BABASAHEB GAWDE INSTITUTE OF MANAGEMENT STUDIES

PRASAD V SAWANT
ROLL NO :96
TAX ASSIGNMENT

Income Tax – Major Highlights of Union Budget –

2011-12
The following are the major Highlights of the Union Budget 2011-12 presented by the Hon’ble
Finance Minister Mr. Pranab Mukherjee in the Parliament on Monday (i.e. Feb. 28th 2011)

DIRECT TAXES
The proposals made in the Finance Bill 2011 (Bill) are as follows:

1. The Direct Tax Code (DTC) is proposed to be introduced from April 1st 2012. As a
consequence, no DTC provisions have been incorporated in the Budget proposals. The
proposals/initiatives that require urgent attention and made in the Finance Bill- 2011 are as
follows:

2. The Tax Rates

A. CORPORATE TAX:

• No change in the Corporate Income tax rate of 30%.

• Minimum Alternative Tax (MAT) on Book profit increased to 18.50% from 18%. The
effective MAT rate will increase to 20.01% from 19.9305% at present

• Rate of Surcharge reduced to 5.00 (for income exceeding Rs.1 Cr) from 7.50 percent
• Secondary and Higher Education cess of 3% remain unchanged.

• The effective Corporate Tax rate will be 32.445% as against the present tax rate of
33.2175%

• No change in the rate of tax on Short term capital gains on listed securities subject to
Securities Transaction Tax of 15%. Effective rate of tax on Short term capital gains will reduce
to 16.2225% as against the present rate of 16.609%

• No change in the rate of Dividend Distribution Tax (DDT). Effective rate of DDT will
reduce to 16.2225% as against the present rate of 16.609%.

• Rate of Income tax on dividends received by an Indian company from its foreign
subsidiary is lowered to 15 percent from 30 percent at present for FY 2011-12

• Rate of Withholding tax on interest payment by notified Infrastructure Debt Funds to

Non residents reduced to 5% from 20% at present.

• Withdrawal of exemption with respect Dividend distribution Tax (DDT) to SEZ

Developers

B. Personal income tax

• Basic Exemption limit enhanced to Rs. 1,80,000/- from Rs. 1,60,000/- at present.

• Basic Exemption Limit in the case of Senior Citizen (above 60 years) enhanced to Rs.
2,50,000/- from Rs. 2,40,000/-. Further, the qualifying age for Senior Citizen reduced to 60
years from 65 years at present.

• Basic Exemption limit for very Senior Citizen (80 years and above) will be Rs.
5,00,000/-

• The tax rate applicable to different income slab has been widened and are given
below:

Income slab Exiting Tax Proposed Tax Tax Saving

Rate Rate (Rs)

Upto Rs. 1,60,000 Nil Nil Nil

Rs. 1,60,000 to Rs. 1,80,000 10% Nil 2,000

Rs. 180,000 to Rs. 5,00,000 10% 10% Nil

Rs. 5,00,000 to Rs. 8,00,000 20% 20% Nil

Rs. 8,00,000 and above 30% 30% Nil

• No Surcharge on Personal income tax

• Secondary and Higher Education cess of 3% remain unchanged. Thus the effective Tax
Saving on income exceeding Rs. 1,80,000/- will be Rs. 2060/-.

• The deduction under section 80CCF (over and above the existing limit of INR 1,00,000
u/s. 80-C) with respect to investment upto an amount of Rs. 20,000 invested in Long term
Infrastructure Bonds is extended for one more year (i.e. FY 2011-12).

3. Terminal date for setting up power project u/s. 80-IA extended till
March 31st 2012
The terminal date for setting up for the generation and distribution of power, laying any
network of new transmission or distribution lines, undertaking substantial renovation and
modernization of existing network of transmission or distribution lines for availment of
deduction under section 80-IA is extended till March 31st 2012 from March 31st 2011 at
present.

4. Minimum Alternate Tax (MAT) and Dividend Distribution Tax

(DDT)
• MAT rate increased to 18.50% from 18.00% at present

• Effective rate of MAT will increase to 20.01% from 19.9305% at present

• Levy of MAT introduced on developers of Special Economic Zones (SEZS) as well as

units operating in SEZs.

• Withdrawal of exemption under section 115-0 with respect to DDT on dividend

decaled, distributed or paid by SEZ developers on or after June 1st 2011.

5. Withholding tax on interest on foreign funds provided to notified

Infrastructure Funds
With a view to augment long term, low cost funds from abroad for the infrastructure sector,
it is proposed to facilitate setting up of dedicated debt funds and provide the following tax
incentives:

• Create special vehicles in the form of notified infrastructure debt funds;

• To amend section 115A to provide that any interest received by a non-resident from
notified infrastructure debt fund shall be taxable at the rate of five percent on the gross
amount of interest income

• To insert section 194LB to provide that tax shall be deducted at the rate of Five
percent by the notified infrastructure debt fund on any interest paid by it to a non-resident

• To amend section 10 to provide exemption from payment of tax on the income of

notified infrastructure debt fund.

6. Income tax rate on foreign Dividends

With a view to allow the flow of funds to India by way of foreign dividends, the Finance Bill
has proposed to lower the rate of Income tax to 15 % from 30% on the gross amount of
dividends received by an Indian company from its foreign subsidiary. Further, it is provided
that no expenditure in respect of such dividends shall be allowed under any provisions of the
Act.

7. Rationalization of Tax on Income Distributed to Unit holders

The Bill proposes to amend section 115R(2) to provide that the Mutual Fund shall be liable to
pay additional income tax n the amount of income distributed to its unit holders at the rate
of:

• 25% if the recipient is an individual or HUF in case of distribution by a money market

mutual fund or a liquid fund;

• 30% (as against the rate of tax of 25%) if the recipient is any other person in case of
distribution by a money market mutual fund or a liquid fund;

• 12.50% if the recipient is an individual or HUF in case of distribution by a debt fund

other than a money market mutual fund or a liquid fund;

• 30% (as against the rate of tax of 20%) if the recipient is any other person in case of
distribution by debt fund other than a money market mutual fund or a liquid fund
• Distribution of income by an equity oriented fund shall continue to be exempt from
tax

8. Tax Benefits for New pension System (NPS)

Section 80CCD of the IT Act provides a deduction in respect of contributors made by an
employee as well as an employer to the New Pension System (NPS) account on behalf of the
employee. Currently, the aggregate amount of deduction under sections 80C, 80CCC and
80CCD cannot exceed Rupees One Lac. Further, the employers are not allowed any deduction
under section 36.

It is proposed to amend section 80CCE so as to provide tat the contribution made by the
employee to a pension scheme u/s.80CCD shall be exclude from the limit of Rupees One Lac
provided under section80CCE.

It is further 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 on account of an employee to the extent it does not exceed 10 percent of the salary of
the employee shall be allowed as deduction in computing Business income.

9. Weighted deductions for Research & Development Activities

The Income Tax Act, 1961 provides for certain deductions for encouraging investment in
research and development activities. The Bill proposes to increase the amount of weighted
deduction from 175% to 200% for any sum paid to a National Laboratory or to a university or
an Indian Institute of Technology with a specific direction that the amount paid will be used
for scientific research undertaken under a programme approved by the prescribed authority.