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India Budget 2011-Highlights
India Budget 2011-Highlights
BUDGET 2011
- HIGHLIGHTS
RSM Astute Consulting Group
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INDIA
BUDGET 2011
- HIGHLIGHTS
February 2011
CONTENTS
EXECUTIVE SUMMARY 1
CHAPTER 1 : INTRODUCTION 7
ABBREVIATIONS 77
The rates of income-tax in the case of every individual (other than those specified
below) or HUF are as under:
Senior Citizens - individuals between the age of 60-80 years (existing limit – 65 years
and above)
Budget 2011 Tax Rates* Existing (no special slabs Tax Rates*
for Very Senior Citizens)
Upto Rs. 5,00,000 Nil Upto Rs. 2,40,000 Nil
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.
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%.
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.
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
1.1 Background
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.
This booklet is not an offer, invitation or solicitation of any kind and it does
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.
2.1 Overview
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 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.
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.
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
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$)
* The tax incidence for HUFs, AOPs and BOIs will be same as that of
individuals.
3.2 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)
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.
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.
The Bill proposes to levy AMT on LLPs @ 19.055% (tax rate 18.50% plus
education cess 3% thereon) on adjusted total income.
* 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.
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
The Bill proposes no change in the effective tax rates of 30.90% (tax rate
30% plus 3% education cess thereon) for local authorities.
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
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
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
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
l Amount of capital gains
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
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
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
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
Deduction shall not be available to a person
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
Deduction shall not be available to a person
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
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
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
xvii. New undertakings and enterprises, which All 100% First 10 years
begins to manufacture or produce any
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
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:
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.
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
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).
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
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.
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.
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
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.
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:
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%.
(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.
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-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’.
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.
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
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%.
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.
Similar amendments have also been proposed in section 133 of the IT Act.
These amendments will take effect from 1 June 2011.
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 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.
(a) the proceedings have been initiated against the applicant under
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.
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.
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.
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.
5.4.1 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.
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.
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.
5.4.4 Due date for filing return of income by Corporate Assessee where TP is
applicable has been extended
5.5. General
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
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.
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.
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%].
ØThe Point of Taxation Rules, 2011 have been notified and shall be effective
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.
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.
ØCertain services have been rearranged under the Export of Services Rules,
2005 subject to compliance with other conditions as under:
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.
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.
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.
6.3.1 General
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.
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.
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.
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.
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.
ØExemption from education cess and secondary and higher education cess
presently available to aircrafts, is being withdrawn.
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.
6.4.1 General
6.4.4 Cement
ØThe rates of duty on cement and cement clinker are being revised as follows:
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
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
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.
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.
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.
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.
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.
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.
Key highlights
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.
ØThe existing system of assessment shall be replaced with ‘self-assessment’
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.
Key highlights
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.
ØService tax rate remains unchanged @ 10.30%.
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
surcharge and cess).
ØThe Bill proposes to apply MAT in case of LLP also, resulting into effective tax
@ 19.055% on its adjusted total income.
ØService tax point of liability proposed to be changed from the current cash
system to accrual system of accounting.
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.
Key highlights
ØRevision of income tax slab rates in the case of individual assessees would
benefit the employees.
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 in 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).
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.
ØThe existing system of assessment shall be replaced with ‘self-assessment’
of duty on imported and export goods by the importer or exporter.
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 customs duty is being extended to additional specified
capital goods and raw materials for the manufacture of electronic hardware.
ØA concessional import duty structure of 5% CVD and 'Nil' SAD is being
prescribed on parts for manufacture of DVD writers combo drives and CD
drives, subject to actual user condition.
ØService tax rate remains unchanged @ 10.30%.
ØMarginal Increase in the rate of MAT from the existing 18% to 18.50% (plus
surcharge and cess).
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
@ 19.055% on its adjusted total income.
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%.
ØService tax point of liability proposed to be changed from the current cash
system to accrual system of accounting.
Key highlights
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.
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 in surcharge from 7.50% to 5%.
ØEffective DDT rate has been reduced from 16.60875% to 16.2225%
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
company; in any other case 15%.
2. Technical Fees are taxable @10%
under Article 13 and Fees for
Included Services is chargeable
@15% under Article 12.
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
company; in any other case 25%.
2. Interest taxable at 10% if recipient is
bank; in any other case 15%.
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
provision any other case 15%.
24 Italy 15% / 25% 15% [Note 4] 20% 20% 15% tax on dividends if at least 10% of
the shares are owned by company; in
any other case 25%.
35 Malta 10% / 15% 10% [Note 4] 15% 15% / 10% 1. 10% tax on dividends if at least 25%
of the shares are owned by
company; in any other case 15%.
2. Technical Fees are taxable @10%
under Article 13 and Fees for
Included Services is chargeable
@15% under Article 12.
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%.
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%.
2. Interest taxable at 10% if recipient is
bank; in any other case 15%.
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%.
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.
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.
2. Interest taxable at 10% if recipient is
any financial institution including an
insurance company; in any other
case 25%.
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%.
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
company; in any other case 25%.
2. Interest taxable at 10% if recipient is
bona fide bank or financial
institution including an insurance
company; in any other case 15%.
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.
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.).
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.
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]
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
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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.