M/s Pankaj Somaiya & Associates Ph: 07325-252169

Chartered Accountants Mobile: 9826075799

IMPORTANT

HIGHLIGHTS

OF

UNION BUDGET 2010

INCOME TAX PROPOSALS

M/s Pankaj Somaiya & Associates

Chartered Accountants
Khanka Masjid Complex,
Chowk Bazar,
Burhanpur (MP) 450331
Ph:07325-400600, 252169
Email: somaiyaca@gmail.com
Website: http://www.pankajsomaiya.com

Compiled by CA. Pankaj Somaiya, Bcom, FCA, DISA (ICA) for private circulation only. 1
(This compilation is only for lucid understanding of budget any detailed matter should be discussed
personally.)
M/s Pankaj Somaiya & Associates Ph: 07325-252169
Chartered Accountants Mobile: 9826075799

Highlights of Finance (No.2) Bill,2010

¾ Direct Tax Code introduction date is proposed from 1st April 2011

¾ Corporate tax rates are proposed to remain unchanged. In case of a domestic

company having total income exceeding Rs. 1 Crore, the surcharge is proposed to be
reduced from 10% to 7.5%. No change in surcharge has been proposed in case of
foreign companies.

¾ The MAT rate is proposed to be increased from 15% to 18%. The effective MAT rates
after giving effect to surcharge will be as follows

Total Income Existing Proposed

Domestic Foreign Domestic Foreign

Taxable Income Below 1Crore 15.45% 15.45% 18.54% 18.54%

Taxable Income Above 1Crore 16.99% 15.84% 19.93% 19.00%

As a result of reduction in the surcharge rate applicable to domestic companies, the

effective DDT rate would stand reduced from 16.99% to 16.61%

¾ Lowering the burden on the individual taxpayers by increasing the Tax Slabs
bandwidth available to the tax payers

Existing Slab Rates Proposed Slab Rates

Income (INR) Rate of Tax Income (INR) Rate of Tax
0 – 1,60,000 Nil 0 – 1,60,000 Nil
Above 1,60,000 – 3,00,000 10% Above 1,60,000 – 5,00,000 10%
Above 3,00,000 – 5,00,000 20% Above 5,00,000 – 8,00,000 20%
Above 5,00,000 30% Above 8,00,000 30%
In case of residential woman assessee (Below 65 years of age) the initial threshold
limit is Rs. 1,90,000.00 below which there income is not taxable.

In case of senior citizens (above 65 years of age) the initial threshold limit is
2,40,000.00 below which there income is not taxable.

¾ The proposed changes in tax slabs would result in maximum savings of Rs.
51,500.00

Compiled by CA. Pankaj Somaiya, Bcom, FCA, DISA (ICA) for private circulation only. 2
(This compilation is only for lucid understanding of budget any detailed matter should be discussed
personally.)
M/s Pankaj Somaiya & Associates Ph: 07325-252169
Chartered Accountants Mobile: 9826075799

TDS Provisions

¾ Earlier in order to claim TDS deduction the tax deducted must have to be paid
deposited in the bank up to 7th of the next month and in case of last month of financial
year upto date of filling of return. From the financial year 2009-10 this clause is
proposed to be amended so that tax deducted in any month can be deposited upto
date of filling of return and TDS can be claimed for that year as is the case with TDS
deducted in the last month of the financial year. However such benefit of extended
time limit is not available to payments made to non-residents/ foreign companies.

¾ It is proposed to simplify and rationalize the provisions relating to tax deduction at

source. In this regard, the threshold limits for non-deduction of tax are proposed to be
increased from 1 July, 2010, as follows :
Section Nature of Payment Existing threshold Proposed threshold
limit of payment (Rs) limit of payment (Rs)
194-B Winnings from lottery or 5,000 10,000
crossword puzzle, in an
amount exceeding
194-BB Winnings from horse race, in 2,500 5,000
an amount exceeding
194-C Payment to Contractors
• For single transaction 20,000 30,000
• For aggregate of transactions 50,000 75,000
during the financial year
194-D Insurance commission 5,000 20,000
(aggregate payments during
the financial year)
194-H Commission on Brokerage 2,500 5,000
(aggregate payments during
the financial year)
194-I Rent (aggregate payments 120,000 180,000
during the financial year)
194-J Fee for professional or 20,000 30,000
technical services (aggregate
payments during the financial
year)

Under section 201(1A), delay in deposit of tax deducted at source, or failure to

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(This compilation is only for lucid understanding of budget any detailed matter should be discussed
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M/s Pankaj Somaiya & Associates Ph: 07325-252169
Chartered Accountants Mobile: 9826075799

deduct tax at source, results in levy of interest @ 1% per month (12% per annum)
from the date tax was deductible till the date the same is actually paid. It is proposed
that with effect from 1 July 2010, the rate of interest shall be as follows:
a. 1% per month (12% per annum) from the date tax was deductible (but not
deducted) upto the date on which such tax has actually been deducted; and
b. 1.5% per month (18% per annum) from the date the tax is actually deducted
upto the date when the same is actually paid.

¾ Under the existing provisions of sections 203 and 206C, the requirement of
furnishing certificate for TDS / TCS was dispensed with w.e.f. April 1, 2010.
Considering the fact that the TDS / TCS certificate constitutes an important
document for the deductee / collectee, it is proposed that the deductor / collector
shall continue to issue physical TDS / TCS certificates even after 31 March, 2010.The
intention appears to be to avoid hardship which the taxpayer sometimes face not
being able to claim the TDS amounts due to non-availability of requisite data in the
online systems of the Tax Department.

¾ The tax audit limit under section 44AB is proposed to be increased from Rs.
40,00,000 to Rs. 60,00,000 in case of persons carrying on business, and from Rs.
10,00,000 to Rs 15,00,000 in case of persons carrying on profession. Further, penalty
for failure to get the accounts audited proposed to be increased from Rs. 1,00,000 to
Rs.1,50,000

¾ Presently, weighted deduction of 125% is available in respect of payments made to a

university, college or other institution to be used for research in social science or
statistical research. This deduction is now also proposed to be extended to any
research association having social science or statistical research as their object.
¾ It is also proposed to enhance the weighted deduction on payments made to national
laboratories, research associations, colleges, universities and other institutions, for
scientific research, from 125% to 175%

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(This compilation is only for lucid understanding of budget any detailed matter should be discussed
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M/s Pankaj Somaiya & Associates Ph: 07325-252169
Chartered Accountants Mobile: 9826075799

¾ Companies engaged in certain businesses are allowed weighted deduction of 150%

of the expenditure (not being expenditure in nature of cost of any land or building)
incurred on scientific research on an approved in-house research and
Development facility. In order to further incentivize in-house research, it is proposed
to increase this weighted deduction to 200%.

¾ In view of the high employment potential in hotel sector, it is proposed to extend

Investment linked tax incentive in respect of capital expenditure (other than on
land, goodwill and financial instrument) incurred for the purposes of the business
of building and operating new hotels of 2 Star category or above anywhere in India,
where the hotel starts functioning on or after April 01, 2010.

Exemptions and Deductions

¾ For availing the tax holiday for developing and building housing projects, it is
proposed to increase the period allowed for completion of such housing projects
(approved by local authority on or after April 01, 2005) from 4 years to 5 years.
Further, condition relating to the built up area of shops and commercial
establishments which was lower of 5% of the total built up area or 2500 sq fts is
relaxed to HIGHER of 3% of total built up area or 5000 Sq fts. However for the
housing project approved between 01.04.2004 to 30.03.2005 the completion period
will be of 4 years. This benefit is available to the project approved on or after 1.4.2005
which are pending for completion, in respect of their income relating to AY 2010-11
and subsequent years.

¾ Business of hotels or the business of building, owning and operating convention

centre located in National Capital Region are currently eligible for 5 year tax holiday.
At present, the deduction is available provided that such hotel starts functioning or the
convention centre is constructed on or before March 31, 2010. For providing more
time for these facilities to be set up for Commonwealth Games, it is proposed to
extend the date to July 31, 2010.

Compiled by CA. Pankaj Somaiya, Bcom, FCA, DISA (ICA) for private circulation only. 5
(This compilation is only for lucid understanding of budget any detailed matter should be discussed
personally.)
M/s Pankaj Somaiya & Associates Ph: 07325-252169
Chartered Accountants Mobile: 9826075799

¾ In case of individuals / HUF, deduction upto INR 20,000/- has been proposed for
investments made in notified long term infrastructure bonds. This deduction is in
addition to the combined deduction of upto Rs.1,00,000 available under sections 80C,
80CCC and 80CCD. The benefit of this deduction is currently proposed only in
relation to investments made during the FY 2010-11.

Limited Liability Partnerships (LLP)

¾ It is proposed that the transfer of assets on conversion of a private company or
an unlisted public company into an LLP shall not be regarded as a transfer for the
purposes of capital gains tax on fulfillment of following conditions:-
i. the total sales, turnover or gross receipts in business of the company do not
exceed Rs. 60,00,000 in any of the three preceding previous years;
ii. the shareholders of the company become partners of the LLP in the same
proportion as their shareholding in the company;
iii. no consideration other than share in profit and capital contribution in the LLP
arises to the partners;
iv. the erstwhile shareholders of company continue to be entitled to receive
at least 50% of the profits of LLP for a period of 5 years from the date of
conversion;
v. all assets and liabilities of the company become the assets and liabilities of the
LLP; and
vi. no amount is paid, either directly or indirectly, to any partner out of the
accumulated profit of the company for a period of 3 years from the date of
conversion
¾ It is also proposed to allow carry forward and set-off of business loss and
unabsorbed depreciation of the company to the successor LLP which fulfills the
above mentioned conditions. However, if the stipulated conditions are not complied
with, the benefit availed shall be taxable in the hands of the successor LLP as
business income in the previous year in which the requirements are not complied
with.
¾ To ensure tax neutrality, corresponding provisions have been introduced for
providing the manner of computation of actual cost/cost of acquisition in the

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(This compilation is only for lucid understanding of budget any detailed matter should be discussed
personally.)
M/s Pankaj Somaiya & Associates Ph: 07325-252169
Chartered Accountants Mobile: 9826075799

hands of successor LLP and imposing restrictions on the amount of aggregate

depreciation allowable to the predecessor company and the LLP.
¾ It is clarified that the MAT credit available to a predecessor company shall not be
allowed to the successor LLP.
¾ Deduction in respect of unamortised expenditure on voluntary retirement scheme will
be allowed in the hands of LLP from the year of conversion for the unexpired period.

Other Income (Deemed Gift Provisions)

¾ Under the existing provisions of section 56 (Income from other sources), any sum
of money or any property in kind which is received without consideration or for
inadequate consideration (in excess of INR 50,000/-) by an individual or an HUF
is taxable in the hands of recipient. However, receipts from relatives or on the
occasion of marriage or under a will are outside the scope of this provision.

¾ In order to curb the practice of transferring unlisted shares at prices below their
fair market value, it is proposed to tax transactions relating to transfer of unlisted
shares of a company to a firm or to a company, without or for an inadequate
consideration, with effect from June 01, 2010. The same would be taxable in the
hands of the recipient firm / resident company, subject to any treaty benefits as
may be available to any foreign recipient firm / company.

¾ Presently, any receipt of property in kind by an individual / HUF is considered

taxable if received without or for inadequate consideration. The scope of the term
‘property’ is proposed to be clarified to include only specified ‘capital assets’. As a
consequence, ‘business assets’ are now sought to be excluded from the definition of
property. It is also proposed to include bullion within the meaning of property with
effect from June 01, 2010.

¾ Under the existing provisions, receipt of immovable property without consideration or

for inadequate consideration by an individual or HUF is taxable. It is now proposed

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(This compilation is only for lucid understanding of budget any detailed matter should be discussed
personally.)
M/s Pankaj Somaiya & Associates Ph: 07325-252169
Chartered Accountants Mobile: 9826075799

that such receipt of immovable property shall be considered taxable only if the
property is received without consideration and shall exclude cases where the property
is received for inadequate consideration.

¾ For the purposes of valuing immovable property transferred without adequate

Consideration, it is proposed to amend section 142A (1) to allow the Assessing
Officer to make a reference to the Valuation Officer for an estimate of the value of
property for the purposes of section 56(2).

Assessments, Appeals and Settlement Commission

¾ It is proposed that an application before the Settlement Commission can be made in

cases where proceedings for assessment or reassessment result from search or
requisition of books of account or other documents or any assets. This is subject to
the condition that the additional amount of income-tax payable on the income
disclosed in the said application exceeds INR 5 million.

¾ Under the existing provisions of the Act, the Settlement Commission shall pass an
order within 12 months from the end of the month in which the application is made. It
is proposed that in respect of applications filed on or after 1st June, 2010, the
Settlement Commission shall pass the orders within 18 months from the end of the
month in which the application is made.

¾ It is proposed to specifically provide that the High Court has power to admit
an appeal even after the expiry of the period stipulated in the Act provided it is
satisfied that there is sufficient cause in delay in filing of the appeal.

Compiled by CA. Pankaj Somaiya, Bcom, FCA, DISA (ICA) for private circulation only. 8
(This compilation is only for lucid understanding of budget any detailed matter should be discussed
personally.)