland cement and cement clinker
also adjusted upwards proportionately. Similarly, the ad valorem component of
excise duty on large cars, multi-utility vehicles and sports-utility vehicles increased
by 2 percentage points to 22 per cent.
3. Restore the basic duty of 5 per cent on crude petroleum; 7.5 per cent on
diesel and  petrol and 10 per cent on other refined products. Central Excise duty on
petrol and diesel enhanced by Re.1 per litre each.
4. Some structural changes in the excise duty on cigarettes, cigars and
cigarillos to be made coupled with some increase in rates. Excise duty on all non-
smoking tobacco such as scented tobacco, snuff, chewing tobacco etc to be
enhanced. Compounded levy scheme for chewing tobacco and branded
unmanufactured tobacco based on the capacity of pouch packing machines to be
introduced.

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