FINANCE BILL, 2010

(Applicable for the Assessment Year 2011-12)

Presentation by :

CA. S Ranganath Partner

FCA, LLB

Singhvi, Dev & Unni Chartered Accountants Bangalore ranganath@sduca.com

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CONTENTS
Key features Rates of Tax for Individuals Definition of Charitable Purpose Income deemed to accrue or arisen in India to a non-resident Cancellation of Registration obtained u/s 12A Weighted deduction for scientific research & development Investment linked deduction for specified business Expenditure disallowed on account of non-compliance with TDS provisions Tax Audit Limited Liability Partnership Transactions without adequate consideration Deductions Minimum Alternative Tax TDS
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KEY FEATURES
1. 2. 3. 4. Reduction in individual and HUF tax rates. Increase in Corporate Tax rates. Increase in limits for TDS. Exempting capital gains for conversion of a Company into LLP subject to fulfilling the specified conditions. Increase in weighted deduction for donation to research and development industry. Steps to enact GST and DTC. Increase in Excise duty with respect to Petroleum products, Cars, Cement and Non-smoking cigars. Reduction / exemption to those agricultural equipments, Wind mills and Solar equipments.

5.
6. 7. 8.

RATES OF TAX-INDIVIDUALS
Taxable Income Rates (in percentage)*

Amount (in Rupees)

Resident Senior Citizen

Resident Women

Others

< 160,000 160,001 to 190,000 190,001 to 240,000 240,001 to 500,000 500,001 to 800,000

Nil Nil Nil 10 20

Nil Nil 10 10 20

Nil 10 10 10 20

800,001 and above

30

30

30

* Education Cess shall be levied @ 3 percent on above tax

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MINIMUM ALTERNATIVE TAX

Existing provision
MAT is 15%

Proposed provision Impact/Recommendations

Proposed to 18%
Higher

corporate tax burden

RATES OF TAX- OTHERS

Description
A) Domestic Company

Existing Rate (%)

Proposed Rate (%)

Regular tax MAT DDT B) Foreign company 16.995(of book profits) 16.995 19.931(of book profits) 16.609

Regular tax
C) Firm and LLP&

42.23

42.23

Regular tax

30.90

30.90
6

Corporate Surcharge reduced from 10% to 7.5%

RATES OF TAX LIBERALISED

Total Income
1,60,000 2,00,000 3,00,000 4,00,000 5,00,000 6,00,000 7,00,000 8,00,000

Tax liability as per existing Tax liability as per Tax Savings as per rates and slabs revised slabs revised slabs
Nil 4,000 14,000 34,000 54,000 84,000 1,14,000 1,44,000 Nil 4,000 14,000 24,000 34,000 54,000 74,000 94,000 Nil Nil Nil 10,000 20,000 30,000 40,000 50,000

9,00,000
10,00,000

1,74,000
2,04,000

1,24,000
1,54,000

50,000
50,000

*For Resident women below 65 yrs =Rs. 1.9 Lakhs and for senior citizens =Rs. 2.4 Lakhs

RATES OF TAX COMMENTS

No tax relief for taxpayers whose total income is less than Rs. 3,00,000 and presently in the 10% tax slab Thus, the only relief to individuals earning income of less than Rs. 3,00,000 is the deduction they can get by investing upto Rs. 20,000 in notified longterm infrastructure bonds and this would save tax to the tune of upto Rs. 2,000 for those in 10% slab, upto Rs. 4,000 in 20% slab and upto Rs. 6,000 for those in 30% slab

*For Resident women below 65 yrs =Rs. 1.9 Lakhs and for senior citizens =Rs. 2.4 Lakhs

Definition of Charitable Purpose

Existing provision
As

Proposed provision
The

Impact/Recommendations
To

per Section 2(15) -The advancement of any other object of general public utility to be charitable purpose

advancement of any other object of general public utility to be 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. This amendment is proposed to take effect retrospectively from 01.04.2009.

mitigate hardship to the organizations which receive sundry considerations from such activities .
Clarification

is required as to whether receipts of Rs.10 lakhs is to be reckoned as per the method of accounting followed by assessee-trust or whether it is receipts in ordinary sense of the term.

INCOME DEEMED TO ACCRUE OR ARISE IN INDIA TO A NON-RESIDENT

Existing provision
Section

Proposed provision

Impact/Recommendations
This

9 provided for It is proposed to substitute the situation where the existing Explanation to income is deemed to Section 9 with a new accrue or arise in India Explanation to specifically state that the income of a non-resident shall be deemed to accrue or arise in India under clause (v)/(vi)/(vii) of Sec 9(1) and shall be included in his total income, whether or not; (a) the non-resident has a residence or place of business or business connection in India; or (b) the non-resident has rendered services in India.

amendment is proposed to take effect retrospectively from 1st June, 1976 and will, accordingly, apply in relation to the assessment year 1977-78 and subsequent years. By this amendment the situs rule prevails over the source rule. Judgements Nullified Ishikawajima-Harima Heavy Industries Ltd., Vs DIT (2007) (SC); and Jindal Thermal Power Company Ltd. vs DCIT (TDS), [2009] (Kar)

CANCELLATION OF REGISTRATION GRANTED U/S 12A

Existing provision
The

Proposed provision Impact/Recommendations

Commissioner Registration of trust was empowered to cancel governed by Section 12A of the registration u/s 12AA the Act prior to the w.e.f 01.06.2010 introduction of Section 12AA vide Finance Act, 2007. However, the provision is silent for cancellation of registration, where the registration is granted u/s. 12A. This was unintended omission of powers of the CIT to cancel registration and accordingly amendments have been proposed to enabling the CIT to cancel registration even in cases where the original registration is granted u/s. 12A of the Act.

Commissioner does not have the power to cancel the registration which was obtained earlier by any trust or institution under provisions of section 12A as it is not specifically mentioned in section 12AA.

WEIGHTED DEDUCTION FOR SCIENTIFIC RESEARCH AND DEVELOPMENT

Existing provision Proposed provision Impact/Recommendations
the words scientific research association

the words research association shall be substituted

Such

Scope

Widened

Payment made to an approved association engaged in research in social sciences or statistical research, is not covered by section 35 and shall be subject to tax

approved research association are to be allowed as a weighted deduction of 125 per cent. The income of such approved research association shall be exempt from tax.

Scope

Widened

INCREASE ON QUANTUM OF WEIGHTED DEDUCTION

Sec Expenditure in respect of which Weighted deduction Proposed weighted deduction available available under the (Increased) rate extant provisions of weighted deduction (w.e.f. A.Y.2011-12)
expenditure (not being expenditure in the 150% of nature of cost of any land or building) expenditure incurred on scientific research on an approved in-house research and development facility. [deduction available to companies] Contribution to an approved research association, university, college or other institution [Research Social Science and Statistical Research proposed to be added] 125% of expenditure such
200%

35(2AB)

of expenditure

such

35(1)(ii)

such

175%

of expenditure

such

35(2AA)

any sum paid to a National Laboratory or a 125% of university or an Indian Institute of expenditure Technology (IIT) or a specified person for the purpose of an approved scientific research programme.

such

175%

of expenditure

such

 114 - P1 XY, a Partnership firm, commenced production on December 1, 2009.

The firm has made the following expenditure on scientific research up to the year ending on March 31, 2008: 1. On December 13, 2007, the firm pays Rs. 90,000 to the Indian statistical Institute, New Delhi, being an approved research institution under section 35 (1) (ii), for the purpose of carrying out statistical Institute 2. On December 21, 2007, the firm pays Rs. 60,000 to the Indian Institute of Management, Ahmedabad, being an approved institute under section 35 (1) (iii), for the purpose of carrying out scientific research in social or statistical science. 3. On january 10, 2008, the firm pays Rs. 40,000 to an approved National Laboratory for carrying out programmes of scientific research. 4. On december 23, 2009, the firm purchases a plot of land for Rs. 2,00,000. Letter on a laboratory building constructed (cost of construction : Rs. 1,70,0000, date of completion of construction : March 1, 2010) to start in-house research. 5. Before the commencement of the production, the firm had made the following revenue expeditor for its research laboratory: Expenditure on salary and perquisite to research personnel and research material during the 12 months ending on November 30, 2006 : Rs. 20,0000. Expenditure on salary of research personnel from December 1, 2006 to November 30, 2009 : Rs. 61,000 9out of which amount certified by the prescribed authority is Rs. 42,000). Expenditure on providing rent-free flats and club facility to research personnel, from December 1, 2006 to November 30, 2009 : Rs. 8,000.

Expenditure on research material from December 1, 2006 to November 30, 2009 : Rs. 46,800 (out of which amount certified by the prescribed authority is Rs. 43,800). Capital expenditure on scientific research (not certified by the prescribed authority)
Expenditure Expenditure

Incurred up to
November 30, 2006

Incurred Between December 1, 2006 and November 30, 2009

Rs. Purchase of land for growing herbals for research Purchase of equipments for research Expenditure of capital nature for cultivation of herbals 50,000

Rs. 60,000

30,000
2,000

40,000
4,600

Determine the amount of deduction available to XY under section 35(1) for the assessment year 2008-09, if the scientific research is (a) related or (b) unrelated to the business of the assessee -firm.

 SOLUTION: The amount of deduction under section 35 for the assessment year

2010 11 will be detrained as under --

Where the scientific research is

Related to the business Unrelated to the business Rs.

1. Payment of Rs. 90,000 to an approved scientific research institution for carrying on research in natural science is qualified for a weighted deduction under section 35 (1) (ii) even if the research is not related to the business of asessee [ I.e., 90,000 x 1.25]
2. Payment of Rs. 60,000 to and approved institution for carrying on scientific research in social science is qualified for a weighted deduction section 35(1) (iii) even if the scientific research is not related to the business of assessee [I.e., 60,000 x 1.25] 3. Payment of Rs. 40,000 to and approved National Laboratory is qualified for weighted deduction (even if scientific research is not related to the business of assessee) [I.e., 40,000 x 1.25] U/s 35 (2AA) 4. Cost of laboratory building (excluding cost of land)
5. Expenditure on salary (excluding perquisite) to research personnel and expenditure on material for scientific research incurred within 3 years before commencement of business Is deductible under section 35

Rs.

1,12,500

1,12,500

75,000

75,000

50,000

50,000

1,70,000

---

Cont

(1)(i) if the research is related to the business of the assessee -- Rs. 20,000 being expenditure on salary and perquisites is not deductible as it is not incurred within 3 years before commencement of business Rs. 42,000 being expenditure on salary to research personnel as certified by the prescribed authority within 3 years before commencement of business is deductible if research is related to the business of assesee Rs. 8,000 being expenditure on providing perquisites to research personnel before commencement of business is not deductible even if research is related to the assessees business Rs. 34,800 being expenditure as certified by the prescribed authority on purchasing research material within 3 years before commencement of business is deductible if research is related to the assessees business NIL NIL

42,000

NIL

NIL

NIL

34,800 -40,000

NIL ---

Cost of the land purchased for growing herbals (not deductible)

Rs. 40,000 (being the cost equipment) is deductible if research is related to the business Rs. 4,600 being cost of growing herbals is deductible if research is related to the business Amount deductible under section 35 for the assessment year 2008-09

4,600

--

5,28,900

2,37,500

TAX DEDUCTED AT SOURCE

Existing provision
Section 40 (a) (ia): If assessee has deducted TDS under Sections193/194A/194 C/194H/194-I/194J in April-February of a previous year but failed to deposit within time allowed by section 200(1)

Proposed provision Impact/Recommendations

no disallowance will be made if after deduction of tax during the previous year, the same has been paid on or before the due date of filing of return of income specified in sub-section (1) of section 139, with effect from 01.04.2010.
the

provisions have been further SIMPLIFIED as regards depositing TDS deducted to avoid disallowance. Thus, suppose assessee failed to deposit TDS deducted in February 2010 but during tax audit under section 44AB conducted in May, 2010, this non-deposit is detected, the same may be deposited on or before 30-9-2010 to avoid disallowance

Provisions illustrated consider the following cases --

Q.3 Interest of 80,000 on company deposit is paid by Z Ltd. On March 10, 2008. Tax is deducted on the same day. Tax is deposited with the government through internet banking on August 10, 2008 (i.e., before the due date of submission of return of income : September 30, 2008), it will be allowed as deducted for the previous year 2007 08.
Suppose, tax is deposited on October 10, 1008, then by virtue of section 40(a)(ia) it will be allowed as deduction for the previous year 2008 09 (and not for the year 2007 08. Q.5 B Ltd. is a subsidiary of an overseas company. It maintains books of account on the basis of March-February year (Accounting year starts on March 1 and ends on February 28/29 of the next calendar year, Income-tax Act does not require that books of account should be maintained on financial year basis). On February 29, 2008, it transfers a sum of Rs. 3 lakh as commission to the account of broker in its books of account. Tax is deducted at source at the rate of 10.3 per cent under section 194H. Tax is deposited on April 20, 2008 [i.e., within 2 months from the last date of the accounting year as permitted by section 200(1) read with rule 30(1)(b)(i)(1)]. By virtue of the provisions of section 40(a)(ia), Rs. 3 lakh will be allowed as deduction for the previous year 2008-09 (and not for the previous year 2007-08

TAX DEDUCTED AT SOURCE

Existing provision
Section 201(1A): Interest on delay in remittance of TDS shall be 1% pm or part thereof

Proposed provision Impact/Recommendations

A person is liable to pay simple interest at 1% from the date on which tax is deductible to the date of which such tax is deducted 1.5% from the date on which tax was deduced to the date of which such tax is actually paid W e f 01.07.2010 The deductor / collector will continue to furnish TDS/TCS certificates even after 01.01.2010 W r e f 01.04.2010
With

a view to discourage the practice of delaying the deposit of tax after deduction, it is proposed to increase the rate of interest for non-payment of tax after deduction

No TDS/TCS certificates are required to be issued by the deductor / collector on or after 01.04.2010

Considering

the fact that the TDS/TCS certificate constitutes an important document for the deductee / collectee, it is proposed to retain the existing provision

TAX AUDIT
Nature Existing Proposed Impact/Recommendations To reduce compliance burden

Gross turnover criteria for applicability of tax audit u/s 44AB revised as follow:

Business

40 Lakh

60 Lakh 15 Lakh

Profession 10 Lakh

of small businesses and professionals

Turnover criteria for presumptive taxation u/s 44AD enhanced

to Rs. 60 lakh. Penalty u/s 271B increased from Rs. 1 lacs to Rs. 1.5 lacs

LIMITED LIABLILITY PARTNERSHIP

LLP to be taxed on par with partnership firm; Accumulated losses and unabsorbed depreciation of a private company or an unlisted public company to be allowed in hands of LLP subject to specified conditions. It is proposed that the transfer of assets on conversion of a company into an LLP in accordance with section 56 and section 57 of the Limited Liability Partnership Act, 2008 shall not be regarded as a transfer for the purposes of capital gains tax under section 45, subject to certain conditions. It is also proposed that if the conditions stipulated above are not complied with, the benefit availed by the company shall be deemed to be the profits and gains of the successor LLP chargeable to tax for the previous year in which the requirements are not complied with. Carry forward and set-off of business loss and unabsorbed depreciation to successor LLP permitted Aggregate depreciation allowable to the predecessor company and successor LLP shall not exceed, in any previous year, the depreciation calculated

LIMITED LIABLILITY PARTNERSHIP

Actual cost of the block of assets in the case of the successor LLP shall be shall be the WDV of the block of assets as in the case of the predecessor company on the date of conversion The cost of acquisition of the capital asset for the successor LLP shall be deemed to be the cost for which the predecessor company acquired it No tax credit u/s 115JAA shall be allowed to the successor LLP

TAXATION OF CERTAIN TRANSACTIONS WITHOUT / INADEQUATE CONSIDERATION

Existing provision
Section 56, Expln

Proposed provision
Bullion is included in the meaning of

Property does not include - bullion

properties for the purpose of taxability of gift in kind u/s 56.

No such provision exists

Any shares of a private limited

company received by a partnership firm or a private limited company without consideration or for an inadequate consideration will be taxed as per the provisions of section 56(viia) with effect from 01.06.2010.

DEDUCTIONS
Existing provision
No such exists

Proposed provision Impact/Recommendations

provision Additional deduction The words subscription in of rupees 20,000 u/s proposed section 80CCF are 80CCF for investment in important. It seems deduction infrastructure bonds. will be apply only to those who obtain these bonds by application and allotment process and not to those who acquire it from an existing holder of these bonds. provision Section 80 D to include contribution made to Central Government Health Scheme.
The

No such exists

Central Government Health Scheme (CGHS) is a medical facility available to serving and retired Government servants. This facility is similar to the facilities available through health insurance policies.

TDS-INCREASE IN THRESHOLD LIMIT

Section 194B 194BB 194C Nature of Payments Winning Puzzles from Lotteries & Existing limit 5,000 2,500 Proposed limit Impact 10,000 To adjust for inflation and also to reduce 5,000 the compliance burden of deductors & 30,000 taxpayers limit is proposed to 75,000 increase 20,000 5,000

Winning from Horse Races Payment to Contractors: -For Single transaction

20,000

-For aggregate transactions during financial year

194D 194H Insurance Commission Commission/Brokerage

of the

50,000 5,000 2,500

194 I 194J

Rent on Immovable Property/Machinery/ Plant / Equipment/Furniture, etc Fees for Professional Technical Services /

120,000 20,000

180,000 30,000

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